High migration, poor skills hampering Albania’s productivity, governor says
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- “The education system reform and the emphasis on vocational training are essential dimensions for the economy’s restructuring, whose benefits will increasingly become clearer in the longer run. However, Albania still has a lot of work to do in this regard, in particular with regard to containing the migration of its qualified labor force and the renewal of its labor force skills by the private sector,” says governor Sejko
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TIRANA, Sept. 19 - Containing the migration of qualified workers and upgrading labor force skills in the private sector remain key to boosting productivity in Albania as the Balkan country gradually switches to a new growth agenda, central bank governor Gent Sejko has warned.
Speaking at a seminar this week, the governor said productivity growth in the country has halved during the past post-global crisis decade amid an economic slowdown and restructuring of the country’s growth agenda toward industry and export-related services.
“The reduction by half of the economic growth pace after the crisis shows both the slowdown in the expansion of demand for goods and services, and the slowdown in the capacity of the economy to provide these products. Our studies have found that the degree of expansion of productivity in the Albanian economy - broadly defined as the capacity of an economy to utilize labor and physical capital to generate output - was reduced to 1 percent in this period, down from a previous 2 percent,” says Sejko.
The Albanian economy grew between 1 to 4 percent annually in the past nine years, compared to a pre-crisis decade of 6 percent annually, the growth rate estimated to bring tangible welfare to Albanian households, one of Europe’s poorest.
With the pre-crisis remittances, consumption and construction-fuelled growth having significantly waned over the past decade, Albania’s new growth agenda during the past five years has focused on new sectors such as tourism, energy, agriculture and also making use of public-private partnerships. The latter have been criticized by international financial institutions as lacking thorough cost-benefit analysis and posing a threat to the country’s debt reduction agenda by creating new government arrears.
Governor Sejko says the level and speed of productivity expansion is directly connected with the level of education and qualification of the labor force.
“The education system reform and the emphasis on vocational training are essential dimensions for the economy’s restructuring, whose benefits will increasingly become clearer in the longer run. However, Albania still has a lot of work to do in this regard, in particular with regard to containing the migration of its qualified labor force and the renewal of its labor force skills by the private sector,” says Sejko.
Rapidly ageing population and high migration rates pose key threats to Albania’s labor productivity which already remains Europe’s poorest performing, the World Bank has warned in a recent report.
However, the governor is optimistic Albania’s developing economy can still boost productivity without the need for innovation, a must in leading economies, and what it needs is consensus on the country’s development model and a strong will to apply the new agenda.
“Unlike the advanced economies on the technology frontier that see their progress related to their ability to innovate, Albania has considerable space for development through the adoption of the existing technologies and practices. In this respect, our task remains to choose and implement the tested models of development,” says Sejko.
“I am confident that Albania has all the capacity to increase productivity and, in this way, to accelerate the economic growth pace and increase the welfare of the Albanian people. What is needed now is consensus on the vision for the development of the country and a shared will to implement it,” he adds.
Poor productivity
In a report examining job dynamics in the country, the World Bank describes Albania’s labor productivity, measured as GDP output per worker, as the lowest in Eastern Europe at about US$31,000 per worker.
The report says that rapidly ageing population as a result of massive immigration and lower birth rates are expected to have a negative effect on labor productivity growth over the medium to long run.
“A potential concern is that Albania’s population is aging, which over the medium and long term will put pressure on productivity growth. High outmigration implies that part of the productive workforce is abroad – often the most educated, although no recent data exist on this,” says the World Bank report.
Albania has around 1.2 million migrants abroad, almost 40 percent of its resident population, making it one of the countries with the highest per capita migration around the world.
Poor compensation, rule of law and inefficient education and health sectors are the main reasons driving Albania’s most productive labour force abroad, in much higher rates compared to most regional countries.
The World Bank says Albania’s job creation in the past few years has mostly been in self-employment and in less productive jobs than existing jobs, largely benefiting adults and low-to-medium-skilled workers with fewer opportunities for those with higher levels of education.
One out of four jobs in Albania are in the low-productivity trade and repair sector.
About half of the country’s population is also employed in the little productive agriculture sector which due to land fragmentation, poor financing and small level of subsidies generates only a fifth of the country’s GDP.
Meanwhile, finding qualified staff with the right skills and knowledge is becoming an ever increasing top issue for employers in Albania as the country has been facing a new migration wave in the past five years and the population gradually declines and grows older.
A 2017 ‘Skills needs in Albania’ survey with more than 2,500 businesses nationwide shows that unsuitable qualification and poor work culture are the most recurrent concerns for employers in the country.
The way out
Improving the productivity of individual firms, infrastructure investment and an emphasis on green growth can help Albania and other Western Balkan regional countries get out of the middle-income trap and establish a new sustainable growth model, London-based EBRD says in a report measuring progress among transition economies.
The European Commission has also identified a series of ongoing obstacles to Albania’s growth and competitiveness and urged the EU aspirant Western Balkan country to strengthen its fiscal consolidation efforts in order to bring public debt to 60 percent of the GDP by 2021.
“Structural obstacles to growth and competitiveness include still unclear land ownership and insufficient enforcement of property rights, a high level (though decreasing) of informality and corruption despite progress achieved through judicial reform, an excessive regulatory burden and unpredictability in the judiciary system, which act as a discouragement to both foreign and domestic investment,” says the Commission in its assessment on Albania’s 2018-2020 economic reform programme.
A late 2017 World Bank report showing that catching up with the average EU income could take Albania and other EU aspirant Western Balkan economies about six decades unless current sluggish GDP growth doubles to 5 or 6 percent, the World Bank has warned in a recent report.
Albania, whose consumption and GDP per capita is at only a third of the EU average, will need 35 years to catch with the EU average income if it continues growing under the current 4 percent rate and 20 years if growth accelerates to an annual 5 percent, World Bank officials have said citing an optimistic scenario.
The Albanian government expects the country’s economy to pick up to 4.2 percent this year after hitting a 9-year high of 3.8 percent last year. However, key international financial institutions expect the country’s growth to slow down to 3.5 to 3.7 percent this year amid lower foreign investment as two major energy-related complete their investment stage and Europe’s single currency trades at a 10-year low against the Albanian national currency with a series of negative effects for the country’s highly euroised economy, mainly hitting Eurozone-destined exports.
