The economy and employment must be driven by a political model based on inclusiveness
The Albanian economy and labor market experienced a weak employment recovery after the COVID-19 pandemic, unlike the recovery experienced by EU member states.
A look at the performance of the EU economy shows that after contracting by -5.9% in 2020, the EU economy expanded by 5.4% in 2021. Growth continued to be relatively dynamic in 2022, at a rate of 2.7% . As a result of the Russian invasion of Ukraine and its consequences, including global inflationary pressures, economic growth is expected to be 1.4% in 2023 [1].
The unemployment rate in the EU increased in 2020, to a peak of 7.8%. At the end of 2021, unemployment fell to 6.5%, registering a historic low. The downward trend continued in 2022, albeit at a slower pace than in the second half of 2021.
In comparison to these indicative levels of the EU, the Albanian economy, after a contraction of -3.96% in 2020, the economy expanded by 8.54% in 2021 and 4.84% in 2022. Already being affected by the internal problems of the economy , as a result of the economic model mainly dependent on imports and services, the Albanian economy is expected to have grown by 3.7% in 2023.
This recovery, which is considered weak compared to the EU, was driven by a low recovery in the employment rate, but also high youth unemployment (27.1% in 2021 and 24.9% in 2022).
In 2020, 1,243,345 employees were registered in the labor market [2]. A year later, 1,248,749 employees were registered in the labor market (0.4% more than in 2020) and unemployment is 11.5% and decreased by 0.2 percentage points compared to 2020. While in 2022, in the market of work, 1,298,380 employees were registered [3] (4.4% more than in 2020) and unemployment is 10.9%, with a decrease of 0.6 percentage points compared to 2021.
Why, when the economic recovery in Albania after the pandemic was higher than in the EU, did it not mark the same upward trend for employment?
The initial reason is related to the acute problems of the informality of the economy and the labor market. Before the pandemic, most informal workers were not entitled to benefits from the government even though the normative act gave you a right to a benefit acknowledging this very acute problem still beyond the control of the government. To some extent, these problems continue to exist due to the need not to increase costs, both for businesses and for the wages received by employees. The economy in this way, as it is structured, cannot make the labor market effective after its stoppages or closures, as it depends on factors that are not in its decision-making, but are related to the influences of foreign trading partners, as well as deformations of internal policies.
The high percentage of informal employees has affected the budget year after year, leaving insufficient space to meet the needs for support, as well as those related to the promotion of sectors that require cooperation with the government’s incentive policies. In the developed European economies, governments and businesses have worked year after year, so that labor market problems related to social mobility, poverty and crises of various natures have successfully faced such difficult moments as the case of the pandemic after the budget well-administered with responsibility and expanded borrowing capacities have allowed these countries to maintain stable security reserves to withstand social and economic crises (direct capital injections in some productive businesses and direct social assistance to employees and the needy).
Another reason related to the arguments above are the problems that have prevailed in the Albanian budget related to the real impossibility to support businesses and employees in cases of crisis and shutdown of the economy, such as the case of the pandemic. The increasing level of loans has weakened the power of the state budget to help in these cases and have not affected the strengthening of a stable economy. It is a fact argued in many analyses, that government loans have been used to cover short-term policies designed based on narrow party and group interests. As a result, even though the debt situation increases year after year, the policies that have decided their distribution in the Albanian economy have not been accompanied by the various reforms that should be associated with a dynamic economic structuring and most of them are never completed and fail to deliver and the necessary effect.
The problems of political management of public investments and structural reforms are still an unsolved problem, where in recent years they have also shown high levels of internal inequality and/or dissatisfied citizens, as well as damaged supply chains, which for vital industries are a present risk, but which have influenced the economic recovery towards a stable growth trend. Although Albania does not have an absolute dependence on global supply chains and financial flows, it seems that the internal problems of the economy in 2024 and beyond will lead to a recovery oriented towards low growth.
The other reason is related to the government’s will and political model regarding changing the structure of the economy and its operating model towards diversification and interconnection between sectors. This approach is related to the reformation of the governance model from a closed governance to an open governance and in coordination with the demands of businesses and citizens. But, this reformatted approach can only happen if the government can trust businesses and citizens to make decisions, but also to increase the productivity of public and private administration and harmonized with a package of leaders of institutions with essential technocratic skills and who should form the backbone of governance. In other words, governance should be decentralized towards business and citizens and implement the commitments made regarding open governance combined with principles of direct governance.
A major reason for the recovery to continue to be sensitive not only in the indicators of economic growth, but mainly in the redistribution of growth as widely as possible in the regions of the country and the labor market is the weak participation in the governance of the local administration and a local financial autonomy still far from the target. Centralized governance, as a governance model of our leadership, has had negative consequences on the performance and productivity of local government. We should see a centralized government, not as the right policy for local empowerment. This centralist approach has not served properly even as the main driver of economic recovery for the peripheral regions or far from the capital, as it has lacked interweaving, elasticity and inclusiveness.
The main problems for the government should in fact be addressed around how to shift the authority of public investments to the local government and not be controlled by a dominant package from the central government. Local investment governance should be a form of equal partnership between central government and local government (including local business), where the latter should hold the controlling stake as this change in investment ownership quotas will generate more opportunities to identify and support activities and effective areas that will promote economic recovery.
But, this shift in the gravity of decision-making should be done simultaneously with the promotion of the renewed policy of distribution of domestic expenses through money transfer programs and the protection of local businesses from unfair competition inside and outside the country, with a common goal to protect industries that are vital to national security and are in line with promoting exports.
The building of a political model based on inclusiveness creates security and affects the stability of the local economy by revitalizing local communities.
However, this cannot happen with local initiatives, nor with businesses automatically, since the new economic model, based on the formula of the new social contract, should serve as an experience ready to be copied by adapting it and can to be one of the important stones in strengthening and expanding the foundations of the country’s economy.
[1] https://economy-finance.ec.europa.eu/system/files/2022-12/dp178_en.pdf
[2] https://www.instat.gov.al/media/10066/tregu-i-punes-2021.pdf
[3] https://www.instat.gov.al/media/11851/tregu-i-punes-2022.pdf