The principal objective of the project is to assist the Government of Albania in increasing competitiveness and profitability of industrial enterprises through restructuring interventions and inducing improved corporate governance mechanisms, thus paving the way for the integration of the Albanian industrial sector into the competitive reality of the emerging market economy. The project promotes and develops an appropriate environment of policies, institutional arrangements, and enterprise-level activities in Albania, to ensure the accelerated inflow of foreign investment, technology and management into Albania through promotional policies and measures, institutional arrangements and enterprise level development which is relevant to the Albanian situation during the transition period towards market economy. This is expected to bring about economic growth and improvement in the standard of living of the Albanian people, primarily through private-sector initiative, with necessary governmental policy assistance and institutional support.

The project has already made a significant contribution to the improvement of the investment climate in Albania. This was most evident during the November 1996 International Conference on Foreign Direct Investment in Tirana when over 100 international companies attended and expressed interest in investment opportunities in Albania. Nevertheless last year’s political situation in Albania has undone some of the achievements of the project, especially with respect to the country’s image and investors’ confidence. It’s important to be mentioned that through this project the capacity of the Albanian Economic Development Agency is strengthened for promoting and facilitating investment, and its staff trained in investment promotion. A follow-up International Conference on Foreign Investment in Albania was held in Tirana in November of 1999 in an effort to refocus the attention of the business community at large on the current obstacles to foreign investment in Albania, and to encourage constructive debate on the subject.

Since 1991, Albania has made remarkable progress in its transition to a market economy through an economic reform program mainly based on the liberalization of prices, commerce and exchange, fiscal and monetary control and the privatization of state owned enterprises. The process of economic reform and stabilization, however, remains fragile and will not be sustainable if not accompanied by the expansion of a solid production base driven by dynamic private sector development.

Many bilateral and multilateral donors have been working with the Government of Albania since 1991 to develop the private sector, but there has been a lack of clear policy framework and viable mechanisms to support policy implementation at the local level. UNDP, with UNIDO as implementing partner, is addressing these gaps with a two-pronged approach. The first is the provision of technical assistance to national authorities for the elaboration of a national strategy for SME (Small and Medium Enterprise) support and promotion. The second is technical and financial support for the establishment of two Business Centers in the central plains cities of Berat and Fier, which suffer from high rates of unemployment but have high development potential due to their location and resources.

UNDP has worked closely with the Ministry of Economic Cooperation and Trade to design a strategy for SME promotion. Two nationwide surveys concerning the institutional and economic barriers that entrepreneurs face at the local level in developing their business were commissioned by UNDP and GTZ, and have been invaluable tools for this task. The strategy presented to the Government offers recommendations and reform options on a variety of institutional, economic, legal and fiscal issues to promote SME development. Key features of the proposal include: a dedicated structure within, or under the guidance of, the Ministry of Economic Cooperation and Trade for the effective design and implementation of initiatives in favor of SMEs; a "development fund" giving small businesses that lack capital and/or collateral access to credit at favorable interest rates; simplified and less-costly registration procedures for start-up SMEs; a clear and accessible system of incentives and tax exemptions. Donors are showing serious interest in the UNDP SME policy platform.

A key issue in the transition of Albania to a market economy in the early 1990's has been the restructuring of the enterprise sector and the divestment of the state role. In the first years, quick state divestment, as opposed to economically viable restructuring, was the driving force behind the Government privatization strategy. However, a general lack of management skills and free market experience in the private sector, compounded by the obsolete conditions of the state enterprises, has rendered the first privatized entities weak and uncompetitive. Successful privatization in Albania, therefore, entails more than the mere act of divesting the state role and transferring the assets to the private sector.

Given this reality, UNDP has designed a program that includes restructuring interventions for as yet unprivatized state enterprises, to prepare them for divestment, and for already privatized enterprises, to render them viable and competitive. The project will work closely with 10-15 state-owned and 10-15 recently privatized enterprises to carry out detailed diagnostic analyses, and to develop and implement restructuring strategies for enhancing competitiveness. Within this framework, the areas of marketing, finance and production will be stressed. A key objective of the project is the development of a core group of 7-10 national consultants to work with the target enterprises. These consultants will be trained in modern management and restructuring methodology both locally and abroad. Structured training and guidance will also be provided to the management of the above enterprises in modern management techniques.

The project was inaugurated in November 1999 and is implemented through UNIDO. Enterprises are selected by the project based on the following characteristics: 50-200 employees; manufacturer of "primary goods" such as foodstuffs, garments, household items; domestic market demand; export possibility; impact on micro-economy in outlying areas. Emphasis is also put on building relationships with national and international banks and funding institutions that may, in the future, provide credit and other financial support to help these enterprises grow.

PROJECT NUMBER: ALB/99/001

EXECUTING AGENCY: Government of Albania

GOVT. COUNTERPART: Institute of Social Insurance

BUDGET: TRAC 1.1.1 & 1.1.2 – US$ 350,400

Among all Eastern-European countries in transition, Albania has arguably experienced the harshest economic and social costs of political liberalisation in the early 1990s. Under conditions of a crisis of confidence in power structures, rising unemployment, income inequality, and state budget constraints, the inherited socialist system of social security has proved ineffective and unable to cope. Pensioners, for example, receive a mere US$15-20 per month, and many of them receive nothing, or do not know that they are entitled to benefits, due to registration inconsistencies and a lack of information. The Albanian Government is faced with the challenge of creating a viable social security system that will protect its vulnerable.

UNDP will aid the Government in this pressing task by increasing the organizational and operational skills of the Institute of Social Insurance, an independent public institution responsible for the management of pension and social insurance schemes. The Institute of Social Insurance is both a financial institution and a service organization. In its role as a financial institution, it requires highly specialized personnel in the areas of investment management, actuarial tables and statistics, in addition to the normal functions of accounting and financial management. As a service organization, high levels of service in the form of reliable benefits must be provided to the insured persons. The project will focus on the nationwide training of Institute employees, the decentralization of the social insurance system, public information campaigns and the introduction of supplementary insurance schemes.

The project will train more than one-third of the 1000 employees in the following areas: communication skills for those in direct contact with the public; design and implementation of public information campaigns; record keeping; operation and management of computer of systems; law; management of insurance institutions; accounting and finance.

The Institute currently suffers from a poor public image, rooted in lack of confidence and resulting in widespread evasion of contribution (tax) payments and general ignorance with regard to available benefits, especially in rural areas. Therefore, the project will concentrate on public information as a means of bridging the gap between the Institute and its clients.

Because supplementary insurance does not currently exist in Albania, the project will also assist the Institute in preparing a proposal about the possibility, conditions and methodologies of supplementary insurance schemes in the country. Supplementary insurance, or micro-managed systems of benefits, can provide dedicated systems for some professional categories, such as education and military, in order to head off the overload of the existing, singular and centralized system of social insurance.