TEDIOUS ROAD TO CAPITALISM
Albania:By: Zef PRECI (Tirana)
Albania has about 3.373 million inhabitants (according to INSTAT - Albanian Statistics Institute) or about 3.94 million (according to the administration for civil issues). The latter figure includes the number of emigrants. The population of Albania has constantly grown at a very high rate over a long period of time. The annual average of population growth in Albania in the period between 1950 and 1999 was approximately 2.43 per cent which has led to an increase of the population of more than three times. The area of Albania is 28,748 square kilometres.
When transition towards market economy started, two conceptions clashed in Albania. One was in favour of the beginning of this process from "zero level" and destruction of everything inherited from the previous system. The other conception supported the opinion that the process of transition had to proceed through gradual changes relying on objective indicators, such as natural resources, human resources, financial means the country possessed.
Drastic Decline of Production in the Beginning
Economic transition began with a steep decline of the level of industrial production: by 40 per cent in 1991, and 60 per cent in 1992. Whole branches of industries did not work at all. At the same time, due to spontaneous dissolution of former agricultural cooperatives and due to the blockade of the state system of supply of inputs, agricultural production dropped by 24 per cent.
The real growth of social product in 1990 was 10.5 per cent, and in 1999 7.8 per cent. The export in 1990 amounted to 231 million dollars, the import 381 million, and in 1999 the export amounted to 20, and import to 812 million dollars. The budget deficit in 1991 equaled to 25 per cent of the gross national income, and in 1992 it reached 60 per cent of the GNP. The large foreign debt was created due to the involvement of the Albanian National Bank in improper currency transactions and due to the deficit in currency payment balance - of 254 million dollars in the end of 1990, 498 million dollars in 1991 and about 638 million dollars in 1992. In the end of 1992, there were 394 thousand unemployed persons or 26.5 per cent of the labour force in the country.
In the end of 1991, the inflation was 104 per cent, and in April 1992, 170 per cent. In 1990 one dollar was exchanged for 8.9 lekas, in December 1991 for 25 lekas, and in April 1992 one USD reached the value of 106.5 lekas.
In the period between 1995 and 1998, a further deterioration of indicators of macro-economic development of the country occurred. Pyramidal systems flourished in Albania at the time and caused a significant decrease of the interest for employment, loss of interest for investments, and a noticeable decrease of bank deposits. The year 1997 was the year of the profound economic crisis caused by the collapse of the pyramidal systems. The country lost a great deal of monetary and material valuables, a number of enterprises were shut down or destroyed, many local and foreign investors suffered losses.
Until 1991 in Albania there were only three banking institutions: the Bank of the Albanian State with attributes of the central bank and of a commercial bank, the Savings Bank for collecting free assets of the population which were again deposited in the state bank, and the Agricultural Bank for extending loans to the cooperatives and agricultural enterprises.
In April-May 1992, legal foundations were laid for formulation of monetary policy, opening of banks and regulating their operation. These foundations were laid by passing the Law on the Bank of Albania and the Law on the Banking System in April 1992, which prescribed the manner in which commercial banks should be organised and how they should operate. In the course of 1999, the privatisation procedure of the Commercial National Bank was completed. According to the strategy of privatisation of banks, the preparations for privatisation of the Savings Bank have also started.
Insurance companies take the other important place in the financial market of Albania. The system of insurance companies consists of the following: INSIG (Institute of State Insurance), as a state agency which at this moment takes up more than 95 per cent of the insurance market; SIGMA and SIGAL, two private insurance institutes which received permits in 1999. The latter two still have a limited network, but have good prospects for the future.
The Law on Foreign Investments regulates foreign investments. According to this Law, foreign investors do not need a previous authorisation. No sector of Albanian economy is shut for foreign investments. By the Law on Albanian Guarantee Agency Albania offers protection to investments against political risks. Albania has become a member of Multilateral Investment Guarantee Agency (MIGA) and the International Centre for resolving disagreements in investments (ICSPD). The Albanian Government has signed the agreement for encouragement and protection of mutual investments with about 15 other European countries.
Strategy after Privatisation
In the end of 1998, in Albania there were 3,094 joint and foreign enterprises majority of which are in trade or render services. About 26,700 workers are employed in them or about 24 per cent of all the workers in the private sector. Majority are small enterprises and just a small part of them have more than ten workers.
Liberalisation of foreign trade was practically instant and total, through the shock therapy. On the other hand, as the result of privatisation of small and medium-size enterprises, more than 80 per cent of the total volume of foreign trade is carried out by the private sector. The main foreign trade partner of Albania is the EU which in 1998 was responsible for 85 per cent of the total export and import.
During the first critical period of transition (1991), privatisation was conceived as a way to abolish state ownership. Not a single document was written at the time as a privatisation strategy, except for the medium-term program of the Government for 1994-1996.
The main objective in this document was that most of the economy of the country was supposed to be privatised in 1996. The process of privatisation, however, was interrupted by the 1997 crisis. The political development of the country was the reason why a new privatisation strategy was adopted in March 1998. The main idea of this strategy was that all state enterprises or joint companies in sectors of special significance are subject to privatisation and can be privatised.
In the first years of transition, the legal framework opened possibilities for structure changes and privatisation of state property. Nevertheless, this legal framework was insufficient to respond to quick political and economic changes which appeared as the result of creation of the private sector and development of capitalism in Albania. Uncontrolled migration from rural to urban zones, especially to Tirana, is one of the main phenomena of this transition. New labour force appeared in this way, but as the result of their low cultural and professional level, they had no possibility for legal work and could find employment only in the unofficial sector.
The financial system of the country was weak and incapable of helping development of business. The economy of Albania is the economy of cash. Relying on many studies, it can be said that 60 per cent of the money circulates outside the banking system. After collapse of the pyramidal systems, banks in Albania were faced with the lack of trust of the public and the problem of undeveloped payment system.
The unofficial sources of investments, especially money sent by emigrants, have helped consolidation of official entrepreneurship, but also the unofficial one. Official entrepreneurship has increased sources for its development and expansion thanks to undeclared income. At this moment, unofficial economy dominates the retail trade, transportation and construction.