Report No. 62518-AL Public Disclosure Authorized ―Governance in Albania: A Way Forward for Competitiveness, Growth, and European Integration‖ A World Bank Issue Brief June 2011 Poverty Reduction and Economic Management Unit Europe and Central Asia Region Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of the World Bank CURRENCY EQUIVALENTS Currency Unit = ALL (Albanian Lek) ALL 1.00 = US$0.0102859 US$ 1.00 = ALL 97.2200 WEIGHTS AND MEASURES The Metric System is used throughout the report Acronyms AL Albania BEEPS Business Environment and Enterprise Performance Survey CoE Council of Europe CPI Corruption Perceptions Index CSD Child Survival and Development DP Democratic Party EBRD European Bank for Reconstruction and Development EC European Commission ECA Europe and Central Asia EEC European Economic Community EU European Union FDI Foreign Direct Investment FYR Former Yugoslav Republic GDP Gross Domestic Product GNI Gross National Income GRECO Group of States against Corruption HDI Human Development Index IBRD International Bank for Reconstruction and Development IDRA Institute of Development and Research Alternatives IFC International Finance Corporation INSTAT Albanian Statistical Institute INTERPOL International Criminal Police Organization IOM International Options Market ISSR Implementation Support & Supervision Report LSMS Living Standards Measurement Study MDGs Millennium Development Goals NATO North Atlantic Treaty Organization NGOs Non-governmental Organization NSDI National Strategy for Development and Integration OECD Organization for Economic Co-operation and Development PAMECA Police Assistance Mission in Albania PPP Purchasing Power Parity SAA Stabilization and Association Agreement SEE Southeastern European SIDA Swedish International Development Authority SIGMA Support for Improvement and Governance and Management UK United Kingdom UN Unites Nations UNDP United Nation Development Program UNDP United Nations Development Programme UNODC United Nations Office of Drugs and Crime US United States USAID United States Agency for International Development WBI World Bank Institute WGI Worldwide Governance Indicators Vice President Philippe H. Le Houerou Country Director Jane Armitage Sector Director Yvonne M. Tsikata Sector Manager William Dorotinsky Task Team Leader Clelia Rontoyanni PREFACE Over the past decade, the World Bank has intensified its focus on governance as a key factor accounting for variations in development effectiveness. Through its long-standing engagement in Albania, the World Bank has supported institutional development and governance reforms to help strengthen the capacity of state institutions to deliver public goods and achieve development outcomes more effectively and efficiently. Governance is a key pillar of the Government‘s National Strategy for Development and Integration for 2007–2013. The World Bank‘s seminal report on governance and development (1997) defined governance as ―the manner in which power is exercised in the management of a country‘s economic and social resources for development.‖1 The Bank‘s Strategy on Governance and Anticorruption broadens this definition to ―the manner in which public officials and institutions acquire and exercise the authority to shape public policy and provide public goods and services.‖2 The authors of the World Bank Institute‘s Worldwide Governance Indicators offer a more comprehensive approach: Governance consists of the traditions and institutions by which authority in a country is exercised. This includes the process by which governments are selected, monitored and replaced; the capacity of the government to effectively formulate and implement sound policies; and the respect of citizens and the state for the institutions that govern economic and social interactions among them.3 This Issue Brief draws primarily upon this latter definition, which takes into account the popular legitimacy of state institutions and respect for the law among citizens and government institutions—the ―softer‖ aspects of governance that are essential to understanding how policies are made and implemented in practice and how public resources are used. The Issue Brief is one of a series of policy notes on governance issues in Albania that were prepared as background papers to the World Bank‘s Country Partnership Strategy for Albania for 2011–2014. Two other Issue Briefs discuss real property rights and governance in the water sector. This Issue Brief makes no pretension to comprehensiveness and should be considered complementary to other Bank analytical studies, notably the Country Economic Memorandum (2010) and the Investment Climate Assessment (2009). It analyzes trends in several governance indicators and presents a case study on Albania‘s recent efforts to combat crime and improve public order and safety.4 This Issue Brief was prepared by Clelia Rontoyanni and Evis Sulko (World Bank Public Sector Specialists). Research on the case study on combating crime was conducted by Jana Arsovska (World Bank consultant and Associate Professor at City University of New York). Analytical 1 World Bank. 1992. Governance and Development. Washington DC: World Bank; World Bank. 1997. World Development Report 1997: The State in a Changing World. 2 World Bank. 2007. Strengthening World Bank Group Engagement on Governance and Anticorruption. 3 Daniel Kaufman, Aart Kraay, and Pablo Zoido-Lobaton. 1999. Governance Matters. World Bank Policy Research Working Paper No. 2196. 4 The case study was prepared based on research commissioned by the World Bank and conducted by Jana Arsovska, Assistant Professor at the John Jay College of Criminal Justice, City University of New York. inputs and insights from Erjon Luci (World Bank Economist), Greta Minxhozi (Senior Operations Officer), Roland Clarke (Lead Public Sector Specialist), Gregory Kisunko (Senior Public Sector Specialist), Jana Kunicova (Governance Specialist), Kimberly Johns (Consultant), and Judith Hoffmann (Consultant) are gratefully acknowledged. This work benefited from the guidance and advice of Jane Armitage (Country Director for the Western Balkans), Kseniya Lvovsky (Country Manager for Albania), Camille Nuamah (former Country Manager for Albania), and William Dorotinsky (Sector Manager). Funding provided for this paper by the World Bank‘s Governance Partnership Facility, which is financed by DFID, the Netherlands, and Norway, is also gratefully acknowledged. Governance in Albania: A Way Forward for Competitiveness, Growth, and European Integration Table of Contents EXECUTIVE SUMMARY ......................................................................................................................... i Albania‘s Governance Profile ....................................................................................................... ii. Case Study: Strengthening Public Order and Safety: A Success Story in the Making? .................. ii Governance in Albania: A Way Forward ......................................................................................iii ALBANIA‘S GOVERNANCE PROFILE ................................................................................................. 1 Governance Trends in Albania ...................................................................................................... 3 Trends in Informal Payments ....................................................................................................... 11 Improving the Quality of Governance in Albania ........................................................................ 18 CASE STUDY: ALBANIA‘S EFFORTS TO CONTROL CRIME AND ESTABLISH THE RULE OF LAW – ON THE WAY TO A GOVERNANCE SUCCESS STORY? .................................................... 21 Rising Crime Rates: Transition and Social Confusion (1991-2002) ............................................. 22 A Decline in Violent and Organized Crime: Albania Fights Back (2002-2009) ........................... 28 Declining Crime in the New Millennium ..................................................................................... 29 Factors in Improved Performance ................................................................................................ 33 GOVERNANCE IN ALBANIA: A WAY FORWARD ........................................................................... 37 Tables Table 1: Albania Basic Data, 2009.................................................................................................. 2 Table 2: Top Reformers on Doing Business, 2007/08 ..................................................................... 5 Table 3: Enforcing Contracts in Albania and Comparator Countries .............................................. 9 Figures Figure 1: Per Capita GDP (US$) ...................................................................................................... 2 Figure 2: Real GDP growth (%) ....................................................................................................... 2 Figure 3: Albania‘s HDI Score as Compared with Countries with Similar Per-capita GDP ............. 3 Figure 4: Albania‘s Worldwide Governance Indicators.................................................................... 4 Figure 5: Albania‘s Freedom in the World Ratings, by Indicators .................................................... 4 Figure 6: Albania‘s Global Competitiveness Index Score ................................................................ 6 Figure 7: Regulatory Quality Score-WBI World Governance