Colloquium 1995 Panel III : Privatisation and Industrial Restructuring

Economic Reform, Privatisation And Industrial Restructuring In Albania Niko Glozheni Albania is a small country with big problems, says Niko Glozheni. It emerged from fifty years of isolation under the harshest of Europe's communist dictatorships with its economy in ruin and its people on the brink of starvation. Despite this, the reform programme is working - inflation though still high, is falling, and price controls have all but vanished. The currency is strong, and privatisation is steaming ahead, with the full backing of all political parties. Economic reform will be difficult and painful - but, judging from the progress so far, the worst may be over. Dr. Glozheni is Executive Director, Albanian National Agency for Privatisation, Tirana.

Economic Reform, Privatisation and Industrial Restructuring Although it is small, Albania has all the characteristics and problems of a big country. 50 years of isolation and totally wrong economic and technical education policies mean that foreign technological and intellectual investment is much more necessary here than in the other countries of Eastern and Central Europe. It is said and accepted that privatisation is not only an economic process. To guarantee its success there is a great need for political support from the government, Parliament and the political parties. In Albania it is a very significant fact that most of the politically aware are conscious of the importance of this support. Starting from the President of the Republic, who without doubt is the most positive person concerning the progress in privatisation. Ministers and members of parliament strongly support the process and are an important instrument in implementing the objectives of the economic programme - and particulary of privatisation. The programme has three main objectives: Speed of the process. Social justice and transparency. Development of small and medium-sized enterprises. Privatisation in Albania, as in all countries of Central and Eastern Europe, is the most important problem of economic reform. Increasing the economic efficiency of the productive resources; encouraging competition between the different economic activities of the enterprises; reducing budget expenditures for subsidising loss-making enterprises; and increasing the participation of foreign investors in the different economic sectors, are some of the goals of this process which Albania started in August 1991 by passing the Law on Privatisation. The democratic government which took office in Albania in March 1992, inherited an economy in profound crisis. Industrial production had declined drastically since 1989, with most of the enterprises either closed or operating at a small fraction of their capacity. The country at that time relied on humanitarian aid to avert malnutrition. Dynamism was to be found in construction and retail sectors. The government was committed to a courageous stabilisation programme with tight monetary targets and price liberalisation. Most of those targets were being met. With IMF and World Bank financing, the government achieved a dramatic fall in inflation from 300 percent to 30 percent in two years. Most agriculture had been privatised and production was expanding dramatically. Housing and small-medium enterprises were returning to the private sector as well. During 1992 the situation worsened as compared to 1991, but in the succeeding years the situation has stabilised. As the result of the economic policies, a GDP increase close to the goal set of 8 percent (50 percent in the agricultural sector) was achieved. The inflation rate continued to fall, reaching its lowest monthly rate, 19.5 percent, in August. The monthly inflation rate by the end of 1994 was estimated to be 15.8 percent. A monthly growth in income of 14.2 percent and a monthly increase in expenses of about 16 percent caused the budget deficit to grow. Great improvements were achieved in price liberalisation. One of the first steps in the implementation of the reform programme was the lifting of price controls for 75 percent of consumption articles in the cities. In April 1994, 96 percent of the basket prices were liberalised. Except for controls on some basic food articles and a limited number of the other-than-food articles brought into circulation by state entities (energy, medicine, telecommunications, urban transportation, and some housing construction), all other wholesale and retail prices have been freed. The government has taken steps to even out prices of basic goods and other controlled articles as close as possible to their real cost. Another development worth mentioning is the introduction of a uniform and free exchange rate. At the time of unification, the Albanian currency was devalued to the rate of 130 leks=$1. By the end of 1993 as well as during the first three months of 1994 the lek was exchanged at rate of 100 leks=$1. Afterwards the lek became somewhat stronger and by the middle of 1994 it had reached the rate of 90 leks=$1. Due to its indispensable role in the progress of economic reform and to the dire financial situation of state-owned enterprises, privatisation is considered of vital importance by all the political parties. Nevertheless, despite this unanimous approval, there are some differences of opinion among the different parties regarding the methods, forms and speed of the privatisation process, and concerning issues such as the scope and depth of privatisation, the balance between privatisation and restructuring, and other factors.

Legal Framework As I mentioned, the basic law on which privatisation is based is the Law on Sanctioning and the Protection of Private Property, Free Initiative and Privatisation of 10 August, 1991. This law is considered as very liberal and very broad, in the sense that it allows enough space for functioning within the government's decisions. It defines the National Agency of Privatisation as the central institution responsible for the transformation of state property into private property, which sets the rules of the entire procedure of privatisation up to the total transformation of property. Another important law covers the "Protection of Foreign Investments". This is considered as the most liberal for foreign investors, with its main aspects being: Elimination of bureaucratic barriers in transactions. Arbitration of disputes (regarding joint ventures) in foreign courts. Free transfer of capital to banks outside Albania. There is also a law "On Restitution", which clearly stipulates the amount of formerly private property which will be returned to ex-owners, their definition and the institutions responsible. The law "On Commercial Companies" defines the organisational forms of registered companies in the Republic of Albania. It clearly defines the relationship between partners in various types of companies. The law "On Transformation of State owned Enterprises into Commercial Companies" and the Presidential decree "On Issuing and the Distribution of the Privatisation Vouchers", are also relevant. Privatisation and Restructuring The relationship between privatisation and restructuring for the enterprises in the process has been clarified. Since speed of privatisation is the basic criterion, it has been resolved that privatisation will guide restructuring. In some complex or large enterprises, commissions of experts are to decide on splitting off sections that have little or no technological connection. If one considers the existing macroeconomic and technical barriers, privatisation's priority over restructuring is indisputable. It is widely accepted that restructuring can be better managed by the private owner himself. In the end, a state-guided restructuring, however elaborate it may be, would not turn out to be efficient, as market priorities may change considerably in the dynamics of the vigorous macro - or microeconomic changes in the country. Still, a few enterprises will undergo a process of restructuring according to a special programme funded by the World Bank. The Enterprise Restructuring Agency was set up to help this process.

Privatisation Results Since the time of its mandate in 1992, the government took measures for fast privatisation in the most rapidly emerging sectors. The retail trade was privatised totally as well as services, road transport, fishing. Later in 1993, the wholesale trade, agroindustrial sector, hotels and other areas were successfully privatised. 1994 marks the high point of small and medium enterprise privatisation to date. Here, most of the construction sector, the foreign trade enterprises, the tourism sector, industry and agriculture were privatised. This process of privatisation is still going on for other sectors as is the privatisation of state-owned assets. (The standard privatisation methods used are auctions, or the favouring of certain social strata.) The privatisation of apartments is completed and the restitution of the urban land to ex-owners is being finished. Agricultural land has been divided among the peasants. Mass Privatisation Programme (MPP) Apart from the points mentioned above, the Ministry of Finance, National Agency of Privatisation and National Bank, immediately started the study, drafting and implementation of a Mass Privatisation scheme. In a very short time it was drafted, as well as a privatisation scheme of joint stock companies and a distribution scheme of compensation vouchers for the population. The Presidential decree of March 1995 for the distribution of privatisation vouchers marked the start of mass privatisation. Vouchers will be distributed to all Albanians over 18 years old; they are divided into three age groups and several phases. The Bank of Albania will be responsible for printing vouchers and the Savings Bank will be responsible for distributing them to the eligible population. The medium and large enterprises to be privatised through share auctions need to be transformed into joint stock companies according to the Law On Transformation of SOEs into Commercial Companies which passed 20 April, 1995. The share auctions will be held at the national level over a maximum period of several weeks. Enterprises will be offered for sale when their preparation is completed and restitution claims are settled. The enterprises which will be offered for share auctions will be announced in advance and basic information on the enterprises will be available. In the Mass Privatisation Programme, voucher holders will have the choice of investing their vouchers into investment funds. The investment funds are established as joint stock companies which are under preparation. The privatisation programme is a critical element of the government's economic reform programme. Information on the privatisation programme is designed to raise public awareness of privatisation. Information will be widely disseminated on the following: how and when eligible citizens can pick up their vouchers; auction times, places and processes; and basic information on the enterprises and assets which are being sold. The privatisation of strategic sectors such as the power sector, telecommunications, water supply, etc., will be made after the special laws for them have been drafted. The groups within the ministries will cooperate with the commission created for the mass privatisation programme. This is an outline of the economic reform in Albania and privatisation as a crucial element of it. What is happening in Albania is similar to the processes of all the countries of Eastern Europe. Of course, each country has its specifics and differences, but in general the reform in all these countries is going through the same stages with different delays in time. Albania has suffered under the most brutal dictatorship in Europe, so it is understandable that economic reform in Albania is being carried out with difficulty and is a rather painful process. Despite this challenge, the Albanian government is optimistic about the results of the reform and its achievements.