The One Village, One Product (OVOP) movement started 40 years ago in a rural Japanese prefecture, with the aim of helping small villages and towns develop by focusing on their local culture and resources. Since then the principles of the OVOP movement have spread to other countries, including Thailand, Malawi, and beyond. The varying levels of success across these different versions of OVOP suggest some lessons on how to best organize rural development programs that could be useful as the Albanian government embarks on its flagship 100+ Villages project.
Albania is currently enjoying strong growth in both its agriculture and tourism sectors, but there is significant space for the acceleration of growth and job creation in both areas.
CID intern and Harvard Kennedy School student, Neetisha Besra, spent several months exploring recent developments in Albania at the intersection of these two sectors: agritourism. This exploration included working across numerous departments that are aiming to support the agritourism industry in Albania, traveling across the country to assess a range of emerging business cases, and traveling to both Italy and Greece to benchmark emerging trends in Albania against the development of mature agritourism industries in these two countries.
This summary report details agritourism trends in Albania and assesses the main constraints to more rapid and sustainable development of the industry. The report concludes with several specific recommendations for how Albania can capitalize on its potential through culinary tourism, the emergence of farm stays, and improvement in its broader tourism and agriculture ecosystems.
Albania’s economy has grown considerably in the past 20 years: its exports in 1996 totaled US$260 million, while in 2016 exports brought in US$2.11 billion. But while this expansion is significant, there was little diversification in the portfolio of goods that Albania exports.
Three main sectors account for around two-thirds of Albania’s total exports: Textiles, Hides, and Clothing; Agriculture and Foodstuffs; and Metals. Most of these products are easy to produce and of low complexity. In order for Albania to grow faster and catch up to its European Union and Western Balkans neighbors, it needs to expand into new areas of production and increase the variety and complexity of products it is able to export.
Towards this purpose, CID used information available in the Atlas of Economic Complexity to determine which products are most feasible for Albania to expand into given its current production.
Diversification, by definition, requires a country to learn to produce new things it currently does not know how to produce. CID’s research finds the key element of success to diversification, and therefore sustained economic growth to be knowhow. Products vary in the amount and type of know-how they require, and local economies vary in the amount and type of knowhow they possess. By understanding what capabilities exist locally, one can analyze what additional products could be manufactured by adding relatively few new capabilities to existing knowhow. Products differ in their degree of shared capabilities - for example, producing a shirt and a suit require similar knowhow as compared to producing coffee and TV sets.
High potential products for diversification in Albania will balance two characteristics:
Distance to existing capabilities: Promising products will be "nearby" existing in order to leverage knowhow. Nearby distance is treated as a proxy for lower risk or fewer missing capabilities in moving into a new product.
Complexity: Promising products will also be more complex than those existing exports, and therefore will tend to be able to support higher productivity and wages.
Distance is considered a crucial determining factor in whether a country can feasibly export a product. Complexity, on the other hand, matters greatly for improving value creation, wages, and productivity – the key factors that lead to a wealthier economy.
Other dimensions that are traditionally contemplated in the economic complexity analysis but are not immediately relevant to Albania are opportunity gain and global market size. Given Albania’s relatively small population and economy, a minimum global market size for each product does not need to be considered because even small global markets will generate sizeable new demand, growth, and contribution to job creation in Albania.
By taking the Complexity and Distance variables, normalizing them, and weighing them equally, a "Strategic Value" measure was obtained for each product that Albania does not yet export significantly. Products were then ranked by this value, and their overarching sectors were compared.
The Plastics and Rubbers sector ranks first in feasibility, with a high average complexity of its products.
The Agriculture and Foodstuffs sector comes second in the ranking, with a lower average complexity but a higher proximity to current exports. Albania already produces many products in this sector; for example, it already exports different types of fruits, vegetables, and seafood in significant quantities. However, it does not produce many prepared or processed foods, which ranked highly for their potential to Albania and lower risk in diversification.
It is important to note that this ranking does not guarantee success of any one individual product, as more detailed analysis is needed to assess the requirements of each. However, it suggests that these sectors as a whole offer less risky opportunities while increasing the level of economic complexity.
About four years ago, at the onset of CID’s engagement in Albania, the country faced two issues that were threatening its macro-fiscal stability: a skyrocketing public debt and an insolvent, publicly-owned electricity distribution system that was plagued by theft and technical inefficiency. These two interlinked issues constrained both short-term economic growth and the ability of the country to develop new drivers of long-term growth. Over the subsequent years, the government was able to successfully respond to these constraints through a now-concluded IMF program and through a series of reforms in the electricity sector. With these constraints now relaxed, CID saw the need for a new analysis of the current and emerging constraints to growth in Albania. This analysis will guide future research and inform the government and non-government actors on emerging economic issues for prioritization.
While growth has accelerated over the last several years, to over 3% in 2016, this is not a pace that will allow for a rapid convergence of incomes and well-being in Albania with that of developed countries in Europe and elsewhere. This growth diagnostic attempts to identify the binding constraint to sustainably higher economic growth in Albania.
Recognizing that economic growth requires a number of complementary inputs, from roads to human capital to access to finance and many more, this report compares across eight potentially binding constraints using the growth diagnostic methodology to identify which constraint is most binding. This research was conducted throughout 2016, building on prior research conducted by CID and other organizations in Albania. Each constraint discussed in this report is cited by analysts within or outside the country as the biggest problem for growth in Albania. Through the growth diagnostic framework, we are able to evaluate the evidence and show that some constraints are more binding than others.
Despite serious issues in many other areas, we find that the binding constraint to stronger growth in Albania is a lack of productive knowhow. By “knowhow,” we mean the knowledge and skills needed to produce complex goods and services. Albania faces a unique knowhow constraint that is deeply rooted in its closed-off past, and the limited diversification that has taken place in the private sector can, in nearly all cases, be linked to distinct inflows of knowhow. The strongest sources of knowhow inflows into Albania have been through foreign direct investment and immigration, especially returning members of the diaspora who start new businesses or upgrade the productivity of existing businesses.
The evidence also points to particular failings in rule of law in Albania that play an important role in keeping Albania in a low-knowhow equilibrium. Weaknesses in Albania’s rule of law institutions, including frequent policy reversals and corruption in the bureaucracy and judiciary, increase the risk of investments and transaction costs of business. While it is difficult to separate perceptions from reality in this area, both perceptions of weak rule of law and actual rule of law failings appear to play critical roles in constraining more diversified investment in Albania. We find that while existing firms in Albania successfully navigate the rule of law weaknesses, and in some cases benefit from the system, potential new investors are acutely sensitive to rule of law issues.
The recent economic depression in Greece hit the population of Albanian migrants in Greece particularly hard, spurring a wave of return migration which increased the Albanian labor force by 5 percent in less than four years, between 2011 and 2014. We study how this return migration affected the employment chances and earnings of Albanians who never migrated. We find positive effects on the wages of low-skilled non-migrants and overall positive effects on employment. The gains partially offset the sharp drop in remittances in the observed period. An important part of the employment gains are concentrated in the agricultural sector, where most return migrants engage in self-employment and entrepreneurship. Businesses run by return migrants seem to pull Albanians from non-participation, unemployment and subsistence agriculture into commercial agriculture.
Credit market activity in Albania has been sluggish in recent years in spite of low and declining interest rates. The economy lost its growth momentum after 2009. Investment and lending activity slowed down substantially despite low interest rates, relative macroeconomic resilience, and available capacity in the private sector to take on more debt. This study analyzes the supply (lenders’) and demand (borrowers’) sides of the market.
The reason behind the credit market failure is a supply-demand mismatch. Poor financial intermediation is the main problem on the supply side. Despite excess liquidity in the financial sector, banks are excessively risk-averse, bank practices and products are unsophisticated, and non-bank financial market is underdeveloped. Excessive risk aversion translates into tight credit standards, credit rationing and credit crunch for some economic sectors, in particular those dominated by SMEs. On the demand side, firms overall have a low appetite to expand, limited capacity to create bankable and financially viable projects, and are also constrained by infrastructural gaps and economic uncertainty. The mismatch results from the fragmentation of the credit market, with reliable borrowers from traditional sectors having easy access to finance, and other segments being almost fully deprived of credit.
Government and donor-led policies to mitigate the problem have had little success. Albania enjoys access to a number of domestic and external funding schemes primarily focused on alleviating funding constraints for credit-deprived sectors, but these programs have been ineffective. Further study is needed to understand the reasons behind the limited success of these programs.
A National Development Bank (NDB) could address some of the observed credit market challenges. While an NDB’s ability to directly resolve demand-side constraints would be limited, an NDB could effectively tackle supply-side constraints in the credit market as well as provide surveillance and collect information from the private sector, leverage technical assistance, and develop tailored financial products. Establishing an NDB should be considered carefully, taking into account functional, governance, funding, staffing and other risk factors.
This document explores Albanian aquaculture in the context of European aquaculture and compares it to neighboring countries, especially Greece. Using information from fieldwork, multiple reports by the United Nations’ Food and Agriculture Organization (FAO), and interviews with experts in government and non-government institutions, we analyze the production of European seabass and Gilthead seabream in Europe in general and in Albania in particular.
Albanian cultivation of seabass and seabream has increased sevenfold since production started in the early 2000’s, but it represented only 0.38% of European aquaculture of these two species in 2013. Albania has significantly lower productivity than its neighbors, especially Greece, the dominant actor in the market. The analysis indicates that Albania’s lower productivity is caused by:
(i) high costs of cages, fingerlings, and feed; which are all imported;
(ii) lack of a formal fish market; and
(iii) lack of clarity in the regulation.
The document concludes by offering recommendations to get over these impediments for growth including reducing tariffs; encouraging national production of cages, fingerlings, and feed through investment in research; offering more and better financing options for cage acquisition; improving quality controls; establishing a national fish market; and passing the Aquaculture Law to bring clarity to the sector regulation.
When the Albanian Communist regime fell in 1991-92, many Albanians saw their future outside the borders of Albania. At that time in history, no one anticipated the scale of migration that would take place in the subsequent two decades. Today, one third of Albania’s 1991 population lives abroad. Most of these migrants live and work in neighboring Greece and Italy. The third most popular destination is however the United States. Besides this new wave of migrants, the US has an old Albanian diaspora–the offspring of migrants who came to the US between the First and the Second World War. This is what mainly gives rise to the second generation Albanian-Americans.
To the best of our knowledge, there is currently no systematic documentation of the socio-demographic and economic characteristics of the Albanian community in the US. To bridge this gap, we use data from the American Community Survey 2012 and analyze these characteristics. The profiling could be of interest for anyone who focuses on the Albanians abroad – the Government’s Programs dealing with diaspora and migration issues, researchers interested in migration questions, the Albanian Community Organizations in the US or the diaspora members themselves.
We find that the first and the second generation Albanian-Americans have distinctive features. The first generation (those who arrived after the fall of Communism) is more educated than the non-Albanian Americans with comparable demographics. This is particularly true of Albanian women. The education of the second generation resembles more closely the US population with comparable demographic characteristics.
Despite the qualification advantage, first generation Albanian-Americans earn much less than non-Albanian Americans with comparable socio-demographic characteristics. We find that this is not associated with being Albanian per se but with being an immigrant more generally. The migrant-native gap narrows down with time spent in the US.
An important channel through which the current gap is maintained is qualification mismatch. We observe that first generation Albanian-Americans are over-represented in occupations requiring little skills and under-represented in occupations requiring medium and high skills, in direct contrast to them being more educated than non-Albanians.
When it comes to the earnings of second generation Albanian-Americans, the situation is more nuanced. The low skilled Albanian-Americans earn significantly more, and the highly skilled Albanian-Americans earn significantly less than the non-Albanian Americans with comparable socio-demographic characteristics. We currently do not have a straightforward explanation for this pattern.
The Albanian population in the US is highly concentrated in a few states: New York, Michigan and Massachusetts account for almost 60% of all Albanian Americans. The community in Massachusetts is the best educated; best employed and has the highest earnings among the three, but is also the oldest one in terms of demographics.
However, due to its sheer size (over 60,000 Albanian-Americans), New York is the host of most Albanians with BA degree (about 10,000). New York also hosts the largest number of high earning Albanians (about 1,800 earn at least $100,000 a year).
This survey studies the ways in which active Albanian-Americans would like to engage in the development of their home countries. Its results will help us define the focus of the upcoming events organized under the Albanian Diaspora Program.
Between March 6th and March 22nd 2015, 1,468 Albanian-Americans took part in the online survey, of which 869 completed the survey. The results presented in this report are based on the answers of the latter group. The results of this survey do not represent the opinions of the general Albanian-American community, but rather the opinions of those who are more likely to engage in an Albanian Diaspora Program.
The survey was jointly prepared with the following Albanian-American organizations: Massachusetts Albanian American Society (MAAS/BESA), Albanian American Success Stories, Albanian Professionals in Washington D.C., Albanian Professionals and Entrepreneurs Network (APEN), Albanian-American Academy, Albanian American National Organization, and VATRA Washington D.C. Chapter. The survey was sponsored by the Open Society Foundations, as a part of the grant OR2013-10995 Economic Growth in Albania granted to the Center for International Development at Harvard University
Harvard University’s Center for International Development and the Government of Albania has been engaged in a two year growth strategy exercise starting in 2013 till 2015. Discussions with the Ministry of Agriculture yielded that there is a need for conducting value chain studies on a few important product groups with the following objective:
Cultivate ‘value chain’ oriented thinking within the Ministry of Agriculture
Identify key issues ‘within’ the particular product groups and ‘across’ different product groups that need to be tackled at the public policy level
Here is a value chain study of the Medicinal & Aromatic Plants (MAPs), specifically of sage and lavender. The products have been chosen given its huge importance in the economy as the largest export commodity in agriculture and their contributions to a farmer’s income. A special black-belt team comprising ministry officials will take forward the findings of this study and will iteratively make policy, ensuring better policies and implementation at the same time.
The Centre for International Development (CID) at Harvard University has been leading a two year project with the Government of Albania to help identify and implement growth strategies by studying the constraints that bind specific sectors. In May this year, the Ministry of Agriculture tasked CID to look at the ban imposed by the European Union (EU) on the export of mussels from Albania. The research was sponsored by the Open Society Foundations, as a part of the grant OR2013-10995 Economic Growth in Albania granted to CID.
During the research project, we studied the value chain of mussel production and certification in Albania, mapped the requirements laid down by EU legislation and identified shortfalls in compliance. This report presents our findings and recommendations.
The Butrint lagoon is the main production center for mussels in Albania. By 1989, production from the lagoon had increased to 5,000 tons per year. It dropped dramatically in the 1990s due to an outbreak of cholera and the subsequent ban on the export of mussels by the EU. The ban has not been lifted since. Albania still cannot export mussels to the EU because these do not meet the required sanitary standards.
Our research finds that lack of reliable and affordable purification facilities is at the root of the problem. Unless this constraint is alleviated, it will continue to frustrate efforts to ensure compliance with standards.
This report provides a characterization and analysis of transnational economic engagement by Albanian migrants in the U.S., focusing on the import and consumption of home country goods, which is typically referred to as “nostalgic trade.”
Migration has gained significant importance in economic development in as much as international institutions realize the impact human and labor mobility have on economic and social change. Increasingly, policy practitioners and development experts are considering how to incorporate migration into development plans. The Albanian Diaspora, an ethnic conglomerate of native and foreign born Albanians living outside of the country (or countries where the ethnicity is present, including Kosovo, Macedonia, Greece or Italy), is emblematic of such importance. 1
This report is based on interviews with a subset of the Albanian diaspora: Albanians living in the UnitedStates. 75% of those interviewed were Albanian nationals from Albania, the rest were ethnic Albanians from Kosovo (15%), Montenegro (7%) and other locations like Bosnia, Macedonia, Greece and Italy (3%).
The study shows that this diaspora community is engaged with their home country, and that the majority of them consume a wide array of home country commodities such as beer and sweets. Specifically, we find that over 60% of foreign born Albanians in the U.S. say they purchase Albanian imported product s consisting of more than 30 kinds of commodities. In a year basis, Albanians say they spend US$1,200 a year on these goods.
A key finding in the study is that Albanians struggle to find the products they want, stores typically are few, bring limited supplies and a small number of commodities, and are hard to reach. Given the existing challenges we recommend steps to strengthen the nostalgic market through continued market research, trade-related technical assistance, diaspora-donor partnerships for nostalgic trade development, and trade fairs.
1 Albanians constitute an ethnic group native to Albania or countries where the ethnicity is present, including Kosovo, Macedonia, Greece or Italy
The following case study concerns the failed privatization of an electricity distribution and retail company
in a small developing country, and recommends measures to bring the system back to financial sustainability. The core issue underlying the failure of the privatization was the inability of the distribution company to reduce losses in the grid, due to theft and outdated infrastructure, in line with the regulator’s targets, and subsequent frictions with the state. While the level of losses remains high, this study does not go into recommendations for reducing grid losses; instead, it assumes a reasonable path of loss reduction, given data from other successful loss reduction programs, and presents immediate and short-term reforms that the government can undertake to get the electricity sector out of intensive care, and into longer-term rehabilitation.
During the last years production of fresh vegetables in Albania had an important growth due to the increase in the number of Ha using Greenhouses technologies. Many of the new investments came from former expats who spent a few years working abroad and came back -in some cases because of the crisis in Greece - with money and some experience in the field. However, although exports showed an important growth (in tomatoes, for example exports doubled from 2013 to 2011!), the sector has not been able to definitely take off and be a relevant player in the international market. The problem is not only that the share of Albania in the European trade is almost negligible but also that diversification didn't happen, quality has not improved and as a consequence the prices that Albanian producers get is very low - the lowest in Europe for some products like tomatoes. In this context, Albania has been focusing on the regional markets (probably not consciously but as a consequence of not having established a commercial relation with higher-end markets and not having a proper quality produce to offer), has been excluded from the best markets and has not improved the productive methods, practices, etc. Given this situation the building of new capacity was not necessarily a success: local markets started to be oversupplied and production losses are very high as a consequence.
In this report we analyzed the value chain of the fresh vegetables sector, focusing on the production of tomatoes. We detail the problems of the whole value chain (from the production to the marketing), pointing out the "missing links" that are preventing Albania to become a major tomato exporter in the European market. We find that there is a huge potential for the country - in terms of the natural conditions and also in terms of competitiveness -, but it is very difficult to be reached without making a re-organization of the sector to make it more integrated and give the proper incentives to solve simultaneously all the problems.
We found that in order to improve the general productivity of the sector it is not necessary to make huge capital disbursements. Although some of the constraints are clearly money-related, most of them are organization-related.
What the propose in this report is a method to re-organize the sector in a way that makes it easier for the economic agents to vertically and horizontally integrate and transform the sector into a "factory", where every participant has its defined role and work is divided with specific roles. The role of the Government is twofold: first, to facilitate the organization of this model, find the actors that can lead the change and provide them the incentives to coordinate. Second, to provide all the public goods that are now missing or incomplete (not only in terms of infrastructure but also in terms of marketing, negotiations, etc). In the next sections we explain with detail the constraints and missing links we found throughout the value chain of tomatoes and propose a new model to solve them. We show that with little organizational changes, Albania could increase its tomato exports by four times in a few years.
Despite their historic and ethnic ties, trade and investment between Albania and Kosovo remains underdeveloped. To be sure, even if fully developed, Kosovo is unlikely to play a major role in Albanian external economic relations. Nonetheless, increased economic integration between the two countries can serve as the basis not only for enhancing the ties between the two countries, but also for spurring the measures that could act as a springboard for Albania’s integration with respect to other countries in the Balkans as well as with the EU.
In this report, we examine the state of play in the trade in goods, trade in services, movement of workers and movement of capital in order to identify potential issues and offer recommendations that could help unbind institutional constraints and as such facilitate the process of deeper integration between Albania and Kosovo.
The scope of this type of endeavor is rather large, and with this introductory report, we would like to raise key questions and themes that we hope would generate feedback from the government, private actors and other public sector representatives in order to turn an idea into an action plan.