| Publications: Restructuring the Economy of Albania | |||
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The Role of the Scientific Institutions Prof. as. Doc. Genci Luarasi COUNTRY PROFILE Geography and People Albania is located in southeastern Europe, on the Balkan Peninsula between the Adriatic and Ionian Seas. It is bordered by Serbia and Montenegro on the north, Macedonia on the east and Greece in the south. Italy is 100 kilometers (km) away on the east, across the Adriatic and Ionia Sea.
terrain is mostly mountainous with narrow plains along the coast permitting agriculture. Its natural resources include petroleum, natural gas, coal, chromium, copper, timber and nickel. The country's climate can be characterized as mild temperate with cool, cloudy and wet winters and hot, clear and dry summers. Inland areas are cooler and wetter than coastal plains. Some 21 percent of total area (6,038 sq km) is arable, 70 percent of which (4,230 sq km) is irrigated. Meadows and pastures comprise 15 percent of the total land area and another 38 percent is forests and woodlands. The estimated mid-1996 population of Albania is 3.25 million with an annual growth rate of 1.3 percent. The largest concentration of Albanians abroad is in neighboring Macedonia with approximately 600,000 people, which comprises almost 26% of Macedonia's population. The ethnic distribution of the population is somewhat homogeneous: Ninety percent Albanian, eight percent Greek and two percent other minorities including Vlachs, Gypsies, and Macedonians. Approximately sixty percent of Albanians are Muslim. Thirty percent of the population is Greek Orthodox and ten percent Roman Catholic. From 1967 to November 1990 all places of worship were closed and religious observances were prohibited. Public Religious practice is now allowed and is widely used.
Today's Albanians, primarily descendants of the ancient Illyrian tribes who settled in the region in the seventh century B.C., are a non-Slavic people with Indo- European roots. Albania became a part of the Ottoman Empire in the 1470s and remained as Ottoman territory until 1912 when the London Conference on the Balkans created an independent Albanian state. The years between the two World Wars were fraught with internal political instability as a result of regional tensions within the country and foreign influences on domestic politics. In the mid-1920s, the Italian government signed economic and foreign relations treaties with Albania and provided large financial subsidies, ensuring a dominant position for Italy in Albania. In 1939, Italy annexed Albania which was later invaded by Germany when Italy surrendered the territory on September 1943. When the German forces left Tirana in 1944, a brief civil war ensued which led to the formation of a Communist government with Enver Hoxha as its leader. During the formative years of the Communist rule, Hoxha instituted a government system based on orthodox Marxist ideology and Stalinist practices and allied Albania with the former USSR. Close Soviet-Albanian relationships disintegrated when Khrushchev departed from strict Stalinist ideology. Albania broke off diplomatic relations with Moscow in mid-1960s and sided with China in the Sino- Soviet dispute. After the death of Chairman Mao Ze-dong in 1976, Hoxha severed relations with China in 1978 because of China's overtures to the U.S. From 1978 to his death in 1985, the Hoxha regime became increasingly autocratic, asserting extreme isolationist policies and stressing national self reliance. A total of 700,000 small concrete bunkers (one for every two people) were built all around the country to protect against an ill-perceived foreign invasion, making Albania one of the highest per capita consumers of cement in the world for a few years. Even after Hoxha's death, the country remained totally isolated until late 1980s when Hoxha's hand-picked successor President Alia re-established political and economic relations with Austria, Germany, and Italy. The refugee crisis in the summer of 1990 when Albanians attempted to escape to Italy and Greece exposed Albania's internal problems to the international community. In early 1991 production began to collapse in both agriculture and industry and in May 1991, following extensive labor strikes, the Alia government fell. A caretaker government came into power as the economy entered a period of even greater crisis marked by mass destruction of state-owned property including factories, schools, transport and electrical systems, food warehouses and hospitals. After the fall of the previous regime, came a complete breakdown of public order. The first fully democratic elections in Albania were held in March 1992, and Dr. Sali Berisha of the Democratic Party was elected President. The government formed by Aleksander Meksi, the Prime Minister, launched ambitious political and economic reform programs. The basic aims of the economic reform measures were to stop emerging hyperinflation, re-establish control over the budget, privatize agriculture and mobilize foreign economic support. The President was re-elected in national elections in June 1996. This provided a degree of political stability. However, the breakdown of law and order in early 1997 - caused primarily by the failure of private savings institutions operating a pyramid scheme - forced the President to call for new elections in June 1997. Mr. Rexhep Mejdani of Socialist Party was elected as the President. The Government formed by Mr. Fatos Nano is a coalition of four parties: Socialist Party, Social-Democratic Party, Party of Democratic Alliance, and Party of Human Rights. Economy
Following an impressive transition record and four consecutive years of 9 percent real growth, the recent economic crisis, triggered by the collapse of the pyramid schemes, has caused a reversal of the gains of 1993-1996 and resulted in a negative GDP growth in 1997. Total liabilities of these schemes - which mushroomed to enormous dimensions in the course of 1996 - are estimated at approximately 50 percent of GDP. The economic fall-out from the crisis was severe. The loss of wealth in the failed financial schemes depressed domestic demand. International trade slowed significantly, remittances from abroad dropped sharply, and foreign aid flows came to a halt. The crisis impoverished many households and the number of registered unemployed increased by 15 percent from January to August 1997. Table : Key Economic Indicators
Cooperation with neighboring countries has improved tax collection. All these measures resulted in the recovery of the economic activity and foreign trade. By late October 1997, the Lek had appreciated by 28 percent from its pre-election level. Despite this limited recovery, serious challenges still lie ahead for the Government. Besides undercutting government revenue, the crisis also created new demands to provide social protection, improve public security, and restore damaged infrastructure. Also of concern are the growing trade and budget deficits, both of which need to be handled. Basic restructuring has taken place, but the banking sector in particular needs to be restructured. Notwithstanding its very low level of income, Albania has economic potential. The arable land is rich and fertile; the country is well endowed in mineral and energy resources; the climate and the coastline are ideal for tourism; and wages are a fraction of those in neighboring countries. If concerted international and bilateral assistance continues and the political situation remains stable, Albania can rapidly achieve sustained economic growth.
INVESTMENT CLIMATE Foreign Investment Albanian economy has undergone a substantial transformation from a command economy to a market economy since 1991. The pace of economic reforms especially increased in 1993 to stabilize the economy and sustain the economic growth. The foreign direct investment to Albania has been increasing rapidly during the last five years. Table 2 provides the flow of foreign direct investment into Albania since 1991. As illustrated, the level of foreign direct investment increased tenfold from 1991 to 1996. Table : Foreign Direct Investment in Albania (1991-1996)
During the first few years after the economic transition the majority of the foreign investment came from individual investors mostly in trade related industries. This trend, however, has been changing rapidly. Especially during the last few years more companies are investing directly by forming joint ventures and partnerships with local companies and/or establishing subsidiaries or branch offices in Albania. Table 3 illustrates the number of joint venture companies and companies owned by foreigners as of 1996. Table : Number of Foreign-Albanian joint venture companies
Foreign investment in Albania can be classified under one of the following categories: · foreign direct investment; Albanian government is well aware of the necessity of an open regime with respect to foreign investment and trade for enhancing international competitiveness and integration into the global economy. For this purpose, Albania adopted the national treatment clause which states that foreign investments are treated no less favorable than investments made by Albanian companies. This principle is based on the general premise that equal treatment of investors in similar circumstances to create free competition is a prerequisite of a positive investment environment. According to the Law on Commercial Companies, which was accepted on November 19,1992, there are four types of companies in Albania: · General Partnerships, · Limited Partnerships, · Limited Liability Companies, and · Joint Stock Companies. The legal foundation of any Albanian company rests on its articles of association and by-laws. In general, the articles may be in notarized form or simply signed by the associates as a private document. The form, name, duration, company designation, principal place of business, purpose and the amount of capital must be indicated in these articles. Additional items are required to establish a limited liability or a joint stock company. Each associate must make a capital contribution to be involved in the establishment of a company. Capital contributions can take a number of forms: cash, in-kind contribution, or use of property. The essential condition for a capital contribution is that it must have an ascertainable value. The capital contribution by any individual of his technical knowledge or services for a share in the company is rarely permitted since service can not be subject to a forced sale to satisfy the company's creditors. According to the Albanian Company Law, General Partnership is considered as a separate legal entity distinct from its partners, who themselves may be individuals or legal entities. All partners in general partnership are considered merchants and are personally liable for company debts. The minimum number of partners required to establish this type of partnership is two and there is no minimum capital requirements. Interests in a partnership can not be represented by negotiable share certificates. No securities can be issued by the partnership. The Limited Partnership has two classes of partners: general and limited. General partners are deemed merchants and have unlimited personal liability. The limited partners, on the other hand, are only liable to the extent of their share in the company's capital. The associates of a Limited Liability Company are not considered as merchants and are liable only to the extent of their interest in the company. There is no limit on the maximum number of associates. The minimum capital required for the establishment of a limited liability company is 100,000 Lek (roughly the equivalent of $640 calculated at the rate of exchange of May 1998). The capital is divided into interest - shares of equal value. The minimum nominal value is set at 1,000 Lek. All the capital must be subscribed and paid up before the organization of the company. The Albanian Company Law makes a distinction between Joint Stock Companies that have offered their shares for sale to the public (public joint stock company) and those that have not (private joint stock company). Normally it is quite rare for a joint stock company to make a public offering while it is being organized since formalities are simpler when establishing a private joint stock company. The minimum capital required to establish a public and private joint stock company are 10,000,000 Lek (equivalent of $64,000 calculated at the rate of exchange of May 1998) and 2,000,000 Lek (equivalent of $ 13,000 calculated at the rate of exchange of May 1998), respectively. The companies established in Albania must be registered with the Office of Registration in the District Court of Tirana. The following is a list of documents that needs to be presented: · the request to the court · articles of incorporation · the statute · proof of payment of the capital · identity of the founders and the administrator Generally, these documents should be in Albanian and must be notarized. This is obligatory when an immovable property is involved. The registration fees paid to the Office of Registration, Albanian Chamber of Commerce (this is an annual fee), and the tax office (including a local tax) is less than $500. In addition to the types of companies listed above, a foreign investor may operate in Albania through a branch. The branch must also be registered with the. Office of Registration and must have a legal representative empowered by the home office to administer the affairs of the branch. Except for the differences in terms of internal structure and organization, a branch operates much like a commercial company in its dealings with third parties. Also for tax purposes, a branch is treated in the same manner as an Albanian company. Foreign investments in Albania are not conditioned by any preliminary authorization. Foreign investors enjoy full protection and security in accordance with the basic principles of International Economic Law. Albania also consents to the submission of the dispute resolution to the International Center for Settlement of Investment Disputes to be treated in accordance with the Convention on the Settlement of Investment Disputes between States and National of Other States.
Every company (foreign or Albanian) which is involved in any sort of economic activity in Albania is considered as a resident for tax purposes. This applies equally to branch offices of foreign companies. A corporate income tax of 30% is applied to every company regardless of the corporate structure. The corporate income tax increases to 40% and 50% for companies that are involved in tourism and oil and gas exploitation, respectively. In order to promote growth and increase foreign and domestic investment the following incentives are offered by the Albanian Government: · A four year tax holiday for all companies that exercise for at least 10 years economic activity in manufacturing or production sector; · A 60% reimbursement on corporate income tax for re-invested profits in the production sector; · A five year tax holiday for companies that exercise promoted activity in a priority tourism development zone; · A tax incentive package for companies operating in a free zone or entering into a concessions contract, · Losses can be carried on for three consecutive years in addition to the year that the loss occurred; · No limit on debt/equity ratio; and · No withholding tax on outgoing dividends.
All kind of assets can be freely transferred outside Albania subject to the payment of taxes and the satisfaction of claims and adjudicatory judgments. No withholding tax is applied on such transfers.
During the last five years, privatization of approximately 50% of the state-owned enterprises has been completed. These enterprises, however, only make up 20% of the value of the assets. The privatization of the special importance sectors such as oil, mining, telecommunications ,energy, water resources, airport, and transportation, still remains. The new government which was formed by Mr. Fatos Nano after the 1997 elections has approved a new strategy for privatization. The privatization strategy of Albania focuses on a step by step privatization of small, medium, and large enterprises.
DEVELOPMENT OF THE SME IN ALBANIA With the politic and social-economic changes in Albania, the centralize economy began too dissolve into a new one, the free market economy. So the product factories that were state property began in a slow rate to face the decentralization of the economy. Now at this time exist these kinds of factories: -Medium and grate factories that are state property and will begin the transformation by the privatization plan sated up from the Albanian government. -Factories that were state property and now are private. - Private factories that were formed from the investments groups. The number of these kind of factories is greater during the period 1993-1996, and from the other hand they have been traditionally formed where the population density was in a higher rate and the production tradition where like Tirana and Durresi. For the period 1991-1998 the information is given in the table and the graph.
Interesting is also the object of their activity. As you can see the preferences are for these activities that bring economic effect in the market with a low apply of investments. On the other side by the consolidation of these kind of private factories a high level of interest has grown for the productive sector, for sure because the SME in Albania are still from a small and medium stage and they have limited financial possibilities.
The interest has begun to develop for cooperation with science institution to take good advises when they have to do grate investments. The new technologies that have been imported together with the machinery are available with the know-how that brings a lower rate of work from the science institute in Albania. Although these situations, in the future this institutions will be motivated to utilize in a better way the inner wealth and to protect the environment.
HIGHER EDUCATION AND SIENCE Historical Overview Higher education was established in Albania after the Second War. It is relatively new in Albania. The first teacher training institution was founded in Tirana in 1946. The first Higher Pedagogical Institute was established in 1948 and the first university in 1957. Until the end of the 1990-91 academic year the University of Tirana was the only university in Albania consisting of 11 faculties, covering the natural sciences, medicine. social sciences and engineering. There were also seven institutes, three of them situated in Tirana, the rests in regional towns: Shkodra. Elbasan. Gjirokaster and Korçe. In 1991, the University of Tirana was subdivided into parts:
There have also been changes in the status of some of the institutes. The Higher Institute of Agriculture of Tirana and those institutes located in Shkodra, Elbasan, Gjirokaster and Korçe have gained university status, the institute of Fine Arts has become an Academy of Arts, while the Institute of Physical Education has preserved its old status. In 1994 the newest university was established in Vlora. Current Higher Education is provided by eight universities and several Institutions of Higher Education under the authority of the Ministry of Education and Science. There are also two Military Higher Schools, which, however, do not come under this Ministry's authority. All of these are public institutions and financed by the State. Actually the Higher education has a total enrolment of about 18.700 students full-tüne studies and 18.920 students part time studies (correspondence). Total number of academic staff is 1800 full time and 1100 part time.
The Law on Higher Education (February 1999) regulates Higher Education Institutions.Legislative reform program has been involved since 1993. Specific bilateral advisory missions have been held regularly on the issues of new legislation for higher education, revising the statutes of the universities, developing a system of quality assurance and supplementing a new strategy of higher education and research policy. The first law on Higher Education was established on April 1994. The first Law allowed the system to represent itself more favorable in relation to the challenges of the country's rapid development. The Governmental Program of the newly elected Albanian government, which made specific reference to education and science, provided clear guidelines to the university development The discussions within academic environment and recommendations done by international experts moved the idea for changes in existing Law on Higher Education. Main themes discussed in the country considered requiring reform in the legal framework and opened the way for performing the future of higher education future through the adoption of the existing law in a new one. The new Law on Higher Education was set up this year (February 1999). In a new law, it can be identified four main problematic topics: a. Description the structure of the system ( institutional landscape: universities. professional higher education, private higher education and intermediate bodies as National Agency for Accreditation an Quality Assessment; b. Defining academic freedom and institutional autonomy, including also accountability mechanisms; c. It was emphasized the different aspects of institutional autonomy respected in the new legislation through academic, financial, structural and administrative autonomy. d. Outlines clear principles of governance and management: rules for elections of leading staff and bodies; e. Define the mechanisms and principles of State funding in higher education through one body (i.e. MES), role of State and non-State institutions to engage in additional activities, tax benefits etc; f. Defining the mechanisms of the evaluation of the quality of teaching, the role intermediate bodies (accreditation, recognition and the role of quality control)
The majority of higher education institutions in Albania are state-run institutions maintained by the government. The existing Law on Higher Education does permit the establishment of non-public higher education institutions.
The higher education institutes are public and are financed by the State with allocations established under the " Budget Law" and legal acts involved on the new Law on Higher Education. Each university is granted its own budget; in addition they and other higher institutes receive public funding for research activities made available through national research programs. Within the framework of the higher education law there are other possibilities of obtaining funding through joint activities with "third parties" such as private enterprise or state institutions. Of the total budget for the education sector, 10 % is designated to higher education. Allocations within the higher education budget for 1998 were to cover personnel and material cost as well as investments, in other words expenditure on property, building and equipment.
On the national level the Ministry of Education and Science (MES) foresees to implement its own strategy relating the higher education development:
Priority is given to establishing the new courses and forms of study which will increase access to higher education and the integration of teaching and research as essential means of adapting to the new demands of the economy and labor market.
SCIENTIFIC INSTITUTION FOR INDUSTRY Institution of Metallurgy R&D The Institute of Metallurgical Research and Design ( IMRD ) is established in 1978 as an Industrial Research and Service Center in order to support and to develop the Albanian steel, chromium, copper and nickel industry. By Government decision in 1996 the IMRD is included in the state owned R & D institutions network. Actually the institute is under the authority of Ministry of Public Economy and Privatization. During 1978 -1991 the activity of Institute ( 90 people in 1991 ) was totally financed by Government. Since 1991 the Institute is self financing it's activity. Nowadays here are working 22 specialized people. Except for it's own specialists, the Institute recruits the best local experts according to the specific project needs. Following the drastic change of situation in the metallurgical sector of the country characterized with the decrease of production and investments, the Institute has changed the nature of it's activity in accordance with the new environment. Instead of totally research & design work mainly in metallurgical sector in the past, now we aim to strengthen the position in other fields such as environment protection, civil engineering, industrial consultancy, investment assessment, etc. The IRMD has established close cooperation with domestic and Balkan Institutions. Recently the Institute has been a successful partner for the Government and for the foreign companies in carrying out the restructuring / rehabilitation projects for the various enterprises in the country.
Some of The Research and Design Works
Study and design institute of mechanics and wood (SDIMW) is composed from the union of two institutions : "Institute of Mechanical Studies and Design" founded in 1970 and "Study and Design Bureau of Wood and Paper processing industry" founded in 1973, by the Council of Ministers Decrees, to assist the national industry in the domain of industrial design, standardization and technology applications. In performing its institutional tasks, the Institute could initially count on 45 staff, including scientists, engineers and technicians. During the following decades, also due to the ever increasing number of industrial specialized sectors and the relevant technology implications, the staff was increased as reach about 120 people organized in various departments such as Departments of Design, Technology, Informatics, Economic, etc. At present SDIMW has a staff of 12 people, including 8 scientists and engineers with various specializations and background experience in the most important fields of mechanical, wood and paper and other industrial activities. It is organized in three departments : Department of Mechanics, Department of Wood and Paper, and department of Management. SDIMW work program is coordinated by a Management Council, composed by the Director and two of Chiefs of Departments. The organization scheme is :
In establishing the institute medium and long term strategies, the Management Council is assisted by a Scientific Council composed by a group of institute scientists, representatives of the Ministry of Public Economy and Privatization, Ministry of Education and Sciences and the Polytechnic University of Tirana. Co-operations : SDIMW during the last decade has co-operated with some international institutions and organizations such as :
Mechanical Studies and Design'
Some specializations have been made from our specialists last years :
Based on its present structure and available knowledge’s SDIMW is in position to offer a range of services in the following subjects :
The institute has a library with about 3000 technical books and an archive with about 1500 constructive and technological designs compiled during its long existence. Among the important studies performed during last 5 years deserve to be mentioned :
In view of re-definition of its mission and role, SDIMW is now open to co-operate with the growing Albanian private sector as well as potential international partners and investors, by making available its acquaintance of the national industrial base and its wide experience in the domain of industry.
This Institute makes different projects and studies in the field of Geologies, Mines, and Environment Protection etc. The results for these projects are gained through studies, pilot program, and analyzes. The main staff off the institute is off about 120 employees from whom 60 of them are specialists with experience in research and in-situ works and more then 150 temporary hired experts. The graphical structure of the institute is this one:
Projects Rewards by Free Competition & Tenders & Contact
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Albania's total area is 28,750 sq km, slightly larger than Maryland. Its land boundaries are 720 km and its coastline, along the Straits of Otranto, is 362 km long. The country's
Albania has a large rural economy with agriculture generating close to 60% of output, and industry and construction 20 percent. Albania, which can be considered as an extremely poor country by European standards, has been making the difficult transition to a more open-market economy. A severe depression occurred after the collapse of the previous centrally planned system in 1990, but after large setbacks in 1991 and 1992, the economy started recovering in 1993. Albania recorded the strongest real GDP growth rate in Europe in 1995. Foreign assistance and humanitarian aid also supported the recovery in 1993-1996. Large segments of the population, especially those living in urban areas, continue to depend on humanitarian aid to meet basic food requirements. Another significant factor that supported the recovery process has been the remittances of some 20% of the labor force which work abroad, mostly in Greece and Italy. These remittances make up almost one-third of the overall GDP and help offset the large foreign trade deficit.
Source: Albanian Center for Foreign Investment Promotion and Mynistry of Finance and Economy, Tirana. * November 1996 data.
A new government, led by Prime Minister Fatos Nano's Socialist Party was elected in June 1997 and took office on July 28 of the same year. After taking power, the new parliament lifted the state of emergency and passed legislation addressing the pyramid schemes.
* This figure does not include the money spent in offshore oil and gas exploration and investment in trade sector. Source: Albanian Center for Foreign Investment Promotion;1997.
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