Albania Country Strategy - 2020-2025 Approved by the Board of Directors on 12 February 2020 - EBRD
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Albania Country Strategy
2020-2025
Approved by the Board of Directors on 12 February 2020
PUBLIC
Table of Contents and Glossary
Table of Content Glossary of Key Terms
AASF Albania Agribusiness Support ILO International Labour
Executive Summary
3 Facility Organization
Albania – EBRD Snapshot ABI Annual Business Investment IPA Instrument for Pre-Accession
4 ASB Advice for Small Businesses Assistance
I. Implementation of Previous Strategy – 2015- BAT Best Available Technology M SME Micro, Small and Medium
2019 5
C oO Country of Operation Enterprise
Key Transition Results Achieved during Previous C SO Civil Society Organization N PL Non-Performing Loan
5 E&S Environmental and Social ODA Official Development Assistance
Strategy Period
EBRD European Bank for PF I Partner Financial Institution
Challenges to Implementation and Key Lessons Reconstruction and PPP Public Private Partnership
7
II. Economic Context Development PR Performance Requirement
8 EIA Environmental Impact PTI Portfolio Transition Impact
Macroeconomic Context and Outlook for Strategy Assessment R&D Research and Development
8
Period EIB European Investment Bank SECO Swiss Secretariat for Economic
Key Transition Challenges ESIA Environmental and Social Affairs
9 Impact Assessment SEE South-Eastern Europe
III. Government Priorities and Stakeholder ETI Expected Transition Impact SM E Small and Medium Enterprise
Engagement 11 EU European Union SOE State-Owned Enterprises
F DI Foreign Direct Investment TA Technical Assistance
IV. Defining EBRD’s Albania Country Strategy 12 FI Financial Institution TAP Trans Adriatic Pipeline
Priorities GC AP Green Cities Action Plan TC Technical Cooperation
GET Green Economy Transition TF P Trade Facilitation Programme
V. Activities and Results Framework GVC Global Value Chain TPES Total Primary Energy Supply
13
H&S Health & Safety TSO Transmission System Operator
VI.Mapping of International Partners’ HR Human Resources VET Vocational and Educational
16
Complementarity in EBRD Business Areas IC A Industry, Commerce & Training
VII. Implementation Risks and Environmental and Agribusiness WB World Bank
Social Implications 17 IC GI Investment Climate and W BIF Western Balkans Investment
Governance Initiative Framework
VIII. Donor Co-Financing Assessment IC T Information and CommunicationW EF World Economic Forum
18 Technologies
Annex 1 – Political Assessment IF C International Finance
20 Corporation
IF I International Financial
Institution
PUBLIC 2
Executive Summary
Albania’s commitment to and application of the political principles stated in Article 1 of the Agreement Establishing the Bank continued since the
adoption of the previous Country Strategy, in line with its efforts towards implementation of the comprehensive EU approximation agenda. This
serves as the main external anchor for reforms, including as regards the strengthening of governance and the rule of law, where serious
challenges remain.
In the past four years the country showed an upward trend in GDP growth, primarily consumption-led, and a recovery in investments as a result of
two large FDIs in the energy sector. To speed up convergence to EU income levels, Albania needs to increase productivity, shifting the growth
model away from consumption to investments and exports, especially in view of unfavourable demographic developments, both in terms of
emigration and rapid urbanization in Tirana. Improved business climate is needed to support diversification and attraction of FDI, particularly in
sectors like tourism, manufacturing and agribusiness, to enable sustainable economic growth.
Transition gaps remain large across the six transition qualities of a modern market economy, as defined by EBRD. Governance and
competitiveness would benefit from tackling the wide-spread informal economy, as well as strengthening institutions. Low labour costs support
competitiveness but the economy is held back by skills shortages and mismatches, uncertainty over land and property rights, lack of know-how
and business sophistication, low investment in R&D, and weak innovation capacity. The financial sector continues to have high levels of
euroisation and is dominated by well capitalised and liquid banks, with relatively high NPLs and low credit to the private sector, while capital
markets remain undeveloped. Despite significant investments in roads over recent years, transport networks remain in need of further
substantial upgrades. Public sector counterparts require strengthened investment planning and implementation capacity, including on PPPs. The
country’s electricity generation continues to be almost entirely reliant on hydropower and urgently needs diversification to mitigate exposure to
climate change. Scaling up energy and water efficiency investments, substantial improvements in waste management, and investing in the
circular economy are other key components in the country’s green economy transition.
The Bank is well placed to address key transition gaps, by financing well-targeted investments and assisting reform efforts in close cooperation
with the EU, other IFIs and donors. Focus on strengthening governance should support better planned and managed public sector investments,
as well as assist the commercialisation and restructuring of SOEs. In the private sector, it should contribute to improved business climate and to
enable higher formalisation, diversification and FDI attraction. The Bank will also assist in addressing climate change vulnerabilities (particularly
by diversifying electricity generation sources), infrastructure upgrades, and improvements in domestic and regional connectivity, including
through WBIF.
The Bank will pursue the following key priorities in Albania in 2020-2025:
• Support governance improvements across the economy;
• Enhance private sector competitiveness and inclusion through wider access to finance and skills;
• Strengthen energy diversification and low-carbon transition.
PUBLIC 3
Albania - EBRD Snapshot
EBRD Investment Activities in Albania (as of December 2019) Albania Context Figures
Portfolio €722m Active projects 46 Albania Comparators
BIH (3.5)
Equity share 2% Operating assets €420m Population (million)3
2.9 North Macedonia (2.1)
1 (2018) Serbia (7.0)
2
Private Share1 56% Net cum. Investment €1,397m
BIH (13,583)
GDP per capita
ABI and Operations Por tfolio Composition 13,327 North Macedonia (15,715)
(PPP, USD)3 (2018) Serbia (17,552)
300 14 800
250 12 Global 81st BIH (92)
Investments (€m) 600 Competitiveness North Macedonia (82)
10 (out of
200
8 Index (WEF) (2019) 141) Serbia (72)
150 400
6
100 BIH (26.1)
4 200 Unemployment (%)4
50 15.1 North Macedonia (22.3)
2 (2018) Serbia (13.1)
0 0 0
2016 2017 2018 2019 2016 2017 2018 2019
ICA
Youth BIH (55.5)
ABI (left axis, €m) # of projects (right axis) Financial Institutions unemployment (%)4 32.7 North Macedonia (47.2)
Sustainable Infrastructure Serbia (31.3)
(2018)
Por tfolio Dynamics Transition Gaps2
Female labour force BIH (35.1)
800 312 350 Competitive
10 participation (%)4 47.0 North Macedonia (42.5)
300
8 (2018) Serbia (45.6)
600 Well-
Investments (€m)
250 Integrated 6
4 governed BIH (0.4)
200
2 Energy intensity
400 0.17 North Macedonia (0.2)
150 0 (TPES/GDP)5 (2017)
63% Serbia (0.4)
200 100
35
Resilient Green Emission
6 10 50 BIH (1.2)
intensity/GDP
0 0
Albania 0.3 North Macedonia (0.6)
2016 2017 2018 2019 (kgCO2/10’$)5
SEE Inclusive Serbia (1.1)
Portfolio Operating Assets Disbursments (right axis) (2017)
Advanced economies 6
1Cumulative Bank Investment: 5 year rolling basis on portfolio. 2 Cf. EBRD Transition Report 2018-2019. 3 IMF WEO. 4 International Labour Organisation estimate. 5 IEA’s Energy Atlas. 6
Canada, Czech Republic, France, Germany, Japan, Sweden, United Kingdom and United States PUBLIC 4
1. Implementation of Previous Strategy (2016-2019)
1.1. Key Transition Results achieved under previous Country Strategy
2
Strategic Alignment 2016-2019 TC, grants and concessional loans Transition Impact Performance*
Annual Business Investment (ABI)
Priority 3 Pa r tially
Priority 3 6% On Track
22% Priority 1 13%
Priority 1
30% 38%
€ 620 m € 71 m
On Track
87%
Priority 2 Priority 2
48% 56%
GET share: ETI: 70
42.9% PTI: 73
Priority 1: Support private sector competitiveness by enhancing value creation, facilitating SME access to finance and fostering an enabl ing
b usiness environment
Im provement on ASB clients Key Transition Results
50 •Completed advisory projects with 222 MSMEs across a broad spectrum of sectors, with 147 clients reporting
productivity increases (median of 46%). Re-started direct lending to local SMEs through the first co-financing with
40 the Enterprise Expansion Fund, with a manufacturer that is a member of the Blue Ribbon programme.
•Signed and impl emented t he AASF with 6 lenders, over 5,500 loans totalling in excess of €41m disbursed (as at
30 Q319) and 60 agribusiness companies supported through ASB.
• Developing a comprehensive program with t he EU to strengthen the competitiveness of Albania’s tourism
20 through enabling infrastructure, and access to finance and skills for the private sector (including 19 ASB projects).
10
•Significantly expanded risk sharing partnerships with local commercial banks by signing new frameworks with
OTP Bank Albania (€50m) and Union Bank (€30m), as well as increasing the existing one with Intesa SanPaolo
0 Bank Albania to €50m. Under these, supported 8 transactions for a total value of over €62m.
2016 2017 2018 2019 •Signed the first 2 GEFF credit lines and the second WiB facility with Intesa San Paolo Bank Al bania, also provi ding
8 mentoring and 4 courses for 47 women entrepreneurs.
# of ASB clients reporting increased
productivity
•Implemented the ICGI, leading on policy dialogue resulting in regulatory changes in areas such as tax and custom
# of ASB clients reporting increase access administration, informality, and consultation with businesses. Strengthened capacity in the public administration.
to finance •Assisted Bank of Albania improving governance in the banking sector by strengthening the regulatory framework
and supervision function.
* Transition impact performance reflects how likely projects are to achieve the transition impact expected of them at signing. Calculated based on active mature (> 2 years) portfolio.
PUBLIC 51. Implementation of Previous Strategy (2016-2019)
1.1. Key Transition Results achieved under previous Country Strategy
Priority 2: Expand markets by strengthening regional linkages
ASB increase in sales Key Transition Results
• Signed the TAP project, a landmark regional infrastructure opening the potential for the use of gas to Albania. Through
60 this and a com prehensive program of TA for the newly created gas TSO (Albgaz), pl ayed a key role in upgrading skills and
50 introducing a regulatory framework for the gas sector in line with international best practice. Continued to be actively
engaged in the development of domestic gas infrastructure, including as lead IFI on a number of WBIF supported projects.
40 • Supported project preparation as lead IFI, mobilised a WBIF investment grant and signed a sovereign loan in favour of
30 Albanian Railways for the Durres-Tirana-Rinas airport line. This is part of the corridor connecting port of Durres with the
20 region and the first investment in the country’s railways since the start of transition. The project includes extensive TA to
build capacity and improve financial reporting at Albanian Railways.
10 • Reached key reform milestones under sovereign road projects, supported the preparation of a Sustainable Transport
0 Plan and a Road Tolling Strategy, and progressed with the implementation of the Fier&Vlore Bypasses project.
2016 2017 2018 2019 • Signed a €25m loan supporting the cross border investment of an Albanian group in a ferronickel plant in Kosovo.
• Established the trade finance programme in Albania by signing a €5m framework agreem ent with Union Bank and a
# of ASB clients reporting
€10m framework agreement with OTP Bank Albania.
increased export sales • Assisted the Albanian National Business Centre in the process of joining the Regional Business Registries Portal.
Priority 3: Promote sustainability of public utilities through commercialisation and private sector participation
Energy saved Key Transition Results
• Signed and committed the €218m KESH restructuring loan, of which the first €118m tranche has been disbursed to
40 date as a result of substantial progress on sector and company level reform conditionalities. Through extensive policy
dialogue and TA, supported the preparation and implementation of a Climate Risk Management Plan aimed at
improving KESH’s commercial viability and strategic capacity and of a comprehensive Corporate Governance Action
30 Plan. Continued to work in close co-ordination with the Energy Community Secretariat and other IFIs on further energy
sector reforms in line with EU Directives.
20 • Conducted policy dialogue resulting in the approval of the Energy Performance of Buildings Law, through the EU-
supported Regional Energy Efficiency Programme. This laid the foundation for further harmonisation of the legislative
framework, as well as for investments, in the buildings sector.
10 • Supported the City of Tirana through extensive policy engagement and TA to prepare and approve a Green Cities
Action Plan (GCAP), prioritising and setting out a strategy to tackle the city’s environmental challenges.
0 • Signed a €15m loan to Tirana Water Company, the first project under the Tirana GCAP and first ever financing by any
2016 2017 2018 2019 IFI on a commercial basis to a municipal utility in Albania. The project was enabled by water tariff increases and
entails comprehensive TA to strengthen capacity at Tirana Water Company.
Emissions reductions (ktonnes • Started policy dialogue and TA to develop solar power in line with international best practice and increase the
CO2/y) sustainability of a system almost entirely dependent on hydropower. This includes support to the Government in
establishing competitive allocation processes for solar power generation capacity.
PUBLIC 61. Implementation of Previous Strategy (2016-2019)
1.2. Challenges to Implementation and Key Lessons
Context for implementation: Albania continues to have large transition gaps. Low value-added production accounts for much of the
economy and financial intermediation remains limited. EU approximation is the main external anchor for reforms, including as regards the
strengthening of governance and the rule of law, where serious challenges remain. Although progress in the business environment reform
has been mixed, economic growth has been robust and driven by two large energy related FDIs. Banking sector consolidation has also
progressed during the strategy period. The confidence in the banking sector increased as NPLs declined and banks remain well capitalised
and highly liquid.
Implementation Challenges Key Lessons & Way Forward
• Corruption and informality remain key impediments to • Strong focus on governance, business climate improvements, and
business development and foreign investment. Weak law engagement with the private sector are needed in close alignment
enforcement and unclear property rights also affect the with the EU, other IFIs, and donors. The Investment Climate and
tourism and agribusiness sectors, which are key drivers of Governance Initiative can be an effective tool for extensive policy
economic growth. engagement in this area that can deliver tangible results.
• Access to finance remains constrained. Although banks • The Bank can help unlock additional lending, including through
have high liquidity, credit growth is weak. unfunded risk-sharing products.
• Private sector competitiveness and regional integration are • Significant investments, to be supported under the WBIF, are still
hampered by the poor state of transport infrastructure. needed to upgrade the road network, develop the full potential of the
country’s ports and airports, and re-establish a functioning railways
system.
• Long-term sustainability in the energy sector will require • Policy engagement and investments in the energy sector in
ambitious reforms, including greater operational discipline cooperation with the Energy Community Secretariat and other IFIs
by SOEs. can achieve significant results and attract FDIs.
• Diversification of the energy mix (currently dominated by • The Bank is well placed to support development of the market for
hydro) is urgently necessary to increase the system’s other renewables (particularly solar), while TAP could create
resilience. opportunities for gas-fired generation.
• Municipal service provision is inadequate while the sector • The Green Cities initiative in Tirana provided a strong platform for
remains highly centralised. investment in municipal infrastructure.
PUBLIC 72. Economic Context
2.1 . Macroeconomic Context and Outlook for Strategy Period
• GDP growth has halved after the crisis and has been primarily
consumption-led. Post-crisis economic growth decreased to below 3 per
A lbania - Main macroeconomic indicators cent, from above 6 per cent in 2000-2008. Growth over the past 10
years was mainly driven by household consumption, followed by net
2014 2015 2016 2017 2018 exports, while investment contribution was negligible. However, in the
past four years there is an upward trend in growth, and also in
GDP growth (% y-o-y) 1.8 2.2 3.3 3.8 4.1 investments (albeit concentrated in two large energy related FDIs).
• Further catch-up is likely in the short term, but at a slower pace. Growth
CPI inflation (% avg.) 1.6 1.9 1.3 2.0 2.0 stepped up to 4.1 per cent in 2018, primarily as a result of good
hydrological conditions and, consequently, higher electricity production.
Government balance Also, tourism became an increasingly important contributor to economic
-5.2 -4.1 -1.8 -2.0 -1.6
(% of GDP) growth. The economy is projected to expand at 2.8 per cent in 2019,
Current account balance driven mainly by private consumption, and to accelerate to 3.5 per cent
-10.8 -8.6 -7.6 -7.5 -6.7 in 2020, helped by the previous year’s low base in power generation
(% of GDP)
and under the assumption of further growth of tourism and investment
Net FDI (% of GDP) in transport infrastructure . However, downside risks remain, associated
-8.1 -8.0 -8.7 -8.6 -8.0
[neg. sign = inflow] with the economic slow-down of Italy and the rest of the Eurozone,
External debt another delay in starting the EU membership talks and internal risks
69.5 74.4 73.5 68.7 65.2 (high public debt with liabilities stemming from unsolicited PPPs, and
(% of GDP)
prolonged political instability).
Gross reserves (% of
22.0 28.1 27.5 25.9 26.4
GDP) • To speed up convergence to the EU income levels, Albania needs to
General government increase productivity, shifting the growth model away from consumption
70.0 72.7 72.2 70.0 67.2 to investments and exports. Albania’s real GDP per capita is less than
gross debt (% of GDP)
one third of the EU average and less than half of that of the new EU
Unemployment (% pop) 17.9 17.1 15.2 13.8 12.3 member states. Faster convergence demands higher productivity,
especially in view of unfavourable demographic developments.
Improved business climate (including through strengthening institutions
Nominal GDP ($bn) 13.2 11.4 11.9 13.1 15.2 and rule of law), enhanced infrastructure, removing uncertainty over
land and property rights, as well as tackling labour shortages and strong
Source: National authorities, IMF and EBRD calculations
emigration would support much needed private sector development.
PUBLIC 82. Economic Context
2.2 . Key Transition Challenges
Competitive (5.0) Well-governed (5.1) Green (4.4)
Wide-spread informal economy, creating unfair Weak rule of law, weak and inefficient Almost complete reliance on volatile hydro
competition judiciary, and inconsistent implementation of generation with potentially adverse effect on
laws and regulations security and cost of energy supply
Low labour costs…
Judicial reform under way, but slow and Potential in other renewables (solar, wind)
…but also low productivity, due to skills
leading to a backlog of cases
shortages and mismatches, lack of know-how Inefficient use of energy, with high distribution
and business sophistication, low investment in Weak property rights, especially regarding losses
R&D, weak innovation capacity of the economy land titles
Energy intensity below WB-5, but above EU
Low level of economic diversification Weak contract enforcement and large average
regulatory burden on businesses
Weak integration in GVCs Transport sector as main final energy
Tax evasion, one of the lowest government consumer
Unfavourable business environment: 82nd out
revenues in Europe
of 190 countries in the ease of doing business Inadequate waste management, uncontrolled
(WB 2020) Limited capacity in the public administration landfills, limited recycling
and responsiveness to business needs
Difficult access to finance, especially for Limited sewerage and wastewater treatment
MSMEs Weak corporate governance framework
Air pollution in urban areas
Ea se of doing business (rank) Rule of law (from -2.5 to +2.5 best) Primary energy sources
125
frontier 0.9 100%
100 Competitive ATQ2: Selected indicators Sh are of SoEs in the main stock market I PO market on the WSE Waste
Rank 0.6 80%
75 82nd EU-11
60% Nuclear heat
0.3
50 WB-5
0.0 40% Gas
25
-0.3 ALB 20% Petroleum
0
-0.6 0%
Getting electricity
TOTAL
Minority inv.
Getting credit
Starting business
Constr. permits
Paying taxes
Resolving insolv.
Enforcing contr.
Trading abroad
Registering prop.
Renewables
BIH
SRB
KOS
MAC
ALB
EU-11
EU-28
MNE
-0.9
-1.2 Solid fuels
2003
2005
2011
2017
1996
2000
2007
2009
2013
2015
WB-5 EU
Source: WB Doing Business 2020 Source: WB World Governance Indicators Source: EUROSTAT
PUBLIC
92. Economic Context
2.2 . Key Transition Challenges
I n clusive (4.8) R es ilient (5.3) I n tegrated (5.7)
Still high, double-digit unemployment, Under-developed financial system, dominated Low trade openness, except for services
especially for youth by banks
Goods exports concentrated in both products
Strong emigration and rapid urbanization in Well-capitalised and liquid banking sector, but and markets
Tirana still relatively high NPLs and low credit to
Main export products: low–value added,
private sector
Gender employment gap narrowing labour-intensive products and raw materials
High financial euroisation (over 50 per cent)
Vulnerable groups: youth, women, low- Largest exporter of crude oil in SEE
educated High exposure of banks to sovereign debt
Low FDI stock: more restrictions on FDI than in
Underdeveloped Vocational Education and Undeveloped capital markets, limited almost other Western Balkans countries
Training exclusively to government securities
FDI targeting primarily natural resources and
Low tertiary education attainment rate Lagging behind SEE in domestic and inter- energy sectors
country energy connectivity, private sector
Skill-mismatches for highly educated Inadequate transport infrastructure, especially
participation and legal framework
railroad
Weak financial inclusion of men and women,
More advanced than SEE in energy sector
with less than 40 per cent of 15+ population Low reliability of water supply; high share of
restructuring and unbundling
having a bank account non-revenue water (67 per cent)
You th unemployment by education level (%) Non-performing loans (%) Trade (% of GDP)
60 150
25 End-2018 EU-11
50 End-2013 120
20 WB-5
40 90
30 15
11.1 60 ALB
20 10
Total Low 30
10
Medium High 5
0 0
2002
2004
2006
2008
2013
2015
2017
2003
2005
2007
2009
2010
2011
2012
2014
2016
2010
2011
2012
2013
2014
2015
2016
2017
2018
0
ALB BIH MNE SRB MAC KOS
Source: INSTAT Source: IMF and national authorities Source: WB World Development Indicators
PUBLIC 103. Government Priorities and Stakeholder Engagement
3 .1 . Government Reform Priorities
•Energy: Further liberalization and diversification of the energy market focusing on
3.2. EBRD Reform Areas Broadly Agreed with Authorities
renewables, unbundling of distribution and supply, establishment of an Albanian •Energy – strengthen the sustainability of the energy sector through
Power Exchange, investment in the grid and generating assets, reduction of continuing reforms in line with EU acquis, raising governance and
distribution losses and improvement of bill collection, development of an skills at SOEs, and enabling diversification of energy sources via
institutional framework for the gas sector. investments and technical assistance.
•Transport: Rehabilitation of the railway segment Durrës-Tirana-Rinas Airport, as a
first step towards the establishment of a competitive and reliable rail system. •Investment Climate – support investment climate improvements,
Development of additional regional airports, of which at least one in the south of including the reduction of informality and of the compliance burden for
the country. The upgrade and rehabilitation of the country’s road network to unlock businesses. Help micro and small enterprises grow through access to
economic development, including in tourism. Continued investment in the
finance and skills, with focus on raising governance and financial
modernization of Port of Durrës.
transparency.
•Agribusiness: Consolidation of agricultural land to create competitive and
economically viable farms and promote access to finance.
•Tourism : Development of coastal and inland cultural heritage tourism through •Tourism – raise tourism competitiveness through enabling
investment in enabling infrastructure and private sector competitiveness. investments in infrastructure and building capacity. Address key
Particular focus on the attraction of FDI and development of the agro-tourism bottlenecks: access to finance, know how, and skilled workforce.
segment.
•Environment: Reform of the water and waste water sector, improving service 3.3. Key Messages from Civil Society to EBRD
quality and payment discipline. In the waste management sector, closure of illegal
•Sustainability – Support to renewable energy is regarded as a
dumpsites, development of proper landfills as well as incinerators in Tirana and
some regional centres. priority both at level of policy dialogue and investment, both at
•Investment climate and reduction of informal economy: i) Full implementation of industrial and residential levels (e.g. use of solar panels).
the justice reform; ii) Strengthen land and property rights; iii) Reduction of •Governance – Concerns were expressed over the implementation of
regulation for businesses and increase in the share of public services provided the Law on Bankruptcy, especially in relation to NPLs, impact of anti-
online iv) Provision of a single transparent investment legal regime to improve informality campaigns on small businesses and the overall potential
governance and predictability.
impact of political instability on the economy. The EBRD is also
•Digital economy: Development of regional broadband infrastructure by launching
expected to promote fair competition and prevent the creation of
pilot projects in rural and remote areas; and establishment of synergies with
infrastructure for other utilities. monopolies.
•Fiscal: Reduction of informality and introduction of further fiscal consolidation •Role of civil society - CSOs can be a partner for the EBRD in the
measures to meet the medium-term target of reducing public debt to below 60% of identification and implementation of projects at municipal level as
GDP in 2021; strengthening tax administration; and broadening the tax base. well as to support women’s entrepreneurship.
•Social Policies and Employment: Improvement of the quality and coverage of
Vocational Education and Training while ensuring linkages with the labour market.
Modernisation of public employment services, increasing employment of targeted
inclusion groups.
PUBLIC 114. Defining Albania Country Strategy Priorities
W hat needs to change? C an it be changed? W hat can the Bank do? Strategic Priorities W hat We Want to See
(Country Diagnostics) (Political Economy) (Institutional Capabilities) (2020-2025) in 2025
• Implementation capacity for infrastructure • Infrastructure investment needs and • Extensive experience in preparing and
investments is low while infrastructure accompanying reforms are well implementing infrastructure investments,
requires significant rehabilitation and recognised. Road tolling introduced in at national as well as subna tional levels •Commercialisation and
expansion. September 2018. across the region. Support restructuring of key SOEs;
• Poorly designed and unsolicited PPPs were • The authorities are ready to work closely • Strong emphasis on governance g o vernance Strengthen the corporate
awarded in the past. with IFIs to proceed with infrastructure improvements for EBRD clients, including i mprovements governance of firms
• Weak rule of law and capacity in the investments. financial and operational as well as acr oss the •Improve the quality of
judiciary system limit private sector • Progress with the implementation of corporate governance action plans. e co nomy institutions; Strengthen
development. Investment Council proposals. • Selected policy advisory services under the rule of law
• Almost one third of population does not ICGI.
have access to safe and clean water.
• Private sector development suffers from • Government measures against • Strong focus on supporting the private
•Increased competition
wide-spread informality and low informality, including online tax filling and sector through a combination of financing, through entry/consolidation
competitiveness. anti-informality campaigns, yielded some advisory support and policy engagement to and levelling playing field;
• Main export products are low–value added, positive results. enhance the business environment.
Increased access to finance
labour-intensive products and raw • Export of services (mostly thanks to • Well developed financial and advisory and entrepreneurship
materials tourism) increased fivefold since early support for private sector clients, including Enhance private
se ctor •Improved business skills,
• Severe skills mismatches, including for 2000s, and accounts for one fourth o f direct finance as well as indirect financing
highly educated youth, are exacerbated by GDP, a larger share than that in EU-11 or and risk sharing through financial co mpetitiveness standards and business
and inclusion sophistication; Access to
strong emigration due to poverty, lack of WB-5. institutions, and ASB. Investment focused
thr ough wider skills development (incl.
jobs and low-quality education. Despite • Recognised need for skills upgrades but approach to skills development and job
labour shortages, unemployment remains education quality remains low; similarly creation. access to finance skills mismatch reduction)
and skills leading to employment
high. little action is taken to manage the brain- • Supporting clients to implement work-
opportunities
• Albania has one of the lowest stocks of FDI drain. based learning and high quality on-the-job
•Increased access to
in Europe, particularly low in • Two major energy projects resulted in a training to strengthen employability and
infrastructure unlocking
manufacturing, and is the least integrated significant increase in FDI stock in the close skills gaps
in global value chains in SEE. last three years, although overall level still economic opportunities for
remains very low. inclusion target groups
• Electricity generation remains almost • Efforts are ongoing to liberalise electricity • Supporting diversification of electricity
entirely reliant on hydropower, posing market, diversify sources of generation, generation, particularly in solar, wind and Str engthen •More diversified energy
financial risks related to expensive energy unbundle distribution and supply, and gas. e nergy with reduced vulnerability
imports in periods of low rainfall. strengthen regional integration. • Increasing focus on the expansion of di versification to climate change
• Investments in energy efficiency are low. • GCAP with Tirana agreed and first non- green networks to ensure energy security and low-carbon •Reinforced networks for
• Vulnerability to climate change is sovereign municipal transaction enabled in intermittent renewable energy systems. tr ansition domestic and regional
significant. by water tariff increases already signed. • Promotion of sustainable and smart ci ties, connectivity
including Green Cities Programme.
PUBLIC 125. Activities and Results Framework
Priority 1: Support governance improvements across the economy
Tracking Indicators
Key Objectives Activities
(Outcomes)
• Policy recommendations
accepted and
• Restructure selected SOEs in energy, transport and water/waste water; implemented by relevant
Commercialisation and authorities and
improve their corporate governance and business practices.
restructuring of SOEs;
• Support the development of gas sector, including capacity building in stakeholders
Strengthen the corporate
newly created gas TSO Albgaz, and policy engagement on regulatory • Corporate governance of
governance of firms
framework. supported firms improved
(number of firms/
qualitative account)
• Finance for infrastructure while strengthening related institutional • Legal/institutional/regulat
framework and procurement practices. ory improvements in the
I mprove the quality of areas of investment
• Continue to support the Investment Council and, through well-targeted TA,
institutions; Strengthen the
the implementation of its recommendations, including support for the climate and governance
rule of law
competition authority and a reform of business inspections. • Number of judges /
• Support implementation of the justice reform through judiciary trainings. officials trained
Im pact Indicators: Ease of Doing Business (Baseline: 82 nd out of 190);
PUBLIC Well-governed Competitive 13
Rule of law (Baseline: -0.4 on scale of [-2.5 to 2.5])5. Activities and Results Framework
Priority 2: Enhance private sector competitiveness and inclusion through wider access to finance
and skills
Tracking Indicators
Key Objectives Activities
(Outcomes)
• Finance private companies through funded and unfunded facilities, including • Number/volume of loans
I ncreased competition credit lines, risk sharing, and trade finance, as well as directly across all extended to MSMEs by
th rough sectors. partner financial
en try/consolidation and • Support the economic inclusion of women, youth and regions through institutions (including by
levelling playing field; dedicated financing, advisory activities as well as promotion of inclusive
inclusion target groups)
I ncreased access to procurement.
fin ance and • Improve capacity of PFIs, through TA, to unlock lending to the private sector. • Number of clients
en trepreneurship • Continue with the implementation of the AASF, to improve access to finance reporting increased
for the agribusiness sector, including through TA to PFIs. turnover / employment
• Number of clients that
• ASB to improve performance and standards of SMEs, as well as their
I mproved business skills, investment readiness. ASB will support capacity building of SMEs in the area improved standards as
s tandards and business of financial management and reporting, business skills across priority sectors targeted (including by
s ophistication; Access to and inclusion target groups. Support the growth of high potential SMEs, inclusion target groups)
s kills development (incl. combined with access to finance. • Total number of people
s kills mismatch • Assist in setting up a tourism sector skills council involving key stakeholders, receiving improved skills
reduction) both public and private, including to strengthen relevant Vocational Education (including by inclusion
and Training.
target groups)
I ncreased access to • Finance tourism enabling infrastructure, such as water and wastewater, roads, • Net increase in
in frastructure unlocking and municipal services, in cooperation with the EU, other IFIs and donors, infrastructure usage
ec onomic opportunities ensuring inclusive, gender responsive design of key services. and/or capacity
Im pact Indicators: Youth Unemployment (%) (Baseline: 28.1%) PUBLIC Inclusive Competitive 145. Activities and Results Framework
Priority 3: Strengthen energy diversification and low-carbon transition
Tracking Indicators
Key Objectives Activities
(Outcomes)
• Support diversification of power supply, including through financing gas and
additional renewable capacity, particularly solar and wind power generation,
as well as policy engagement and TA for competitive capacity allocation.
• Promote green transition and support Albania in achieving its nationally • Total CO2 reduced/
determined contributions. avoided (ton/yr)
Reduced CO2 emissions,
• Finance resource and energy efficiency through credit lines, risk sharing as
increased energy and
well as directly, alongside advisory if needed.
resource efficiency, and • Total solar, wind or gas
• Continue with Green Cities Initiative in Tirana, including follow up
improved climate resilience electricity capacity
investments, urban transport improvements, and urban regeneration.
• Enhance resilience of infrastructure to climate change as part of installed (MW)
infrastructure development projects.
• ASB to strengthen advisory in energy efficiency and transition to circular
economy models.
• Finance investments in energy transmission and distribution to reduce
losses and expand networks, assist Albania in regional energy market • Improved/increased
integration, and continue the relevant policy dialogue. infrastructure capacity
Reinforced networks for • Wider policy engagement in the energy sector, including to deepen market (incl. total net increase
d omestic and regional liberalisation and continue with power sector unbundling in line with the EU
in capacity, if relevant)
c onnectivity Third Energy Package and other relevant policies and activities (e.g.
European Green Deal). through Bank-assisted
• Finance transport infrastructure to enhance national and international projects
connectivity.
Im pact Indicators: Primary Energy Resources (Baseline: petroleum 53%, renewables 45%, gas 3%) Resilient
PUBLIC Green 15
Non-performing loans (Baseline: 11.1%)6. Mapping of International Partners’ Complementarity
in EBRD Business Areas
EBRD BUSINESS AREAS Potential Areas of Cooperation
Cross-cutting C ompetitive:
Sectors
Themes Leverage grant financing from the EU and
other donors to support access to finance
Sustainable Financial and skills in key sectors of the Albanian
Industry, Commerce & Agribusiness Strategic Initiatives
Infrastructure Institutions economy such as tourism and agribusiness.
Integrated:
Local Currency and
Property & Tourism
Non-bank Financial
Indicative annual
Natural resources
Under the WBIF umbrella and in close
Manufacturing &
Green Economy
Capital Markets
Small Business
investment/
Inclusion and
coordination with EIB and WB, continue
Infrastructure
Agribusiness
grants
Institutions
(2015-2019 av erage supporting the development of key
Services
Banking
Gender
unless otherwise
Energy
specif ied, excluding connectivity infrastructure.
ICT
budget support)
Resilient:
EU 107 €P €P P €P €P €P Continue policy dialogue and TA supporting
energy sector reforms in close coordination
€ € €P €P €P P
with the Energy Community Secretariat, WB
World Bank 76 €P €
and KfW.
KfW 70 € €P €P € € W ell-governed:
Through the consultation platform provided
EIB 28 € € by the Investment Council, continue policy
dialogue and TA supporting improved
business climate in the country, in close
EBRD 123 € €P €P €P €P € €P €P P € coordination with the EU, SECO, WB and IFC.
Green:
€ Area of significant investments Focus mostly on private sector
Continue financing investments under the
P Area of significant policy engagement Focus mostly on public sector GCAP for Tirana, in co-operation with other
IFIs and donors. Environmental investments
should also be a material component of the
programme on tourism competitiveness
with the EU.
Note: IFI activ ity mapping based on publicly av ailable inf ormation.
Note: AASF was included in both FI Banking and Agribusiness, as it is a joint project. PUBLIC 16
Signif icant IFI inv estment def ined as projects exceeding 5% of annual inv estment and signed f rom 2016.7. Implementation Risks,
Environmental and Social Implications
Risks to the Strategy Implementation Probability Ef fect Environmental and Social Implications
Assessment and Management of Environmental and Social Impacts: Ensure that
direct, indirect and cumulative impacts of projects and their associated facilities are
appropriately assessed in accordance with the EU EIA Directive and EBRD PRs.
• Slow down in the EU approximation process Support clients to strengthen E&S management capacity and disclose reports.
and related reforms Labour and Working Conditions: Ensure clients’ and relevant third party employers’
HR policies and practices comply with EBRD and EU requirements promoting equal
opportunities and economic inclusion, respecting labour rights, managing impacts of
large scale retrenchment and preventing potential discrimination towards minority
and other vulnerable groups.
Political instability leading to lack of focus Resource Efficiency and Pollution Prevention and Control: Challenges remain in waste
and inconsistency in Government policies & wastewater collection and treatment, and air pollution. Support clients to comply
with relevant EU Directives and improve t he efficiency of industry-specific processes in
line with BAT.
Healt h and Safety: Aim to improve H&S standards across all sectors. Road and traffic
safety, including risks associated with tourism projects, are priority issues and
Weak capacity and frequent personnel
engagement with clients and other stakeholders may be required. TC funds to support
changes in the public administration
these activities may be needed.
Land Acquisition, Involuntary Resettlement and Economic Displacement: Ensure that
effective livelihood restoration and meaningful engagement is carried out with people
affected by projects requiring involuntary resettlement caused by physical and/or
Stalling of reforms in the energy sector economic displacement in accordance with EBRD requirements, including those with
limiting liberalizationand investments no legal title.
Biodiversity Conservation and Sustainable Management of Living Natural Resources:
Challenges remain concerning the need to adequately consider the potential risks and
impacts of project related activities to sensitive flora, fauna, ecosystem services
and/or legally protected and internationally recognised areas of biodiversity value. TC
Development of key infrastructure projects
funds to raise awareness concerning good international practices with both public and
through non competitive and poorly
private sector partners is required.
prepared processes Cultural Heritage: Ensure appropriate assessments are carried out and clients consult
with key stakeholders to protect cultural heritage.
Financial Intermediaries: Ensure FI partners strengthen E&S risk management
Deterioration in business environment capacity and systems.
leading to weak FDI Stakehol der Engagement: Support clients in developing and implementing
stakeholder engagement plans and ensure transparent participatory consultation
carried out as part of local permitting and ESIAs.
High Medium Low PUBLIC 178. Donor Co-Financing Assessment
8.1. Needs Assessment for the New Country
8.2. Potential Sources of Donor Funds
Strategy Period
Donor funding will be required to achieve the strategic objectives of the • W estern Balkans Investment Framework (WBIF): A joint initiative of the beneficiary
Country Strategy, including for: governments, the EU, bilateral donors and IFIs. TC and co-investment grant support is
• Strengthening the investment climate and corporate governance, available for priority investments across transport, energy, environment, digital,
including through capacity building initiatives to strengthen social, and private sector development projects.
institutions and support for judicial reforms. • In addition to funds channelled through the WBIF, other EU IPA funding may also be
• Co-investment and first loss risk cover grants, as well as available. Priority areas for Albania under IPA II include infrastructure, governance,
implementation support to promote access to finance, including legal reform, environment, competitiveness, and agricultural & rural development.
through on-lending programmes with PFIs. Funding available under IPA III will start to deploy in 2021.
• Advisory services to enhance competitiveness and support the growth • Albania will be eligible for Green Climate Fund funding under the EBRD Green Cities
of high potential SMEs. Facility, both for technical assistance and investments in green infrastructure.
• Grant support for Infrastructure projects which enhance domestic and • Albania is a donor in its own right, and has committed up to €36m to date in first loss
regional connectivity as well as tourism potential, including in the risk cover to enhance access to finance for agribusinesses under the AASF.
energy, road and maritime sectors. • Support from other bilateral donors (such as SECO, Sweden and Italy) will continue to
• Project preparation and implementation support for investments be sought. Funds can also be channelled through Multi-Donor Accounts such as the
which promote green economy transition and resource efficiency, Small Business Impact Fund.
including in the renewable energy sector.
Selected Affordability Indicators Donor finance during last strategy (€m)4 C urrent Grant Funding Needs5
EBRD regional 40
percentile rank1 11%
31st
30 26%
GDP per capita (PPP, current. $ )2 13,345
(CoOs) 20 21%
ODA Country YES N/A
10 1%
ODA as share of Gross National
Income (%)3 1.2 28th 0
2016 2017 2018 2019 * 3%
ODA per capita ($ - current 38%
54.76 40th TC grants (commitments/earmarks)
prices)3 Co-investment grants (signings)
Sources: 2 IMF (2018), 3 OECD (2017) *Preliminary estimate Competitive Green Inclusive
Integrated Resilient Well Governed
1. Simple percentile rank reported as the share of EBRD countries (ODA CoOs in the case of ODA indicators) that are represented below Albania.
4. 2016-2018 TC data is based on earmarks at the project level. Co-investment grant amounts are based on client signings.
5. Estimated grant funding needs are based on the operational needs reported by banking teams forPUBLIC projects to be started in 2019. Estimated funding needs generally exceed actual grant use as some needs
may not materialise, may be delayed, or may be split into several years of fundraising efforts due to operational needs and realities.ANNEXES PUBLIC 19
Annex 1 – Political Assessment in the Context of Article 1
Albania’s commitment to and application of the political principles stated in Article 1 of the Agreement Establishing the Bank continued since the
adoption of the previous Country Strategy, in line with its efforts towards implementation of the comprehensive EU reform agenda.
The constitutional and legislative framework for a pluralistic parliamentary democracy is in place. The separation of powers and checks and
balances in the political system, guarantees for fundamental rights and the protection of minorities and for a meaningful role of the civil society
are largely in line with international and European standards, as assessed by the Council of Europe.
In the period since the adoption of the previous Strategy, Albania has made further progress in democratic reform. Improvements were made in
the areas considered to be among the key weaknesses in the Western Balkans countries – rule of law and public administration reform. The
authorities have, in particular, embarked on a thorough reform of the judicial system designed to increase its independence, professionalism
and efficiency, and increased efforts in the fight against corruption and organised crime, including measures against drug trafficking and
cultivation.
The progress in democratic reforms achieved by the Albanian authorities has been reflected in respective assessments by the European
Commission as part of its scrutiny related to Albania’s efforts in EU approximation. In May 2019, the European Commission, having assessed
that the country achieved sufficient progress in the reforms, issued formal recommendation to the European Council for the opening of the EU
accession negotiations. However, at the European Council meetings in June and October 2019 no consensus has been reached on this issue.
Consequently, on 18 October 2019 the European Council decided to postpone the decision and to revert to this issue again before the EU-
Western Balkans Summit in May 2020.
In spite of the above-mentioned progress, significant challenges remain, including the need to establish a solid track record of investigations,
prosecutions and convictions in the fight against corruption at all levels and in the fight against organised crime. Further sustained efforts are
needed to improve the business environment and tackle the informal economy. The country’s persistently polarised political atmosphere
presents additional challenge.
Free Elections and Representative Government
Free, fair and competitive elections
Elections in Albania are generally conducted in a manner deemed by the OSCE and the Council of Europe to be largely free, fair, and competitive.
The legal framework provides a sound basis for democratic elections, provided there is political will for the proper implementation. It has
benefited from several waves of electoral reforms, including extensive amendments based on recommendations from the OSCE Office for
Democratic Institutions and Human Rights (ODIHR) and the Council of Europe’s Commission for Democracy through Law (Venice Commission).
The last three general elections in Albania (2009, 2013 and 2017) were peaceful, which represented a significant achievement compared to
past elections that had often been accompanied by violence.
PUBLIC 20Annex 1 – Political Assessment in the Context of Article 1
However, procedural shortcomings and allegations of vote-buying and pressure on voters, as well as excessive politicisation continue to
undermine public trust in the electoral process. OSCE/ODIHR has recommended a number of additional measures in order to bring elections in
Albania further in line with OSCE commitments and international standards for democratic elections.
The last general elections, held on 25 June 2017, went, according to the OSCE/ODIHE Election Observation Mission, mostly in an orderly
manner, with contestants able to campaign freely, although some procedural irregularities and omissions were observed. This included
instances of proxy voting and interference by unauthorised party activists. Above all, the politicisation of election-related bodies and institutions
has continued to mar the electoral process.
The final report on the 2017 general elections issued by OSCE/ ODIHR offered a number of detailed recommendations for consideration by the
authorities, political parties and civil society. The list of priority recommendations includes, inter alia, an appeal to undertake further electoral
reform in order to take on board OSCE’s recommendation and harmonize different elections-related laws; address persistent issue of vote-
buying; removing restriction on the suffrage rights (age and mental health related); and guarantee the same rights for all observers.1
The last local elections, held on 30 June 2019, took place amidst extreme political polarisation. The main opposition party boycotted them, while
the President of the country decreed their postponement to a different date. The turnout was very low. The OSCE/ODIHR Election Observation
Mission, while noting that the voting was conducted in a generally peaceful and orderly manner, asserted that these elections “were held with
little regard for the interests of the electorate”. 2
Separation of powers and effective checks and balances
The constitutional and legislative framework for a parliamentary democracy – underpinned by the separation of powers and checks and
balances in the political system, an independent legislature and well-established procedures of legislative oversight in prescribed domains of
decision-making – is in place in Albania and largely in line with international and European standards, as assessed by the Council of Europe. The
scope of powers of the legislature to hold the government to account and to exercise parliamentary oversight is also largely in line with
international standards.
The 140-member unicameral parliament is elected for a four-year term under a regional closed-list proportional system. Overall, some progress
has been made in the functioning of the parliament, including transparency and inclusiveness of the legislative process. However, it continues to
suffer from periodic boycotts by opposition members of parliament. In February 2019, most of opposition MPs unprecedentedly relinquished
their mandates. In its conclusions related to Albania the EC’s 2019 Communication on EU Enlargement Policy urged the opposition parties to
“constructively re-engage in the democratic institutions”.3
1. OSCE/ODIHR, Election Observ ation Mission, Albania, parliamentary elections 25 June 2017. Final Report, p. 24-25.
2. OSCE/ODIHR, Election Observ ation Mission, Albania, local elections 30 June 2019. Statement of Preliminary Findings and Conclu sions. p.1
PUBLIC 21
3. European Commission, Communication f rom the Commission to the European Parliament and the Council, 29 May 2019, p.15.Annex 1 – Political Assessment in the Context of Article 1
Effective power to govern of elected officials
Albania has established institutional, legal, and financial arrangements for elected officials to exercise effective power to govern, and they are
not constrained by any non-democratic veto powers or any other undue influences. As in many other transition countries, there has long been a
close relationship between business and political elites. However, this does not compromise the powers of elected officials to govern the
country.
Civil Society, Media and Participation
Scale and independence of civil society
A satisfactory legal framework for civil society organisations (CSOs), which has improved significantly in recent years, including the laws related
to the functioning of non-profit organisations, is in place. The process for the registration and operation of CSOs is relatively straightforward and
generally in line with international standards. However, there are unresolved issues related to the definition of non-profit activities, financial
reporting and taxation. In 2015, the Albanian Parliament adopted the law on the establishment and functioning of the National Council for Civil
Society. The Council, which became operational at the end of 2017, is a consultative mechanism aimed at promoting the involvement of civil
society in policy-making process. Cooperation between the state and CSOs has improved. CSOs are in general consulted more regularly on policy
and legal initiatives than in the past. Follow-up processes, however, leave much to be desired.
More than 1,600 CSOs are currently registered with the tax authorities in Albania. However, there are only a handful of well-established and well-
funded CSOs, mostly in the largest cities. The role of CSOs is affected by the, real or perceived, polarisation of CSOs and their leadership, which
mirrors a high level of polarisation in the country in general. The civil society sector remains fragmented and overly dependent on external donor
funding, while the last years witnessed the withdrawal of many foreign donors due to their reorientation towards other regions.
The right to form trade unions is enshrined in law, and labour and trade union’s rights are generally respected in practice.
Independence and pluralism of media operating without censorship
Pluralism in the media, which operate freely and without censorship, has increased overall in recent years. The legal framework is largely in
place and in line with international standards.
There are more than 250 broadcast outlets and 26 daily newspapers operating in Albania, which is one of the highest numbers per capita in the
region (although the circulation, even if taken per capita, lags behind). Electronic media dominate the market. The main media outlet is the
public Albanian Radio-Television (RTSh) with its two national channels being particularly influential in rural areas. There are several private
national channels, and a large number of regional and local private broadcasters. Online portals are rapidly replacing print media.
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