Development and Limiting Factors of Economic Development in Albania for the Last Three Decades

Based on the data of the last thirty years (one third of the life of the Albanian state) economy in this paper will be presented in reference to significant economic and political factors that affect economic development.

These factors are not object of bias, because of the political system, as no change, except could show a decrease of their influence. But, on the other hand they should not be confused with the factors that impede economic development.

4 development factors (social, economic and political)

1. Mining natural resources and energy resources, as well as a developed system of agriculture and livestock are the elements that are included in this very important factor for the country. Natural resources combined with the geographic location and other development factors give the economy the proper breathing to be developed low cost.

2. Investment in development of assets (infrastructure, emerging industries) is a long-term factor for developing, to reduce the cost of economic activities. Attached to the industry development should never stop the factor of technological development, oriented from government programs. It is the accumulation and capital formation that increases industrial productivity, coupled with the workforce with high skills in terms of its use. The largest role remains to foreign investors, but without underestimating domestic investors, who should see the opening of the economy.

3. The increase of the quantity and quality (value) of labor (human capital) and specifically the part that invest in increasing capacity and improving its quality is a significant factor with a direct impact on economic growth. Of course, the risk of lack from the intervention of government can create problems with the decrease of level of employment.

4. A democratic political environment with a modern institutional framework should be considered as a factor contributing directly through the principle of good governance, which interferes in the regulation of the economy under the laws and rules. Every institution of government has its role in the economy, according to the functions for which is created. Macroeconomic stability reduces the risk of investment and in this context should be considered as a necessary condition in favor of economic growth.

3 limiting factors (political, economic and social)

1. The political instability and uncertain institutions and inflexible in implementing legal system (physical and intellectual property, financial system, taxes), widespread political corruption, poor macroeconomic management, limited economic freedom and limited opening of markets. Reduction of customs tariffs (trade barriers) are a prerequisite in favor of economic growth, through their effect on the function of expanding of markets and increase of penetration of products between countries (especially cross-border ones).

2. Low level of workforce skills, lack of knowledge to the modern technology, lack of political culture, cultural and social, limited labor market

3. Old technology and low investments for its develop, orientation of economy that excludes technology (trade, tourism), investments that doesn’t favor long-term development, and poor infrastructure

Analyze applies to all limiting factors as below, which have been since the early 90s and still continue to be so, the three together over the last two decades.

Based on the combined analysis and the comparative data on the performance of the economy, and the level of influence of factors in the economy of the past thirty years (1980 -2011), if it can be divided into three parts shows that for the first decade there has been a limiting use of the first factor and fourth.

Dominant part of economic development during the first period (1980-1990) consisted of exploitation and processing of mineral natural resources, mainly for export to the extent of 20% of GDP, and the development of agriculture’s for domestic consumption and export to the extent of 55% of GDP. Even government through institutions exercised a strong authority and political stability for economic and social development. Obviously, the impact of only these factors can’t give effect to economic growth, which fell on average by 4 percentage points compared with the average of the previous decade economic development. Lack of freedom of de facto property according to the model of the self-administration for the rural areas was the end of a model that was not to increase the economy, but the opposite. The year 1989 is different (9.8% increase), because being the year that followed the debate a year ago to change the political regime through change of the economy. This historic change was preceded by some initial ways of liberation from the yoke of socialist economy itself. A complete and comprehensive analysis of the factors did not take place even though there are specific analyses of professors of economics.

The second half of the period (1991-2000) is dominated by a use of all the factors, but not coordinated in time and space with each other. Lack of capital continued to be the cause of poverty in the country. This is the period, when natural mineral resources were not part of the new technology investment, in agriculture was not followed by investment for as long as to replace its leadership role in the economy. Freedom of the property was declared, but began to turn into a freedom that ‘kills’. Private property does not become sacred to the economy. In this way, was not achieved the encouragement of the individuals and investors to begin to invest money to maximize their profit in the new economy and to give breathe for long-term perspectives of economy based on property development. But, quite wrong economic direction of political and economic leadership of the time was clearly reflected in allowing the pyramid scheme. All this showed immaturity of leadership to lead the country towards economic development.

But are learned the lessons by the leadership or anybody of them felt the responsibility? Can be feel all quiet now?

Investments in the industry that somehow will have shaped the economy were sporadic and oriented to the politics of the moment, without the proper vision that requires the open economy. Attached with the economic and social situation was the lack of a growth orientation of human resources for training towards a specific industry, excluding initiatives with little weight on the economy through processing of imported raw materials for exporting to European markets (fa├žon contract).

For the third period (the last decade) has been growing interest in natural resources, but increase of political patronage versus the resources of the economy, for own private interest in leadership, today old, did not create any opportunities for the organization and strengthening of investment in extractive industry and agro-industry. Although, the factors have been involved in a discrete mode, where the EU statistics, and of the Albanian institutions show for Foreign Direct Investment funds that reached up to the level of 9% of GDP, the economy does not got the proper quantity of ‘energy’ in order to have a sustainable economic development, based on the coordination of the four factors. So, if it were otherwise, then the economy will had a continuing growth trend. But, in fact the decline of growth happened for at least the last four years. The largest increase was in 2008 (7.5% increase) and immediately in following year the growth was slowed down and was less than half (3.3% increase), without changing of external factors, or internal. The economy did not had an immediate effect from the non coordination of the factors. In segments of industry and government the ideas were misused in favor of the private interests of fictitious economic elite.

The coming years should serve as a prelude to the start of the project to long-term sustainable economic development (economic policy) of Albania of tomorrow, based on the model that passes through the four points above, as a theorem that is implemented from all states already, seeking development through the model.