The decline of business dynamism in the economy

The decline of business dynamism in the economy

Business dynamism, a key factor in economic growth, is measured by the rates at which businesses enter the market, grow and leave the market. Stronger dynamism is associated with higher rates of productivity growth, as unproductive businesses leave and more productive ones enter or grow (Bartelsman and Doms, 2000).

For the current governing model, the dynamism of the economy does not have a setback or a stagnation.

But the facts of economic growth in the time dynamics in at least the last 15 years present an economic structure and its model for the future that does not show an optimistic moment in restoring the promised prosperity. Beyond the fact that these extremely optimistic promises and programs have helped increase the appreciation of transition leaders during their first decades in power, it remains an indisputable fact that governing programs barely manage to be realized at the level of their half, at best.

In fact, the key indicators for business and the market, and development of Albanian economy, at least since 2014 looks that can withstand some temporary risks, especially when energy prices are high, as now.

But economy of Albania, which resembles itself more than any successful governance model in Europe, lacks the dynamism to generate sustainable and strong growth. This is also expressed in the economic growth below the generating capacities if the economy would have been modeled and developed differently from what it is now.

Our leaders do not seem to be preparing the country for what is to come next. In this regard, beyond the policy they implement in function of electoral campaign, the leadership should express themselves for tendencies such as the following and show based on in-depth analysis and inclusion of the interested parties in the strategic decision-making process.

Thus, from a simple reading of statistical data and a preliminary confrontation with the realities that are affected, it can be seen that:

– Market concentration has increased. This fact is shown in the most obvious case if we look at the larger activities and their beneficial owners.

– Average earnings have increased. Beyond the lack of real business indicators, due to informality and evasion, average profits although declared low in the financial statements to avoid real payments of profit tax and other taxes in reality have no decrease, as any increase in the cost of businesses is shifted immediately to the price of goods / services. This main element of evasion seems to be addressed to be solved by the fiscalization process, but in fact the public has presented their concern about a deep lack of transparent analysis of how this process has so far affected the reduction of informality, or how are the medium-term forecasts for its effects.

– The share of labor in production has decreased. This fact is noted by statistics. But, even in the case of mass participation of labor in agriculture is not seen as valid for an increased productivity, as the ratio between labor participation and the product it provides is at a disadvantage to its competitiveness.

– The increase of market concentration and the decrease of the workload are positively related, in order to increase productivity, as a result of the increase of capacities and the use of technology. This good approach is currently necessary in the development of the economy, but not in the case of businesses in Albania. Indicators for the penetration of technology and IT development capacities in the country are lower than the region. Even within the country, technology seems to be more prevalent in the public sector (administration), which in fact does not directly help the dynamism of the economy.

– The level of business productivity has increased. In this regard, businesses that benefit from public funds and are fed by the budget have a better productivity than businesses that operate in the market with private funds. This reality is shown by the increase in the level of transactions between businesses based on barter exchanges (otherwise clearing).

– The share of new firms in economic activity has decreased. This indicator can be seen in the statistical data.

– Redistribution of jobs has slowed down. Even this fact can be verified and analyzed for the reasons how it should change in relation to the expected productivity that increases the economy.

– The growth rate of the number of businesses is in the not proportional position in relation to the expansion of GDP.

– Concentration and population growth in some urban areas has proven to be a key determinant of dynamism norms (Karahan, Pugsley and Şahin, 2019). Big cities like Tirana and the cities around it are experiencing a growing concentration of young people, who are more likely to become entrepreneurs, another driver of dynamism.

However, none of these explanations fully corresponds to the downward trend of economic dynamism. The arguments as above can only explain one aspect of the growing relationship between dynamism and the size of large cities, mainly around the capital.

Business dynamism, if we look at the Competitiveness Index of the Albanian economy and its variables and verify the relationship between business dynamism in the region and economic characteristics, such as: value added with the cost of growth factor, business opening and closing rates, according to INSTAT and EUROSTAT databases, it clearly presents the blurred picture of the current economy of the country.

Using the Competitiveness Index indicator, also focused on business dynamics and a set of indicators analyzed, it is clear that according to the strong link between business dynamism and value added in the economy, the chances to achieve the presented program of economic growth over a sustainable development is unlikely to happen.

Even today, the forecast for the development of the Albanian economy is not based on increased competitiveness, but on consumption and investment in the infrastructure and primary services sectors.

A relationship between business dynamism and this model of economic development can not prove the equation of development of a competitive economy in the region and consequently a greater dynamism than before. In other words, from the point of view of market size, it seems that the growth of the market outside the borders of the Albanian market does not present such indicators to guarantee better overall results in the priority sectors for which the governing program is expressed. This reality has been carried over by previous governing programs.

However, today’s policies, which should be at the crossroads between left and right, can help increase business dynamism by reducing barriers to the entry and dissemination of knowledge as well as technology, but prioritizing the fight against informality and evasion, as the main obstacle against penetration of informal money and criminalization of the future.

The vision and actions so far cannot achieve the destruction of crime in the economy, as it has already been tolerated and is even part of an economy that is malignant to the detriment of the dynamism of the economy, shrinking the absorption capacity and potential of businesses to benefit from equal and incentive environment to take advantage of technological change.

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