Development in Practice: Practical Applications of Economic Complexity in Ethiopia
By: Aziz Ben Baz (MPA/ID ’22)
Over the summer, I had the chance to work with the Growth Lab (GL) at Harvard’s Center for International Development (CID) on the Advancing Economic Diversification in Ethiopia project. One of the main reasons I chose to pursue the MPA/ID program at HKS is that I was a counterpart for the GL in my previous work. As such, it was a primary focus of mine to get immersed in the GL work during my time at HKS to get a higher exposure to the pioneering work done on International Development.
The Growth Lab started collaborating with multiple stakeholders in the Ethiopian Government in 2019. The culmination of GL’s initial findings on economic complexity in Ethiopia were put eloquently in the “Pathways for Productive Diversification in Ethiopia” paper which cites that one of the main binding constraints for economic development in Ethiopia is the access to foreign exchange. The two main frameworks used for such work were Growth Diagnostics and Economic Complexity. In this report, not only do policymakers get an informed analysis on which areas of economic policies to focus on, but they get a prioritized list of products that Ethiopia could target in order to unlock the next phase of economic growth. For Ethiopia, it is crucial to increase and diversify the export basket in order to afford imports required for further development, which would address the shortage of foreign exchange highlighted earlier.
My primary focus over the summer was to help the Ethiopian Investment Commission (EIC) take the Economic Complexity framework findings a step further and find practical applications. While the framework is useful as a first step to shortlist possible products a country could target, policymakers still need to do more due diligence on products viability and how to put such insights into action. For example, we conducted two deep dives for two different products, one related to Agriculture and the other to Machinery. The intention was to see how such products would require a different set of skills and possibly different policy levers to unlock and push forward. It is relatively easier (i.e., shorter distance in the Product Space) for Ethiopia to start targeting agro-processing due to its reliance on the Agriculture sector. Indeed, some of the industrial parks in Ethiopia are focused on fostering food and beverage processing by attracting more investors into the sector. But the trade-off is that such products are not particularly high in terms of economic complexity and would still face challenges to sustain economic growth. It is important to note that the intention is not to minimize the role of the Agriculture sector and the further development of the Value Chain. But rather how to “balance” the portfolio of targeted products by also selecting more complex ones (i.e., Machinery) and develop a strategy around that.
To that end, we tailored a specific approach to study the viability of the more complex products in the Economic Complexity framework, specifically by looking into Machinery. This was done by looking into the Economic Complexity metrics (see Growth Lab’s Atlas of Economic Complexity) and the dynamics of supply and demand (with emphasis on exports/imports) domestically, regionally, and globally. We also looked at the size and trends of investment flows to such sectors, major players, as well as the comparative advantage of Ethiopia and the tariffs dynamics versus its regional peers. We then identified specific tangible sub-products that are potentially viable and have a relatively reasonable existing footprint in terms of imports and exports, which could help in addressing the shortage of foreign exchange in Ethiopia.
We also leveraged a few more concepts into this work to compliment the Economic Complexity framework. For example, we’ve integrated concepts from the “Productive Ecosystems and the arrow of development” article by O’Clery, Yildrim, and Hausmann (2021). We also looked into the environmental aspects of the prioritized products by adding insights from the Green Transition Navigator. Lastly, we employed a Gravity Model that was developed by the GL to determine possible destinations for Ethiopia’s exports.
As for the next steps on this effort, there are still key areas that remain to be explored, especially ones related to understanding who are the current Ethiopian exporters and importers of the targeted sub-products and the challenges they face. Such essential missing information would inform the available policy options and test the viability of the selected sub-products in Ethiopia. It is important to acknowledge that applied economic research has to cater to realities on the ground. As such, the input from our counterparts in Ethiopia is very crucial. Many of the limitations and nuances can only be uncovered by those who live and breathe these problems every day.
It was refreshing to work with GL on such challenging development topics after an intense academic year at the MPA/ID program. The work done at the GL provides a sweet spot between academic rigor and applied policy research. It was a truly great learning experience. I’m very grateful for the mentorship of all the researchers, professor Ricardo Hausmann, my fellow classmates interning at the GL, and all of the GL staff who helped along the way.
Financial Liberalization and Debt Sustainability in Ethiopia
By: Keita Takemura (MPA/ID ’22)
As an intern with the Growth Lab, I was working with the National Bank of Ethiopia on macroeconomic issues. Ethiopia has achieved rapid economic growth from the early 2000s, alongside large capital account and fiscal deficits (when the deficit is broadly defined). In spite of this situation where depreciation would be necessary to clear excess demand for FX, the exchange rate has not been devalued in a manner consistent with the level of deficit monetization. The exchange rate control, together with restrictions on financial account transaction, have led to a persistent excess demand for FX in relation to supply.
This policy stance appears to have caused several serious problems. Since the controlled FX market cannot meet the demand for FX, the amount of FX has been scarce in Ethiopia, leading to a constraint on imports. Shortage of FX also has led to the emergence of black market for foreign exchange and a stubbornly high black market premium. The real exchange rate has been overvalued due to the insufficient depreciation, which has resulted in declining global competitiveness.
To attack these issues, Ethiopia may want to consider unification of its de facto dual FX regime by allowing larger depreciation, while loosening control on FX market. Opening the financial account, however, would raise several concerns. One of them is a possible increase in the debt service of the Ethiopian government. The interest rate on public debt in Ethiopia has been set low compared with the inflation rate, which has helped contain the increase in public debt service (a form of financial repression). After Ethiopia loosens FX control, however, it would be expected that the arbitrage between domestic and foreign markets should work, and the real interest rate on public debt would rise. This rise could be a serious issue in Ethiopia, where there is a concern toward debt sustainability.
Therefore, my internship theme was analyzing the effect of FX control loosening on debt service in Ethiopia. I conduct my research from two approaches; first, I explore the development of the real interest rate and the debt/GDP ratio after such liberalization in other countries. Second, I use Ethiopia’s data and develop a simulation of the debt/GDP ratio after FX liberalization in Ethiopia.
In cross-country analysis, I found that the real interest rate has increased in many developing countries, while the debt/GDP ratio has not necessarily increased. The key factors to contain the debt/GDP ratio are a positive primary balance, a real growth rate higher than the real interest rate, and a high inflation rate.
The simulation also confirms that the debt/GDP ratio would not increase in Ethiopia due to FX liberalization even with positive real interest rate, under the assumption of steady economic growth (5.0%) and inflation and depreciation rate in line with the level in the recent three years (15.3%). It is also true, however, that in the risk scenarios of (1) low growth rate and (2) high depreciation rate relative to the inflation rate, the ratio would destabilize. It should also be noted that high inflation can help contain the ratio under risk scenarios until the debt with fixed nominal interest rate is rolled over, though this containment would last only for five years.
Through the internship, I was able to brush up my analytical skill as an economist. Especially, my breakthrough was learning (1) how to conduct research on countries where there are little data available, (2) how to apply international macroeconomics to analysis in developing countries, and (3) how to communicate with policymakers.
Data
There are little data available in Ethiopia. For example, GDP is available only on an annual basis, and there are very limited macroeconomic data around the labor market. Therefore, we should depend on descriptive analysis or simple regressions rather than more advanced methods. It does not, of course, mean that our research was easy. We have to have clear logic behind our statement and develop our arguments with simple and clear-cut descriptive graphs. This process helped me refine my critical thinking skills to provide coherent results.
International Macroeconomics
Before HKS, my research focus was on Japan, where the capital account is always positive and the foreign reserve is abundant. Therefore, even though I studied international economics in the first year at MPA/ID program, I did not fully understand whether the international macroeconomic models were useful to the practical research. However, when I analyzed capital control and exchange rate issues in Ethiopia, macroeconomic models such as the Mundell Fleming model, PPP, and UIP simplified these complex issues intertwined with many other variables and helped organize my thoughts.
Communication
Since COVID-19 forced this internship to be conducted remotely and counterparts at the NBE and the government broadly has been involved in a major reform push while also preparing for national elections these past months, I did not have many chances to engage in iterative discussions on this research with government officials. However, when I was discussing with supervisors at the Growth Lab, I was always asked, “does your interest really matter to what the NBE is facing?” or “does your suggestion really help the policy management of the NBE?” These comments helped me to start thinking about the needs of the policymakers while I was conducting research. These experiences should help my future career as a researcher working in the public policy area.
Growth of Caquetá, Guaviare, and Putumayo – Growth Lab Summer Internship
By: Alejandro Rueda-Sanz (MPA/ID ’22)
As the only road-accessible entry points to the Colombian Amazon, the departments of Caquetá, Guaviare, and Putumayo are facing stark challenges for their future growth. These departments have been at the center stage of the armed conflict and concentrate today most of the deforestation in the Colombian Amazon. Growth, however, has lagged in all three departments relative to its Colombian peers. This puzzle set the stage for my MPA/ID summer internship at the Growth Lab at Harvard’s Center for International Development.
I began working on this engagement in the earliest stages of this project as a sequel of the Growth Lab’s Promoting Sustainable Economic Growth and Structural Transformation in the Amazon Region of Loreto, Peru project – both funded by the Gordon and Betty Moore Foundation. I was tasked to use my background knowledge as a Colombian who had worked in policy, paired with the skills and frameworks from my first year of the MPA/ID to structure the prior stylized facts and assumptions for a Growth Diagnostic, an Economic Complexity Analysis, and to glean the causes of deforestation.
The Growth Lab provided the opportunity to achieve one of my objectives when joining the Harvard Kennedy School: shifting my career to strategic development policy. To work with the Growth Diagnostic and Economic Complexity frameworks, I received mentorship from my manager Tim Cheston (an MPA/ID alumn), on the practicalities of Growth Diagnostics, Economic Complexity, and the soft communication skills to present them.
Below, I discuss some initial findings and highlights from the internship.
Setting the priors – linking my experience to new frameworks and ideas
In the first weeks, I used the Colombian Atlas of Economic Complexity, which I used before joining HKS, and administrative data to draw the growth trajectory of the three departments. We learned these departments had different trajectories:
- Caquetá’s income per capita remained as half of Colombia’s since the 1980s.
- Guaviare had diverged from the national GDP per capita.
- Oil-rich Putumayo’s pre-2014 income gains dropped as growth deteriorated.
According to our estimates, it would take between 20 and 60 years for these departments to catch up with Colombia’s 2020 income per capita.
Satellite data showed us the extent of deforestation in the three departments. Between 2002 – 2018, Caquetá, Guaviare, and Putumayo had depleted 7.8%, 6.2%, and 11.9% of their forest cover, respectively. Moreover, through recent analyses and speaking with local experts, we learned that this trend had accelerated since the signature of the 2016 Peace Agreement with the FARC through cattle ranching and land price speculation. This trend, however, seemed puzzling given the slow growth in the region.
We presented the findings on the growth trajectory to the Growth Lab’s leadership, the project’s new team and discussed some stylized facts I had developed with my manager. Then, leveraging the Growth Lab’s expertise from the Loreto Project in Peru, we kickstarted discussions to build a growth question for the project and the diagnostic tree. At these discussions, I learned how researchers at the Growth Lab approach diagnostic frameworks, interpret information, and how they thought through adapting the framework to the circumstances of ecologically sensitive and remote geographies.
Being a part of the Lab: practice and learning about new trends and ideas
Setting the ground for the project was also a unique opportunity to learn from how the Lab approaches different countries. I learned what different teams did in other national and subnational contexts at discussions on ground-breaking development issues. For example, at the discussion on remoteness, led by Professor Hausmann, I learned how the Lab defines and approached this condition in diverse contexts, including Albania, Namibia, Loreto (Peru), and Ethiopia. I also reflected on how these analyses could enrich our discussion on the Colombian Amazon, given its unique circumstances where conflict and property rights play a critical role.
Working at the Growth Lab during the COVID-19 pandemic was further challenging and rewarding. Traveling to these sites in Colombia was difficult given global and local circumstances. Remote work reinforced the critical importance of communication and structured information management. This hurdle invited collaboration, creativity, and thought as the team navigated through data, qualitative information, and conversations with stakeholders. Furthermore, this circumstance provided a unique opportunity to contribute to the project with my experience in the field studying agricultural initiatives, especially in Putumayo.
Moving forward: linking growth diagnostics with deforestation
As the Colombia Amazon project moves forward, I am eager to learn about how the project will link the development of Amazonian departments with the protection of the rainforest as complements. Given the urgency of ecosystem and biodiversity loss, its links to climate change and its effects globally, the project comes at a unique moment to halt and reverse damage by providing some analysis on the economic inclusion opportunities for these regions. Furthermore, the insights developed will be critical for the opportunities of rural populations and ethnic minorities in Colombia that have faced the armed conflict, waves of natural resource depletion, and the effects of the country’s rural-urban gap.
AIC: A Summer in Albania Working for Investment Capabilities Development
By Damian Galinsky
According to CID’s growth diagnostic findings on Albania, the country has the need to diversify and increase the complexity of the economic base.
As a Harvard Kennedy School student, I spent last summer as a CID intern working on the initial asset analysis and project selection for the Albanian Investment Corporation (AIC). The main objective of AIC is improving growth in Albania through the generation of the capability to identify, prepare, and develop vital projects for Albania.
My analysis was carried out by working across numerous departments -mainly within the Finance Ministry and Prime Minister Office- that aim to create AIC, meeting weekly to discuss recommendations and next steps. It also required me to pursue a gap analysis to determine projects or assets in which more information was needed. As an MPAID student, this represented a great opportunity for me to experience how to deal with the creation of a new institution and how to navigate across different departments searching for the appropriate information.
Working for AIC meant not only was I a part of a comprehensive working group analyzing and comparing different possible assets for AIC, but I also traveled around the country to assess many of the proposed project’s sites. Observing these locations and talking with locals regarding their vision was essential in making the final recommendations.
Agritourism in Albania: Trends, Constraints, and Recommendations
Working with the Sri Lankan Tourism Development Authority to Develop Resources for Creating and Analyzing Tourism Policy
Author: Ceylan Oymak, HKS MPP Student
Sri Lanka tends to conjure up a range of ideas by would-be tourists: its deeply intriguing history and relation to colonial powers, a 26-year civil-war with the Tamil Tigers, or, more simply, the paradisiac beaches, beautiful landscape, warmth of the people and the rich cuisine. I believe each of these things contribute differently to Sri Lanka becoming one of world’s top tourist destinations in the past few years.
High demand among foreigners to visit Sri Lanka surely presents wide opportunities for the country’s growing economy, while also revealing certain constraints for further development. Tourism is the third largest source of foreign currency into the Sri Lankan economy. However, the industry still does not live up to its full potential when compared with other countries offering similar experiences. Currently, the Sri Lanka Tourism Development Authority (SLTDA) is working with donor organizations, external consultants and development specialists to achieve a set goals laid out in the 2020 Strategic Tourism Plan, in order for Sri Lankan tourism to overcome the existing barriers to growth.
The overarching aims of SLTDA included in the Strategic Plan are 1) Increasing coordination in tourism between public and private sector organizations, 2) Improving the tourist experience and moving away from being known as a ‘cheap’ tourist destination, and 3) Expanding the technical capacity to gather and analyze data in order to better understand tourists’ preferences and patterns as they navigate the country and accurately quantify the contributions of tourism the overall economy.
I felt very lucky to be working at SLTDA for 10 weeks during the summer of 2018, where projects and proposals falling under these overarching goals were being drafted or implemented in a strict timeline in order to fulfill the plan set out for 2020. The most valuable part of my experience of working with SLTDA was that it captured different aspects of the ongoing work as I spent some time working with different people who come from various backgrounds, with different interests.
During the first two weeks, I was involved in the negotiations procedure for a large loan they are expecting to receive by next year for investing in tourism-related infrastructure and skill development in the hospitality sector. The loan will be invested in projects at the provincial level according to the needs and capacities of each of the province(s) the donor organization chooses (Note: Sri Lanka is divided into nine provinces where each province is represented by a local administrative government). These two weeks allowed me to gain exposure to the work needed to done on the ‘receiving end’ of a donor loan. Furthermore, as I attended the presentations of regional councils who are in a way competing for the loans, it further exposed me to the natural and cultural diversity of Sri Lanka and the variety of experiences it can offer to foreigners.
Another ongoing area of work was to review and edit the SLTDA Statistical Reports – which are geared towards policy-makers and other entities, both public and private sector who are involved in the tourism industry. These annual reports are designed to provide key information to various stakeholders on tourists’ experiences in Sri Lanka, including the demographic of tourists, travel patterns and how they prefer to spend money. The data presented in these reports is based on the Airport Departure Survey and Immigration Services. These reports gave me a strong idea of which indicators are most valuable to make policy-relevant decisions in the tourism sector, including how to provide incentives to the private sector while balancing environmental considerations. At the same time, it revealed that SLTDA could further enhance its data capacity and become more equipped to gather data from different resources.
Finally, most of my weeks were spent on developing measures for how to quantify the economic contributions of tourism. Under this question, I mainly focused on employment generated by the tourism sector. While we can’t be completely certain, our preliminary work suggested that tourism-based employment directly affects 5% of total employment in Sri Lanka. In order to model how many jobs are available in the tourism sector, I relied heavily on the practices and systems used in other developing and developed countries. As I delved more into this work, again I realized that the main challenge was the scarcity of data and lack of coordination between SLTDA and other public-sector entities that can collect relevant data on behalf of SLTDA. For example, a common practice in countries with comprehensive tax record systems is to rely on administrative data to gather information on businesses that provide tourism as well as household and business surveys to measure employment. Then, further technical expertise is used to integrate these different data sources in order to arrive at a consistent measure for employment. However, in Sri Lanka, there were two main obstacles: widespread informality in the sector and the lack of a coordinated and consistent way of collecting data at both the household and establishment level. Thus, we spent time in looking at data sources from other government entities that SLTDA can rely on and how to increase coordination with such government branches. The overall aim is to build a Tourism Satellite Account, a mechanism adopted throughout the world by both developed and developing countries that provides standardized methods to measure tourism’s contributions to the national income and employment.
Once immersed in the tourism sector from a policy perspective, it is obvious how valuable it can be for a country’s social and economic development and the scale of investment required from various stakeholders in order to fulfill this potential. Furthermore, it becomes apparent that the process of designing tourism-related policies can also provide tremendous insight to other sectors and industries facing development constraints. In general terms, a sustainable tourism policy will be characterized by strong collaboration between the private and public sectors, environmental protection measures for the majority of tourism-related investments, and investment in skill development. The knowhow required for a successful tourism policy, which allows both the tourism economy and the overall economy to thrive while protecting natural assets and vulnerable households, can be a valuable tool for any country that is aiming to reap benefits from the development path that the Sri Lankan government has set for the country.
Overall, Sri Lanka’s tourism sector is moving in a positive direction. The 2020 Strategic Plan is dedicated to improve the touristic experience Sri Lanka currently has to offer- there are projects to expand the road accessibility of certain key destinations, develop accommodation options that are limited in areas that receive high numbers of tourists (for example, Anuradhapura, a UNESCO World Heritage Site but mostly offers homestay or small hotels as options for accommodation) or increase the number of trained guides offering cultural or wildlife tours. One of the main goals behind improving and facilitating how tourists experience the country is to rebrand Sri Lankan tourism and move away from the common perception that Sri Lanka is a low-cost destination for foreigners. Furthermore, the country’s recent political and economic improvements are playing a positive role in attracting donor organizations and foreign investors, introducing further growth opportunities for sectors with large contributions to the overall economy. At the same time, the main challenges faced by the Tourism Development Authority are institutional problems which do not only concern tourism. The government branches need to collaborate in a systematic manner to make use of available administrative and census data to make evidence-driven decisions. The coordination between public and private sector organizations could also be improved to design policies that will improve the quality of services offered by both parties and ensure private sector development in a sustainable manner.
Finally, in order for Sri Lankan citizens to benefit from the promising future of tourism, the government should promote employment and careers in the industry and collaborate with the private sector on workforce development by improving the policies and regulations on diversity, compensation and labor conditions. The government strategy should be to increase the attractability of tourism-based employment for underrepresented groups and maintain a motivated, engaged workforce, which in return will inevitably improve the quality of establishments providing services to tourists.
My Summer Internship with the Central Bank of Sri Lanka
Author: Haiyang Zhang, HKS MPA/ID student
In a poetic reference, Sri Lanka is often described as “a teardrop of the Indian Ocean.” The island country is endowed with some of the world’s most scenic landscapes, a diverse culture, and a documented history that spans across three millennia. For a country that recently emerged from a 26-year-long civil war, Sri Lanka faces the challenge for transforming its short-lived “peace dividend” into sustainable growth.
Following the end of the civil war in 2009 and the presidential election in 2015, Sri Lanka has made impressive progress in social and economic development. The country has seen poverty reduction in large parts of its geography. The government has made commendable efforts towards health and education delivery, as measured by life expectancy and adult literacy, respectively.
Meanwhile, the challenge for Sri Lanka is to sustain, and potentially accelerate, the current economic growth and to reduce its vulnerability to macroeconomic shocks that could potentially threaten the hard-won progress in social and economic development.
Both its achievements and challenges are reckoned by the Millennium Challenge Corporation (MCC), an independent U.S. foreign aid agency. At the end of 2016, MCC selected Sri Lanka as an eligible country for the assistance program, after the country had met the standards on 13 of the 20 policy indicators on MCC’s comprehensive scorecard. MCC made a special note on the improvement of democratic rights and the control of corruption, restoring Sri Lanka’s image as one of the oldest democracies in Asia. Since the first Parliament of Sri Lanka (then Ceylon) was elected and formed in 1947, the democratic institutions have been functioning in the island for over 70 years.
In the summer of 2017, through the Center for International Development at Harvard University, I had the opportunity to work in the Central Bank of Sri Lanka in Colombo.
The Central Bank of Sri Lanka, by law, is the advisor to the Government of Sri Lanka on economic affairs. During my time with the Central Bank, I had the opportunity to work on some most interesting assignments that are relevant to addressing the binding constraints to Sri Lanka’s long-term growth.
The complexity and uncertainty around tax policies have been a major impediment for Sri Lanka’s long-term economic growth. At the Central Bank, I took part in the discussion of an early draft of the proposed Inland Revenue Act, which would establish a broad-based tax system that also simplifies tax liabilities for foreign investors. The Act aims to create an investor friendly environment to attract more foreign investments. It is exciting to learn that the Act was adopted by the Parliament soon after my departure.
Transportation is a second bottleneck for sustainable economic growth. Sri Lanka faces the dual problem of congestion in cities and a lack of transportation infrastructure between many regions of the country. While the Western Province, where the capital is located, suffers traffic congestion, the rest of the country experiences the slow movement of people, goods and services. Interestingly, Sri Lanka has a high density of roads, compared to countries at a similar stage of development. But the lack of expressways and logistics centers prevents Sri Lanka’s exporting firms from accessing rapid and temperature-controlled transportation that is necessary for the transport of products like fish and perishable fruits. At the Central Bank, I was tasked to identify locations for planting cold chain logistics to facilitate exports from inland regions of Sri Lanka. It was a rewarding experience to take up important responsibility and contribute to solving a binding constraint.
A lack of access to state-owned land by private firms is yet another obstacle to accelerate economic growth. Multiple Export Processing Zones (EPZs) are set up to house manufacturing firms, but these zones are mostly at capacity in the Western Province, which accounts for 42 percent of the country’s GDP. Outside the EPZs, however, there exists a classic coordination failure where multiple government agencies share jurisdictions over the state-owned land. Land transactions are often costly and opaque. Thus, the lack of access to land becomes a binding constraint for private firms to invest and formalize. While in Sri Lanka, I had the opportunity to not only interact with policy experts on land issues, but also observe firsthand the inefficiencies in land markets that hinder the formalization of private firms outside the EPZs.
The opportunity to involve oneself in the inner functions of the central bank in a developing country is both exciting and challenging. And the potential to leave a tiny positive mark on its people’s pursuit of sustainable growth is a truly rewarding yet humbling experience. Nothing makes me happier than the slight possibility to contribute to the common aspiration of economic and social development of a beautiful nation with a poetic reference as “a teardrop of the Indian Ocean.”
Reference:
Sri Lanka Growth Diagnostic Executive Summary (2018). Harvard Center for International Development.
Sri Lanka Growth Diagnostic Analysis (2018). Harvard Center for International Development.
Congressional Notification on Sri Lanka 609 (g) CN (2017). Millennium Challenge Corporation
Congressional Notification on Sri Lanka 609 (g) CN – Phase Two (2017). Millennium Challenge Corporation
Increasing Exports of Albania’s Cultivated Fish
By Alejandra Jimenez
Albania is rich in water resources and both inland and marine aquaculture have potential for growth and development. In the past two decades European and Mediterranean countries have seen their freshwater aquaculture decrease while marine aquaculture, especially of European Seabass and Gilthead Seabream, has increased. In 2000, Albanian aquaculture producers started to turn their attention to seabass and seabream production and their cultivation in cages in the Ionian Sea increased dramatically. Albanian production, however, represents only 0.38% of European marine aquaculture of seabass and seabream and its productivity rate is below that of neighboring countries. If the country were to operate its current facilities at the average cultivation rates of Greece, production would increase threefold. If the country were to operate currently available waters at a suggested rate of 15kg/m3, its aquaculture production could increase to 40 times the current size.
Three main barriers stand in the way of achieving this goal:
- High costs of production caused by the need to import cages, fingerlings, and feed; all of which are basic inputs for production that the country cannot currently produce for lack of technology and investment
- Lack of formality in the marketing and trade of fish products
- Lack of clarity in the regulatory framework, which is an issue common to aquaculture in Mediterranean countries, where legislation guiding the activity is usually contradictory.
In Albania’s case the main regulatory piece for the industry, the Law on Aquaculture, is being drafted. Passing this law should bring some clarity to aquaculture businesses.
Reducing the costs of production requires lowering taxes and requirements for fingerling and feed imports, in the short run, and initiating national production of these two inputs in the long run. Government can incentivize research and development in aquaculture to increase technical capacity for fingerling and feed production and it can also provide better financing choices for the acquisition of cages for aquaculture farms. The marketing of fish products requires the establishment of a formal fish market that would be close to the main production ports and aquaculture sites and that would comply with all the standards to ensure the quality of the final product. Consumers are very sensitive to the quality of the fish they buy and complying with quality standards and ensuring food safety conditions should be a priority to increase consumption and guarantee the highest possible price.
As regulation for the aquaculture sector is clarified and drafted, the Albanian government is looking to define Allowable Zones for Aquaculture (AZA) with all interested actors. It would be ideal that these AZA secure property rights for a period of minimum 10 years allowing companies to recuperate their investments. Other factors that could be included in the regulation to incentivize the aquaculture industry are the conditions for sustainable operation and the mechanisms for the acquisition and enforcement of licenses and for inspections to ensure product quality. Definition on the government part of the minimal requirements for a legal operation in the business should help the private sector to achieve more security and effectiveness in production. The private sector, on the other hand, can also create better conditions for the development of the industry by initiating producer organizations that would promote the interests of aquaculture producers.