Running Head: ALBANIA: ITS POST-COMMUNIST GROWTH AND ITS CURRENT STATE OF POVERTY

Albania: Its Post-Communist Growth and its Current State of Poverty

Tresi Kacadej

Jacobs University Bremen

Development Economics 2017

Prof. Dr. Achim Schlüter

November 30th, 2017

 ALBANIA: ITS POST-COMMUNIST GROWTH AND ITS CURRENT STATE OF POVERTY

Abstract

The following paper aims to observe the development of Albania, focusing on its growth and

poverty rates since 1991 when the country ended its communist ruling. While since 1991

Albania transitioned from the poorest nation in Europe to a “middle-income” country as of 2008,

calling it a success story would meet disagreement even from its citizens. While from the

presence of poverty alone we can’t induct a statement regarding the country’s success in

development, we can delve deeper into the areas most affected by it to get a better portrait of a

developing country. The paper will use data from the World Bank, The World Factbook (CIA)

and some other, local Albanian sources in order to have a better understanding of its economic

progress and poverty situation.

Keywords: Albania, economy, communism, free-market, success

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 ALBANIA: ITS POST-COMMUNIST GROWTH AND ITS CURRENT STATE OF POVERTY

Albania: Its Post-Communist Growth and its Current State of Poverty

Albania is a small country strategically located along the Strait of Otranto, bordered by Greece in

the South, Kosovo, and Montenegro in the North, with wide access to the Adriatic and Ionian

seas. The landscape of the country is mostly mountainous, with a variety of natural features.

The country has been under the occupation of the Roman Empire and afterward the Ottoman

Empire until 1912. In 1991, Albania ended 46 years of communist ruling and adopted a multi-

party democratic system. (cia.gov) The geography and history of Albania are closely related to

its development process and progress of different domestic industry sectors.

Growth

As we can observe from Figure 1, there is no doubt that Albania’s economic growth since the

adaptation of the free market has been significant. If we were to split the post-communist era into

three main parts, those would be 1992 to 1997, 1998 to 2007 and 2008 to currently.

(documents.worldbank.org)

In the first period, 1992 to 1997, the GDP grew by an average 6.6 percent a year. In 1997,

there was a problematic disruption of economic activity caused by the collapse of the pyramid

savings schemes. A lot of families lost their lifetime savings and the country went into civil war.

The political and economic unrest settled down in 1998 and until 2006, and the growth of the

real GDP continued by 7 percent per year. Growth resumed soon after as evidenced by the 7

percent annual real GDP growth between 1998 and 2006. This growth was enabled by stable and

low inflation of around 3 percent from 1991 to 2007, sustained reduction in deficit financing and

the increment of remittances. (documents.worldbank.org)

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 ALBANIA: ITS POST-COMMUNIST GROWTH AND ITS CURRENT STATE OF POVERTY

After the global crisis of 2008, the growth of the Albanian Economy decelerated and the

decline in poverty stagnated. From an annual growth of 6 percent, Albania dropped to a growth

average of less than 3 percent per year between 2009 and 2012. Its lowest point since 1992 was

the 1.7% growth of 2013-2014. The world crisis resulted in the decrement of labor demand and

in the increment of poverty rates to 14.3 percent. (documents.worldbank.org)

Accentuated presence of poverty

While the transition from a communist country to a free-market democracy has lifted more than

12 percent of the population out of poverty since 2002, it has also brought to light the poverty

that characterizes mainly the rural areas. Despite the significant growth of the economy, almost

12.5 percent of the population, lives below the poverty level of US$2 a day.

(documents.worldbank.org)

The majority of the poverty is present in the rural area, areas that around 57percent of

Albania’s population call home. The struggle of over half of the population to provide meals for

their family is contrasted by a different situation in the cities. The poverty rate of rural areas is 66

percent higher than in the capital, Tirana, and 50 percent higher than in other urban cities.

(borgenproject.org)

One of the main reasons this level of poverty is present in the deep villages of Albania is

the lack of good infrastructure. The isolation of these villages leads to no available, local

customers, for their farm crops. Because they rely mainly, on agriculture, having no customers

for their farm crops leaves them with no other income. The sharp relief of the mountainous

landscape makes it difficult, if not impossible, for farmers to travel to other village or cities to

sell their products, on a regular basis. (borgenproject.org) Combining the lack of infrastructure

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 ALBANIA: ITS POST-COMMUNIST GROWTH AND ITS CURRENT STATE OF POVERTY

with a lack of market information, little awareness of the legal standards regarding food hygiene

and no consideration for safety, lack of financial services, obsolete equipment, and aging

population, there is no demand in the market for these farmer’s products.

For a country that relies heavily on agriculture, the agricultural labor force is far from

reaching its full potential. Characterized by disregard and disbelief towards government

authorities and formal institution (perhaps a post-communist effect), most farmers refuse to

formalize their businesses and join trade associations. (borgenproject.org)

In order to escape poverty, rural habitants have turned their eyes towards non-agricultural

employment in the cities. The data for migration reflect that 2 out of 3 internal migrants relocate

from rural areas. First, the majority of migrants, internal and international, originate from rural

areas. Until 2002, 33 percent of internal migrants moved to Tirana and another 33% to other

urban cities. Since 2002, Tirana has received a large number of migrants, reaching a greater

metropolitan population of around 800,000. Until recently, the flows of the internal rural

migrants have headed, in equal shares, to other rural areas, Tirana and other urban areas.

However, since 2002, disproportionately more migrants have moved to Tirana.

Conclusion

The recent increase of poverty caused by the stagnation of economic growth can be reversed by

accelerating Albania’s growth. However, accelerating growth will only be sustainable in the

long-term if the incomes of the workers grow parallel. The goals of eradicating poverty and

increasing income growth will have to be realized in an environmentally, economically and

socially-friendly way so that they are sustainable for the future generations.

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References

Albania: Urban Growth, Migration and Poverty Reduction. (2007, December 3). Retrieved

November 20, 2017, from

http://siteresources.worldbank.org/PGLP/Resources/Albania_PA_Grey_Cover_2007_FINAL.pdf

NEXT GENERATION ALBANIA. (2015, April). Retrieved November 21, 2017, from

http://documents.worldbank.org/curated/en/369731467992488252/pdf/95980-REVISED-SCD-

Box393175B-PUBLIC-new-Albania-SCD-Final-4.pdf

Poverty in Albania. (2017, April 18). Retrieved November 29, 2017, from

https://borgenproject.org/poverty-in-albania/

The World Factbook: ALBANIA. (2017, November 16). Retrieved November 26, 2017, from

https://www.cia.gov/library/publications/the-world-factbook/geos/al.html

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Appendix

Figure 1. Albania’s GPD in US Dollars from 1990 to 2016 (data.worldbank.org)