Reports

Harvard University’s Center for International Development and the Government of Albania has been engaged in a two year growth strategy exercise starting in 2013 till 2015. Discussions with the Ministry of Agriculture yielded that there is a need for conducting value chain studies on a few important product groups with the following objective:

• Cultivate ‘value chain’ oriented thinking within the Ministry of Agriculture
• Identify key issues ‘within’ the particular product groups and ‘across’ different product groups that need to be tackled at the public policy level

Here is a value chain study of the Medicinal & Aromatic Plants (MAPs), specifically of sage and lavender. The products have been chosen given its huge importance in the economy as the largest export commodity in agriculture and their contributions to a farmer’s income. A special black-belt team comprising ministry officials will take forward the findings of this study and will iteratively make policy, ensuring better policies and implementation at the same time.

The Centre for International Development (CID) at Harvard University has been leading a two year project with the Government of Albania to help identify and implement growth strategies by studying the constraints that bind specific sectors. In May this year, the Ministry of Agriculture tasked CID to look at the ban imposed by the European Union (EU) on the export of mussels from Albania. The research was sponsored by the Open Society Foundations, as a part of the grant OR2013-10995 Economic Growth in Albania granted to CID.

During the research project, we studied the value chain of mussel production and certification in Albania, mapped the requirements laid down by EU legislation and identified shortfalls in compliance. This report presents our findings and recommendations.

The Butrint lagoon is the main production center for mussels in Albania. By 1989, production from the lagoon had increased to 5,000 tons per year. It dropped dramatically in the 1990s due to an outbreak of cholera and the subsequent ban on the export of mussels by the EU. The ban has not been lifted since. Albania still cannot export mussels to the EU because these do not meet the required sanitary standards.

Our research finds that lack of reliable and affordable purification facilities is at the root of the problem. Unless this constraint is alleviated, it will continue to frustrate efforts to ensure compliance with standards.

During the last years production of fresh vegetables in Albania had an important growth due to the increase in the number of Ha using Greenhouses technologies. Many of the new investments came from former expats who spent a few years working abroad and came back -in some cases because of the crisis in Greece - with money and some experience in the field. However, although exports showed an important growth (in tomatoes, for example exports doubled from 2013 to 2011!), the sector has not been able to definitely take off and be a relevant player in the international market. The problem is not only that the share of Albania in the European trade is almost negligible but also that diversification didn't happen, quality has not improved and as a consequence the prices that Albanian producers get is very low - the lowest in Europe for some products like tomatoes. In this context, Albania has been focusing on the regional markets (probably not consciously but as a consequence of not having established a commercial relation with higher-end markets and not having a proper quality produce to offer), has been excluded from the best markets and has not improved the productive methods, practices, etc. Given this situation the building of new capacity was not necessarily a success: local markets started to be oversupplied and production losses are very high as a consequence.

In this report we analyzed the value chain of the fresh vegetables sector, focusing on the production of tomatoes. We detail the problems of the whole value chain (from the production to the marketing), pointing out the "missing links" that are preventing Albania to become a major tomato exporter in the European market. We find that there is a huge potential for the country - in terms of the natural conditions and also in terms of competitiveness -, but it is very difficult to be reached without making a re-organization of the sector to make it more integrated and give the proper incentives to solve simultaneously all the problems.

We found that in order to improve the general productivity of the sector it is not necessary to make huge capital disbursements. Although some of the constraints are clearly money-related, most of them are organization-related.

What the propose in this report is a method to re-organize the sector in a way that makes it easier for the economic agents to vertically and horizontally integrate and transform the sector into a "factory", where every participant has its defined role and work is divided with specific roles. The role of the Government is twofold: first, to facilitate the organization of this model, find the actors that can lead the change and provide them the incentives to coordinate. Second, to provide all the public goods that are now missing or incomplete (not only in terms of infrastructure but also in terms of marketing, negotiations, etc). In the next sections we explain with detail the constraints and missing links we found throughout the value chain of tomatoes and propose a new model to solve them. We show that with little organizational changes, Albania could increase its tomato exports by four times in a few years.

Immigration and Economic Transformation: A Concept Note

Ljubica Nedelkoska, Tim O’Brien, Ermal Frasheri, Daniel Stock

In May 2017, CID prepared a concept note that described the connection between immigration and knowhow transfer internationally and profiled the current state of low immigration levels and immigration policy issues in Sri Lanka. The note identifies immigration policy reform as an important area of opportunity for unleashing higher levels of entrepreneurship and the introduction of new knowhow for economic diversification in Sri Lanka, but stops short of providing specific recommendations. Instead, the note lays out broad ideas for making immigration policy more flexible and encourages the Government of Sri Lanka to activate a cross-government policy team that is capable of developing reforms that meet Sri Lanka’s particular needs. 

A Comparative View on of Immigration Frameworks in Asia: Enhancing the Flow of Knowledge through Migration

Ermal Frasheri, Ljubica Nedelkoska, Sehar Noor, Tim O’Brien

Later in 2017, at the request of a policy team of the Government of Sri Lanka, CID conducted research to compare immigration policy frameworks in other countries in Asia to understand promising policy options for Sri Lanka. Our resulting research note focuses on Indonesia, Vietnam, Thailand, Malaysia, Hong Kong, and Singapore. We find that the immigration policies of the six countries vary across numerous dimensions as each country prioritizes attracting the talents, skills and resources it needs from abroad in different ways. These variations provide a range of examples that may be relevant to decision-makers in Sri Lanka. Additionally, we find an emerging pattern among the six countries where more developed economies tend to have more elaborate immigration systems and target a more diverse set of people. By looking at available data, we also confirm that more elaborate immigration systems are closely associated with more actual immigration, higher presence of foreign firms, and higher levels of foreign direct investment (FDI) among this group of countries. Based on the comparative analysis, together with the issues identified by the Department of Immigration and Emigration’s Gap Analysis, it is possible to identify a number of principles around which future immigration reform in Sri Lanka should be organized. 

Economies grow by adding new products and services to their production portfolio, not by producing more of the same kinds of products. The key to such diversification is access to know-how, but know-how often has to come from abroad. This is because it is often easier to move brains to new countries than to move new know-how into brains. In the experience of Singapore, India, Vietnam and most other dynamic economies, three channels of know-how transfer stand out: FDI, immigration and diaspora networks.

In this lecture, Professor Hausmann explores the relationship between economic development and the accumulation of know-how. In particular, he discusses how to tackle Sri Lanka’s limited export diversification.

Video - Accessing Know-how for Growth in Sri Lanka

Video - Full Q&A on Sri Lanka's export diversification

This note collects evidence related to possible constraints to economic growth, and their relation with GoSL’s industrial zone development agenda. We find that new zones are especially well-suited to help address Sri Lanka’s lack of industrial land and high policy uncertainty, both of which may be holding back growth. Less clear, however, are zones’ impact on Sri Lanka’s limited transport links beyond the Western Province. Finally, partnering with well-connected zone management companies may also help create opportunities to connect with firms in new, non-traditional sectors.

In this study, we analyzed Albania’s industrial exports using the frameworks of the Product Space and Economic Complexity in order to determine which products Albania could diversify into in the near future. In particular, we identified groups of products that are technologically close to those which Albania already exports and which at the same time are technologically more sophisticated (more complex) than Albania’s average exports. This analysis does not suggest that products that do not fulfill the criteria of technological proximity and product complexity should not be invested in. However, it suggests that some products may have higher chances of succeeding in Albania because of its existing technological capabilities, while also bringing about diversification towards more complex, higher value-added production.

We find that the top two sectors that satisfy the criteria of being in close proximity to the existing technological capabilities in Albania, while also having relatively highly complex products, are Plastics/Rubbers and Agriculture/Foodstuffs. Within each of these sectors, we list more specific products that make for good candidates for diversification.

Venezuela is at a breaking point. The political, economic, financial, social and humanitarian crisis that has gripped the country is intensifying. This unsustainable situation raises several urgent questions: Which path will the embattled OPEC country take out of the current turmoil? What type of political transition lies ahead? What short-term and long-term impact will the crisis have on its ailing oil industry, economy and bond debt? What would be the best and most effective prescription for oil and economic recovery under a new governance regime? To discuss these matters, the Center on Global Energy Policy brought together on June 19, 2017 a group of about 45 experts, including oil industry executives, investment bankers, economists and political scientists from leading think tanks and universities, consultants, and multilateral organization representatives. This note provides some of the highlights from that roundtable discussion, which was held under the Chatham House rule.

About four years ago, at the onset of CID’s engagement in Albania, the country faced two issues that were threatening its macro-fiscal stability: a skyrocketing public debt and an insolvent, publicly-owned electricity distribution system that was plagued by theft and technical inefficiency. These two interlinked issues constrained both short-term economic growth and the ability of the country to develop new drivers of long-term growth. Over the subsequent years, the government was able to successfully respond to these constraints through a now-concluded IMF program and through a series of reforms in the electricity sector. With these constraints now relaxed, CID saw the need for a new analysis of the current and emerging constraints to growth in Albania. This analysis will guide future research and inform the government and non-government actors on emerging economic issues for prioritization.

While growth has accelerated over the last several years, to over 3% in 2016, this is not a pace that will allow for a rapid convergence of incomes and well-being in Albania with that of developed countries in Europe and elsewhere. This growth diagnostic attempts to identify the binding constraint to sustainably higher economic growth in Albania.

Recognizing that economic growth requires a number of complementary inputs, from roads to human capital to access to finance and many more, this report compares across eight potentially binding constraints using the growth diagnostic methodology to identify which constraint is most binding. This research was conducted throughout 2016, building on prior research conducted by CID and other organizations in Albania. Each constraint discussed in this report is cited by analysts within or outside the country as the biggest problem for growth in Albania. Through the growth diagnostic framework, we are able to evaluate the evidence and show that some constraints are more binding than others.

Despite serious issues in many other areas, we find that the binding constraint to stronger growth in Albania is a lack of productive knowhow. By “knowhow,” we mean the knowledge and skills needed to produce complex goods and services. Albania faces a unique knowhow constraint that is deeply rooted in its closed-off past, and the limited diversification that has taken place in the private sector can, in nearly all cases, be linked to distinct inflows of knowhow. The strongest sources of knowhow inflows into Albania have been through foreign direct investment and immigration, especially returning members of the diaspora who start new businesses or upgrade the productivity of existing businesses.

The evidence also points to particular failings in rule of law in Albania that play an important role in keeping Albania in a low-knowhow equilibrium. Weaknesses in Albania’s rule of law institutions, including frequent policy reversals and corruption in the bureaucracy and judiciary, increase the risk of investments and transaction costs of business. While it is difficult to separate perceptions from reality in this area, both perceptions of weak rule of law and actual rule of law failings appear to play critical roles in constraining more diversified investment in Albania. We find that while existing firms in Albania successfully navigate the rule of law weaknesses, and in some cases benefit from the system, potential new investors are acutely sensitive to rule of law issues.

Venezuela’s business environment is systematically evaluated as one of the worst in the world. Producing and investing in the country imposes costs and risks arising from macroeconomic instability. Beyond the problems of inflation, fiscal deficit and trade balance; firms and entrepreneurs also face enormous difficulties and discouragement going from the uncertainty about property rights to lack of electricity. To identify binding microeconomic constraints for investment in Venezuela, we reviewed international rankings and experiences about key elements of the business environment and conducted interviews with members of guilds and managers at large companies in the country. We find that the most biding constraints to investment are within the functioning of institutions, including weak property rights, and arbitrary, unbalanced and unpredictable enforcement of the law. Also binding is the flawed functioning of markets, including access to inputs and price controls.

This document explores Albanian aquaculture in the context of European aquaculture and compares it to neighboring countries, especially Greece. Using information from fieldwork, multiple reports by the United Nations’ Food and Agriculture Organization (FAO), and interviews with experts in government and non-government institutions, we analyze the production of European seabass and Gilthead seabream in Europe in general and in Albania in particular. Albanian cultivation of seabass and seabream has increased sevenfold since production started in the early 2000’s, but it represented only 0.38% of European aquaculture of these two species in 2013. Albania has significantly lower productivity than its neighbors, especially Greece, the dominant actor in the market. The analysis indicates that Albania’s lower productivity is caused by: (i) high costs of cages, fingerlings, and feed; which are all imported; (ii) lack of a formal fish market; and (iii) lack of clarity in the regulation. The document concludes by offering recommendations to get over these impediments for growth including reducing tariffs; encouraging national production of cages, fingerlings, and feed through investment in research; offering more and better financing options for cage acquisition; improving quality controls; establishing a national fish market; and passing the Aquaculture Law to bring clarity to the sector regulation.