Justice Reform is undoubtedly a current hot-button topic in Albania. It is political. It is social. And it is economical.
For Yngve Engstrom, high EU official, and Head of Cooperation at the EU Delegation to Albania this is one of the most ambitious reforms since the end of communism and corruption the worst problem that affects the Albanian economy.
In fact is not too much of a stretch to understand that a country with a great deal of corruption is less likely to have a flourishing economy. Corruption cripples the growth of business and drains investor returns while it chokes off the possibility of honest competitions, while it scares away foreign investors.
The European Union has been very straightforward on the regards of the justice reform, asking for tangible results and making it clear that it is not just a check mark for Albania to join the EU. Real tangible results are needed.
Weak administration and corruption leads to huge losses in economic growth potential, maintains poverty, wastes national resources, deters investment and affects people’s quality of life
In an exclusive interview for Agroweb, Yngve Engstrom talks openly about the pace of the reform as a key requirement and part of the five key priorities for Albania to open accession negotiations. He explains the problematic of the system, and why the justice reform is really economical and why corruption hampers Albania’s economic growth.
Engstrom walks us through the sectors the EU is looking with priority and that have the most premises for growth: like agriculture, transport, environment and energy infrastructure. Only for agriculture the EU through IPA has forecast a financial allocation fund of Euro 71 Million for the sector growth support, during 2016-2020.
The focus will also be on small medium enterprises and the promotion of tourism, as key sectors that will boost the economy and help the country towards the EU accession. These and more are the issues Engstrom discusses in this interview for Agroweb.
A German economist, Rudi Dornbusch, used to say: “Complicated questions have easy, wrong, answers.” I will start by giving you an easy question. How do you view the outlook for Albania in 2016?
Well, if you expect an easy answer, this might not be possible! You are asking about the outlook, but we are not yet a third of the way through 2016. Albania's outlook for 2016 depends on its previous performance, at least from 2015, and on its short term and mid-term commitments.
From the macroeconomic point of view, I would say that Albania is anchoring its economic policies based on a positive GDP growth of around 2.7% in 2015, which, according to government forecasts, is expected to increase to 3% - 3.5% in 2016. It also plans a stable monetary policy that aims to maintain the inflation target of 3% and a fiscal deficit that is planned to be reduced from about 4% in 2015 to 2.2% in 2016.
However, Albania continues to faces challenges with fiscal consolidation and strengthening public finance management (PFM). Measures to fight corruption, to secure property rights/titles, reduce the high rate of non-performing loans – all these are other challenges that need to be addressed over the year.
Some progress has already been made in reforming public administration, public financial management and re-organising local government through reform of territorial administration. However further efforts are still needed to increase the efficiency of public administration and improve service delivery for ordinary people.
Choosing to be part of the EU is about buying into a whole set of values. It is about choosing, peace, security, the rule of law and a free market economy, which means competiveness. The general opinion of the EU (as mentioned in the Indicative strategy for Albania) is that competitiveness in Albania is hampered by deficiencies in the rule of law, unclear property titles, lack of a specialised and skilled labour force, and a large informal economy. Does this mean we still have places to go, competitiveness wise?
Yes, I think you are right in your assessment. Albania certainly has steps to take to make sure that a functioning market economy is assured and also to increase its capacities to cope with competitive pressure and market forces within the region and with the Union.
In this respect, sections of Albanian legislation need to be brought closer to EU legislation, to be followed by proper implementation. In its 2015 Country Report on Albania, the European Commission reported that: “Albania has some level of preparation in terms of capacity to cope with competitive pressure and market forces within the Union. Some progress was made particularly as regards transport and energy infrastructure. However, significant investment in human and physical capital is necessary to improve the country's competitiveness”. Improving physical capital and promoting innovation are important elements for enhancing productivity and competitiveness.
The road to EU membership is a unique attraction for the Government to target reforms and structural transformation that couldn’t be targeted without this path. Do you see progress on these reforms, or is it a case of hitting the accelerator while applying the brakes?
One powerful example of the role that aspiration to EU membership can have on Albania is the on-going justice reform. This is a clear requirement and part of the five key priorities for Albania to open accession negotiations.
For many months now Albania has been engaged in one of the most ambitious reform since the end of communism. An Ad-hoc committee was set up in Parliament which has a separate, high-level experts group that has tabled a series of constitutional amendments which are expected to increase the accountability and efficiency of the judiciary.
Overall, the goal is to fight corruption, depoliticize institutions, increase the balance of power and set up a system that citizens trust and rely on. It is a very ambitious goal that the EU has strongly supported at technical and diplomatic level. The constitutional package has been scrutinised by the Venice Commission and recently its final draft opinion was handed to the Ad hoc committees. We are now in the final phase of the adoption of reform, which will hopefully be backed by political parties and voted in Parliament.
The work done until now has been recognised by the European Commission’s recent Report on Albania. But the vote in Parliament will be just the beginning of the reform itself. Adoption of implementing laws will be key, as will be a strong commitment from all the institutions involved to support the reform and its implementation.
The Government has also shown commitment to reform the management of its Public Finances. This is a key and very ambitious reform process across the entire public administration. It encompasses all aspects and the entire cycle related to the use of public funds, not only for the work of the Ministry of Finance, but all the institutions which have a role. Although this is an area under constant improvement in all countries, Albania has several obvious and easy ways to cut down on waste and improve efficiency so that more can be spent with fewer funds.
The national budget is the most important policy tool that a government has to implement the country’s priorities.
It is also important that the public has a better understanding about how the budget is designed and spent. There should also be a mechanism for the public to express its views and have a say, as well as to scrutinise the performance of the public administration. Effective application of transparency measures can put the public in a stronger position to making the government and the public administration more accountable in terms of their performance and services they provide.
Another key area of our focus is the reform of public administration which, if implemented thoroughly, can improve the administration’s professionalism and efficiency of operation in the way it provides services to the public. This includes the effective organisation of the public services, so that there are roles and procedures in place to improve the services they deliver. Reforms will also ensure that the civil servants and public servants are recruited according to their skills and knowledge and that they are managed efficiently to ensure their best performance.
What do you see as the main challenge to fostering economic growth in Albania?
I already mentioned some of the challenges in my answer to your previous questions. I would also like to mention Albania's Economic Reform Programme 2016-2018. This Government document will pave the way to addressing some of the challenges to economic growth and competitiveness through policies and legislative framework and improving business environment. It covers measures and reforms in the areas of public finance management, industry (energy and transport), sectoral development (agriculture and tourism), business environment, technological development and innovation, employment and labour market, education and social inclusion policies.
Furthermore, there is considerable scope for shifting employment to more productive sectors and for diversifying export products and markets.
In line with the PFM and PAR reforms, another key area for potential economic growth is to identify and address efficiency gains either through management of public funds, or administration. Weak administration and corruption leads to huge losses in economic growth potential, maintains poverty, wastes national resources, deters investment and affects people’s quality of life.
Albania has to minimise these losses if it is to have a chance to be more competitive in the region and In Europe.
The European Union is Albania’s major business partner. What are the sectors the EU is looking with priority and that have the most premises for growth? For instance Albania has considerable investment needs, in agriculture, transport, environment or energy infrastructure.
The European Union has adopted its growth strategy, called Europe 2020, which is the EU's growth strategy for this decade. In a changing world, the EU wants to become a smart, sustainable and inclusive economy. These three mutually reinforcing priorities should help the EU and the Member States deliver high levels of employment, productivity and social cohesion.
Specifically, the Union has set five ambitious objectives - on employment, innovation, education, social inclusion and climate/energy - to be reached by 2020. Each Member State has adopted its own national targets in each of these areas. Specific actions at the EU and national levels underpin the strategy.
Albania, together with other countries of the Western Balkans, is taking part in a similar exercise through the Regional Cooperation Council and has adopted its action plan for implementation of the SEE 2020 strategy.
The EU assistance to Albania is adopted based on the national documents and priorities and in line with its commitments in the Stabilisation and Association Agreement.
Through the IPA the EU provides direct support in the fields of agriculture, transport and environment and energy through the Western Balkan Implementing Facility and other regional initiatives in the framework of the Berlin process and the related connectivity agenda. The EU is committed to dedicating substantial funding to support the priority investments. Support to regional projects in the Western Balkans is expected to amount to 1 billion euro during 2014-2020.
As of March 2016, WBIF is funding the implementation of 41 projects with a total grant value of nearly EUR 57 million (including grant value of regional projects). Such projects include, study assessment, preparation of designs for infrastructure investment projects notably in the energy, transport, environment and social sectors in Albania with a focus on those projects which adhere to the TEN-T and TEN-E guidelines – as defined in the Berlin Process.
In addition, WBIF has committed to providing grants to support co-financing of investments in regional projects from which Albania has benefited by one grant of EUR 15 million as of December 2015; and on the Energy Connectivity project for Power Interconnection, Grid Section in Albania of the line between Albania and the Former Yugoslav Republic of Macedonia co-financed and implemented by KfW.
SME development and the promotion of tourism, have a particular potential for growth as well. Is this sector an important element of the EU support to strengthening Albania’s economic governance?
The European Commission considers Small and Medium Enterprises (SMEs) and entrepreneurship as key to ensuring economic growth, innovation, job creation, and social integration in the EU. In the EU, they represent 99% of all businesses. In the past five years, they have created around 85% of new jobs and provided two-thirds of the total private sector employment in the EU. To assess the business environment, in the EU we use The Small business which is an overarching framework for the EU policy on SMEs. It aims to improve the approach to entrepreneurship in Europe, simplify the regulatory and policy environment for SMEs, and remove the remaining barriers to their development.
Albania's economy is dominated by SMEs and therefore polices that would stimulate the development of a favourable environment for SMEs would bring further contribution to growth and employment, to competitiveness and innovation. Albania is also part of the assessment of the Small Business Act, and the latest one is expected to be launched in spring 2016.
The EU provides support both through the national Instrument for Pre-Accession Assistance as well as through Regional financing instruments such as the Western Balkans Enterprise Development & Innovation Facility, and others. Albania should be able to absorb as much technical and financial assistance as possible from these facilities.
EU funds are flowing back into Albanian agriculture as a Euro 71 million agreement 2016-2020 was signed in Brussels for supporting agriculture sector in Albania. According to the agreement, the total amount allocated for 2016 will be Euro 13 million as the value will increase by 2019-2020 with a total of Euro 16 million per year. Is investing in Albania’s agriculture the next best thing?
Yes, indeed, the agricultural sector is of utmost importance in Albania and I am proud to say that the EU has been supporting it since the early 90s. The EU is the biggest donor in agriculture, rural development, veterinary, food safety and fisheries. In 2007-2020, around 120 million EUR has been dedicated to different activities in these fields.
Just to give you better impression what has already been achieved with EU support and what is ongoing, here are some of the main results:
• The Agricultural and Rural Development Agency (ARDA is the Paying agency for IPARD and national subsidies) has been strengthened and prepared to manage the implementation of “IPARD-like” grants to the agricultural producers and processors
• The Rural Credit Guarantee Fund (RKGF with KfW) was established, delivering support to loans to the farmers via bank guarantees;
• The Nine regional National Food Authority offices/laboratories and the Central Veterinary Laboratory in Tirana have been built/rehabilitated; mass vaccinations were carried out (for example against brucellosis in small ruminants; and rabies in red foxes); consumer protection awareness is being raised;
• The Vessel Monitoring System in Fisheries has been established;
• Preparation of the Inter-sectoral strategy for the agriculture and Rural development, the Rural Development programme 2013-2020, and the Fisheries strategy – all these are strategic documents paving the future of the agriculture and fisheries sectors in the coming years;
• Improvement of more than 600 km of rural roads (in contribution with other donors) and water supply systems
• Support to affected areas by floods in 2015 providing compensation to farmers and encouraging them to apply with projects for reconstructing agricultural capacities.
EU support is substantial and in the long term makes a real difference to the everyday lives of Albanian people.
I think it will be useful for your audience to understand more about the possibilities under IPARD (Instrument for pre-accession assistance for rural development).
As you mentioned, the IPARD agreement has been signed, and the EU funding for the period 2016-2020 is 71 million EUR. However we should keep in mind that with the national and farmers’ contribution, the entire budget is approximately 180 million EUR. This is a huge opportunity for Albanian agricultural sector and especially for farmers.
Let me tell you what it would mean in practical terms and what we already saw with the implementation of the “IPARD-like” grants:
- Modern technologies and techniques entering the sector; agricultural producers and processors applying with projects fulfilling stricter requirements and bringing more value added to the sector and society; raising of competitiveness of the agriculture and agro-processing sector.
In the context of the three IPARD-like calls, Albanian farmers and agro-processors submitted a total of 255 applications with a total applied investment of 46 million EURO and a total applied grant of 24 million EURO. This shows both the high demand for capital investments in the agro-food sector and the farmers high interest in the IPARD-like grant scheme. All together 88 contracts have been signed for a total EU contribution of 6 million EUR. This is real, fresh, money going to agricultural production and processing.
Limited access to finance has for a long time remained a big challenge for farmers. What’s keeping investors out of Albania’s agriculture sector and what is the EU assistance in developing the sector?
Indeed we realised that there was a certain perception that the agricultural sector was very risky and it was thus not targeted by the banks. Farming indeed “a factory under the open air” and the dependence on climatic and weather conditions is substantial. That is why we have decided to specifically target the rural credits via guarantees and the Rural Credit Guarantee Fund has been established via an EU project, co-financed by the national authorities.
Hence, already the Albanian farmers will have the opportunity to benefit from the services provided for the guaranteeing the loans. I would like also to encourage the agricultural sector to make good use not only of the Fund but of all the opportunities available under the EU programmes and projects./Agroweb.org/
Head of Cooperation, EU Delegation to Albania
Yngve Engström has worked for the European Commission since 1996 and has more than 20 years of experience in managing staff, extensive experience in EU integration and transition economies, good governance and public procurement, international financial cooperation and managing of budgets. Since October 2013, Mr Engström serves as Head of Cooperation at the EU Delegation to Albania, overseeing a 25 people strong operational team implementing 90 million euro annually of EU pre-accession support to Albania.