Study Of The Challenges That Hinder MSME Development In Albania : Country Report for the British Council and Swedish Institute

Abstract

The modern state of the Republic of Albania (referred to as Albania in this report) emerged in 1921, following the defeat of the Ottomoans in the Balkan Wars. It is situated in South-Eastern Europe, in the western part of the Balkan Peninsula. It is bordered by Kosovo to the northeast, Montenegro to the northwest, the FYR Macedonia to the east, and Greece to the south and southeast. It has a coast on the Adriatic Sea to the west and the Ionian Sea to the southwest. Albania has a total area of 28,748 square kilometres and some 360 kilometres of coastline. According to the National Statistical Institute, the population of Albania, in 2017 was just under 3 million, split 53.5% and 46.5% between urban and rural areas. Albania is accessible by several seaports, located on the eastern side of the Adriatic and Ionian Sea. Albania is a mere 100 kilometres from Italy across the Adriatic. Unsurprisingly, the most commonly spoken foreign languages in the country are English and Italian. In June 2014, the European Council granted Albania candidate status. The Stabilisation and Association Agreement (SAA) has been in force since 2009 and Albania has implemented smoothly its obligations. During this period, Albania has continued to have a constructive and proactive role in regional cooperation and maintains good neighbourly relations in line with its commitments under the Stabilisation and Association Agreement. Along with Croatia, Albania joined the North Atlantic Treaty Organization (NATO) on 1 April 2009. In the European Union’s 2016, Communication on EU Enlargement Policy, with regards the economic criteria, Albania is moderately prepared in developing a functioning market economy. Some progress was made in improving the budget balance, fighting informality and reforming the electricity sector. Economic growth accelerated and the labour market situation improved, but unemployment is still high. In the early 2000s, Albania was one of the fastest-growing economies in Europe. At times, annual real growth rates of 5% to 6% were driven by remittances from migrant workers abroad and SME turnover grew at double-digit annual rates. This rate of expansion was interrupted by the global economic crisis of 2008–2010; and, between 2009 and 2011, both GDP and SME turnover growth rates halved. The country's growth further suffered from the Euro-zone crisis, in particular in neighbouring Italy and Greece, and reached its lowest rate of 1.0% in 2014. Since 2013, it has steadily recovered but not yet returned to ‘pre-crisis’ levels of growth. However, Albania is currently the third biggest economy in the Western Balkans, behind Serbia and Bosnia and Herzegovina, with enjoys the lowest unemployment rate in the region. Public debt remains high and is yet to start falling, while the recurrent under execution of government spending on investments persists. The financial sector is stable. However, the banking sector is still burdened with non-performing loans and credit is growing slowly. Business-relevant regulations are cumbersome and shortcomings in the rule of law continue to deter investments. We undertook a survey of aspiring entrepreneurs across Albania. The sample was largely self-selected based on previous telephone surveys where respondents had expressed an interest in entrepreneurship, plus a review of the commercial register and referrals from respondents. The age distribution of aspiring entrepreneurs was under represented in younger age groups but higher in the 25–34 year old group compared with the population. Entrepreneurship aspirations are positive. There are very few problems with structural issues such as ease of forming a company. According to the World Bank’s Doing Business Report (2018), Albania was ranked 65th globally for ease of doing business, a decline on its previous ranking of 58th. Results from our survey, indicate five key issues stand out: 1. Access to finance is very challenging and acts as a significant barrier to both innovation and entrepreneurship. There is a particular need for access to affordable seed capital. However, awareness of any form of finance other than bank loans is quite low. 2. Connection to markets outside Albania and the Western Balkans region is challenging for new entrepreneurs. 3. There is a considerable amount of energy and effort already being injected; and entrepreneurs are ambitious and confident. There is significant scope for improving the skills of entrepreneurial teams and our entrepreneurs are willing to learn from a wide network of experts. 4. The trading channels and payment methods accepted suggest our entrepreneurs are using basic business models, almost entirely face-to-face and strongly cash-based. 5. Three quarters of all businesses in the survey supplied larger organisations, which may be accounted by the very large public-sector base.