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BANK OF ALBANIA
Competitiveness of the Albanian
economy with a view to eventual EU
accession: Current situation and
challenges ahead
Niuton MULLETI
NBRM Spring Conference
Skopje, May 30, 2008
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Outline
- Definition of competitiveness
- Current situation
- Challenges ahead
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Definition of competitiveness
• No reference to exchange rate competitiveness
• “The extent to which a country, in the conditions
of a free and fair market, produces goods and
services that meet international markets`
standards, while preserving and increasing its
citizens` real income in the long-run” (OECD)
• “Competitiveness should be equalled to
productivity” (World Bank)
• “Policies, institutions and factors driving
productivity and, thus, enabling sustained
economic growth and long-term prosperity”
(World Economic Forum)
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Exchange rate competitiveness
• During 2007, ALL has appreciated by 1.4 p.p. in
annual nominal effective terms towards foreign
currencies, compared to 1.1 p.p. during 2006
• During 2007, the real effective exchange rate
grew by 4.4 p.p. compared to a rise by 1.0 p.p.
during the previous year ►affecting negatively
the competitiveness of Albanian goods in
international markets
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Real exchange rate
competitiveness
• Graph: Annual changes of ALL in nominal effective terms (NEER)
and real terms (REER) (left-side); Daily developments in ALL/euro
and ALL/USD (right-side)
129
100
127
95
125
123
.
90
121
119
80
115
10.01.08
16.10.07
24.07.07
01.05.07
05.02.07
09.11.06
18.08.06
26.05.06
28.02.06
02.12.05
09.09.05
16.06.05
21.03.05
20.12.04
23.09.04
1.07.04
Dhjetor'01
Mars'02
Qershor'02
Shtator'02
Dhjetor'02
Mars'03
Qershor'03
Shtator'03
Dhjetor'03
Mars'04
Qershor'04
Shtator'04
Dhjetor'04
Mars'05
Qershor'05
Shtator'05
Dhjetor'05
Mars'06
Qershor'06
Shtator'06
Dhjeto'06
Mars'07
Qershor'07
Shtator'07
Dhjetor'07
117
85
15%
10%
5%
0%
-5%
-10%
-15%
Lek/Usd (djathtas)
Lek/Euro (majtas)
NEER
REER
133
110
NEER-REER (Ndryshime vjetore)
105
131
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Current situation
• Weak competitiveness of the Albanian economy is
mainly reflected in the trade and FDI indicators
Table: Trade and FDI indicators during 2006 (in percentage)
6
Current situation
• Albanian exports remain highly undiversified.
“Textiles and footwear” constitute 55% of Albanian exports. The
next largest export category is “minerals”.
Table: Exports (in million euro) according to different categories
• 72.6% of exports are directed to Italy, 9.6% to Greece
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Current situation
• Status of structural reforms – EBRD Transition Report 2007
- First-phase (Market-enabling) reforms
a) Small-scale privatisation
b) Price liberalisation
c) Forex and trade liberalisation
Table: Average of first-phase reforms indices
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Current situation
- Second-phase (Market-deepening) reforms
a) Large-scale privatisation
b) Financial sector reform (banking and non-banking)
Table: Average of second-phase reforms indices
9
Current situation
- Third-phase (Market-sustaining) reforms
a) Governance and enterprise restructuring
b) Competition policy
c) Infrastructure reform
Table: Average of third-phase reforms indices
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Current situation
• World Competitiveness Report 2007-2008
- Basic requirements
1. Institutions
2. Infrastructure
3. Macroeconomic stability
4. Health and primary education
- Efficiency enhancers
5. Higher education and training
6. Goods market efficiency
7. Labour market efficiency
8. Financial market sophistication
9. Technological readiness
10. Market size
- Innovation and sophistication factors
11. Business sophistication
12. Innovation
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Current situation
• World Competitiveness Report 2007-2008 rankings
• Competitiveness of the Albanian economy mainly driven by its
factor endowments (low wages, natural resources)
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Current situation
• Ease of Doing Business 2008 rankings (World Bank)
−
−
−
−
−
Albania
Bosnia and Herzegovina
Serbia
Macedonia
Bulgaria
136
105
86
75
46
• Albania particularly fares weakly with the categories of “dealing
with licences”, “protection of investors” and “closing a
business”, which affect the business climate.
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Current situation
•
Index of economic freedom 2008 – The Heritage
Foundation and Wall Street Journal
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Business freedom
Trade freedom
Monetary freedom
Freedom from Government
Fiscal freedom
Property rights
Investment freedom
Financial freedom
Freedom from corruption
Labour freedom
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Current situation
• Index of economic freedom 2008 ranking
15
Current situation
• Corruption remains a serious constraint
regarding business environment
Table: Transparency International 2007 Corruption Perception Index
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Current situation
• Albania is a potential candidate country for EU
accession
• Stabilisation and Association Agreement between
Albania and the EU signed in June 2006; ratification
process expected to be completed within 2008.
• Fulfillment of the Copenhagen economic criterion
(European Commission, 2007 Progress Report on
Albania)
►Albania has made progress towards establishing a
functioning market economy
►Major reforms are still needed to enable it to cope over
the long-term with competitive pressures and market
forces within the Union.
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Challenges ahead
• Albania has experienced a sustained and high
economic growth since 1991, delivering rising
incomes and poverty reduction
• Still, Albania has a low GDP per capita
compared to neighbouring countries
Table: GDP per capita in PPS, EU27=100
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Challenges ahead
• Growth has been driven by productivity gains: 6.1% TFP
growth was the main component of GDP growth of 6.3%
(1993-2003) – World Bank assessment
• Sustaining growth will require increasing both capital and
labour accumulation and expanding exports
• Though increasing, private investment remains low with
periodic bursts driven by privatisation and private
participation in infrastructure
• Labour participation remains low and unemployment
high (13.2%)
• Exports are picking up but are still concentrated in
unskilled labour and natural resource intensive products
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Challenges ahead
• Strong tradition of pro-business
government
• Sound macroeconomic policies
• An increasingly open economy and
deepening financial sector
• Strategic location, good natural resources,
reasonably educated labour force
• Key challenges remain in infrastructure
and business environment
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Challenges ahead
• Lasting solutions need to be found for a stable and
secure power supply
• The road infrastructure needs to be substantially
improved
• The functioning of the judicial system needs
considerable improvement
• Property titles need to be properly registered and
persistent uncertainties on property rights need to
be clarified
• Measures related to the market entry and exit of
companies need to be simplified
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Challenges ahead
• Measures against corruption need to be intensified
• The large informal sector needs to be tackled
• Supervision of non-bank financial institutions needs
further improvement
• Future focus to be on structural reforms
►improvement of governance and business
environment ► significant growth in FDIs and
productive diaspora investment
• Main challenge: ensure an exports-driven
growth in the future.
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Thank you!
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