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Update No: 061 - (23/05/02)

Thriving on anti-terrorism
Albania has come to occupy a special place in the anti-terrorist struggle; it is becoming in all but name a NATO country. The Kosovo War of 1999 saw the beginning of the development; Tirana became the close ally of Washington in the Balkans as it conducted the Yugoslav conflict with NATO troops and forces on the ground and aid workers aplenty The Albanians made it quite clear subsequently that they had no time for the aspirations of certain rebel Albanian militants in Macedonia for a Greater Albania.
Albania has been a transit point for drug-running and smuggling across the Adriatic since at least 1989, with the downfall of communism, actually long before its advent. In the chaotic conditions of post-communism it is hardly surprising that this predominantly Moslem country, the only one in Europe (70% of the population profess Islam), became a favourite haunt of terrorists, connected to or actually belonging to the Taleban or al-Qaeda.
Albania became a conduit for terrorist personnel, material and information. The security forces have cooperated fully with the US in stamping the menace out.
The US Department of Defence is sponsoring and supervising a 10-year reform programme by the Albanian armed forces to streamline and modernise the current force of over 30,000 troops. Surplus equipment is to be sold off. Albania is hoping to be included in the next wave of expansion of NATO at the Prague summit the next meeting of the organisation in November.
The domestic economy is doing well out of Western cooperation since 1999. GDP grew by 7.8% in 2000, 7.3% in 2001 and a prospective 6% in 2002. Inflation has been in very low single figures, reportedly zero in 2001; but this is scarcely credible and must understate the situation. Official statistics gathering is still in a rudimentary condition in Albania.
While Albania has had extensive Western cooperation at state-to-state or international institutional (EBRD, World Bank etc) level, it has not attracted much foreign direct investment yet, US$141m in 2000, US$220m in 1991 and US$235m prospectively in 2002.

New government forms
Since March, the Albanians have had a new government, having been without one for several weeks since January 29th. The ruling Socialist Party has been beset by internal feuds after winning a handsome election victory last year.

Internal dissensions
One faction is led by the leader of the party, Fatos Nano, the other by the recently resigned premier, Ilir Meta. Nano accused Meta, at 32 the youngest premier in Europe, of being guilty of "corruption, fascism" and goodness knows what else, all of which Meta stoutly denies, calling Nano "an irresponsible politician" in return.
A compromise has been reached under the premiership of the young reformer, Pandeli Majko. Meta offered his support to Majko and wanted to become interior minister, a very key post in highly security-conscious Albania. Nano vetoed this and Meta has withdrawn, Stefan Cipa, a 43-year old agronomist, being chosen instead. Four ministers from the old government have kept their posts, including the key figure, Foreign Minister Arta Dade.

Economy recovers
The resolution of the crisis is none too soon, as Albania is grappling with the consequences of a harsh winter. The economy had recovered from a crisis in 1997, growing by 7-8% from 1998 onwards, enabling the re-election of the socialists last year. Moreover, this was with remarkably low inflation.
Spring and summer should get the economy off to a new start. With a new government of reformist stamp, a highly cooperative Western world in the aftermath of the Kosovo War of 1999 and a flow of aid and credit, the future still looks promising for the Albanians. But there is a long way to go for what remains one of the poorest countries in Europe.

Pressing for EU option
The Albanian government is pressing for a firm date for talks on a stability and association agreement that would launch the Balkan republic on the road to eventual membership of the EU. Premier Majko told the UK's Financial Times that the government's economic reform programme was on track, but that political conditions set by Brussels were delaying the decision.
Several EU member states remain concerned over official resistance to a crack down on organised crime and institutionalised corruption. The efficiency of the courts and the probity of the judges remain in doubt.
In the short term there is also uncertainty about who will become president after the expiry of the term of President Rexhep Meidani in July. Parliament is due to elect his successor. The socialists need to find a candidate who could win support from smaller parties, needed to secure a three-fifth majority and avoid an early general election. Once these matters are resolved, the way forward is clear, further cooperation with the EU and the West.

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ENERGY

Albania starts importing energy from Italy

The import of electricity from Italy to Albania has started. According to sources in the Albanian Power Corporation, KESh, the first tests of the import have been successful. At the beginning, the daily amount of electric power imported will be up to 2m kWh, ATA News Agency has reported. 
After the tender, to be held soon, the imports will rise to as much as 5m kWh per day, sources in KESh said. It is predicted that the aid will be delivered in three stages and it will meet the emergent needs of Albania for energy supply. 
By contributing 30m euro, Italy is making a considerable contribution to the solution of Albania's needs within a short period of time. This contribution is in addition to that agreed on 9th April at the meeting of the Italian-Albanian joint commission for a financing of 44m euro, allocated for the consolidation of the energy infrastructure of Albania. 
In total, the daily amount of imported of electric energy is 8m kWh, sources from KESh said. About 5m kWh per day is imported under a contract with KESh, 1m kWh per day is from Kosova [Kosovo] and 2m from Italy. The same amount is accounted for the by local energy production.

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FINANCIAL NEWS

EBRD publishes new Albania Country Strategy

In its new country strategy for Albania, published on its website on 30th April, the European Bank for Reconstruction and Development said it will focus increasingly on developing the private sector, supporting the private sector, supporting privatisation and improving infrastructure, particularly in the energy and transport sectors. But the Bank, which has committed more than €125m of investment in Albania, cautioned that a difficult investment climate remains a serious obstacle for future investments.
In Albania to date, the EBRD has signed 14 investments in power, telecommunications, banking, transport, real-estate and general industry. In addition to its own finance, the EBRD has mobilised a further €271m in co-investment from commercial and official sources. The Bank has also raised over €17m in donor funds to assist with institution building. Disbursement of its investments has been hampered by weak institutions resulting in implementation delays. The Bank said it hopes to overcome some of these in 2002.
The EBRD acknowledged Albania's commitment to democracy but highlighted the need to achieve continued political stability. The Bank said, "Albania has played an important and constructive role towards regional stability and cooperation, including through active participation in the Stability Pact for South-Eastern Europe." It also noted that the economy has been growing: prices and exchange rates are stable and foreign reserves are maintained at comfortable levels.
Much more remains to be done, the EBRD said. The economy is fragile, with too many living below the poverty line and where levels of foreign direct investment are among the lowest in the region. "Besides the problems of poor law enforcement and run-down infrastructure, the pyramid schemes crisis of 1997 and the Kosovo war in 1999 have added to the discouraging external image of the country as an FDI destination," the Bank said. 
The EBRD highlighted three key challenges to establishing a sound free-market economy in Albania. First the country needs to encourage private-sector development by investing in infrastructure and strengthening the investment climate through a stronger rule of law and renewed efforts in fighting corruption. Second to support privatisation in the banking and telecommunications sector which will help strengthen corporate management, improve the quality of services and firmly assert the country's openness to foreign strategic investors. Third to implement a plan for reforming the energy sector and solving the ongoing acute power crisis, a key bottleneck to private-sector development. "The Bank is well positioned and fully committed to providing direct and proactive support to the country in addressing the above challenges," said the EBRD. For further information contact Ben Atkins, EBRD, tel: +44 207 338 7236 or e-mail atkinsb@ebrd.com.

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