Lljaz Fishta - Dilaver Sadikaj*

SÜDOSTEUROPA, 40. Jhg., 10/1991 lljaz Fishta - Dilaver Sadikaj*

Economic Reform and the Process of Privatization of Albania’s Economy

Problems of Past Development of Albania’s Economy

Actually, the privatization of the economy has become a problem of great dis cussion. This problem does not represent a phenomenon neither of a single state, nor a particular zone. It is now in the center of attention also in the states of Eastern Europe, whereas in the West European states it already exists as a problem, hence it has assumed world proportions. The privatization of the economy is on the agenda not only in theory but above all as a question of special practical importance. The present-day developments have brought to the fore the fact that this phenomenon has to do with efficiency of the social production. Actual experi ence shows that the market economy and private ownership are superior to the concentrated and commanded economy, because they give a powerful im pulse to productive initiative, and along with other elements such as the prog ress of science and technology, contribute directly to the rapid progress of pro duction. For this reason, the privatization of the economy is a strategic objective. In the East European countries, Albania included, the process of privatization is supported by the political and economic thinking and is serving to pass from the concentrated and commanded to the market economy. After the Second World War, fundamental transformations of economy were made in Albania: the creation of the state and cooperative sectors in var ious branches of the economy, the limitation and gradual liquidation of pri vate property and of the market economy. These changes were accompanied by some achievements: between 1950 and 1980 the total industrial output increased 41 times, and 6-8 times between 1960 and 1980. In 1980, total agricultural output was 4.8 times higher than in 1950, and 2.9 times greater than in I960.1 Transport, education, culture etc., developed as well. But we must admit that these achievements did not satisfy the real need of the people an did not realize the promises given to them right after the Second World War. The above mentioned achievements could not guarantee the nar rowing of distinctions existing between backward Albania and the other coun-

* Prof. Dr. I. Fishta und Dr. D. Sadikaj, Instituti i Historise, Tirane. ! Referred to figures the Statistics Department at the Ministry of Economy. 532 Iljaz Fishta - Dilaver Sadikaj tries of Europe, especially of Western Europe. Moreover, from 1980 up to 1990, completely undesirable phenomena occurred. Over this period of time, a considerable fall of investments in the economy was registered. This tendency was accompanied with the fall of industrial production, agricultural produc tion, and consequently of the people’s supply with mass consumer goods, with a budgetary deficit which in June 1991 reached 3.2 billion leks. It should be pointed out that these phenomena were noticed at a time when the population of Albania increased at relatively high annual rates: between 1980 and 1985 it grew by 2.1-2.2 per cent annually.2 Consequences of these phenomena were catastrophic. Albania was caught in a profound and complex crisis unknown over the whole post 2nd World War period.3 This grave situation in the economy of Albania has its source in factors of subjective and objective, of internal and external character. Of decisive impor tance has been the fact that the economic system applied in Albania had seri ous defects. The potential reserves of this system ran out very quickly. Besides this, during the process of application many mistakes were made. The concen tration of the economy in the hands of the state, overestimation of state and cooperative property and in this regard the adoption of measures for the liqui dation of private ownership and the market economy, the state management of great investments in heavy industry, setting up of big projects in some cases with backward know-how and no preparation to realize and to run them, as was e. g. the case with the metallurgical plant in Elbasan, weak points in the organization of production and labour, the concentration of attention on gen eral interests underestimating the personal ones; overestimation of moral in centives against material ones, those were some of the grave mistakes which led to the fall of overall production and to the lack of interest of the people in work. Very harmful consequences for the development of the economy had the policy of self-isolation applied especially after Albania broke up relations with China. Until then Albania had taken credits from some countries, in particular from the Soviet Union and China. Beginning with 1978 Albania received no credits. The overvaluation of self-reliance and the lack of an extensive cooper ation with other states, especially with the advanced states of Western Europe, for the exploitation of Albanian resources became an obstacle for a progress of Albania’s economy at contemporary rates and according to contemporary technology.

2 V. Misja, Y. Vejsiu, A. Berxolli: The population of Albania, Tirana 1987, p. 74. 3 Ylli Bufi: Speech to the People’s Assembly on the program of the Government of Stability, Zeri i Popullit, June 13,1991. Process of Privatization of Albania’s Economy 533

The Economic Reform of 1990

The economic reform initiated in May last year (the law of May 8, 1990) had during its first period (until the beginning of 1991)4 as its main objective the perfection of the economic mechanism in the industrial enterprises and in ag ricultural cooperatives. On the basis of the principles and criteria of this mechanism, the state deter mined for the enterprises only the value volume of the production to be selled, instead of the quantitative production plan it used to give before. The enter prise was given in a concentrated form the fund of payments: it was granted the right to decide itself on the number of new workers to be employed, in cluding here the engineering-technical staff and other specialists. Important changes deriving from the application of the new economic mechanism oc curred in financial relations. The enterprise had to pay off in a concentrated way only the financial obligations towards the budget. 90 per cent of the profit realized by the enterprise would be used by the enterprise itself for reproduc tion and material incentives of the working people and only 10 per cent would be handed over to the state budget.5

1991: Shock Therapy Versus Gradual Transition?

1991 became the year of radical turn in the life of Albania. Political pluralism established in this period brought about new changes in all kinds of activity of the Albanian state. The promotion of the process of democratization was re flected in the economy, too. From the beginning of 1991 and especially with the decree of the Presidium of the People’s Assembly of March 12 this year,6 the economic reform passed in a new qualitative period. The objectives set in May 1990 on the perfection of the economic mechanism which should be completely applied at the begin ning of 1991 were overpassed although not yet completely applied. Since that time, the problem of transition of the centralized command economy into a market economy was put on the agenda. The privatization of economic own ership has become a strategic goal which pervades all parts of its development, the road of integrating Albania’s economy into the European economy. The objective of the change of Albania’s economy from a centralized com mand economy to a market economy brought on the agenda also the question of finding ways how to realize it: based on the conditions of Albania and the European experience, which would be the possible alternatives for the realiza tion of this process, as easy as possible and without traumas?

4 Zeri ipopullit, No. 3, May 1990. 5 Zeri ipopullit, No. 3, March 1991; Decree-Law No. 7475, March 12,1991. 6 Ibidem. 534 Iljaz Fishta - Dilaver Sadikaj According to the world experience, there are two ways for the solution of this great problem: First, the application of a shock therapy or the road of immediate privatiza tion and rapid transition to a market economy. Secondly, the gradual transition of the centralized economy into a market economy, accompanied by state control. The First alternative creates the possiblities for a rapid switch of the econ omy of Albania into a market economy and stirs up great competition. This serves to establish strict discipline at work, to increase productivity, and un doubtedly it will be accompanied by the growth of overall production and the increase of the profits on the part of the enterprises. But this alternative is fraught with dangers since it would be accompanied by unfavorable results: rapidly increasing unemployment, disorder in the mar ket in the field of prices as well as great quick differentiations in the Field of ownership, the polarization of various strata of population. These phenomena cannot be easily and quickly understood by the different groups of the popu lation. Logically, the application of such a road of privatization would be ac companied by psychological worries and political tensions among various strata of population. The second alternative, that of a gradual transition from the centralized economy to a market economy leads to a slower increase of production, that is, of the economy. But it may bring about better solutions with regard to the above mentioned phenomena and it appeases some of these phenomena, such as unemployment, disorders in the Field of prices, etc. The state may interfere and exert its influence in different forms, through the Fiscal system, in the Field of prices ets. Based on the experience of the East European countries and the organiza tion of the market economy in Western Europe, on the fact that Albania is a country with a weak economy, with a backward structure and technology, with very limited capital and especially currency sources, the general opinion of the economists has jumped at the conclusion that the most proper alternative, the most correct and understandable solution for various groups of the popula tion is the gradual transition from the centralized command economy to the market economy, using the positive influence of the state for the realization of this process without great pains and strong traumas. In the practice of Albania, with the measures adopted and those underway, in fact the second alternative is being applied, i. e. that of the gradual transi tion. But the state has intensiFied its activity for the realization of this process in the quickest possible time and in the most favourable conditions, and to this end it has demanded the assistance and advice of specialists of interna tional organisations and of various Western states. In this regard, the rates of application of the second alternative will depend to a great extent also on the aid which the foreign states, especially the economic powerful ones, will grant Albania. Process of Privatization of Albania’s Economy 535

Privatization

The most important problem for the transition is that of the directions and measures through which this process will be realized in Albania. Between June 1991 and June 1992, when the government of national stability made up of representatives of the main political parties in Albania will operate, the work will be concentrated on two fundamental points: First, on the stabilization of the economy as an indispensible question to march ahead, and Secondly, on the promotion, within the possiblities, of the economic reform. Another important direction for the application of the reform is the work for the privatization of the economy. This process will be realized through opening numerous private economic units and the transformation of the state and cooperative units into private economic ones. With regard to privatization of the economy, work is going on to elaborate the legislation which defines the limits, principles and the basic criteria of privatization in various branches of the economy. To this end serves also the decree-law of March 1991 issued by the Presidium of the People’s Assembly of the Republic of Albania. The first fundamental question of this decree-law is the limit of the exten sion of the process of privatization in the economy. According to this decree- law, this process includes, without exception, the various branches of econ omy. Concerning this, the above mentioned decree-law of March 1991 says:7 The enterprises and institutions and other state units such as those in the field of industry, handicraft, agriculture, construction, transport, public services, health service, the scientific, cultural, artistic fields are allowed to pass into private units, according to the criteria defined by the Council of Ministers. Some branches of special national importance, of strategic character such as energy in dustry, mining and natural gas industry, post, telecommunications, forests, water sources, motor-roads, railway lines, sea ports, airports, railway and air transports as well as the arma ment industry may pass into private ownership only upon the decision of the Council of Ministers. An important problem is that of the forms of organization in the private economic units. The private units, whether big or small, may be organized and function in various forms, private industrial ones, private with partnership, collective private or in a form of cooperative, to reach later a higher level of organizing production as companies with limited liabilities or joint stock com panies.8 In special cases, according to criteria set by the Council of Ministers, the enterprises and other state units having old technolgy and registering losses, are allowed to pass into private ownership under facilitating conditions to

7 Ibidem (Article 2). 8 Ibidem (Article 5). 536 Iljaz Fishta - Dilaver Sadikaj physical and juridical persons of Albanian nationality residing in Albania, with the aim of continuing their economic activity.9 In order to realize the process of privatization of the economic enterprises and units the Committee of Economic Reorganisation, which provides the re spective authorizations to this end, is set up the Council of Ministers. The respective prices and tariffs of productions and services are fixed by private physical and juridical persons according to market conditions. For some important goods and service, through which the monopoly position is ensured, the state organs according to their respective competences set the maximum limits.10 In order to help the process of privatization and the development of the market economy, the duties and taxes on the economic activity carried out by private physical and juridical persons, will be stimulating.*11 According to present constitutional law land is not sold. The State’s rela tions with private persons regarding the use of the land are regulated through rent contracts according to norms defined by the respective laws. As to the working people who might become unemployed due to the pro cess of privatization of the state sector, the state provides them social assis tance as envisaged by special provisions.12 The measures adopted for the privatization of the economy are reflected in the law on the main constitutional provisions approved in May 1991 by the People’s Assembly. The Albanian economy - this law says - is based on the diversity of properties, on the liberty of all the economic subjects and on the regulating role of the state.13 The central organs have long since been working in accordance with these laws to prepare the practical orientations for the privatization of the economy. A series of difficulties in finding the practical possibilities to switch to the market economy had to be surmounted in this process. At the first stage this process is applied in the sectors of trade, handicraft, public services, urban automobile service, the sale of dwelling flats etc. This is understandable. In these sectors the privatization of the economy, with all its complexity, is generally easier. Handicraft production and service in trade or in the public service sector are simpler in regard to the organization of the work, the working power, and the capital needed to carry out the activities etc. At the second stage there will be carried out the privatization of the medium and big enterprises in the sector of production of consumer goods and of the means of production in construction etc. When we say that the privatization of the economy will be carried out in two phases this does not all mean that now there are no attempts for the priva-

4 Ibidem (Article 7-9). 10 Ibidem (Article 12). 11 Ibidem (Article 13). 12 Ibedem (Article 17). 13 Zeri i Popullit, May 1,1991. Law on main constitutional provisions. Process of Privatization of Albania ’s Economy 537 tization of the medium and big enterprises. In fact, the privatization of the economy has no line of demarcation. But in the medium and big enterprises the problems are more complicated, as the production is more complex and difficulties are encountered especially in finding the huge capital to buy them.

Small-scale Privatization Actually the privatization of trade, handicraft and the public service sector is in process. In these two sectors this process is realized in two directions: Firstly, since last year and over the whole of the current year satisfactory rates are noticed in the emergence of new private activities. A testimony to this tendency are also the following data:14 Data on the new private activities in trade and handicraft.

Period No. of No. of The number of units opened demands licences Total Trade Handicraft and made given public service

Jan.-Dec. 1990 3762 2502 1538 1121 417 Jan.-March 1991 4241 2408 1984 1433 551 Jan.-May 1991 5151 3493 2854 1986 868

Secondly, work is being done for the privatization of the existing enterprises of trade, handicraft and the public service sector. To this end it is thought of selling the small units (shops) to the employees in trade, and when this is im possible the shops should be sold by auction. The purchase of the shops is made either through the means of the employees themselves who work in these sectors, or through credits from the bank. Measures are adopted that the tax system encourages private activity. To this end, on the basis of the orientations by the Ministry of Finances the crite ria and tariffs of the tax on income of these activities are defined: According to these orientations, the tariff for revenues up to 10000 leks a year is 5 per cent. With the increase of the revenues the tariff increases gradu ally so as to allow the increasing development of the activity of trade, handi craft and the public service sector and ensures some revenues for the state budget.15

Large-scale Privatization Efforts are made also for the privatization of the industrial, construction and transport enterprises. The privatization of the enterprises of these sectors is

14 Archives ofthe Ministry of Finances, 1991, the document Data on the private activity for 12 months, the first quarter of 1991 and the 5-month period 1991. 15 Archives of the Ministry of Finances, 1991: Instruction of levies and taxes on private activi ty, No. 7, dt. April 15,1991. 538 Iljaz Fishta - Dilaver Sadikaj more difficult due to some reasons. The value of the means of production of the enterprises in these sectors is great and a large amount of capital is needed to buy them. But this is not the sole difficulty. The degree of amortization and the technological level is backward, the hitherto production has resulted in los ses. Consequently, for the privatization of the enterprises of these sectors some changes should be made, particularly in the fields of prices and payments. This is the reason that the implementation of some objectives envisaged for the privatization of the economic enterprises of these sectors is postponed.

Privatization in Agriculture The problem of the agricultural privatization, in which besides the state enter prises exists also the cooperative system, is more complicated. 68 per cent of the population live in the countryside and the proportional distribution of the land is very difficult as the arable land is very limited in proportion to the number of the economies. In some cases, especially in the hilly and mountai nous areas, to one family belong less then 3-4 dynym (one tenth of a hectare). Besides this, there also lack the small technical means to be used in the small acreage economies. Despite these difficulties, the privatization process of agriculture continues. Under the present conditions some phenomena are noticed. With the land’s distribution of 0,4 ha for each agricultural economy and with the apportion ment of the livestock, many agricultural cooperatives in the mountainous areas were dissolved, the economies have eventually turned into private eco nomies. This process is made evident to a smaller extent in the hilly areas and even in the lowland ones. Actually the state organs are re-examining the measures to reorganize agri culture, measures which envisage the organized distribution of the land to those who till it, the reorganization of the cooperatives, giving them trade functions required by the market economy etc. For the future it is envisaged that by allowing free selling and buying of the land, optimum size agricultural economies for the development of agriculture will be set up.

Foreign Invements and International Cooperation

Another problem is that of the actual development of our economy through cooperation with foreign capital. Interested in this cooperation is not only the Albanian state, but are also the foreign firms themselves. The investment of foreign capital in Albania is very beneficial to various firms, for the following reasons: Firstly, Albania is a country with many and diversified natural resources as well as with very favourable climatic conditions for the development of agri culture. The presence of oil, chrome, copper, iron-nickel and other useful min- Process of Privatization ofA Ibania 's Economy 539 erals enables the beneficial establishment of capital for the Albanian state and foreign firms. Secondly, the availability of labor makes up another condition which fa vours the carrying out of beneficial investments for the Albanian state and for eign firms. Thirdly, foreign firms enjoy all the guarantees, not only for the invested cap itals but also the profits belonging to them. These firms may convert their profits into foreign currency or transfer them in the form of raw material de liveries into the countries of their origin or elsewhere. To facilitate and guarantee the cooperation of the Albanian state with for eign firms the initial legislation, which regulates the introduction of foreign capital, the ways and conditions of its cooperation with the local enterprises, is worked out as well. In this context the following decrees are important: “On the economic ac tivity of the enterprises with foreign capital” and “On the protection of foreign investments to the Republic of Albania”, approved by the Presidium of the People’s Assembly on July 31, 1990. In the course of these decrees, the Council of Ministers of the Republic of Albania has issued some decisions for the reorganization of Albania’s eco nomic relations with Foreign Countries. Through these decisions Albanian economic institutions and enterprises are recognized the right to establish di rect business relations with foreign partners in cooperation with the foreign economic relations institution. A new important step in working out the legislation is the decree of March, 1991. According to this law-decree, with the approval of the Council of Minis ters, the Albanian enterprises, companies and social organisations can set up joint ventures with foreign physical or juridical persons. They can conduct their economic and financial activity in Albania, through buying state assets with their financial means and with credits.16 The legal measures worked out so far, include the basic provisions and guarantees generally contained in the legislation of the advanced countries on the activity of joint ventures with foreign capital. It guarantees the interests of the development of our economy and its relation to the world. The basic contract on the foundation of the intended cooperation and the technical and economic documentation attached to it are submitted for appro val to the Council of Ministers of the Albanian Republic, which gives the re spective authorization for an initial ten year term that can be repeated in agree ment with the contracting parties. The statutes of joint companies are as well approved in order to facilitate the activity of the foreign capital in Albania. These statutes and the other ju ridical norms related to them define that these enterprises have independent status and operate to realize the objectives defined in the contract of their creation, under the direction of joint organs such as the assembly of sharehol-

16 Zeri ipopullit, March 3,1991; Decree-Law No. 7475, March 12,1991. 540 Iljaz Fishta - Dilaver Sadikaj ders, the council of administration and executive leaders. Their financial obli gations to the state are defined by law and reflected in the statute. The legislation fully guarantees the personal and the real properties of these enterprises for the shares, bonds etc. The legislation protects the foreign capi tal from expropriation and nationalization. The elaboration and announcement of the legislation on the introduction of foreign capital into Albania, and the other measures the Albanian state has adopted in this field have encouraged various capitalist states and firms to make investments in Albania. A series of concrete agreements were reached and signed in Albania within a short period of time, and others are under way for the investment of foreign capital in various branches of the economy, such as the intensification and extraction of oil in the coastal area, the development and modernization of engineering, electrical and electro-technical industry, the setting up of the lines with advanced technology for the production of shoe-leather and of textile-confections with the client’s raw material, some measures for the intensification of agricultural production and for the proces sing of agricultural products, the utilization of forests and timber processing, the expansion and modernization of the lines to obtain the materials for con struction materials, tourism etc. Serving this aim efforts have and are being made for the creation of joint banks, which will finance and control the effective use of the funds in the branches in which the joint ventures operate or in other sectors. At the same time we have made contacts with regional and international or ganizations to regulate the economic relations within the framework of the Bal kan cooperation, with the European Community and the UN organizations. This aims at expanding these cooperations and making them more stable. A series of cooperation agreements were materialized already earlier, espe cially beginning in the second half of the year 1990, and some enterprises or special units have even started their joint activity with foreign firms. In the context of cooperation with foreign capital, Albania’s relations with the Italian capital occupy a priority place. For some time now the government of the Republic of Albania has entered into talks with the Italian government to receive an important credit which will help in stabilizing the economy, that is, in ensuring the raw materials for the industries which are paralyzed by the current crisis, as well as in further developing various economic branches. In the context of cooperation with the Italian capital an agreement was reached in 1990 between the Albanian firm Minergo-impeks and the Italian SIRCO- TREDING, and work has begun for the construction in Shengjin of the instal lation for drying the copper scorias, which will process the scorias of the Chemical-Metallurgical Combine of Lac and those of the copper enriching factory of Rubik.17 The Italian firm has also shown interest in the oil research and extraction in the Adriatic sea area etc.18

17 Zeri i Popullit, dt. September 15,1990. 18 Zeri i Popullit, dt. January 16,1991. Process of Privatization of Albania ’s Economy 541 A serious partner the government of the Republic of Albania is cooperating with for the exploitation of natural resources is German capital. On Au gust 15, 1990 talks started with the German firm DEMINEX on possibilities to prospect and extract oil in one of the three main oilbearing areas in the Adriatic Sea.19 This agreement is in the process of discussion and materializa tion and we believe that it will soon be put into practice. According to a con tract reached in September 1990, in the heavy and mining industry the Ger man firm KRISCHFELD will undertake to reconstruct the chrome enriching factory by designing a new technological scheme.20 In cooperation with the German firms DUNKOP and PAFF a line for the production of clothes for export is put into operation.21 Of special importance is the commencement of setting up the joint Albani- an-Swiss bank “SWISS Albania Iliria Bank”. This bank will help introduce foreign capital, to finance new projects and those to be reconstructed in var ious sectors of the economy, as in the light and food industry, the construction materials and electro-mechanical industries, in the field of trade. The bank will exercise its activity for no less than a 30 years period.22 Agreements are reached also with other firms from Austria, France, the USA, Greece etc. The privatization process of the economy is a difficult and complicated pro cess. But Albania is working in this direction. Its presence in the Fora of the European communities, especially her admission to the Conference on Securi ty and Cooperation in Europe, create new possibilities for Albania to resolute ly go ahead with the privatization of its economy through its own work and with the support and assistance of the European Community and other states.

19 Zeri i Popullit, dt. August 15,1990. 20 Zeri i Popullit, dt. September 15,1990. 21 Zeri i Popullit, dt. September 9,1990. 22 Zeri i Popullit, December 26,1990.