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Albania
Economic Growth and Institutional Strengthening in Albania
Recognizing the transformative potential that rests with the Albanian diaspora, the project worked hand in hand with the government and diaspora groups in the United States to find ways of engaging Albanians abroad with social and economic development in Albania. -
Reports
Accelerating Growth in Albania through Targeted Investment Promotion
The investment promotion process in Albania is underperforming versus its potential. Between 2014 and 2018, the Albanian economy saw accelerating growth and transformation, which has been tied to the arrival […]
The investment promotion process in Albania is underperforming versus its potential. Between 2014 and 2018, the Albanian economy saw accelerating growth and transformation, which has been tied to the arrival of foreign companies. However, Albania has the potential to realize much more and more diversified foreign direct investment (FDI), which will be critical to accelerating growth in the period of global recovery from the COVID-19 pandemic. As the Albanian economy weathers the storm of COVID-19, it is critical to look to the future by enhancing the investment promotion process to be more targeted and proactive such that Albania can attract transformative global companies aligned with the country’s comparative advantages. This is not only a critical step toward faster and more resilient economic growth in Albania; it also happens to have very high returns in comparison to the limited fiscal spending required to implement the actions required.
The targeted investment promotion approach discussed in this note would capitalize on Albania’s many existing comparative advantages for attracting efficiency-seeking FDI. It would not displace Albania’s Strategic Investment Law nor the activities of the Albanian Investment Corporation (AIC), which aim to expand the country’s comparative advantages. Efficiency-seeking FDI — global companies that expand into Albania to serve global markets because it makes them more productive — do not need extensive tax incentives, regulatory exemptions, or other subsidies. In fact, an overreliance on these approaches can crowd out firms that do not want or need to rely on government support. Adding targeted investment promotion to Albania’s growth strategy would lead to more jobs, better quality jobs, more inclusive job growth, faster convergence with the income levels of the rest of Europe, and ultimately less outmigration.
This note summarizes the Growth Lab’s observations of the investment promotion process in Albania, over the last year in particular, and lays out recommendations to capture widespread opportunities for economic transformation that have been missed to date. The recommendations provided at the end of this note provide a roadmap for building an enhanced network for targeted investment promotion that is specific to Albania’s context. These recommendations recognize the current constraints that the COVID-19 pandemic creates but also look past the pandemic to prepare for opportunities that will emerge during the global recovery.
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Reports
Agritourism in Albania: Trends, Constraints, and Recommendations
In Albania, the average specific expenditure by foreign tourists (non-residents) was 13.3% of GDP during 2013-2017, which clocked a 30% growth within the four-year duration. The number of foreign citizen arrivals […]In Albania, the average specific expenditure by foreign tourists (non-residents) was 13.3% of GDP during 2013-2017, which clocked a 30% growth within the four-year duration. The number of foreign citizen arrivals in the first half of 2018 has seen an increase by 9.1%, as compared to the same period in 2017. “Holiday” is the second most popular purpose of their visit reported after “Others.” Tourism being the largest industry since 1990, with Europe representing 42%3 of its total share, there remain huge economic dividends to reap for the emerging tourism industry in Albania. Moreover, this sector can generate non-farm employment in the agriculture sector. The challenge then is it to understand what is driving tourism growth in Albania, and what binds Albania’s tourism opportunities from growing faster.
The UN World Tourism Organisation (UNWTO) defines sustainable tourism as an enterprise that achieves a balance between the environmental, economic and socio-cultural aspects of tourism development for long-term benefits to recipient communities. The Government of Albania, led by Prime Minister Edi Rama, has identified Agritourism as a particularly inclusive and sustainable tourism opportunity and prioritized its development as a rural economic diversification tool within the country’s new “100+ villages Programme.” Consistent with this program, the Ministry of Tourism and Environment (MoTE) has started certifying Agritourism businesses, while Ministry of Agriculture and Rural Development (MoARD) through the Albanian Rural Development Agency (ARDA) is in the process of funding Agritourism projects. It is essential to understand the emerging patterns within the sector to strategize appropriately supportive policies.
The Movements of citizens in Albania (INSTAT) report for June 2018 indicates a decrease by 13.3% in the number of foreign citizens’ arrivals as compared to June 2017. There is (month-by-month) erratic traffic of tourists and hence undefined tourism season for the country. The Government of Albania faces a dearth of tourism specific information, like in attractions visited most by tourists, or mapping of identified agritourism farms to make better policy judgements required for seasonal tourism preparedness.
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Working Papers
Air Transportation and Regional Economic Development: A Case Study for the New Airport in South Albania
Considering the case of the proposed airport in Vlora, South Albania, this report analyzes the channels through which a new greenfield airport can contribute to regional economic development. In December […]Considering the case of the proposed airport in Vlora, South Albania, this report analyzes the channels through which a new greenfield airport can contribute to regional economic development. In December 2019, the Government of Albania opened a call for offers to build a new airport in the south of the country. While there is evidence indicating that the airport could be commercially viable, this does not provide a grounded perspective on the channels by which the airport could boost the regional economy. To evaluate how the new airport would interact with existing and potential economic activities, this report evaluates three of the most important channels of impact by which the airport could serve as a promoter: (1) economic activities directly related to or promoted by airports, (2) the airport’s potential contribution to the region’s booming tourism sector and (3) the potential for the country’s development of air freight as a tool for export promotion. In each of these three cases, the report identifies complementary public goods or policies that could maximize the airport’s impact in the region.
The operation of the airport itself could stimulate a series of economic activities directly related to air traffic services. Airports have the ability to mold the economic structure of the places immediately around them, acting both as a consumer and as a supplier of air transport services. Not only activities related to transportation and logistics thrive around airports, but also a variety of manufacturing, trade and construction industries. Nevertheless, the agglomeration benefits of a successful aerotropolis are not guaranteed by the construction of an airport. For South Albania’s new airport to actualize its potential returns, integrated planning of the airport site will be required, with focus on real estate planification and provision of complementary infrastructure.
Establishing an airport in Vlora has the potential to spur regional development in South Albania through facilitating the growth of the tourism sector and its related activities. Albania’s tourism industry has seen strong growth in the last two decades, but still lags behind its potential. Albania only has a strong penetration in the tourism market of its neighboring markets, and the high seasonality of the tourism season further limits the sector’s growth. The establishment of an airport in South Albania would ease some of the tourism industry constraints tied to transportation into the country and region. Given the high reliance of the tourism industry on its many complementary inputs, more than one area of concern may have to be addressed for the impact of the new airport to be maximized. Facilitating transportation access around the South Albania region and specifically to tourist sites; preparing natural and cultural heritage sites for tourism use and expanding tourism infrastructure to accommodate potential growth are some of the interventions analyzed.
Airfreight infrastructure could in theory provide opportunities to improve the competitiveness of Albanian exports but developing a successful air cargo cluster is no simple task. An airport can facilitate an alternative mode of transport for specific types of goods and hence promote a country’s exports. In Albania’s case, not only existing textile and agriculture products could be competitively exported through air freight, but also air freight itself could improve Albania’s position to diversify into “nearby” industries, identified by the theory of Economic Complexity. Nevertheless, an effective air freight strategy does not and cannot uniquely depend on the simple availability of a nearby airport. Air cargo operations require both traffic volume that Albania may not be able to provide, as well as complementary cargo-specific infrastructure. Although the potential for air freight in South Albania could be high, it is by no means a safe bet nor does it imply with certainty significant impact in the immediate future.
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Reports
Albania’s Credit Market
Credit market activity in Albania has been sluggish in recent years in spite of low and declining interest rates. The economy lost its growth momentum after 2009. Investment and lending activity […]Credit market activity in Albania has been sluggish in recent years in spite of low and declining interest rates. The economy lost its growth momentum after 2009. Investment and lending activity slowed down substantially despite low interest rates, relative macroeconomic resilience, and available capacity in the private sector to take on more debt. This study analyzes the supply (lenders’) and demand (borrowers’) sides of the market.
The reason behind the credit market failure is a supply-demand mismatch. Poor financial intermediation is the main problem on the supply side. Despite excess liquidity in the financial sector, banks are excessively risk-averse, bank practices and products are unsophisticated, and non-bank financial market is underdeveloped. Excessive risk aversion translates into tight credit standards, credit rationing and credit crunch for some economic sectors, in particular those dominated by SMEs. On the demand side, firms overall have a low appetite to expand, limited capacity to create bankable and financially viable projects, and are also constrained by infrastructural gaps and economic uncertainty. The mismatch results from the fragmentation of the credit market, with reliable borrowers from traditional sectors having easy access to finance, and other segments being almost fully deprived of credit.
Government and donor-led policies to mitigate the problem have had little success. Albania enjoys access to a number of domestic and external funding schemes primarily focused on alleviating funding constraints for credit-deprived sectors, but these programs have been ineffective. Further study is needed to understand the reasons behind the limited success of these programs.
A National Development Bank (NDB) could address some of the observed credit market challenges. While an NDB’s ability to directly resolve demand-side constraints would be limited, an NDB could effectively tackle supply-side constraints in the credit market as well as provide surveillance and collect information from the private sector, leverage technical assistance, and develop tailored financial products. Establishing an NDB should be considered carefully, taking into account functional, governance, funding, staffing and other risk factors.
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Publication
Albania’s Industry Targeting Dashboard
The Growth Lab’s VizHub
This industry targeting tool is custom-made for Albania. Users can choose any of 272 industries (based on NACE Rev. 2 industry codes) from the above drop-down list and explore the […]This industry targeting tool is custom-made for Albania. Users can choose any of 272 industries (based on NACE Rev. 2 industry codes) from the above drop-down list and explore the industry’s match with Albania’s current productive capabilities and comparative advantages and disadvantages. The tool is designed for use by government and non-government entities that seek to attract foreign direct investment (FDI) to Albania to accelerate economic development. Harvard Growth Lab research in Albania shows that the long-term pace of economic growth will be determined by the pace at which the country can absorb new economic activities and productive capabilities from abroad. Detailed information on the methodology and data sources used in this tool can be found here. This tool can be used in combination with the Growth Lab’s Atlas of Economic Complexity to explore patterns in global trade in very high detail. -
Reports
Albanian-American Diaspora Survey Report
This survey studies the ways in which active Albanian-Americans would like to engage in the development of their home countries. Its results will help us define the focus of the […]This survey studies the ways in which active Albanian-Americans would like to engage in the development of their home countries. Its results will help us define the focus of the upcoming events organized under the Albanian Diaspora Program.
Between March 6th and March 22nd 2015, 1,468 Albanian-Americans took part in the online survey, of which 869 completed the survey. The results presented in this report are based on the answers of the latter group. The results of this survey do not represent the opinions of the general Albanian-American community, but rather the opinions of those who are more likely to engage in an Albanian Diaspora Program.
The survey was jointly prepared with the following Albanian-American organizations: Massachusetts Albanian American Society (MAAS/BESA), Albanian American Success Stories, Albanian Professionals in Washington D.C., Albanian Professionals and Entrepreneurs Network (APEN), Albanian-American Academy, Albanian American National Organization, and VATRA Washington D.C. Chapter. The survey was sponsored by the Open Society Foundations, as a part of the grant OR2013-10995 Economic Growth in Albania granted to the Center for International Development at Harvard University.
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Reports
Assessing the Medicinal and Aromatic Plants in Albania
Harvard University’s Center for International Development and the Government of Albania has been engaged in a two year growth strategy exercise starting in 2013 till 2015. Discussions with the Ministry […]Harvard University’s Center for International Development and the Government of Albania has been engaged in a two year growth strategy exercise starting in 2013 till 2015. Discussions with the Ministry of Agriculture yielded that there is a need for conducting value chain studies on a few important product groups with the following objective:
- Cultivate ‘value chain’ oriented thinking within the Ministry of Agriculture
- Identify key issues ‘within’ the particular product groups and ‘across’ different product groups that need to be tackled at the public policy level
Here is a value chain study of the Medicinal & Aromatic Plants (MAPs), specifically of sage and lavender. The products have been chosen given its huge importance in the economy as the largest export commodity in agriculture and their contributions to a farmer’s income. A special black-belt team comprising ministry officials will take forward the findings of this study and will iteratively make policy, ensuring better policies and implementation at the same time.
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Web Articles
Can Albania’s Economic Turnaround Survive COVID-19? A Growth Diagnostic Update
The Growth Lab’s VizHub
The Growth Lab, which works with countries to identify obstacles to growth and propose targeted policy solutions, has been conducting applied research in Albania since 2013. This brief analysis takes stock of […]The Growth Lab, which works with countries to identify obstacles to growth and propose targeted policy solutions, has been conducting applied research in Albania since 2013. This brief analysis takes stock of Albania’s economic growth prior to the COVID-19 crisis and what the strengths and weaknesses of the pre-COVID economy imply for recovery and the possibility of accelerating long-term and inclusive growth in the years to come. Albania is a place where much has been achieved to expand opportunity and well-being as growth has gradually accelerated since 2013-14, but where much remains to be done to continue this acceleration once the immediate crisis of COVID-19 has passed. -
Reports
Conditions for Re-Opening Exports of Albanian Mussels to to the EU
The Centre for International Development (CID) at Harvard University has been leading a two year project with the Government of Albania to help identify and implement growth strategies by studying […]The Centre for International Development (CID) at Harvard University has been leading a two year project with the Government of Albania to help identify and implement growth strategies by studying the constraints that bind specific sectors. In May this year, the Ministry of Agriculture tasked CID to look at the ban imposed by the European Union (EU) on the export of mussels from Albania. The research was sponsored by the Open Society Foundations, as a part of the grant OR2013-10995 Economic Growth in Albania granted to CID.
During the research project, we studied the value chain of mussel production and certification in Albania, mapped the requirements laid down by EU legislation and identified shortfalls in compliance. This report presents our findings and recommendations.
The Butrint lagoon is the main production center for mussels in Albania. By 1989, production from the lagoon had increased to 5,000 tons per year. It dropped dramatically in the 1990s due to an outbreak of cholera and the subsequent ban on the export of mussels by the EU. The ban has not been lifted since. Albania still cannot export mussels to the EU because these do not meet the required sanitary standards.
Our research finds that lack of reliable and affordable purification facilities is at the root of the problem. Unless this constraint is alleviated, it will continue to frustrate efforts to ensure compliance with standards.