Albania and EU integration
To provide a basic idea for Albanian economy and its European integration possibilities. 2. To provide knowledge about advantages and disadvantages that Albania faces in different sectors of economy. 3. To provide knowledge about Albanian ability to take the obligation of membership. 4. To provide knowledge about systematic and unsystematic risk for Albanian European integration.
1. Research problem
Is Albania in line with EU expectations? Which are the abilities of Albania to maintain the obligation of membership? Basic objective is to examine, firstly economic development of Albania based on the collected data from 2002 – 2012, than to verify if they are in line with EU criteria.
Since Albania is determined in its decision to join European Union and to be part of Economic integration, it has made a progress in reforming institutions, in legislation, and the most important the assignment of SSA (Stabilization and association process). But the progress is very slow and insufficient. The cause of this polarization remains on political culture of the country which historically has not faced any experience of democracy. So expectations are not very positive. On a long term basis only new socialized and democratic generation can truly execute fundamental reforms needed to be part of European Economic Integration.
1. Primary data: World Bank reports and Instat.
2. Secondary data: Journal websites and financial news papers.
European Union Integration – The impact in Albanian Economy The aim of this project is to demonstrate how much the economic development in Albania is in line with European Union? In the first section will be
analyzed, Relations between Albania and EU. Over all now Albania is part of Stabilization and Association process, in regular political and economical dialogue with EU. Last decade we can say that our country have faced some changes on our politic system and economic one, through three main factors, visa liberalization, financial assistance and civil society. How we realize these challenges? Did these three factors affect positively our economy; since we are one of the main countries that were not affected by world crises and how? In the second section will analyze economic criteria by examining development of economy in Albania. The examination includes different areas of economy? The existence of a good function of market economy: This includes the main essentials’ of economic policy where the primary objective is the protection of a market oriented economy.
Here we can mention that Albania has a visible progress starting from year 2007 when we signed CEFTA agreement. Macroeconomic Stability: Over all Albania has preserved the macroeconomic stability, because it was less affected by external economic conditions. Monetary policy of Albania has help to keep stable inflation and control inflationary expectations. Public debt is over limited and essential reforms are still missing. Interactions of market forces: According to the official data, results that state involvement in economy remains limited but it is focused on energy, transport and water supply. Market Entry and Exit: Here we can conclude that Albania is one of the countries that have facilitated business entry to the market but procedures for market exit are still ineffective.
Legal System: Albanian faces many weaknesses in rule of law, according to real data, corruption is in considerable levels and reforms of property rights are still incomplete. This has adverse affect on the market environment. Financial sectors and Development: Some progress is made but it is needed the consolidation of public finances and the reduction of public debt. Human and Fiscal Capital: The structure of macro economy remains unchanged; also informality remains again a challenge. Albanian economy is tangible by industry specific shocks. State influence: State interventions are limited but it is still a concern the impact on the public finance of the lack of diversification and Economic integration with EU: Albania has remained a leading trading and an investment partner of EU, as result trade with CEFTA has been increased.
The third section will examine Albanian ability to take the obligation of membership. The analysis is structured based on internal and external market of Albania which includes: Free movement of goods; there has been a progress as regards of stabilization, but further efforts are needed to be done and the preparations are advanced in this part. Free movement of people; The progress here is visible, since 2010 Visa liberalization can be counted as a success especially towards professional qualifications, but further efforts are needed to be plane. Free movement of capital; there also has been some progress with adaption of amendments of criminal code, low of banks and low of prevention of money laundering but even though there are several efforts that are needed to be taken. As a conclusion I have to say that Albania has made little progress toward economic development and the consolidation of its democracy. This is shown by the report of European commission on October 2012, as the results at fulfilling the EU’ twelve priorities were poor, and obviously it was clear that Albania would lose its chances to be awarded with the candidate status on December 2012 – and December 2013. Such a step was not justified by our economic and political conditions.
Relations between the EU and Albania
Albania is a country that is part of the Stabilization and Association Process. According to this pact we can say that Albania has strictly implemented its obligations. Between the EU and our country there is a regular political dialogue and economic growth, which has continued through the SAA structure. In March and April of last year, Albania took part in the meeting organized by the Stabilization and Association Committee and the European Council in which they discussed the reform of public administration. Albania was involved in this dialogue with multilateral economic focus with the Commission and the EU member countries, with focus, preparation and coordination of domestic economic policies to integrate economic and monetary union in the EU. One of the most important achievements of Albania was the liberalization of visas for citizens traveling to the Schengen area.
This agreement entered into force in December 2010. Immediately after this agreement and until today, the committee evaluates on a regular basis, the progress made by the country in the implementation of rules and visa roadmap. Albania is a country that is waiting for EU membership, as such; it has received transition assistance, institution building and cross-border mergers. For the period 2007 – 2013, the European Union has allocated for Albania, an amount of € 594 million. This amount of benefit, its focus is on justice, politics and public administration reforms in Albania, and also based on individual sectors, transport, and environment, and agriculture, social and rural development. This component is managed by the EU Delegation in Albania / Tirana. Regarding the upcoming years 2014 – 2020, the European Commission and the Albanian government will negotiate and discuss the needs and capacities for future assistance. We need to know that Albania is a member of several EU programs as example; Program Throughout life learning; Europe for Citizens, Culture, Competitiveness and Innovation.
In 1993 after examination of economic development and the state in which Albania was, in Copenhagen European Council stated that, to be part of the European Union, Albania needs to be focused towards a functioning market economy and also to have the capacity to cope with the challenges of a competitive market of EU
The existence of a functioning market economy
In order for Albania to have a focused market economy and sustainable, the main political parties, which have impact on the country’s economic policies, must agree on the basis of sound market economy, despite political tension in the country. Based on the report of the European Committee for Albania, the country’s macroeconomic stability has been maintained, but there are some shortcomings again. Among these deficiencies can mention the 2012 budget deficit, which was beyond the norm. The deficit caused, statutory debt, allowed to pass the measure of 60 %. In the process of privatization of property might say that was a failure. In January, Albania presented at EC Economic and Fiscal program for the years 2013-2015. The medium scenario is characterized by a very optimistic macroeconomic program. But according to the assessment of this program the Commission has submitted a lack of enforcement and targeting strategy but we can say that consensus on the basis of a market economy has been maintained. Macroeconomic stability
According to the data obtained in the annual report of the Bank of Albania, we can conclude that economic growth in 2012 was 1.6% less than a year ago. Total gross output also shows that in 2012 was about 5% less compared with a year ago. Inflows of foreign currencies in the country by immigrants have had a slight increase of 1.6% for 2012, while private consumption has fallen to low levels. One of the main factors of economic growth, have been net exports, while for imports can say that they have recorded a considerable Decrease. After a 12-month period with a significant reduction, economic indicators tend to show a growth in late 2012 and early 2013. However we can say that GDP grew only 1.7% in the first quarter of last year. Foreign demand for Albanian products has resulted in considerable numbers. GDP per capita in purchasing power and consumption resulted in 30% among 27 that was average. According to the analysis may conclude that Albania recognized the economic growth, so global crisis did not affect Albania during early 2013. During the period 2012-2013 the current account deficit decreased by about 1.5%, becoming 10.5% from 13% in 2011. Imports introduced to a decrease, 5.2% less than a year ago, while exports increased by 8.5% in total value, but may be noted here that there was a considerable increase in the export of goods but not services. In June 2013 current account deficit reached 10.1% in value to the corners of Albania.
The inflow of foreign direct investment (FDI) throughout 2012 remained unchanged with that of a year ago. This influx financed about 70 % of current account deficit therefore 10 % more than in 2011. The flow of incoming capital suffered a Decrease of 11.3 % in a year, but we can say that during 2012 had a positive balance of payments and a significant increase in international reserves at 4.2 %. During 2013, foreign direct investment (FDI) rose by 12.3 % more than the previous year in annual terms. Also we can say that the current account deficit has decreased, but again is an important aspect that affects the economy of our country especially considering the volatility of FDI and remittances. Throughout 2012 we can say that there has been a significant improvement of working conditions, the unemployment rate has however recognized high scores although this year it has had an average of 13 % compared with 13.4 % the previous year. The private sector in the country has increased employment offer, in Albania at a rate of 2.8 % based mainly in the agriculture sector of the country. By 2013, according to statistical data, unemployment continues to be high again, with an improvement of about 0.2 %. To maintain a constant interest rate, and to administer a possible inflationary trend, was used a sound monetary policies that brought the country’s macroeconomic stability.
The inflation rate in the country declined by 1.5% compared with a year ago, keeping a constant level of 2%. This stability at a rate of 2-4% inflation was the main objective of the Bank of Albania. Since that in Albania, we have basket price fluctuations this reflected in a slowdown of annual inflation from 2.5% in 2012 to 2.2% in 2013. In an effort to stimulate economic growth in the country, the Bank undertook several measures, as for example the reduction of the basic interest rate from 3.75 to 3.5% during the past year. The financial system in Albania has achieved a significant degree of Euroisation. Loans in Euros remained at a level of 61% of deposits in July the past year, compared with 64% in 2012. While in terms of other deposits in foreign currency statements have a slight decrease of 2%. Albania represents a floating exchange rate regime, which has remained the same since 1992. Albanian Lek has maintained sustainability where its value in 2012 reflected a 0.9% appreciation against the euro. We generally are within the boundaries of a stable monetary policy, have a storage inflation and a stable exchange rate. Annual revenues did increase by about 7% in 2012 compared with the previous year. During this year, the excise tax and VAT suffered significant declines, we can say that this Decrease, resulted in 12% less than the initial objectives.
Revenues from GDP fell by 25.1%, which were considered in 2011, to 24.5% in 2012. In terms of GDP spending, can also say that suffered a decrease of 0.6% compared with a year ago. Public expenditures represent just 4.6% of gross production, from 5.4% the previous year. Public debt grew considerably and non-positive, from 59.4% of GDP in 2011 to 62.9% in early 2013. So our public debt has passed the legal boundaries of 60% to nearly 3%. In the area of tax administration, we can say that there have been significant improvements in the electronic payment of taxes and also the tax filing system. There are still weaknesses in tax collection. Measures have been taken for approval to exclude imports of machinery, processing equipment and raw materials used for investment. An important measure is the abolition of personal income tax. Interplay of market forces
The country’s economy is dominating the private sector, which constitutes about 80% of GDP. Privatizations have been the basis for several state companies to place as Alb petrol oil Typeset, Alb telecom for telecommunications, INSIG as insurance and CEZ Distribution for energy, which due to disputes arbitrary, is now again in the hands of the state. There are counted about 11 new agreements for investments in agriculture, in 2012. In the energy sector we have also signed agreements for investment in hydropower opening. Privatization of three HPP has a monetary value of € 109.5 million. However, I can say with conviction that state involvement in the economy is limited. Market entry and exit
Registrations and licensing, of businesses have became more restrictive, and has faced a considerable increase of about 8% compared with a year ago. This was made possible through the established network one-stop-shop. Today licensed businesses make up about 12% of active companies. Legal system
The legal system has had a slight progress, however, is necessary to ensure the proper application of the legal system. Still exist, the ownership uncertainty. Another weakness of our state law is delays of legal proceedings, more harmful to the business.
The capacity to cope with competitive pressure and market forces within the Union Existence of a functioning market economy
Albania has maintained macroeconomic stability through a market economy, but the economic slowdown last year causes the increase of the current deficit. This deficit has resulted in a decrease in domestic production, low inflation policy due to BoA’s objective. This deficit and rising public debt beyond the limits, has led to a lack of successful management of fiscal policy, the fiscal plan is expected to be even weaker. Albania has some structural obstacles which do not bring economic growth, contrary depleting it. Even though we have a certain advantage, barriers and other weaknesses continue to affect our economic system. Here we can mention the right of property, unemployment, and incomplete process of privatization, low competitive ability, etc. . Overall, Albania has needed to consolidate public finances, and the reduction of public debt, strengthen the economy, performance, labor market, and most importantly, the fight against corruption. Economic integration with the EU
In 2012 Albania was faced with a trade Decrease, Imports and Exports constituted 87% of GDP compared with 92% a year ago. Key partner for trade of goods and services remains the EU. From the statistical data we say that EU exports in 2012 accounted for 75% of the total, and 62% of total imports. In the first six months of 2013 resulted a shrinking trade deficit with the EU, as a result of increased exports by 18.8%, but at the same time, the EU imports fell much less. One of the main partners in trade agreements remains Italy, taking half of Albanian exports and giving third Albanian import. Italy also remains one of the most important investors in Albania although much investment during the last year has seen a decrease. Export Import, with CEFTA countries has slowed by 27% which resulted in 2011, to 3% today
ABILITY TO TAKE ON THE OBLIGATIONS OF MEMBERSHIP
The ability to take the membership is seen in three main factors. Free movement of goods; there has been a progress as regards of stabilization, but further efforts are needed to be done and the preparations are advanced in this part. Free movement of people; The progress here is visible, since 2010 Visa liberalization can be counted as a success especially towards professional qualifications, but further efforts are needed to be plane. Free movement of capital; there also has been some progress with adaption of amendments of criminal code, low of banks and low of prevention of money laundering but even though there are several efforts that are needed to be taken.
Agriculture and rural development
Based on the last economic report of EU, Albania is one of the countries that have not utilized the negotiated quotas for the agriculture products; however we can say for sure that exports have been increased with countries that Albania has bilateral agreements. Exports and Export level per GDP has been positively increased. Now we can raise a question, Why Albania has not exploiting quotas that have been negotiated in agreement from which expectations were higher? Why our agriculture products do not have comparative advantage. Regarding to Ministry of Agriculture in Albania, food products and consumer production of agriculture sector is in low rates of trade.
Farms are considered small while to many hectare of land are still barren, technology process is almost old today we have still lands that are tilled by hand and levels of marketing are negative ones. This is the reason why imports in different agricultural products in Albania are higher. Regarding numbers, Albania has nearly 400 Thousand farms counted until today. These farms derive 21% of GDP and have employed more than 750 thousand persons. We should know agriculture land is 0.2Ha/ person, while 20% of poor people are farmers, in this 20% we have 93.5% of them who produce only to maintain their families not to export, the other 80% of farmers produce to sell outside borders and domestically. They sell up to 40 % of their production. Why these results? Because private investments in Albania are only 42.5 EUR per person, we still have 73 % of productive land tilled by hand. Public investments are 15 EUR per person, while we have firstly undistributed land from 98.5% of land that is returned to farmers 85.5% of it is not registered.
Other problematic cases in our agriculture are also, Input quantity and quality are still low and limited. The knowledge is in low levels, Information that we take from market is inadequate, No existence of competitive products, and land market lack. Another problematic issue is that farms are not administrated well, by resulting so in a lower level of competitiveness toward other countries. Social policy and employment
In terms of labor law, labor code is still in a process of approval, a challenge for our society remains the work of children ages 5-17 years old. This trend varies in 7.7% of all children in our country. In terms of health and safety at work, measures are taken to prevent accidents at work and improve working conditions. We can say that the number of accidents at work in 2012 was reduced significantly compared with 2011, but still further improvements must be hatched. As regards employment policy, is being designed an employment strategy for 2014-20. This design is still not
approved. The official unemployment rate resulting in 13% during 2012, but long-term unemployment and youth unemployment are high and they need for immediate measures for reduction. Minister of Labor, Social Affairs and Equal Opportunities has approved three cases for persons with disabilities. Guardian of a person with disability is paid by the Albanian state. The inclusion of supervision and review of employment of individuals with disabilities in employment offices. Design activities for sign language in schools. These projects are not yet finalized.
Many explanations for the gender pay gap are proposed and finally the gender pay gap is the difference between genders seen from the human development perspective, such as education, qualitative skills and experience that men and women show to the workplace. By this point of view differences between genders are often presented as discriminatory, that for instance women leave much earlier the labor market than men do, so in Albania we have more part time works for women. By analyzing the data’s we notice that the pay gap for professional or scientist women (engineers, mathematicians, financial experts, and medical doctors) in Albania is lower than man, in terms of numbers the take nearly 2.4% less than men do. In cases like basic occupations such are, construction, fast food, street vendors the wages are 21 % lower for females compared with males. Public and private sector generate two different ways of payment, when the gap is higher on private system rather in public one.
The gender pay gap in the private sector is 13.7 percent, compared with15.7 percent of the public sector. Both male and female in Albania site that here has no equality in the hiring/recruitment and no standards. I think that to reduce the inequality between males and females employees should follow the same recruitment standards for both. This should be implemented also to the recruitment for managerial positions, in order to increase the number of women applying for these job positions. I believe that a unified standard of recruitment would reduce considerably the gap.
As a conclusion I have to say that Albania is a country that is part of the
Stabilization and Association Process. According to this pact we can say that Albania has strictly implemented its obligations. Today Albania is a member of several EU programs as example; Program Throughout life learning; Europe for Citizens, Culture, Competitiveness and Innovation. Based on EU conditions we must say that Albania has made improvement. The existence of a good function of market economy: This includes the main essentials’ of economic policy where the primary objective is the protection of a market oriented economy. On its macroeconomic situation, we conclude that over all Albania has preserved the macroeconomic stability, because it was less affected by external economic conditions. Monetary policy of Albania has help to keep stable inflation and control inflationary expectations. Public debt is over limited and essential reforms are still missing.
According to the official data, results, states involvement in economy remains limited but it is focused on energy, transport and water supply. Albania is one of the countries that have facilitated business entry to the market but procedures for market exit are still ineffective. Albanian faces many weaknesses in rule of law, according to real data, corruption is in considerable levels and reforms of property rights are still incomplete. This has adverse affect on the market environment. Some progress is made but it is needed the consolidation of public finances and the reduction of public debt. Regarding to Human and Fiscal Capital the structure of macro economy remains unchanged; also informality remains again a challenge. Albanian economy is tangible by industry specific shocks. Albania has remained a leading trading and an investment partner of EU, as result trade has been increased. Albanian ability to take the obligation of membership, the analysis is structured based on internal and external market of Albania which includes: Free movement of goods; there has been a progress as regards of stabilization, but further efforts are needed to be done and the preparations are advanced in this part. Free movement of people; The progress here is visible, since 2010 Visa liberalization can be counted as a success especially towards professional qualifications, but further efforts are needed to be plane. Free movement of capital; there also has been some progress with adaption of amendments of criminal code, low of banks and low of prevention of money laundering but even though there are several efforts that are needed to be taken. .
Based on the study the situation with the income inequality in Albania is similar to other countries of the region and maybe beyond the region. This is caused from the same factors and causes negative effect on society. The gender gap in Albania has even another factor, that of specific cultural that is characteristic for Albanian environment to prohibit this Albania should increase the harmonization of the community, working conditions, health and securities and Equal opportunities. Albania has made little progress toward economic development and the consolidation of its democracy. This is shown by the report of European commission on October 2012, as the results at fulfilling the EU’ twelve priorities were poor, and obviously it was clear that Albania would lose its chances to be awarded with the candidate status on December 2012 – and December 2013. Such a step was not justified by our economic and political conditions.
European report for Albania 2012-2013
Bank of Albania Annual Report 2012, Production date: 21.06.2013, Author: Bank of Albania
Instat, Conjuncture, Main Economic Indicators, Q3-2013