Pagina 1 International Links and Services for Local Economic Development Agencies 1. Objective The Private sector development in Albania Concept Note (draft scheme) To strengthen the private sector in Albania, through improving capacities and instruments for realizing decent jobs, sustainable and equitable development. 2. Key Actors Private sector Micro and informal entrepreneurs Small and medium entrepreneurs Large entrepreneurs Farmers Regional Development Agencies Business service providers Financial institutions Universities Associations of entrepreneurs NGOs aimed at supporting population for economic development (women, disabled people, young people, etc.) Trade Unions Consumers associations Public sector Ministry of Economy Ministry of Labor Ministry of Research Ministry of Agriculture Regional and Municipal Government Central Bank of Albania Universities
Pagina 2 3. The approach (scheme) 1. The private sector plays a key role for the Albanian development, economic growth, decent job creation, and fight against poverty and exclusion. 2. Micro, small and medium enterprises represent a the relevant part of the whole economic activity, and NGP. 3. In order to exploit all of the economic opportunities and multiply the Albanian supply to the national and international markets, the role of decentralized strategies is crucial. 4. At regional level local (public and private) actors should share a development strategy based upon the valorization of the local competitive and sustainable resources. 5. Three critical elements will contribute to a sound private sector development: a) An enabling environment and climate where business could easily be established and growth, and this has to do with the national regulatory framework through laws and rules on transparency, corruption, finance, decent labor, antitrust, incentives to production and exports, etc. b) An efficient and effective service system, organized at regional level for providing financial and non financial support, including technical assistance, marketing, innovation. c) A spread entrepreneurial capacities. 6. The infrastructures for economic development (including energy, water, waste, communication, transportation) are important for development and priorities shall be established according to shared aims. 7. The private sector development shall provide opportunities for including into the mainstream economy the most vulnerable and disadvantaged people, avoiding separation between economic and social development policies. 4. What some relevant institution do and think 4.1 European Union The expansion of the private sector, notably micro-small and medium-sized enterprises (SMEs) is a powerful engine of economic growth and the main source of job creation. Private sector development affects the local populations, including the informal sector and the poor, at several levels as employees, as entrepreneurs, as consumers. One of the main challenges is to design institutional, organisational and regulatory frameworks which are conducive to private sector development. Governments alone cannot create a private sector with an enterprise culture but their actions can either hinder or facilitate it. This often requires far-reaching economic reforms. The European Commission helps beneficiary governments to structure policies in support of private sector development, with a particular focus on SMEs. EC assistance covers a wide range of areas such as support in creating an enabling business environment, in organizing business development services such as training, advice and information services with the aim of
Pagina 3 improving technical and managerial skills and encouraging transfer of know-how and technologies, support to professional institutions such as chambers of commerce, industrial federations or SME associations, as to reliable local financial institutions, support for trade issues (draft trade strategies and negotiate trading agreements, adopt international product standards, support the presence of private companies in export markets, and to promote fair trade, etc.) 4.2 Netherlands Cooperation The Dutch policy memorandum Mutual interests, mutual responsibilities (2003) confirmed that private sector development plays an important role in achieving poverty reduction. The NC strategy is to follow a balanced approach. It supports governments and related institutions in developing countries in improving the investment climate in general, while at the same time addressing international trade barriers for developing countries. In addition, selective interventions will be made to help entrepreneurs and small businesses to participate in local and international markets. Entrepreneurship in developing countries can be strengthened through capacity building, innovations, access to financial services and improved market access. NC strategy for PSD is focused to remove the following constrains: 1. Inadequate governance in relation to regulations; 2. limited access to credit and other financial services; 3. barriers to national and international markets; 4. lack of access to infrastructure, such as road, energy, water and transport; 5. limited skills and knowledge among companies and their employees. 4.3 OECD Supporting development of a vibrant private sector has become an essential component of OECD s efforts to boost the growth and stability of non-oecd economies. The OECD aims to encourage a sound business climate for investment, enhance productivity and competitiveness, support entrepreneurship and economic dynamism and ultimately raise living standards and alleviate poverty. 4.4 WORLD BANK The WBG strategy for PSD is illustrated in a 2002 document, which highlights the following elements: The Role of the Private Sector in Development Private sector development (PSD) is about promoting growth, reducing poverty and helping people improve their quality of life. Private initiative, unleashed in competitive markets, is key in parallel with public sector efforts. Regulatory Framework Sound government policies that provide room for private initiative and that set a regulatory framework, which channels private initiative in ways that benefit society as a whole, are critical. Public policy for the private sector and direct support to the private sector need to form part of a comprehensive approach to development and reflect country and sector conditions. A stable macroeconomic environment and an economy, which is open to trade are also elements of a good investment climate.
Pagina 4 A sound investment climate needs to extend to the areas where the poor live and work mainly in private firms and farms, and in the informal sector. Critical features of a sound investment climate include a sensible governance system that allows firms and farms to pursue productive activity without harassment, contracts and property rights to be respected and corruption to be reduced. Financing A sound financial sector is required to allow firms to enter the market and operate effectively as well as to help restructure failing firms. Direct public support to firms. To complement investment climate improvements and to help unleash supply response, direct support is sometimes appropriate for formal small and medium firms as well as entrepreneurs in informal settings, for example, in rural areas. Such support may include both finance and advice, for example, rural credit and extension services. Any subsidy should be transparently targeted at institution-building and capacity-building purposes that justify subsidy on grounds of externalities, for example, some forms of vocational training. Empowerment Improving Access to Basic Services Next to jobs and income growth, basic services are crucial for poverty reduction. In addition to the public sector, the private sector has a role to play in the provision of both infrastructure and social services. Infrastructure More generally, private participation can successfully improve access to infrastructure services (telecommunication, energy, transport, water). At the same time, appropriate regulatory regimes are required to exercise necessary governance functions for both public or private provision. 5. The Norway Report of the Private Development Sector in Albania (2002) On 4 April 2002 the director of NORAD's Department for Latin America, the Middle East and South Eastern Europe issued a mandate to a working group of three to prepare brief PSD strategies for Albania. The analysis was conducted through reviewing the Growth Poverty Reduction Strategy Paper (GRSP), regarded by Albanian authorities as a framework for development in all sectors. A desk study was done for identifying the general critical factors for private sector development, and a field study including systematic interviews and monitored other donors activities in the country was realized. The results may be summarized as it follows: political and economical stability, a reliable legal climate, good infrastructure (especially communication, water and electricity), an acceptable fiscal regime, qualified labour force, and political will for improvement and reforms are important factors for PBD. Long-term regional strategies should also be shared in order to develop a sustainable agriculture sector and farmers should attend some type of business training as "farming entrepreneurs". All the value-chain elements of agriculture production from the farmer to processing and sales, including exports shall be included in these strategies. The following recommendations were made by the stakeholders. A. Political / Administrative Framework Infrastructure (Mainly electricity and water). Laws and regulation (Reinforcing the capacities of judges and courts) Land reform and registration of property (To be implemented) Registration of companies (One-only shop for registration)
Pagina 5 Inspection and control of SMEs (To be implemented) Fiscal law and taxation (The fiscal law and taxation policy is based on EU standards in Albania. However, again the system is not functioning well, and there is a serious lack of implementation). Corruption (The new laws are slowly starting to work and there is a huge amount of training and supervision to be performed in order to implement a new order). Gender (Even though women take part in the productive sector as employees, they are not well represented in management). Environment (There is little emphasis on environmental issues in enterprises). B. Skills and knowledge for development and management of SMEs Stimulating new entrepreneurs (In Albania no public programs exist that are aimed at generating new companies nor is there any public, systematic program to train and support entrepreneurs). Management training (Need for more in-depth business competence. There is also a need for better management training at the universities in subjects like accounting, financing, marketing, production management and quality management (i.e. ISO9000). Training of government and bank employees (There is also a need for training government officials and banking personnel in order to help these people to understand the situation regarding SMEs). Involving young people (In Albania no systematic approach exists to stimulate young people to become entrepreneurs, also involving schools and universities). C. Market knowledge and market access The domestic market (The domestic market is dominated by trade and services and not by production or other value added operations. A large share of the economy belongs to the informal sector and corruption is widespread. Imported products dominate the market, even though much could have been produced locally. Imports are four times larger than exports). Export potential (Albania has good harbors and Italy is not far away from these harbors. The roads are generally in a very bad condition and this has an effect on transporting goods to the markets. There are no severe problems in custom clearance or shipping) Awareness of export potential (There is awareness of export potential, but with unimplemented laws, low security and a high level of corruption, it is very difficult to attract long-term foreign investors or serious foreign customers. There are, however, several future possibilities for exports the day the conditions improve. Areas of possibilities for export include: - Agriculture products (tomatoes, herbs, fruit, olive, wine, vegetables); - Processed agricultural products - Wood and wood products (northern part of Albania) - Fish /fish farming - Electricity, hydropower (only 35 % of the potential has been utilized) D. Financial sector
Pagina 6 Credit / financing (The banks are mostly offering short-term credits to their clients. Most funding outside ordinary banks is either micro-credit schemes or large venture capital investments funds. Neither of these is appropriate for SME purposes. High interest rates and heavy collateral requirements present problematic situations for most SMEs). 6. The main areas of intervention (scheme) a. Create and maintain a sound business climate Infrastructure (Water, Energy, Waste, Communication, Transportation) National Regulatory Framework: anticorruption, antitrust, financing, sme support and Regional Development Agencies policy, incentives for prioritized productions, etc Regional Development Strategies System for Control of quality and food-security Consumers associations for controlling the product and services quality National bargaining system between entrepreneurs and trade unions b. Foster an effective and efficient service system for economic development Regional Development Agencies Financial support also through Guarantee Fund Women entrepreneurship Innovation, through systems for monitoring and spreading existing Albanian know how and innovative technologies and international transfer, links between Universities and Businesses, regional innovation systems. Territorial Marketing c. Improve entrepreneurial capacities Associations of entrepreneurs Entrepreneurs social responsibility Decent job International business partnerships Capacity building for Entrepreneurs, Trade Unions, Associations (entrepreneurs, women, etc.), NGOs