global competitiveness report 2007-2008 and albania’s...

Global Competitiveness Report 2007-2008

and Albania’s position

Selim Belortaja

December 18th, 2007

Contents

1. Competitiveness and its measurement. Global Competitiveness Index (GCI)

2. Methodological notes

3. Albania’s position in the Global Competitiveness

4. Policy suggestions and remarks

Trade related issues• Foreign Trade growth, 3-4 times higher than GDP (15-20% against 5 - 5.5 %)

• Higher growth rates on trade with Regional countries

But:

• Trade openness still low (38-40%)

• Exports growth higher, but instable (2004-2007)

• Import volume, 4 times higher than exports

• Remittances, 1,5 higher than commodity exports (12.8% GDP)

• Ten most exported products, 43 % of total

• Ten most imported products, 20% of total

• Only two countries (Italy and Greece), count for 83% of the Albanian exports, and 63% of Albanian imports

• Only 8% e Albanian exports, to SEE markets

• Only 7-8% of Alb. exports, agriculture and agro-processing products

Geography of Albania's Exports, 2006

Rest5%

EU-2588%

SEE 7%

Distribution of Albania's exports to EU, 2006

Germany3.6%

Others1.3%

France0.8%

Sw eeden1.0%

Italy82.5%

Greece10.8%

Tourism and services, still in “under zero” zone

2006 against 2005:• Inflows from tourism: 804 mln € (+16% against 2005)

• Tourism outflows: 768 mln € (+21% against 2005)A narrow positive balance (56 mln Euro (2005), 37 mln (2006), 54 mln January-September 2007

Balance of services in total, remains negative: from -140 mln € in 2005, to -65 mln € in 2006 (-11 mln in January-September 2007)

Balance of services, 1999-2006

-250

-200

-150

-100

-50

0

50

100

150

200

250

1999 2000 2001 2002 2003 2004 2005

Udhëtim Transport Të tjera Shërbime

2006

Additional remarks from International reports 2006-2007

• The Travel & Tourism Indicators (among 124 countries)– Rank 90 (score 3.8 out of maximum 7)

But: – Rank 124 (the world’s lowest) in “environmental regulation” – Rank 122 in ground transport infrastructure

While:

• Corruption Perception Index (Rap.2007) rank 105/179 (2,9 out of 10)2006:111 (score 2,6 out of 10, the worst level in the region)

• The Networked Readiness index1

– Rank 107 among 122 countries (score 2,87 out of maximum 6) (below are African states, Nepal, Bangladesh, Surinam and Paraguay)

1 The Networked Readiness Index (NRI) measures the propensity of countries to leverage the opportunities offered by ICT for development and increased competitiveness. It also establishes a broad international framework mapping out the enabling factors of such capacity.

New concept: what kind of productivity?

Competitiveness

Competitiveness – definition and complexity of its factors

What determines the prosperity of a the countries?The answer is: PRODUCTIVITY. The evolution of the concept

• Adam Smith – specialization, and division of labor• Malthus, Rikardo, etj (shek. 19): law of diminishing returns

(productivity) reduces the potential for prosperity• Neoclassics of 20th century, investment in physical capital and

infrastructure. • Later on, the focus shifted to a more comprehensive approach

including:– Education and training (from physical to human capital)– Technology,– Macroeconomic stability, good governance, rule of law, institutions, lack

of corrupsion, market reforms, government waste, firm sophistication, demand condition, market size, etc.

Competitiveness and GCIDefinition and contents:

How do we not define competitiveness: “a country’s share of the world market for its products”, as this is implies “a zero sum game” – one country’s gain comes at the expense of others

• How the GCR defines the competitiveness: “the set of institutions, policies and factors, that set the sustainable current and medium-term levels of economic prosperity”

• The level of productivity sets the sustainable level of prosperity by an economy. More competitive economies tend to be able to produce higher levels of income for their citizens

• The level of productivity also determines the rates of return obtained by investments in an economy.

• Rates of return - fundamental determinants of the growth rates. So, a more competitive economy is one that grow faster

Agregate formula of GCI

Methodology• 113 variables for the calculation of the GCI. Two main sources:

From existing reports(National Statistics, IMFWorld Bank, OECD etc.)

Total = 34

Responses from Executive Opinion Survey

(business perceptions)Total = 79

GCI

• … and weighted with the development stage of the country

Weights of three main groups of pillars, at each stage of development

30105Innov. & sophistic. factors

505035Efficiency enhancer

204060Basic factors

Inovationdriven (%)

Efficiency driven stage (%)

“Factor-driven”stage (%)

Group of pillars

Endowments (natural resources, locations)

Determinants of competitiveness

• Institutions• Infrastructure • Macroecomic stability• Health and primary education

• Higher education and training• Goods market efficiency• Labor market efficiency• Financial market sophistication• Technological readiness • Market size

• Business Sophistication• Inovation

Metodology for computing GCI

Basic requirements

Efficiency enhancers

Innovation factors

Key for “factor-driven”

economies

Key for“efficiency-driven”

Key for “innovation-driven”

GCI and Albania, 2007-08

Ranking ComparisonReport of WEF, 2007-2008

Global Competitiveness Index

Albania 2007: 109/131 (score: 3.48) Albania 2006: e 98/122 (score: 3.56)

• Rank 131 in “inovation” 122• “ 124 in “Infrastructure” 119• “ 117 in “goods market efficiency” 107• “ 114 in “Institutions” 111• “ 74 in “technological readiness” 88

• Main concern: lowest position as compare to the region

Business Competitiveness Index

Albania 2007: rank 122 out of 127 countries

Albania 2006: 119th out of 121

GCI and its 9 pillars, 2006

0

25

50

75

100

125GCI 2006–07 (out of 125)

1st pillar: Institutions

2nd pillar: Infrastructure

3rd pillar: Macroeconomy

4th pillar: Health and primary education

5th pillar: Higher education and training

6th pillar: Market eff iciency

7th pillar: Technological readiness

8th pillar: Business sophistication

9th pillar: Innovation

Croatia

Romania

Bulgaria

Macedonia

Moldova

Serbia & Montenegro

Bosnia & Herzegovina

Albania

0

65

130GCI 2007-08 (out of 131)

Institutions

Infrastructure

Macroeconomic stability

Health and primary education

Higher education and training

Market efficiencyLabor market efficiency

Financial market sophistication

Technological readiness

Market Size

Business sophistication

Innovation

Albania

Croatia

Bulgaria

Macedonia

Bosnia & Herzegovina

GCI and its 12 pillars 2007-08

Variables to pillar 1: Institutions

Variables to pillar 6: Goods market efficiency

Variables to pillar 9: Technological readiness

2007/2008: adjusted results for 12 pillars

2.11222.113112th pillar: Innovation

3.4923.310911th pillar: Business sophistication

3.1952.510710th pillar: Market Size

2.5883749th pillar: Technological readiness

3.9753.71038th pillar: Financial market

sophistication

4.1774.1887th pillar: Labor market efficiency

3.51073.51176th pillar: Good Market efficiency

3.0953.21035th pillar: Higher education and

training

6.0635.5654th pillar: Health and primary education

4.9674.7793rd pillar: Macroeconomic stability

1.81192.11242nd pillar: Infrastructure

2.971113.11141st pillar: Institutions

3.56983.48109GCI 2007-08 (out of 131)

scoreAlbania 2006 rank

(125)ScoreAlbania 2007 rank

(131)

The most problematic factors for doing business

Corruption, emerges again as critical problem

4 most problematic factors

Albania

Serbia

MAC

ROM

CROB&H

MOL

BULG

►Ineffic. Bureaucracy 18.1

►Policy instability

►Corruption 11.7

►Governm.instability

►Ineffic. bureaucracy 14.5


►Corruption 11.5

►Access to financing


►Corruption 14.4


►Tax regulation



►Corruption 13.1


►Inneficient bureaucracy 14.7

►Corruption 14.2


►Infrastructure

►Tax rates

►Tax regulation

►Ineffic. Bureaucracy 12

►Corruption 10.8

►Infrastructure 17.1

►Inefficient bureaucracy 16

►Corruption 15.4

►Policy instability►Inefficient bureaucracy 21.3

►Corruption 14.7

►Tax regulations 9.4

►Tax rates

Montenegro


►Infrastructure

►Inadequately educated workforce

►Corruption 12.5

Four most problematic factors, SEE

Indications from other sources:

• Stagnation in FDI-s• Economic Freedom• Ease of doing business• “Unreportet social aspects” –(abandonim zonal e

social, crime, apathy – depression)

FDI-s:

• 2006: 260 mln Euro, 16% increase against 2005 (224 mln Euro); 2004 was278 mln Euro.

• 2001: 232 mln Euro, sot vetëm 260

Viena Economic Institute:• East, Central and SEE region: 30% increase against 2005• SEE: 2 times more against 2005• Maqedonia 3,5 times increase• Serbia: almost 3 times• Croacia two time• Montenegro 1,63 time more

The lowest level in the region, regarding:• FDI Stok per capita 2006: 603 Euro• FDI per capita (annual) 2006: 82 Euro• FDI to GDP: 3,6%

Source: Central Bank of Albania*forecast, Ministrry of

Economy, Trade and Energy

Source: Central Bank of Albania*forecast, Ministry of Economy, Trade and Energy

Ease of Doing Business (2007 : 2006)

Albania, 2007 ranking: 136/178; 120 /175

But:– 165 in protecting minority investors,(162)– 118 in paying taxes (125) improvement– 168 in “dealing with licenses” (161) problem– 123 në “starting a business” (121)– 70 in “Trading across borders” (101) improvement– 178 in “closing a business” (89) problem nr 1

Economic Freedom• Economic Freedom Index 2007 (Raport i “Heritage Foundation” dhe

“Wall Street Journal”)

– Albania 2006 ranks 66 (“moderately free”) from rank 52 (“mostly free”) in 2005

While:• Freedom from Corruption• Property Rights• Business freedom• Investment freedom

Are below the awerage level, while together with:

• Monetary freedom• Government freedom

Reflects a slight decrease (Rep.2006, Rep.2007)

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