Albania’s good name in the world depends on the current performance of the country

Albania's good name

Albania’s good name in the world depends on the current performance of the country

This has in fact just become more difficult and not only because the management of the situation caused by Covid-19 has damaged its reputation, but has revealed the economic, political, and social – educational reality.

The first discussion is economics.

Economic performance in relation to the promises of the last 20 years has been weak and the policies adopted in any case have been a hindrance to the still unconsolidated economic base. The economy of at least the last two decades has been based on the idea catch-what-you-can-catch, without having yet any sector that creates stability and security overall. The public energy sector, which is held by governments as one of the key sectors in the economy (but not in employment) is very volatile as it is dependent on the weather conditions. The private construction sector, although it is not known what kind of financing it uses, cannot keep the productive and competitive economy beyond the borders of the country. Trade and services are the bulk of the economy, but with major fragmentation problems and deeply influenced by informality and skewed competition.

A part of the economy is in frequent cyclical periods without rhythm and without being able to be part of regional development’s race. From the analysis of the main economic indicators and projects launched the government has not resisted the temptation to open many projects and jobs within one mandate. Mostly they have preferred those projects that are considered major, forgetting the details that make up the project and creating major problems that are systematically left as a burden to be kept by the government whose takes office. Based on this post-1990s political experience, we realize that it has been easy for governments to draw up a lengthy list of things to do, but it has been much more complicated to decide what not to do.

To illustrate the comment, let us look at the performance of gross capital formation [1] in the last decade.

Gross capital formation, according to the World Bank in 2010 was as much as 35.7% of Gross Domestic Product (GDP), while in 2018 it was as much as 24.1% of GDP, with a decrease in its share by 11.6 percentage points. Meanwhile, compared to the neighboring country of Northern Macedonia, the gross capital formation in 2008 was as much as 27.9% of GDP, while in 2018 it was as much as 32.5% of GDP, with an increase in its weight by 4.6 percentage points.

In the case of its increase in relation to GDP is a reality that shows that investments have grown up, which affect economic development (a) by increasing per capita income and consequently increase purchasing power, which, in turn, creates more effective demand and (b) increased investment leads to increased output.

However, even in the case of investments, although the capital indicator may not be where we would like, on the other side even that happen not all the investments made can be considered wise.

In 2019, from a calculation of the values ​​invested in road infrastructure from two budget sources [2] it was noticed that the value of infrastructure investments has a share as of 60% of the cost of debt public, based on 10-year average cost. Meanwhile, to look at the limits of the impact on economic growth by analyzing the ratio between the value of road investments to GDP growth, an asymmetric correlation is seen.  The economy has had a smaller growth rate than the value of investments in some years (2010, 2013), which shows that in these years the value of investments has been at the expense of annual growth itself. If the average rate of return on investment in road infrastructure does not exceed 15% – 20% per year, then the analysis shows that many of these road investments have generated less revenue than their cost of borrowing, thus leave large losses, in the economic perspective of missed profit.

Government budget investments to road infrastructure, 2009 -2019  Bln. ALL
Items 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total
Road investments* 53.6 38.4 42.7 34.6 44.7 32.3 27.1 17.1 39.5 38.4 36.8 405.2
Budgetary Government Debt Service 42.1 48.1 48.7 52.1 56.1 57.7 100.3 58.2 57.6 88.1 64.9 673.9
Real GDP (Year on Year) 63.26 95.7 60.9 32.2 17.2 45.3 39.0 38.2 78.2 85.1 42.7 597.7
GDP growth / Road investments 118% 249% 143% 93% 39% 140% 144% 223% 198% 222% 116% 147%
Road Investments/ Debts Service 127% 80% 88% 66% 80% 56% 27% 29% 69% 44% 57% 60%
Source: MoFE
* The value includes capital investments in road transport, according to the line ministry and the Albanian Development Fund. Calculations by ALTAX

Based on this simple calculation, the government itself should once again consider the investment priorities based on the experience and economic values ​​gained to date. Another discussion about the country moving forward is political.

Concerns about not using the political spaces that exist in the Balkans have a major impact on the world taking Albania seriously. It will not be taken seriously abroad if it fails to establish normal political dialogue within and around the country.

In unconsolidated democracies, the need to unlock public funds, or to stimulate private capital, means that governments must conduct transparent, multi-year processes, which must be decided for several election cycles. Following the discussion on the impact of politics, the current government, faced with the fact that the budget has no room left to invest many projects with its own funds, has been consuming a lot of space for political debate and positive energy to continue with Private-public partnership (PPP) investment projects.

To use the PPP formula, which in Albania has a history before this government, it is true that there is no need for more than tens of thousands of supporters, but there are several hundred people who can transform this policy into a negative country budget history. Not wanting to continue further with the discussion about politics in our country for this argument, an added attention is worth paying discussing education. Wide discussion with the public is the key to open the door to compete in Albanian with innovative ideas and an education as close as possible to the needs of the regional market, to invest for the future with the opportunities of the present.

Educating and creating a work culture with ambitious standards is in fact the key to Albania’s future prosperity. As difficult as the current economic crisis may be, it is important that we do not lose focus on the importance of education and begin to address some of the problems that have plagued the nation’s cultural and educational system for a long time. The reforms carried out in the past years should be properly appreciated by the public at home and abroad.

Some results have begun to appear, but the education system still suffers from a lack of consolidation of the education chain and its quality. Success cannot depend only on ongoing reforms, but on full implementation. This is true and essential for education reform. On the other hand, this education model, although it is often mentioned that it is seen as related to the labor market, the results do not show that a proper product is expected to be generated from this model

The cornerstones are being laid for a policy framework for developing a suitably skilled workforce. But there is a lack of widespread availability of superior quality education as a basis for future training. The problem that persists is the incompatibility of skills with the needs of domestic and foreign businesses, not being able to help the labor market.

Of course, creating opportunities to train the workforce to adapt to changes in technology requires much more than a governing mandate, but this is not a race between political parties or groups, but a national requirement related to good name needs of our country in the future. Growth and prosperity require coordinated action by all sectors.

Any process will require help from the entire government to start rebalancing the economy again.

However, we must acknowledge that businesses and the workforce remain key drivers of economic growth, especially with the bad politics aptitude affecting the Albanian consumer and small market.

[1] Gross capital formation, in simple terms is equivalent to the investment made

[2] Ministry of Transport and after 2017 the Ministry of Infrastructure, as well as the Development Fund

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