Interview with Emanuel Salinas, World Bank Country Manager for Albania, with Monitor magazine. This interview was originally published in Albanian on January 9, 2023.
Monitor: How do you evaluate the performance of Albanian economy during 2022?
Emanuel Salinas: I am always very impressed when looking at Albania GDP. First, the impact of the pandemic on the economy was significantly lower than that of other countries in the region, and then, the rebound has been very strong. We estimate that GDP grew by 3.5% in 2022.
To me, this is evidence of a few things. First, an impressive resilience of the private sector, which I think is linked to the entrepreneurial spirit of Albanians. Second, before and during the crisis the Government maintained a prudent fiscal management, which created room for manoeuvre in difficult situations where revenues (tax collection) decreased while expenditures increased rapidly (including reconstruction after the earthquake and support to the population during the pandemic).
On the negative side, the war in Ukraine and the sanctions imposed on Russia disrupted supply chains and were reflected in surging prices of food, energy, and key minerals used in various industries. These developments gradually affected Albania’s inflation. This has adversely impacted the poorest citizens given the higher weights these items have in the consumption basket of the poor. We noted that the government amortized the shock by keeping unchanged prices of energy for business and consumers as well as responded through temporary controlled prices for transport fuels and key food items. These actions redistributed the burden of global price increases and prevented a full transmission to domestic inflation. Yet, these also had a negative fiscal impact.
Monitor: How do you expect the progress of the country's economy in 2023? What are the factors that will affect it positively and negatively?
Emanuel Salinas: At this point, the main uncertainty is the war in Ukraine. Let me start by quoting the World Bank President, Mr. David Malpass: “Russia’s invasion of Ukraine continues to have devastating economic and humanitarian consequences. The World Bank Group is horrified by the shocking violence and loss of life as a result of the events unfolding in Ukraine. We are a long-standing partner of Ukraine and stand with its people at this critical moment."
For Albania, this war and its direct and indirect consequences throughout the region is likely the most significant source of uncertainty for 2023. I believe that we are all shocked by this war and pray for a rapid and just resolution, but nobody knows when that may come.
In absence of that, we believe that Albania has strong foundations for growth. In our view, the most important asset for the country is its human capital. This is really what has enabled the rapid growth of the country and the major transformation that Albania has experienced over the past 30 years.
Monitor: Recent years have shown that many events are impossible to predict (such as the pandemic or Russia's attack on Ukraine). How prepared is Albania to face such events in the future, while these events have worsened its finances and postponed plans for fiscal consolidation?
Emanuel Salinas: There is a famous phrase that says “there are known knowns, known unknowns and unknown unknowns”. At first glance this sounds simplistic or even non-sensical but I think it encapsulates the essence of uncertainty and the challenge of resilience.
Albania has been affected by back-to-back shocks over the past years, but these are of different nature and degree of uncertainty, and they require different things from us in terms of preparedness.
There are the recurrent risks that we know about (let’s say, the known knowns), including floods, droughts and wildfires. We know that they will happen and we can even predict them with some degree of accuracy. More importantly, we can work ahead to mitigate their impact by investing in infrastructure (eg. flood prevention dykes, irrigation infrastructure) and systems (eg. for early detection of wildfires). We are working with authorities in projects that strengthen roads and bridges to make them more resilient to shocks and we are working with the Ministry of Agriculture to improve irrigation and introduce climate resilient agriculture processes.
Then there are the known unknowns. These are the risks that we know exist, but we can’t predict when they may materialise. I would put in this category earthquakes and climate change. For this type of risks we can do two main things: First, we need to invest in knowledge that covers the risks that we do not know enough about. For example, we know that Albania is one of the most vulnerable countries in Europe to climate change, but the extent of the impact across the economy is still undetermined. So, we are starting a new analysis (it is called Country Climate and Development Report) that will help identify vulnerabilities and inform actions needed. Second, we need to be prepared to rapidly respond to shocks and natural disasters when they occur. We have been working with authorities on informing strategies to improve Disaster Risk Management (DRM), but much more is needed and we hope to be more active on this going forward.
And finally, there are the unknown unknowns. These are risks that lay ahead of us that we cannot foresee, or we do not even know that exist. If we were in, say, 2019 the pandemic and the war in Ukraine could be examples of that. We just did not imagine these shocks would happen. For these risks, the best thing we can do is create the fiscal space to be able to respond rapidly and mitigate the impact of the shocks on the population.
Monitor: Albania workforce is emigrating creating a severe bottleneck for the economy and businesses. In your opinion, how concerning is this situation and what should be done by the government and other actors to curb the rates of emigration?
Emanuel Salinas: As I mentioned at the beginning, we firmly believe that Albania’s human capital is the most important asset that the country has. Any loss of human capital takes a toll on the overall development trajectory of the country. And indeed, it has been well documented that shortages of qualified labour are already undermining the potential of companies based in Albania to grow.
Migration is indeed an issue, but I suggest that we take a much broader look.
First, we need to ensure that Albania’s population (especially the youth) have the foundations for a healthy and productive life. We estimate that deficiencies in healthcare and education could result in as much as 40 percent of lifetime productivity. Much has been done to improve healthcare and I think that the country is well on track to further improving it in the future. Similarly, we need to ensure that the education programs and systems are continuously evolving to ensure that students are equipped with knowledge, skills and qualifications that are directly relevant to the current work environment.
Legacy education systems in many countries place too much importance on learning by repetition and ability to memorise concepts, dates and events. That was relevant to production systems that are based on repetitive manufacturing. But we know that technological change is rapidly eroding jobs in these sectors. Everything that can be automated has or will likely be automated soon and any jobs remaining in these sectors will probably be low paid and with limited prospects. On the contrary, the jobs of the future will likely be characterised by what we call ‘soft skills’, including adaptability, empathy, problem solving, ability to learn continuously and socio emotional skills. So, the question is, are we equipping our youth with those skills? Or are we still teaching them with skills that are no longer relevant?
In a recent survey (Balkans Business Barometer 2022), almost 30 percent of workers in Western Balkans feel that the education system failed to provide the adequate skills that their job needs and 62 percent expressed that they are not learning new skills or advancing their skills. However, more than half of the respondents expressed that they would be ready to improve and get additional qualifications to get a job. From the firms side, more can be done to offer training opportunities for their workers. Forty-five percent of firms responded that they do not regularly review the skills and training needs of individual employees, and only 21 percent of firms do. Further, policies to or contribute with their know-how should be encouraged, along with improving education system effectiveness.
Second, we need to ensure that the limited human capital is used in the most effective way. Right now, many of Albanian products and exports are raw materials or with limited value added and this depend on low cost and plentiful labor. This cannot be the source of better jobs and is likely not a very good use of limited human capital. On the opposite end of the spectrum, Albania has a thriving and successful knowledge economy. These activities are good opportunities for better jobs and higher salaries. But knowledge economy is still small, while many ‘legacy’ activities (like subsistence agriculture) still account for a larger source of jobs. Helping people to transition from legacy to knowledge economy will require the rethinking of the education system that I mentioned above.
Third, we need to further enable fair and equitable women’s participation in labor. We estimate that this could increase Albania’s GDP by as much as 20%. And what this means is: ensuring that there is no difference in salary for women and men for the same jobs; that women have the opportunity to be economically active after childbirth through the provision of safe and high quality childcare.
Fourth, we need to ensure that there is a seamless connection between employers and job seekers and to help the unemployed to be economically active. We are working with the Ministry of Health and Social Protection to strengthen employment support systems and social protection to help in these areas.
Monitor: For the moment construction is attracting a lot of investment in Albania. How do you see it? Which are the most prominent sectors for the future development of Albanian economy and what should be done to support and incentivise them?
Emanuel Salinas: Indeed, construction and consumption have been very active sectors that have attracted a lot of investment and labor, and have had a major contribution to economic growth. But I think that it is very well recognized that going forward there is a need to rebalance the economy towards sectors that can create better jobs and more resilient and inclusive growth.
I believe that Albania has very good potential in many sectors, from tourism and agriculture to manufacturing and services. While the sectors are very different, I think that there are a few principles that apply to all of them, including enhancing value addition, adopting new technologies and adopting at heart a ‘green’ approach – balancing use and conservation of natural resources and depolluting the economy. I believe that Albania can distinguish itself as a green, environmentally respectful and sustainable economy and that in itself can be part of the branding of higher added value products and services, that can in turn create more and better jobs.
Monitor: How do you evaluate the performance of your projects in Albania till now?
Emanuel Salinas: I am very proud of all our work program in Albania. As we close the year, we can look back and honestly see that we delivered what we promised, from renovated hospitals and better roads to improved urban spaces and heritage sites, stronger social protection systems, better water supply, improved access to markets for Albanian products throughs streamlined trading across borders. But beyond that, I think we have contributed to inform several programs and policies of the Government on areas including macro-fiscal stability, financial sector development, public financial management, disaster risk management, social protection, environmental sustainability, gender equality and poverty reduction, to name just a few areas.
Monitor: What are your plans for the future regarding projects and supports for Albania?
Emanuel Salinas: At the moment we are preparing five new projects in response to the request of the Albanian authorities. We are also very proud of these upcoming projects as they cover areas that we consider critical, including: strengthening the resilience of bridges at risk to climate and natural risks; improving the quality of public services through digitalisation (GovTech); improving digital skills and literacy in public schools through SmartLabs; depolluting the Vjosa river and the Vlora coastline through investments that will deal with wastewater and solid waste; enhancing agriculture competitiveness and resilience to climate change; and supporting policies and actions towards macro-fiscal stability, resilience of the energy sector and green growth.
It is unprecedented to have so many new projects at the same time. We are humbled by the trust of our counterparts, and this is a source of energy for us to be do more, faster and better. We look forward to a 2023 that may not be easy and may or may not bring additional surprises, but we are not facing it as helpless bystanders but as partners. We have promised a lot for the next year, and we intend to stand by our word. We are here to help.