13. Albania: Economy Profile

EU financial support

The European Union is the largest provider of financial assistance to Albania. Under the Instrument for Pre-accession Assistance II (IPA II), Albania received a total of EUR 758 million during the period 2014-20. These funds were used to support investments, capacity building and reforms in sectors of: Rule of Law, Democracy and Governance, Competitiveness and Innovation, Agriculture and Rural Development, Transport, Environment, Education, Employment and the Social sectors. The indicative bilateral envelope for Albania under IPA 2021 amounts to EUR 70.4 million, which is dedicated to adopting and implementing political, institutional, legal, administrative, social and economic reforms to bring Albania to better align with the EU rules, standards, policies and practices (European Commision, 2021[19]). Following the November 2019 earthquake, the European Union has provided grant financing of EUR 115 million, which has been translated into two programmes: the EU4Schools supporting reconstructing and rehabilitating education facilities damaged by the earthquake and the EU4Culture supporting the rehabilitation of the cultural heritage sites gravely damaged by the earthquake, as well as related economic activities to support the tourism related to these sites (European Commission, 2022[20]).

The European Union has also been instrumental in financially supporting Albania in the wake of COVID-19. Some EUR 50.65 million was reprogrammed from the IPA 2019 and 2020 envelopes to ensure urgent medical supplies and support for the mitigation of the socio-economic impact of the crisis. A further EUR 180 million loan in Macro-Financial Assistance was approved. Albania and other Western Balkan economies have also been recipients of the European Union’s regional economic reactivation package of EUR 455 million. Moreover, in December 2020, the European Commission adopted a EUR 70 million package to help WB economies gain access to COVID-19 vaccines.

In 2020, the European Union pledged EUR 9 billion for the Western Balkans as part of a new economic and investment plan to support sustainable connectivity, human capital, competitiveness and inclusive growth, and the twin green and digital transitions. In addition to infrastructural funding for Albania’s railroad routes connecting coasts in the region and the rehabilitation of hydropower plants to increase the export of electricity from clean energy, Albanian SMEs will also be able to benefit from the scheme’s increased funding to the Western Balkans Guarantee Facility (European Commission, 2020[21]).

Furthermore, Albania participates with IPA support in the EU transnational co-operation programmes Erasmus+, Creative Europe (Culture and Media strands), Employment and Social Innovation, Customs 2020, Fiscalis 2020, Competitiveness of Enterprises and Small and Medium-Sized Enterprises Programme (COSME), Justice, Europe for Citizens and EU Fundamental Rights Agency (European Commission, 2022[20]). In 2022, Albania signed the Horizon Europe Association Agreement, which aims to reduce climate change, helps to achieve the United Nations Sustainable Development Goals and boosts the European Union’s competitiveness and growth. The signed agreement will allow researchers, innovators and research entities established in Albania to participate in the European Union’s EUR 95.5 billion programme on equal terms with entities from the EU member states. This will enable them to develop projects and technologies and conduct research and innovation activities that will contribute to tackling global challenges (European Commission, 2022[22]).

Entrepreneurial learning is included in new policy, but there are few actions, and it is not supported through a national policy partnership approach

Entrepreneurial learning is included in policy documents at the national level in Albania, where entrepreneurship as a key competence continues to be included as one of the seven key competences within the Albanian education and training system. The primary driver is the National Education Strategy (2021-2026) (Government of Albania, 2021[29]), adopted at the end of 2021, supported by the Business Development and Investment Strategy (2021-2027). The commitments made within the new National Education Strategy (2021-2026) have significantly increased the budget for education (Republic of Albania Council of Ministers, 2021[30]) though it remains significantly below the OECD average.1 European Commission reports (European Commission, 2021[3]) have placed emphasis on the importance of entrepreneurial skills and ongoing between skills and education. However, this new strategy commits to just two actions linked to entrepreneurial learning on pre-service teacher training and higher education science, technology, engineering and mathematics (STEM) programmes to match labour market skills needs.2 Though the Business Development and Investment Strategy (2021-2027) highlights the ongoing challenge of practical implementation of the competence across curriculum areas, actions targeting students only relate to linking higher education to the entrepreneurial and innovation ecosystem in Albania. The evaluation of the previous strategy (UNICEF Albania, 2019[31]) did not reference entrepreneurship as a key competence, although it highlighted the challenges of practical resources, a structured orientation towards a competency-based curriculum and the need for a better infrastructure to support quality teaching and learning.

Entrepreneurial learning remains under-developed in terms of co-ordination, curriculum and assessment

No overview mechanism exists for the actions being taken across different strategies, and evaluation of the process and impact of implementing entrepreneurial learning as a key competence through the different mechanisms across education and training is lacking. As a multi-stakeholder policy-partnership approach supporting entrepreneurial learning is also still lacking, this creates ongoing challenges of co-ordination of actions across government ministries, associated agencies and with the external stakeholders involved in the work. To build understanding of and coherence in this policy area, entrepreneurial learning could be included as the specific responsibility of a formal national policy-partnership body to take the co-ordination role, including for the development of system-level monitoring and evaluation mechanisms.

Entrepreneurship is included as a key competence in the curriculum, but this is not yet fully implemented and is not aligned to EntreComp Entrepreneurship is one of the key competences identified in Albania’s pre-university law (Government of Albania, 2014[32]), explicitly mentioned within the key competence for life, entrepreneurship and the environment. In primary and lower secondary education, entrepreneurship is included in the Citizenship subject from grades 1-8, and in upper secondary, it is taught in the Economy subject in the 12th grade. The Junior Achievement programme is widespread in upper secondary school and integrated into the curriculum as a practical entrepreneurial experience, which delivers on the curriculum’s requirements.3 In vocational education and training, there is a compulsory Basics of Entrepreneurship module,4 which includes a two-hour class on e-entrepreneurship.

At the university level, there is not yet extensive inclusion of the entrepreneurship key competence into the curriculum. The National Education Strategy (2021-2026) has included a commitment to increase interdisciplinary STEM programmes, while EU-funded projects also support educator training. An example of the European Union for Innovation series of masterclasses on creating an entrepreneurial university5 informs and inspires teachers on how to encourage an entrepreneurial mindset among their students and connect them to the wider entrepreneurial ecosystem. For students, an innovative programme called English-Entrepreneurship-Employability (3E) was launched in 2021 by Junior Achievement to create a forum for university students to engage in English-language debate clubs and develop their critical thinking, problem solving, creativity, confidence and communication skills.6 Work remains to enable learner access to entrepreneurship competence development across higher education courses, though access via extracurricular activities and careers services is evidenced. The Business Development and Investment Strategy (2021-2027) focuses on the importance of higher education, with actions on adapting university curricula, introducing actions such as hackathons and strengthening the pathway to start-ups.

Entrepreneurship is defined as a cross-cutting key competence, and it is expected to be part of the learning objectives of all subjects, but ensuring its development as a key competence within wider curriculum areas remains a key task. Where it is already included in specific subjects, the materials used demonstrate a strong focus on the economic perspective of entrepreneurship. Practical entrepreneurial experiences are not yet accessible to all students via the core curriculum. Projects are used in lower secondary education alongside extracurricular activities such as school fairs, while Junior Achievement is the major provider in primary and secondary alongside the social-innovation-based Upshift7 programme from the United Nations Children’s Fund (UNICEF) in upper secondary. Vocational education and training (VET) students participate in a compulsory long-term apprenticeship in a business environment, but the entrepreneurial competences development from this experience is not explicit, and EU reports have highlighted the ongoing challenge of matching competence development to labour market needs (European Commission, 2021[3]). The assessment of learning outcomes is not well-evidenced and is limited in scope; it is also not in line with the broader key competence development illustrated through EntreComp. EntreComp itself has not been used yet at the system level, though there is limited evidence of its inclusion within training approaches delivered as part of masterclasses in the EU for Innovation programme.

Training on the entrepreneurship key competence at the level of pre-service teacher training is lacking

While there is provision of in-service teacher training for schools and VET educators through Junior Achievement, there is no training on the entrepreneurship key competence at the level of pre-service teacher training. Junior Achievement is a significant actor at the national level, leading practical entrepreneurial experiences, providing teacher guidance and delivering significant teacher training to schools. In 2019-20, Junior Achievement training reached 800 teachers involved in delivering the Citizenship and Economics subjects.8 More broadly, Junior Achievement, supported by the Albanian American Development Foundation, plans to train 14 000 teachers by 2023 across primary and secondary education on entrepreneurial competences and economic education.9 For pre-service teacher training, the new National Education Strategy (2021-2026) has placed a specific emphasis on this area of work, calling for the harmonisation of pre-service teacher training with the requirements of the pre-university education curriculum.10 This is an important step and can provide the forum through which the skills of aspiring teachers can be future-proofed. This investment in pre- and in-service teacher training highlights the importance of tracking its impact on teaching and the learning experience of students.

Women’s entrepreneurship is evidenced through national policy with a visible shift from targeted actions to mainstreamed actions

The Business Development and Investment Strategy (2021-2027) is the main policy vehicle for the provision of business support services in Albania. Within this strategy, there is clear integration of women’s entrepreneurship as a target within mainstream actions. This includes target ratios for the women beneficiaries in the outputs of key actions across entrepreneurship support,11 SME funding and graduate placements. These actions are generic in nature but with specific targets, budgets and quantified impact attached to each.

However, there is a less explicit emphasis on actions tailored to women’s entrepreneurship in comparison to the previous Business and Investment Development Strategy (2014-2020), which included a separate and dedicated Women’s Entrepreneurship Action Plan, which had a stronger focus on the development of women’s entrepreneurship through the development of new policy documents, training programmes and funding programmes to increase and support women-led companies. There has been no visible monitoring of the Women’s Entrepreneurship Action Plan attached to the Business and Investment Development Strategy (2014-2020) since 2017, however, coinciding with the dissolution of the Women’s Entrepreneurship Advisory Group.

Mainstreaming actions to address all types of entrepreneurs requires a stronger focus on monitoring and evaluation, including gender-disaggregated data

There is no clear rationale for discontinuing the specific action plan on women’s entrepreneurship attached to the Business and Investment Development Strategy (2014-2020), nor for the change towards mainstreamed actions within the new strategy. There is a real risk that if actions are not supported by comprehensive monitoring and evaluation, understanding of the progress of and impact on women’s entrepreneurship might be lost. Previous annual reports from the Albanian Investment Development Agency (AIDA) presented only limited gender-disaggregated data, such as numbers of women participating in government-financed training, with limited insight into the results and impact on women’s entrepreneurship programmes.12 National-level statistics provide insights into the number of women business owners, self-employed women, companies with women CEOs, and the share of patents registered by women. These statistics have remained static or decreased in the past four years, with a 5% drop in the share of women CEOs and women business owners in Albania from 2016 to 2020.13

The new Business Development and Investment Strategy (2021-2027) includes an increased budget allocation to AIDA for monitoring and analysis, which can support the need for more co-ordination of different data sources alongside more depth into the impact of women’s entrepreneurship support on the growth of women entrepreneurs and their businesses. Co-ordination of this policy area occurs through the GMIP, an inter-ministerial working group that discusses and proposes policies within the competitiveness dimension and within which women’s entrepreneurship is now a specific topic. The membership of this group could be extended to include gender-based representation and non-government members to integrate women’s networks more closely as part of a national coalition approach.

Awareness-raising and practical support to women-led start-ups and businesses are provided by stakeholders from the women’s entrepreneurship ecosystem

Progress can be seen in awareness-raising and dialogue between different organisations working in women’s entrepreneurship, particularly in terms of networking. An example is the Women Founders Network Albania (WFNA),14 an informal national network. The Women’s Economic Chamber and the Women’s Entrepreneur Committee of the National Chamber of Crafts are actively driving forward women’s entrepreneurship through events, workshops and business coaching. There are examples of excellent practices, such as RisiAlbania, Digital Jobs Albania and the Women in Business15 programme, that focus on women’s entrepreneurship, including promoting green, digital and online entrepreneurship. Another example is Idea Challenge Albania, starting with 2 000 start-up ideas (prioritising women participants – 53% in 2021) and offering training and mentoring to develop the ideas towards pitching for the Idea Grant Scheme managed by the Ministry of Finance and Economy and supported through international development co-operation partners’ funding.16 There are also programmes to specifically target and support women-led businesses that have been impacted by the COVID-19 pandemic.17

The insolvency legislative framework has seen certain improvements

Albania’s insolvency legal framework is based on the 2016 Insolvency Act (No. 110), which does not implement the United Nations Commission on International Trade Law (UNCITRAL) insolvency model law (UNCITRAL, n.d.[37]) or the EU model for cross-border insolvency (European Parliament and the Council of the European Union, 2015[38]). It does contain chapters on the access of foreign representatives to the Albanian courts, the recognition of foreign insolvency proceedings and relief and co-operation with foreign courts and foreign representatives (EBRD, 2021[39]). The law provides a solid legal framework for formal court bankruptcy liquidation and allows for two reorganisation procedures (expedited and regular). However, aspects to streamline the processes, such as fast-track reorganisation/liquidation or the digitalisation of the insolvency procedures to shorten the proceeding and better monitor and evaluate the protection of debtor’s and creditors’ rights in insolvency proceedings are missing in the insolvency framework.

The expedited insolvency reorganisation can only be initiated by the debtor and starts as an out-of-court settlement between the debtor and its creditors, which is then filed and confirmed by the court. Although it aims to enable the debtor to overcome a situation of imminent insolvency, there are no provisions governing new potential financing. The process requires the support of the creditors that represents 30% or more of the total claims included in the plan, followed by the confirmation of the plan under the supervision of the court.

The regular reorganisation procedure may be initiated by the debtor, under a certain number of restrictions, or by the creditors. If the latter initiates the process, as an automatic consequence, the debtor’s right to manage and dispose of its assets is then vested in the insolvency practitioner (EBRD, 2021[39]). The insolvency practitioner, jointly with the debtor (where the debtor remains in possession), may borrow new loans for the continuation of the business. The law clearly enumerates the priority orders of the creditors following the plan’s adoption; however, it does not provide clear rules regarding which plan to select in case of multiple options.

Insolvency data are published on the official website of the Albanian National Bankruptcy Agency (NBA), but the website has not been accessible since July 2021 (EBRD, 2021[39]). Even though the statistics gathered do not differentiate between bankruptcy liquidations and reorganisations, they clearly show a decrease in the number of cases since 2017 (see Table 13.9). In addition, the Albanian Tax Administration publishes the list of subjects for which bankruptcy liquidation procedures are initiated (Albanian Tax Administration, n.d.[40]).

Some progress has been made regarding insolvency prevention measures

In terms of preventive measures, Albania has made progress since the last assessment, mainly due to the introduction of new insolvency prevention regulation on accelerated extrajudicial reorganisation agreements in February 2021 (Government of Albania, 2021[41]). The procedure is entirely voluntary and extrajudicial if the debtor is in a situation of imminent insolvency.19 It starts with multilateral talks between the debtor and its creditors and the election of a board of creditors if there are more than ten creditors and is approved if a majority of the creditors holding 75% of the whole debt agrees. Although this enhances bankruptcy prevention, the plan becomes binding only for the creditors who have signed the agreement, leaving a legal gap for creditors that are not in favour, did not vote for the plan or who are secured and have enforcement rights over the debtor’s property, as their situations are not clearly regulated. Consequently, the latter (e.g. the secured creditor) could claim its debt at any time, making the implementation of the plan impossible, as the assets needed for the completion of a restructuring agreement will not be there anymore. In addition, the lack of automatic stay for the period of the implementation of the plan threatens its successful completion and does not provide incentives for creditors to participate in the agreement.

An early warning system remains absent in Albania. During the reporting period, however, solvent SMEs have been offered a range of advisory and mentoring services, which aimed to increase their competitiveness and improve their financial management, thus indirectly contributing to preventing their insolvency. Moreover, some tax deferral options were also offered to financially distressed companies during 2020 to mitigate the effects of the COVID-19 pandemic.

The new law on the development of SMEs, adopted in April 2022, foresees the implementation of targeted trainings for SMEs, depending on the activity sectors, stage of development and the experience of firms in their actual markets, under the supervision of AIDA. This initiative is expected to contribute to the prevention of bankruptcies.

Second-chance programmes for failed entrepreneurs are still lacking

Similarly to the previous assessment findings, Albania does not promote second chance, which would encourage or ensure the possibility of reintegration of honest entrepreneurs into the economy. The Business Development and Investment Strategy (2021-2027) highlights the importance of second-chance policies (Government of Albania, 2021[28]). However, no concrete measures have been included in the strategy’s action plan, and no such measures have been planned. Furthermore, the legal framework does not distinguish honest from fraudulent bankruptcies, nor does it define clearly honest entrepreneurs.

The SME policy framework has been further developed, and implementation has continued, but there is no comprehensive framework for combating informality

Albania completed the implementation of its Business Investment Development Strategy (2014-2020) since the previous assessment. Monitoring and evaluation of the Business Investment Development Strategy (2014-2020) was conducted through three monitoring reports, which showed an overall implementation rate of 75%. Results from this monitoring were integrated into the new Business Development and Investment Strategy (2021-2027), and namely identified challenges in the division of competencies, regularity of reporting and definition of measures, which the new Business Development and Investment Strategy (2021-2027) aims to address.

The new Business Development and Investment Strategy (2021-2027) was developed in consultation with stakeholders and focuses on three specific objectives: 1) attracting investment and internationalisation; 2) SME development; and 3) human capital development. Monitoring and evaluation is planned through annual reporting as well as the creation of a mid-term implementation report, which should take stock of the strategy’s course and address any challenges towards the middle of the strategy’s implementation timeline.

AIDA, the implementing agency for SME policies, underwent a restructuring in 2019. New structures and units were created, with the goal of expanding AIDA’s co-operation and co-ordination with municipalities, to be closer to businesses at the local level. Consequently, AIDA has increased its staff (from 29 to 39 employees) to meet the needs of this expansion.

The informal economy remains a structural challenge in Albania, representing around one-third of GDP according to the latest estimates (European Commission, 2021[3]). The government has been running an inter-institutional campaign against the informal economy for years. As a result of this campaign, the government has identified key sectors the most at risk of informal activity, namely retail trade, wholesale trade, tourism and hospitality, and construction. Another key reform undertaken since January 2021 is fiscalisation, through which the government made it mandatory for businesses to file electronic invoices to improve the accuracy and reliability of data the tax administration has access to. While these are welcome steps, Albania lacks a comprehensive strategy for tackling informality, which would allow it to address structural and sector-specific issues (European Commission, 2021[14]).

Efforts to simplify business legislation and improve the business environment have continued but lack an overall systematic approach

Albania has continued efforts to improve the business environment since the previous assessment, mainly by focusing on increasing the availability of digital government services (see Dimension 4 on operational environment for SMEs) and reforms to combat informality, such as fiscalisation.

Although the new Business Development and Investment Strategy (2021-2027) takes stock of the state of the business environment and progress made in improving it, it does not contain measures to simplify legislation and lessen administrative burdens for SMEs, which are often cited as key barriers for businesses in Albania. Considering the high level of administrative burdens for businesses in Albania and its effect on the informal economy, a more ambitious framework for simplifying legislation and improving the business environment would be welcome (European Commission, 2021[45]). In early 2022, the government began drafting a work plan for improving the business environment and investment climate based on priority areas identified through consultations with businesses, such as tax legislation, banking regulation, bankruptcy, education, e-commerce and others.

The government’s General Analytical Programme of Drafts, which lists primary and secondary legislation that the government plans to amend or introduce, informs businesses and other stakeholders of upcoming legislative changes. Since January 2021, it also includes a list of PPCs to be conducted.

The methodology for RIA has been strengthened and updated, but quality control and monitoring and evaluation could be further improved

Conducting RIA has been made mandatory for primary legislation since January 2019. The new RIA methodology includes mandatory consideration of economic and financial aspects, along with the impact on businesses in general. However, SME-specific impacts are not mandatory for consideration, lessening the ability of the government to measure the potential impact of legislation on SMEs, which have fewer resources to adapt to compliance costs compared to larger firms.

Quality of RIA is overseen by the RIA Unit within the Council of Ministers, which provides written feedback on line ministries’ RIA drafts. However, while entrusting a centre-of-government institution to perform this quality control function is an encouraging step forward, more could be done to ensure the effectiveness of this control. Specifically, the RIA Unit has little leverage to give weight to its feedback, which is not binding and is often not taken into account by line ministries (OECD, 2021[46]).

There is room to improve the quality of RIA conducted, mainly in identifying options and alternatives to proposed policies (OECD, 2021[46]). The use of RIA across the public administration is not monitored in Albania, meaning that it is difficult to measure the overall level of quality in different areas and different ministries and identify challenges and solutions.

The framework for conducting, monitoring and evaluating PPCs was strengthened, showing room for improvement in PPC quality and consistency

In January 2021, Albania strengthened its regulatory framework for conducting PPCs through the adoption of the Guideline on the Public Consultation Process (Box 13.7). This regulation strengthens the requirements for PPC consistency, informing stakeholders and reporting on PPCs. The Regulatory and Compliance Department of the Office of the Prime Minister was entrusted with ensuring that line ministries report on the PPCs they conduct (both for individual consultations and as a whole over a period of time) and the Department for the Development of Good Governance, also within the Office of the Prime Minister, prepares an annual report on the overall progress in the quality of PPCs conducted in Albania (OECD, 2021[46]).

These reports are available on the public consultation portal (https://konsultimipublik.gov.al), which the government uses to centralise access to PPCs from various line ministries. The introduction of regular, comprehensive reporting is a strong step and has allowed the government to measure deficiencies in the quality and consistency of PPCs. In terms of both quality and consistency, both significantly increased from 2018 to 2020, but recently the regularity of PPCs and their quality (measured through indicators created for the purposes of the report) seem to have plateaued, with a slight decrease in the first half of 2021 (Council of Ministers, 2021[47]). In terms of measuring stakeholder participation in PPCs, the reports allow measuring total engagement through indicators on the number of participants and the responsiveness of institutions to comments and suggestions from stakeholders. However, the existing indicators do not allow the government to identify which types of stakeholders are engaged and thus to measure if businesses and SMEs are adequately included in PPCs.

The implementation of digitalisation reforms has advanced, supported by a solid framework for inter-institutional co-ordination

Albania has continued the implementation of its Digital Agenda (2015-2020) and consequently advanced the development of digital government services. Out of the Digital Agenda Action Plan’s activities, 67.8% (or 156 out of 230) have been fully implemented, with 29 in progress as of December 2020. More specifically, related to the agenda’s priority of developing digital government services, around 65% (or 75 out of 115) of planned activities had been fully implemented by December 2020 (NAIS, 2020[49]). Following consultation with stakeholders, the Action Plan’s duration was extended until 2022 to ensure its full implementation, as well as the implementation of new and updated activities.

NAIS was reorganised in 2017 and provides a strong pillar for horizontal governance of digital transformation efforts across Albania’s various line ministries and institutions. Through indirect management of line ministries’ technical and information and communications technology (ICT) staff, who fall under the Agency’s organisational chart, NAIS supports line ministries in managing digital services and the associated ICT tools. NAIS also ensures the delivery of digital services according to common standards and ensures inter-institutional co-ordination and monitoring and evaluation of digital government reforms (OECD, 2021[16]). This co-ordinated approach also ensures that public services are not only digitalised but re-engineered when necessary to better suit users’ needs. With this in mind, the Agency for the Delivery of Integrated Services, whose goal is to improve the accessibility of public services (assisting citizens with applying for services on line) and streamline existing procedures, has made efforts to standardise administrative procedures and improve the overall user experience with public services21 (OECD, 2021[46]).

NAIS monitors the use of the e-Albania portal by both citizens and businesses. Statistics on the most popular services and user satisfaction are fed back to inform the continuous development of services on the portal. Feedback channels also exist, allowing users to comment at their own initiative on their experience using digital services. Some of the key statistics on the portal’s use and the services available are available as open data on the government’s open data portal. However, there is room for improvement in ensuring SME-specific data collection.

The rollout of digital services has advanced but has not yet improved business satisfaction with digital services

The rollout of digital government services in Albania has advanced since the previous assessment. The number of digital services for businesses that can be completed fully on line through the e-Albania portal (https://e-albania.al) increased from 293 in 2018 to 373 as of 2020. As of 2021, 95% of all administrative services had been made available on line,22 at differing levels of digital maturity (OECD, 2021[46]). Consequently, Albania’s ranking in the United Nations E-Government Development Index rose from 74^th to 59^th from 2018 to 2020, and its score in the UN Online Service Index increased from 0.73 to 0.84 over the same period.

However, despite these improvements in the availability of digital services, according to the latest Balkan Business Barometer survey, businesses’ satisfaction with digital services is declining. In 2019, 70% of respondents expressed satisfaction with digital services, whereas, in 2021, this share had decreased to 54% (nevertheless, it remains above the regional average satisfaction rate of 39%)23 (Regional Cooperation Council, 2021[50]). Moreover, citizens are, in general, more satisfied with digital public services than businesses (OECD, 2021[46]). This may indicate that despite the increased availability of digital services, there is still room for improvement in designing services to suit the needs of businesses.

The enablers of digital services, such as interoperability and open data, have been strengthened

Albania has further strengthened the key enablers for delivering digital services since the last assessment. Interoperability of government data has advanced, with 55 registers and databases from different institutions interconnected through the Government Interoperability Platform, up from 48 in 2019. This interconnectedness allows for around 66% of all forms to be pre-filled, thanks to the exchange of data between institutions (up from around 60% in 2019), further saving time for businesses.

The legal framework for the use of e-signatures and its partial alignment with the eIDAS regulation24 has been in place since 2015, ensuring the legal equivalency of electronic signatures and traditional signatures and their use for digital services requiring a high level of security. The government plans to fully align the legal framework with the eIDAS regulation in 2022. However, despite the framework being in place, and the increase in the number of services using e-signature, there is room for improvement in promoting the use of e-signature by businesses (OECD, 2021[46]).

Albania adopted an Open Government Partnership National Action Plan (2020-2022), focusing on anti-corruption, access to justice, fiscal transparency and digital governance. The digital governance component includes measures to expand digital government services and the open data portal and to improve the delivery of integrated public services through the Agency for the Delivery of Integrated Services.

Since the previous assessment, Albania has launched an open data portal (http://opendata.gov.al), which currently allows access to 436 datasets as of 2022 (there were 101 in 2020) (Government of Albania, 2021[51]). Criteria for publishing open data (to ensure that it is reusable) are established, and the government monitors the use of the open data portal to identify which datasets are the most popular. While the National Open Government Partnership Action Plan aims to further expand the amount of open data available through the portal and to promote its use among citizens, measures to promote the use of open data by businesses for the creation of innovative products are absent (Government of Albania, 2020[52]).

Company registration is well designed, and digitisation reforms are underway

Entrepreneurs can register their companies through the NBC, which operates as a one-stop-shop in its 35 physical offices or on line, according to the “silent-is-consent” principle.25 When applying at the NBC for company registration, entrepreneurs receive a single tax identification number and are simultaneously registered with the tax authorities, social insurance and labour inspectorate, highlighting strong interoperability in this area. Online registration has been fully operational since 2016 and is free of charge on the e-Albania portal.

Albania remains one of the frontrunners in the WBT region in terms of the time and procedures needed to start a business. Registration with the NBC is finalised in 24 hours and the full process to start a business takes 4.5 days and 5 procedures on average (World Bank, 2020[53]).

As part of ongoing digitalising reforms undertaken by NAIS and the NBC, since January 2020, some processes pertaining to company registration are only available on line, such as services for registering physical persons or for the suspension and reactivation of activity by legal entities. Full digitalisation of other services related to company registration is ongoing.

Monitoring and evaluation mechanisms are in place for company registration in Albania. Data on the company register is publicly available on NBC’s portal. Moreover, regular online surveys are conducted on the e-Albania portal to evaluate the quality of services provided on line, including those offered by the NBC.26

Information and application for business licences are centralised on line, and reforms to further reduce administrative barriers are ongoing

Albania is the only WBT economy that has streamlined company registration and licensing under its one-stop-shop (the NBC),27 which speeds up processes, increases transparency, and lowers administrative burdens and costs for SMEs. Information and application for business licensing are centralised on an e-licence portal (https://qkb.gov.al/home), overseen by the NBC. The NBC receives business licences and submits them to the relevant authorities as needed (Box 13.9). It plays the role of a co-ordination body and is in charge of interoperability and exchange of data between public institutions. Since 2020, licensing requests can only be submitted on line, and all services are free of charge.

Around half of businesses in Albania (52%) considered the lack of availability and accessibility of relevant information a small or no obstacle at all, and 53% did not consider the lack of digitalised process for application and of approval of licences to be an obstacle (Regional Cooperation Council, 2021[50]). While satisfaction with licences and permits is much higher in Albania than in the rest of the Western Balkans, it is lower than for other digital services and has been declining since 2019 (OECD, 2021[46]). The number of procedures, requirements, paperwork, and cost for obtaining business licences are considered a small or no obstacle at all for 46% of businesses in Albania (Regional Cooperation Council, 2021[50]). According to the latest data, 7 days were required to obtain an import licence, 11 for an operating licence and 36 for a construction permit, all three of which are lower than the WBT averages (11, 24 and 72 days, respectively) (World Bank, 2019[55]).

Since the last assessment, Albania has undertaken a deregulation reform in the licensing sector to further facilitate and improve the business climate by reducing administrative barriers. In the framework of this reform, a group of experts, headed by the deputy prime minister, has reviewed all licenses and permits for a two-year period (2018-19) issued by state institutions. As part of their recommendations, the group has proposed to remove 22 licences to further reduce unnecessary burdens on companies. In line with these recommendations, 12 licences had been removed as of 2021 and further streamlining is ongoing.

Tax-related measures to mitigate the impact of the COVID-19 crisis and support the economic recovery were particularly targeted at SMEs

The mandatory threshold to register for value-added tax (VAT) was increased from ALL 2 million (approximately EUR 16 500) to ALL 10 million (EUR 83 000) (Albanian Parliament, 2020[56]). In addition, CIT filing and payment were deferred for SMEs and for businesses in sectors that were particularly hard-hit by the crisis. The tax rate for SMEs subject to the simplified CIT regime decreased from 5% to 0%. Overall, these tax measures aimed at supporting cash flow for businesses, in particular SMEs, and they are broadly aligned with the measures taken in countries around the world, except for the reduction in the CIT rate, which has not been widely implemented.

Unincorporated businesses are subject to CIT and SSCs that are levied on the minimum wage

The taxation of unincorporated businesses in Albania differs from the approach taken in most other economies around the world. Unincorporated and incorporated businesses are subject to the CIT (referred to as the “profit tax”). This practice is uncommon, as economies usually tax the business income of unincorporated businesses under the personal income tax (PIT).

SSCs for the self-employed are not levied on their actual earnings but on the minimum wage or a multiple of it. Self-employed workers pay a 23% SSC rate levied on the minimum wage and a 3.4% rate on twice the minimum wage for health contributions (IBFD, 2021[57]). While self-employed entrepreneurs are less incentivised to under-declare their income as SSCs are not levied on actual earnings, the SSC design results in a high effective tax burden for self-employed workers who earn below the minimum wage, such as start-ups with low turnover. In addition, as SSCs are only levied on (a multiple of) the minimum wage, self-employed entrepreneurs will receive low benefits in the future. Once the tax administration is confident that it can avoid widespread non-compliance among the self-employed, the SSC base could be changed to actual earnings. This measure will increase the SSCs’ burden, but self-employed entrepreneurs would benefit from enhanced social protection and higher benefits in the future. Alternatively, self-employed business income could be taxed under the PIT at a progressive PIT rate schedule, in particular, if social benefits for the self-employed were to be paid partly out of general tax revenues rather than only from SSCs.

CIT incentives are available to SMEs and large businesses

The standard CIT rate in Albania in 2021 was 15%. Businesses that develop software and those that operate in the automotive industry benefit from a reduced CIT rate of 5% (IBFD, 2021[58]). In addition, CIT losses can be carried forward up to three years, which is the shortest period among economies in the region, except for North Macedonia, which has the same period. As young and innovative SMEs might have low profits and make large investments, a short period to carry forward losses could reduce risk-taking and investment by these types of SMEs.

SMEs benefit from a simplified corporate income tax regime under which they pay very little CIT liabilities

SMEs with an annual turnover of less than ALL 14 million (EUR 116 000) can benefit from a simplified CIT regime. While the regime incentivises businesses to formalise, it also creates hurdles for businesses to grow into the regular CIT regime. In Albania, SMEs with annual turnover below ALL 8 million (EUR 66 300) are exempt from paying CIT, i.e. they benefit from a 0% CIT rate. This threshold was ALL 5 million (EUR 41 500) before the COVID-19 crisis and has been raised to support the economic recovery. In addition, SMEs with annual turnover between ALL 8 million (EUR 66 000) and ALL 14 million (EUR 116 000) that benefited from a reduced CIT rate of 5% before the COVID-19 crisis now enjoy a 0% CIT rate, too (Albanian Parliament, 2020[56]). SMEs under this regime face a high increase in tax burden when entering the standard CIT regime, which does not incentivise them to grow. Moreover, as small corporations barely pay CIT, the tax administration might be tempted to reduce its efforts in auditing these businesses as it foregoes little CIT revenues, which further incentivises businesses to stay within the simplified CIT regime rather than grow into the regular regime. Albania should prioritise the simplification of tax administration procedures over CIT exemptions to reduce the incentive for businesses to remain under the simplified CIT regime.

Contrary to most other economies in the region, the tax system does not create tax-induced incentives for SMEs to incorporate

The tax system does not create tax-induced incentives for SMEs to incorporate, as the tax burden on both types of businesses remains low. Unincorporated SMEs that earn more than the minimum wage pay relatively low SSCs (as they are levied on the minimum wage). In addition, these SMEs pay low CIT liabilities, as they are subject to the generous simplified CIT regime, rather than paying the PIT on their business earnings, as is the case in most other economies. Therefore, the tax burden of unincorporated businesses is relatively low. The tax burden is also low for corporations. A withholding tax of 8% applies to distributed dividends that are paid out of profits net of the CIT, which is levied at a rate of 0%, 5% or 15% depending on business profits (IBFD, 2021[58]). There might be scope to further increase the dividend withholding tax as part of broader tax reform.

No special rules apply to gig workers. They can be taxed under the same rules that apply to employees if their income is earned in the form of wages (i.e. the progressive PIT rate schedule applies). They can be taxed under the same rules that apply to self-employed workers if they have a business status. Finally, a 15% withholding tax applies to gig workers’ income that is earned in the form of service payments (General Directorate of Taxes, 1998[59]). The tax treatment of gig workers is favourable, in particular, if they benefit from the 0% CIT rate, i.e. if they fall under the simplified CIT regime. On the other hand, a gig worker with a small activity (e.g. a couple of hours per week) might face a high effective SSC burden as SSCs are not levied on actual earnings but on the minimum wage.

Voluntary registration for VAT is not allowed for all SMEs, and there are no VAT simplification measures targeted at SMEs

It is compulsory for businesses with an annual turnover exceeding ALL 10 million (EUR 83 000) to register for VAT (the threshold was ALL 2 million (EUR 17 000) up to 2020). Voluntary registration for VAT is allowed only for businesses with an annual turnover exceeding ALL 5 million (EUR 41 500). In 2021, the standard VAT rate was 20%, and the reduced VAT rate was 6% (IBFD, 2021[58]). SMEs that do not qualify for the VAT registration are induced to find ways to avoid having to pay VAT on their inputs, for instance, by purchasing inputs from the informal economy. Albania could evaluate whether it wants to introduce additional measures to facilitate VAT compliance for SMEs, such as simplified input tax credit calculation schemes or cash accounting for VAT purposes. Measures to further improve the functioning of the VAT refund system are also warranted.

Several simplifications of tax administration procedures apply to SMEs

Businesses subject to the simplified CIT regime and that have annual turnover below ALL 8 million (EUR 66 000) are required to file an annual simplified CIT return. Businesses within the simplified CIT regime but with turnover above ALL 8 million (EUR 66 000) are required to complete the simplified CIT return and to provide detailed financial statements. Overall, businesses with an annual turnover of up to ALL 30 million (EUR 250 000) benefit from simplified bookkeeping rules. In addition, while employers pay SSCs on behalf of their employees on a monthly basis, the self-employed pay SSCs on a quarterly basis. Finally, e-filing is mandatory for CIT and VAT purposes; online tax payment is not mandatory.

Albania has enhanced its legal framework for SME support and facilitated access to information on available BSSs

The Business Development and Investment Strategy (2021-2027) is the main strategic document regulating BSS provision in Albania. The strategy supersedes the Business and Investment Development Strategy (2014-2020), which was 75% implemented28 (Government of Albania, 2021[28]). In addition, Albania adopted a new SME law in April 2022. The new law establishes an advisory council for SMEs and adds new forms of financial support available to SMEs. Since a weakened legal environment has been identified as the main challenge for improving the business environment in Albania, the new legal and strategic framework for the provision of support services for SMEs is a welcome development. The government included relevant stakeholders in the strategy’s drafting process, which has not been a consistent practice in previous strategies (World Bank, 2021[60]).

In the Business Development and Investment Strategy (2021-2027), the government aims to improve the business environment and attract investment, increase the competitiveness of SMEs through development and information technology, and reduce administrative barriers for SMEs. One of the specific targets of the Strategy (Government of Albania, 2021[28]) is to increase the density of start-ups in the economy from 88 to 132.29 While start-up density is not a common proxy for the level of innovation and entrepreneurship in an economy, it can measure entrepreneurship levels and incentives in an economy.30

By nature, start-ups, particularly in a digitalised economy, are easier to create and more difficult to maintain. The Business Development and Investment Strategy (2021-2027) envisages intensified BSSs, both financial and non-financial, to ensure long-term start-up survival and target achievement. It does not, however, propose a measure to monitor the start-up ecosystem long term. Nevertheless, the strategy provides a sound strategic framework for a comprehensive policy mix, including financial support, such as state guarantees, and enhanced non-financial support focused on training. In addition, Albania adopted a law on the support and development of start-ups in March 2022, which sets an official legal definition for start-ups and envisions new support schemes.

To improve information asymmetry and facilitate access to information, the government launched the Access to Finance portal in 2021. The new portal serves as a one-stop-shop to assist Albanian SMEs in their expansion and development efforts by taking advantage of financial support granted by the Albanian government. In order to use the portal, each SME needs to create its profile, listing its products and services. At the time of assessment, the portal had 965 SMEs registered. As lack of entrepreneurial know-how and difficulties accessing finance have been quoted as the main obstacles for SMEs in Albania, the portal serves as a sound, well-targeted tool to eliminate such hurdles (European Commission, 2021[44]).

The government has amplified AIDA’s role as a BSS provider, expanding its training and monitoring mandate

In the Business Development and Investment Strategy (2021-2027), the government envisages expanding the role of AIDA as a government BSS provider, amplifying its structure to add a new training division in 2021. This constitutes a significant change since the last assessment cycle, during which AIDA did not directly provide training to SMEs. The Business Development and Investment Strategy (2021-2027) provides a framework for SMEs to take advantage of training in the area of e-commerce and digitalisation, as well as gain entrepreneurial skills and knowledge. Apart from AIDA, both the Union of Chambers of Commerce and Industry of Albania and the Chamber of Commerce and Industry of Tirana provide support services for SMEs, offering services ranging from vocational training, workshops and conferences to certificates of origin support and intellectual property protection assistance.

Since the last assessment cycle, the government has intensified its efforts in training needs analysis. The Directorate of Investment of AIDA conducted two studies on the impact of the COVID-19 pandemic and the needs of SMEs associated with the negative effects it had on the business climate. The results show the fragility of Albanian SMEs in light of the pandemic and provided insight into specific BSS needs and expectations from the government, which were mainly focused on financial support. The analysis included 200 SMEs nationwide and across sectors. In November 2019, AIDA also conducted a study on SME training needs and the innovation ecosystem in Albania. The World Bank, the European Bank for Reconstruction and Development (EBRD) and the German Gesellschaft für Internationale Zusammenarbeit (GIZ) also conducted assessments of the SME landscape in collaboration with the government, assessing existing BSSs and their impact. Albania follows good practices in matching the demand and supply of support services for SMEs, which shows progress over the last assessment cycle.

AIDA’s role has also been amplified in the area of monitoring. There has been a significant advancement in the monitoring of BSS projects; since the last assessment cycle, the government introduced a draft law that would require all central government and local self-government units to submit annual reports for all financial support schemes and public service support for MSMEs to AIDA. AIDA’s annual reports are now available to the public, which constitutes a significant change since the last assessment cycle and contributes to enhancing the government’s transparency. There is also a solid mechanism for SMEs to provide feedback on the BSSs received from AIDA. Beneficiaries can submit satisfaction surveys after benefiting from support services and participate in interviews conducted by BSS providers.

Seeking to improve BSS coverage, AIDA is redesigning its support schemes while the government collaborates with international partners

One of the main changes since the last assessment cycle is AIDA’s plan to redesign grant support schemes for SMEs. The Competition Fund, Innovation Fund, Start-up Fund and Creative Economy Fund are due to be combined into one comprehensive fund for SMEs to support them in their development and internationalisation efforts. The new fund is envisioned to be more flexible in terms of funding opportunities and goals, as it will include an increased number and value of project grants.

Furthermore, the Business Development and Investment Strategy (2021-27) provides a roadmap for restructuring the grant application process by moving it entirely on line. With the previous support schemes, SMEs had to arrange an in-person meeting at AIDA’s offices in Tirana, making it prohibitive for smaller companies, both in terms of time and resources. It is a welcome development, given that two-thirds of Albanian SMEs are not located in Tirana. Despite the cumbersome application process, in 2019, 120 SMEs applied for funding from AIDA’s support funds, which is 58% more than in 2018. Some 94 SMEs benefited from all 4 support funds in 2019, constituting a 66% increase over 2018 (AIDA, 2019[61]). The consolidated fund had not been implemented at the time of assessment; however, there is a pressing need to increase its institutional capacity to provide broader, more comprehensive support for SMEs (European Commission, 2021[44]).

On top of government-provided support, Albania collaborates with a range of international development co-operation partners to provide SMEs with additional technical assistance. The EBRD supports Albanian SMEs through projects relating to innovation, youth and women entrepreneurship, green growth and digitalisation. The projects focus on advisory services for SMEs. In addition, with the collaboration of the Swiss Agency for Development and Co-operation, the Ministry of Finance and Economy is implementing the RisiAlbania project, which provides training, consulting and advisory services for Albanian companies.

Private provision of BSSs is blended with government-provided services, although co-financing schemes have been discontinued

Though there are no explicit targets set for the private provision of support services for SMEs, the government acknowledges the importance of a well-developed private sector and the necessity for private-sector consultants to assist SMEs in their expansion efforts. The government does not provide any co-financing mechanisms for SMEs, which constitutes a change since the last assessment cycle, during which SMEs had access to co-financing schemes through the aforementioned funds provided by AIDA. These schemes would allow SMEs to use the services of private consultants. It is unclear whether AIDA plans to reintroduce co-financing private support services for BSSs, despite introducing a dedicated budget line for SME support, amounting to ALL 105 million (approximately EUR 870 000). Providing SMEs with access to co-financed services of private-sector consultants encourages a diverse and sustainable market of private BSS providers. Government-regulated co-financing of consultancies from accredited providers can help to ensure fair competition on the market, benefiting SMEs.

To assist SMEs in accessing the services of private-sector providers, AIDA’s website has a dedicated section where SMEs can access information on BSSs available to them and the requirements to benefit from support services. Furthermore, AIDA has a document containing information on private-sector consultants, which is available free of charge. In order to ensure the highest quality of private BSSs, the government is working on an accreditation requirement for private-sector consultants, which is foreseen in the presidential decree published following the adoption of the new SME law.

The public procurement market has increased recently, but there is relatively low competition for higher-value contracts

While the market for public contracts in Albania remains relatively small (EUR 1.75 billion in 2020) (PPA, 2020[62]), it has nevertheless doubled compared to the previous period (EUR 908 million in 2019). The average number of tenders in public procurement above the ALL 800 000 (approximately EUR 6 600) threshold amounted to 2.57 in 2020 (2.37 in 2019 and 3.05 in 2018) (PPA, 2020[62]). There was much more competition in small value contracts (11.6 tenders on average in 2020) and international restricted procedures applied in the context of the reconstruction process (23.38 bids in 2020) (PPA, 2020[62]). The share of contracts awarded to foreign companies is very low: 0.2% of contracts were awarded to foreign contracts in 2020 (0.1% in 2019); the value of such contracts amounted to 0.4% of the total public procurement market in 2020 (compared to 0.23% in 2019).31 No information is available on the share of contracts awarded to SMEs.

The regulatory framework has improved considerably to comply with EU requirements

The new PPL contains provisions that are, to a very large extent, harmonised with the 2014 EU Public Procurement Directive and Utilities Procurement Directive. There are, though, a few provisions that are not fully compliant or are contradictory to the acquis, including, for example, limitations concerning the maximum share of the awarded contract, which may be subject to subcontracting (a maximum of 50% of the contract value) or an additional ground for mandatory exclusion of economic operators.

The public procurement provisions have various solutions in favour of SMEs. The new provisions do not allow contracting authorities to request that a group of economic operators (consortia) assume a specific legal form to submit a tender or request to participate in a public procurement procedure. A requirement concerning a specific organisational form may only be imposed on the winning bidder if it is necessary for the proper performance of the contract. However, implementing regulations imposes additional obligations and requires the submission, together with a tender, of a co-operation agreement regulating the co-operation of the members of such a group. The new PPL also provides for other instruments supporting the participation of SMEs in public procurement procedures: introduces a standard form of self-declaration that includes most of the relevant information on the economic operator that is used as preliminary proof of fulfilment of provisions on exclusion and criteria for qualification (selection) and allows economic operators to use the same form in subsequent procedures if the information is still relevant; prohibits contracting authorities from requesting documents from economic operators that are available in a state database or which the contracting authority already has in its possession.

To increase the participation of SMEs, the new public procurement rules also promote the division of procurement into lots. Contracting authorities are required to justify why procurement above a certain threshold has not been divided into lots (this is not obligatory in the case of utilities contracts). Implementing rules go even further because they explicitly require dividing procurement into lots whenever possible.32

Other provisions of the PPL can, however, create barriers to access to the public procurement market. A bid security (at 2% of the estimated value of procurement)33 is obligatory for contracting authorities in all public procurement procedures above the low monetary thresholds.34 This was optional under the previous law, allowed in the case of procedures for contracts above high thresholds. Bid securities are forfeited if the winning tenderer decides not to sign the contract.35 This is understandable since the role of the bid security is to ensure that the bid is serious and binding for the bidder. However, the PPL obliges the contracting authority to exclude for one year36 from all subsequent procedures conducted by the same contracting authority any bidder who withdraws from signing the contract. This seems to be a disproportionally harsh penalty considering that concerned bidders also lose their bid security. Additionally, bidders who decline to sign a contract more than five times in the same year can be disqualified from participating in all public procurement procedures based on a decision of the PPA for a period ranging from three months to three years.37 This disqualification from all procedures concerned, with no possibility for contracting authorities to undertake a case-by-case individual assessment after the disqualification took place and to decide on their own whether such bidders should be admitted or not to a given procedure, is not consistent with the Court of Justice of the European Union’s case-law (OECD, 2021[46]).

The PPL has a number of provisions related to sustainable procurement (as provided in the EU Public Procurement Directive) and allowing or even requiring environmental or social considerations to be taken into account in describing the object of procurement, defining qualification or award criteria, or contract performance conditions. Contracting authorities are obliged to apply the requirements provided by the environmental, social and labour legislation as well as by the provisions of international agreements and conventions, ratified in accordance with the national Constitution.38

In principle, the PPL provides for free choice between the lowest price and the price-quality ratio,39 and the PPL has no recommendation or obligation to use the price-quality ratio except in the consulting services procedure. However, a preference for price quality is clearly expressed in the implementing rules.40 Accordingly, the price-only criterion can be used in the case of works, goods or services, which have simple specifications, well-known technical standards and are easily available on the market.

The institutional set-up allows for functions that promote transparency and competition in public procurement

The PPA is the central administrative body for public procurement matters (PPA, n.d.[65]). Its tasks include preparing drafts of implementing regulations related to public procurement, promoting and organising training for public procurement officials, issuing the Public Notifications Bulletin containing public procurement notices, preparing standard tender documents, providing advice and technical assistance to contracting authorities as requested, and monitoring the application of public procurement provisions. The PPA also provides advice to any interested person submitting a request for information or support, either by post or by email, including SMEs. The e-procurement system (EPS, n.d.[66]) enables electronic processing of public procurement and concession procedures, including the publication of contract notices, downloading and uploading of tender documentation and tender submissions, and e-archiving. In terms of the benefits it has brought to the public procurement system, the EPS has increased transparency, eased access, simplified procedures, lowered transaction costs, and improved data collection and monitoring. Since 2021 submission of invoices by electronic means is mandatory for all types of contracts. Also, a new module on contract management has been prepared and will be operational soon.

Although the National Public Procurement Strategy (2020-2023) promotes SME participation in public procurement, this information is not currently collected, processed or published in the PPA’s annual reports on the functioning of public procurement in Albania. Collecting information on contracts awarded to SMEs should not be problematic, as such information should be included in the notices about awarded contracts (as required under the 2014 EU Procurement Directive).

Economic operators’ rights are protected by an independent review institution and procedures.

Economic operators are entitled to challenge contracting authorities’ decisions to the Public Procurement Commission (PPC). Appeals should be submitted simultaneously to the PPC and the contracting authority in accordance with relevant forms and together with the payment of an appeal fee.41 The contracting authority should handle the appeal first. The PPC only becomes involved once a decision is adopted by the contracting authority. Time limits for seeking a review of a contracting authority’s decision are equal to those required by the provisions of the Remedies Directives above PPL high thresholds (ten days) and are shorter for procurement below those thresholds (seven days). Appeals concerning contracts valued less than the low monetary thresholds must be submitted within two days of the publication of the award notice in the electronic procurement system and are reviewed by the administrative court.

The PPC must conclude its review with a decision adopted within 30 days of receiving information or documentation from the contracting authority (entity) in the case of procurement above the high monetary threshold and 20 days below this threshold. The PPC is allowed to adopt various types of rulings, including invalidation of illegally concluded contracts.42 Following a declarative ruling by the PPC, aggrieved economic operators may also seek court damages.43

At the end of 2021, the PPC started to operate the new electronic system (E-complaints), enabling the electronic submission of appeals. All appeals are now submitted electronically through the unique government platform e-Albania (Government of Albania, n.d.[67]). In addition to the launch of the E-complaints system, the PPC’s new website has also been launched (PPC, n.d.[68]), which enables full access to three public registers: the Register of Complaints, the Register of Decisions and the History of Decisions.

A solid regulatory framework is increasingly building confidence in the financial sector, though some concerns over the effectiveness of implementation remain

The legal and regulatory framework of the Albanian financial system has been strengthened since the last assessment, increasing the stability of and trust in the local financial market as regulation is gradually aligned with the acquis and EU practices. Progress has been made in aligning legislation to Basel II and Basel III requirements, notably by introducing amendments to the liquidity coverage ratio and macroprudential framework. Legislation to improve bank recovery, resolution and supervision has also been put forward, and additional legislative changes on the leverage ratio of banks and the net stable funding ratio of banks will enter into force in 2022. The legislative framework does not envisage exceptions for SME lending; however, Albania has a system in place to allow exceptions for systemically important banks. Steps have also been initiated to strengthen investor securities, aimed at addressing shortcomings in the enforcement of creditor rights. The Bankruptcy Agency is now fully operational, and accompanying legislation for the Bankruptcy Law was completed. However, the adoption of the new unified Law on Investments, which would complete the set of measures envisaged, has been pending since 2020, thereby delaying the expected improvements of legal securities of investors.

Limited progress has been made with regard to strengthening credit information. The cadastre has now moved on line onto the new centralised governmental service platform, e-Albania.44 Nevertheless, concerns over the reliability of the data remain amid continued disputed historic claims, non-unified registration across regions and illegal construction. Similarly, use of the registration system for security rights over movable assets remains limited due to excessive paperwork, and movable assets are rarely accepted as collateral. Albania’s credit registry covers around 50% of the adult population. While data include information from non-bank financial institutions, information from retail and utility providers is not collected. Plans initiated by the Albanian Association of Banks to establish a private credit information bureau to increase data coverage have been abandoned amid legal barriers.

Progress has been made in increasing access to capital market finance. In May 2020, Albania adopted a dedicated Law on Capital Markets and five implementation regulations, developed with support from the World Bank. The law aims to strengthen the integrity of capital market operations in Albania and regulates institutional investors, bringing legislation partially into alignment with the acquis. However, capital markets remain small as the Albanian Stock Exchange, a private entity established in 2017, continues to operate with government bonds only, while the public stock exchange is suspended and does not offer finance opportunities to businesses, neither SMEs nor corporates.

Financial intermediation is increasing, but informality continues to impede access to finance for smaller businesses

Bank lending dominates Albania’s financial sector. Between 2018 and 2021, the number of operative banks decreased from 16 to 12, following some mergers and the revocation of a small bank’s license. As a result, the role and weight of domestic banks have increased, accounting for over 30% of assets in early 2021, which has positively affected SME lending. Financial intermediation of the private sector has increased, standing at 37.8% of GDP in 2020, partially owing to a lower GDP denominator (European Commission, 2021[3]). Credit grew strongly in 2019, a trend that was maintained throughout the COVID-19 recession, supported by large-scale liquidity injections and crisis-mitigation actions by the Central Bank of Albania. As a result, the already historically low key interest rate was lowered to 0.5%, and the Bank of Albania committed to providing unlimited liquidity to the local market, coupled with a credit moratorium and relaxed loan restructuring provisions. Implementation of the non-performing loans resolution strategy has somewhat stagnated during the pandemic; however, overall, the level of impaired loans has further declined since the previous assessment, from above 13% in 2018 to 7.9% in early 2021, thereby significantly increasing trust in and the stability of the sector (European Commission, 2021[3]). While the continuous fall in non-performing loans is a positive development, data remain influenced by mandatory write-offs and restructuring. Focus needs to shift to the full implementation of the non-performing loans resolution strategy.

Several steps have also been taken to tackle the persistently high level of business informality, which continues to significantly impede access to finance. As part of its “fiscalisation” efforts, the Albanian government introduced electronic payments for invoices in 2021 to expand the taxpayer base. Measures introduced by the Bank of Albania to reduce direct contact during the pandemic, including a waiver on online banking fees and encouraging bank transfers for COVID-19 economic assistance measures, greatly complemented these efforts. These measures are expected to facilitate the digitalisation of financial-sector transactions, boosting financial inclusion and helping to level the playing field among enterprises.

Several SME funds were put in place in 2018 to support SME access to finance, aimed to increase their competitiveness and innovation capacity by means of co-financing grants, operated by AIDA. The absorption capacity of these funds has increased to over 90%, and in 2019, almost 100 SMEs benefited from these programmes, receiving nearly ALL 67 million (approximately EUR 550 000). However, in 2020, these programmes were effectively paused as all allocated funding was repurposed to soften the impact of the COVID-19 pandemic. At the time of writing, operations remain on hold, but for 2022, a budget of ALL 150 million (approximately EUR 1.25 million) has been tentatively allocated, which should enable AIDA to revitalise some of its support. AIDA has also launched a new digital platform45 aimed at informing firms of the available financing opportunities. Furthermore, a number of guarantee funds have been operating in Albania, aimed at easing access to finance. Notably, these include the Albanian Agribusiness Support Facility, funded by the Albanian government and the EBRD, the Albanian-Italian Programme for the Development of Albanian SMEs, and the KfW-supported Rural Credit Guarantee Fund, which received additional funding in 2020 and includes a dedicated “green window”. However, the uptake of these schemes has been limited, reportedly amid narrowly defined eligibility, lack of technical assistance to support beneficiaries and lengthy pay-out procedures. Two additional sovereign guarantee funds were launched in response to the COVID-19 pandemic, providing guarantees of ALL 26 billion (approximately EUR 200 million, or around 1% of GDP) to support salary expenses and working capital, but without a dedicated focus on SMEs. Until March 2021, 850 such guarantees had been provided.

Alternative sources of finance remain under-developed

Non-bank financial instruments accounted for a mere 3.8% of total financial-sector assets in 2020. Even though microfinance, leasing and factoring are available and backed by a solid legal framework, penetration, albeit increasing, remains low. Microfinance, including savings and loan associations, has almost doubled since 2017 and accounts for most of non-bank finance (74% of the non-banking financial institution credit portfolio), followed by leasing (25%) (BOA, 2021[70]). Amendments to the Law on Granting Licenses for Non-bank Financial Institutions and regulations on Risk Management in the Activity of Non-Bank Financial Institutions, introduced in July 2019, have added new requirements to factoring institutions and strengthened regulation. However, uptake remains minimal to date, indicating limited awareness about this type of finance.

Venture capital equally remains non-existent, and business angel support is rudimentary, although some initial steps are under preparation to create an environment conducive to venture capital and start-up finance. A dedicated Law on Support and Development of Start-ups was adopted in March 2022, and there are plans to develop more comprehensive support to establish crowdfunding, business angel investment support and venture capital going forward. The new Law on Collective Investments, which entered into force in 2020, is an important, yet insufficient, step to regulate alternative investment instruments. Albania, alongside Bosnia and Herzegovina, is the only eligible economy not having received any investments under the Western Balkans Enterprise Development and Innovation Facility’s Enterprise Innovation Fund, suggesting limited absorption capacity and investment readiness of local start-ups. AIDA, also serving as Albania’s Innovation Fund, has, however, provided some financial support to early-stage companies.

Efforts are underway to develop a more strategic approach to tackle low levels of financial literacy

Financial literacy remains low, as evidenced by the periodical national Survey on Financial Literacy conducted by the Bank of Albania in 2019, resulting in limited financial inclusion and a lack of awareness about finance opportunities. Initial steps have been taken to prepare Albania’s first National Strategy for Financial Education, supported by the World Bank, and the Bank of Albania has run a number of initiatives, including together with the Albanian Banking Association, to raise financial awareness. Some training on financial literacy for SMEs and farmers is also offered by private entities, for instance, the Sparkasse Foundation, but overall, actions remain uncoordinated and ad hoc. While AIDA’s newly established access to finance platform explains financial terminology to some extent, it falls short of providing comprehensive information on financial literacy.

Harmonisation of legislation is ongoing and first steps to centralise export-related information have been introduced

As in all WBT economies, Albania’s National Plan for EU Integration, and more specifically the provisions in the chapter on the free movement of goods, are the main strategic guidelines steering the economy’s harmonisation process with the acquis. To plan the harmonisation of the remaining unaligned legislation in the area of the free movement of goods, the government is currently developing a seven-year road map for the harmonised areas in co-operation with GIZ. A draft of this road map has already been prepared and includes an analysis of existing progress in legislative harmonisation and implementation, an identification of gaps in harmonisation with the acquis at legal and administrative level. Medium-term (2023-2025) and long-term (2026-2030) action plans are deduced from this analysis. The document is still expected to be finalised during 2022. For the non-harmonised areas (“old approach legislation”), an additional strategy document is being prepared.

Regarding the central information provision for exporters, the National Trade Facilitation Committee’s website has a so-called “Export Helpdesk”, which provides links to the European Union’s Export Helpdesk and to the preferential trade agreement with the European Union. Unfortunately, this website lacks links to information about key horizontal and sectoral legislation, conformity assessment bodies, and the standardisation process. As the website appears to be intended to function as a single information source for exporters, it should be supplemented with this additional information. SMEs that aim to export often do not know what regulations and procedures they need to comply with to export to the European Single Market, so providing this information directly on the Export Helpdesk’s website would broaden access to this information.

Albanian QI legislation is mostly aligned with the acquis, except for the newest Market Surveillance Regulation

Albania’s legislative framework is mostly aligned with the horizontal acquis on QI except in the area of market surveillance, where transposition of EU Regulation 1020/2019 is outstanding. Harmonisation of national law with Regulation 1020/2019 is important, as this regulation specifies new procedures for market surveillance, and particularly for the online market (e-commerce). As this market is growing rapidly, legislative alignment is important. Furthermore, numerous new technical regulations have been adopted; for example, for electrical equipment, non-automatic weighing instruments and electromagnetics.

In standardisation, the adoption rate of European standards continues to be high, with 93% of CEN/CENELEC (European Committee for Standardisation/European Committee for Electrotechnical Standardisation) being adopted by the DPS. The DPS adopted 1 136 international standards in 2020 and 2 236 in 2019 (General Directorate of Standardisation, 2019[72]; 2020[73]). Furthermore, the Council of Ministers has adopted changes to the national Standardisation Law to fully transpose EU Regulation 1025/2012. The DPS still has 15 employees, which has remained stable over the past three years. Given the size of its economy and compared to the other Western Balkan economies, this is a low figure and additional staff would be welcome, as the increasing amount of national and international standards requires sufficient human resources.

The development in accreditation was positive, as the scope of accreditation activities recognised by the EA has increased by one field (“certification of persons”), for a total of four fields. In addition, the General Directorate of Accreditation (DPA) increased its number of staff by 50%, from 14 to 21. Furthermore, in addition to its already digitised application procedures, the DPA also offered remote assessments to maintain its operations during the pandemic. The DPA will also seek multilateral agreements with the EA in the areas of calibration (metrology) and medical examination.

The number of conformity assessment bodies accredited by the DPA increased by 35% over the assessment period (from 69 to 93), which is the second-largest increase in the region after Kosovo. A full list of conformity assessment bodies is available on the DPA’s website.

In metrology, new legislation was adopted in October 2020 to assure the free movement of measuring instruments, which are subject to CE marking, and to promulgate the use of international measurement standards (Government of Montenegro, 2020[33]). Furthermore, the General Directorate of Metrology (DPM) is currently preparing an application for a multilateral agreement with the EA in the area of calibration. Becoming an EA multilateral agreement signatory in this field would lower certification barriers, as certificates from national calibration laboratories would be recognised by the 49 EA members. In terms of staff, the DPM’s number of staff remains largely unchanged, at 103 employees (104 in the previous assessment).

While market surveillance legislation is aligned with the previous acquis (768/2008), it is not yet aligned with EU Regulation 1020/2019. As market surveillance regulation has changed at the European level, also due to an increasing online market, WBT economies need to align their legislation and surveillance systems with these changes to continue to assure their firms access to the European Single Market. The State Market Inspectorate carried out 819 inspections between October 2020 and October 2021, which is slightly lower than during the previous period (1 151). There was a Consumer Protection and Market Surveillance Strategy, but it expired in 2020 and has not yet been renewed. The State Market Inspectorate publishes its annual work plans as well as information about dangerous products on its website.

There are basic awareness-raising activities about standards but no SME-specific incentives for participation in standard development

The DPS is raising awareness about standards and their benefits through various social media accounts as well as through a regularly updated news section on its website. In addition, it held various meetings in different Albanian cities in 2019 and early 2020 on the benefits of standards, with a particular focus on female entrepreneurs. A local language catalogue of all Albanian standards is available. However, there are no practical guides on the implementation process for standards or case studies of successful examples.

While there are no SME-specific incentives to increase the participation of SMEs in technical committees, the DPS provides a 50% discount on the price of standards for technical committee members. The DPS also promoted participation in technical committees during various meetings in different Albanian cities (see above). Firms can comment on standards as part of the regular public enquiry process.

Except for the discount described above, there are no financial measures or price reductions to help SMEs purchase standards. However, the Albanian Development Agency’s Competitiveness Fund supports up to 70% of expenses for implementing standards and had a budget of ALL 38 million (or about EUR 315 000) in 2019 compared to ALL 18 million (approximately EUR 149 390) in the previous year (Albanian Investment Development Agency, 2019[74]). The number of SMEs supported by this programme rose from 15 in 2018 to 33 in 2019 (the latest data available). While the maximum amount a firm can request is quite high (EUR 10 000), the programme’s total budget is comparatively small, and an increase would allow more firms to benefit from it.

Albania has allocated a budget to develop and implement a national skills intelligence framework

Closing the gap between SME needs and the skills provided by lifelong learning, particularly within compulsory education and training, is key to lowering unemployment rates and increasing the growth and innovation of SMEs within the entrepreneurship ecosystem of Albania. Skills intelligence is vital to this, and the process of developing and implementing a system-level skills intelligence framework is now beginning, as a commitment in the new Business Development and Investment Strategy (2021-2027) (Government of Albania, 2021[28]). The previous Business and Investment Development Strategy (2014-2020) included this commitment, but there was no attached budget. The new Business Development and Investment Strategy (2021-2027) identifies a budget that will support the creation of a dedicated co-ordination body within the Albanian Investment Development Agency to undertake regular TNAs46 and collect intelligence on SME-specific training needs. This will allow AIDA and the Ministry of Finance and Economy47 to match training provision with the requirements of SMEs, using gender-sensitive data and data relevant to specific themes, such as digital skills. It will be important to ensure that the new lead body for skills intelligence maps and brings together all existing data sources and identifies the need to create improved or new sources of data within an integrated gender-sensitivity check on new developments.

Sector skills committees are being established by RisiAlbania’s48 Enhancing Youth Employment programme (Government of Albania, 2021[76]) as a commitment of the National Employment and Skills Strategy (Government of Albania, 2019[77]). They represent a mechanism through which industry can work alongside education and training actors to ensure the system delivers the knowledge and skills needed by industry. These groups can also be stakeholders in developing a skills intelligence framework. The development process will also support preparation for the Smart Specialisation Strategy development that is at an early stage and has not yet begun the Entrepreneurial Discovery Process.49

A diverse range of training is available, including government-financed support and training programmes

The Business Development and Investment Strategy (2021-2027) has also allocated a budget towards a new sector in AIDA to lead on SME training, supporting the design and implementation of new SME training provision to build on the training and finance programmes already established on start-ups, competitiveness, the creative economy and innovation/technology.

Other providers are active in delivering programmes addressing a range of topics, including digitalisation, the circular economy, sustainability, investment readiness, supply chains and internationalisation. These come through different programmes, such as EU for Innovation, RisiAlbania, ProSEED, Digital Jobs Albania, the Women in Business programme and the EBRD Advice for Small Business programme.

Examples of excellent practice include RisiAlbania, which focuses on women’s entrepreneurship, including promoting green, digital and online entrepreneurship. Women’s entrepreneurship networks50 are also important for providing tailored support to women at different stages of SME start-up and growth, such as the Women Founders Network Albania, the Women’s Economic Chamber and the Women’s Entrepreneur Committee of the National Chamber of Crafts, who deliver workshops and business coaching.

Considering the significant skills mismatch challenge in Albania, training programmes could be more comprehensively mapped, monitored and evaluated at the system level. Doing so would ensure that the relevance and impact of training are fully understood and that new programmes are refined to focus on areas with the most impact on enterprise growth and employment.

Information and guidance on enterprise skills are available but fragmented

The information and guidance available to SMEs to guide them towards available training is available but fragmented. A dedicated section on AIDA’s website and social pages provides information about training opportunities for SMEs. However, the information is limited, with information shared via social media but no availability of a web-based searchable database of training or support and no access to a registration point.

Beyond this, there are non-government-led online information and advice platforms that provide good access to SME advice, training and support. The challenge can be to ensure the sustainability of such online portals, as many are linked to international development co-operation partners’ funding, which can be time-limited.

AlbanianTech is the most developed example51 and was set up to drive forward the entrepreneurial ecosystem in Albania, offering a platform that brings together organisations and the support offered, entrepreneur success stories and an overview of active start-ups. It offers a comprehensive way in for entrepreneurs seeking inspiration or insights into how they can become or develop as an innovative SME, including news and opportunities linked to a wide range of government and non-governmental sources.

In a more specific area, the Challenge Fund was launched in 2021 as a platform to address the challenge of access to finance for early-stage companies as well as start-up support organisations important to developing the entrepreneurial ecosystem (see Dimension 8b. Innovation policy for SMEs). It offers a competitive financing facility where successful applicants receive funding and capacity building to scale up their innovative businesses, and has been financed through a mix of sources52 from international development co-operation partners led by the EU for Innovation programme. This action is highlighted in the ERP, which includes a target to increase the percentage of SMEs benefiting from access to finance from 0% to 10% by the end of 2023.

Efforts are underway to expand Albania’s innovation policy framework, though shortcomings in co-ordination and funding limit its implementation

The National Strategy for Scientific Research, Technology, and Innovation (2017-2022) is Albania’s overarching policy framework for innovation. A mid-term evaluation conducted in 2019 suggests that implementation is somewhat lagging and that significant funding is required for it to be executed effectively. In addition, Albania’s new Business Development and Investment Strategy (2021-2027) puts a strong emphasis on SME innovation and links between industry and academia to spur economic growth. Albania has also made some progress in developing a Smart Specialisation Strategy. A road map has been completed, and the Entrepreneurial Discovery Process, in line with the European Commission’s Joint Research Centre methodology, is expected to commence in 2022. In addition, dedicated innovation start-up legislation was adopted in March 2022.

Co-ordination of the innovation policy framework continues to be a major obstacle for effective implementation. There are now three line ministries and three agencies (AIDA, the National Agency for Scientific Research and Innovation [NASRI] and the NAIS) that share responsibility for policy implementation, which has led to an unclear definition of competencies, a lack of ownership, overlapping support measures and ineffective budget allocation. Even though a dedicated working group has been established under the auspices of the formal co-ordination body – the Integrated Policy Management Group – which is in charge of co-ordinating policy more broadly, its role and impact remain unclear.

NASRI and AIDA, which also hosts an Innovation Fund, continue to be Albania’s main implementation channels for innovation policy. NASRI has received some government funding to support scientific research activities, but funding schemes offered by AIDA have been suspended since the onset of the COVID-19 pandemic, thereby limiting its implementation force.

While Albania’s statistical office INSTAT has expanded the collection of data related to business innovation, further efforts are needed to produce comprehensive and reliable statistical information in line with Eurostat’s methodology, with a view to participating in the European Innovation Scoreboard.53

Creating an ecosystem conducive to start-ups and innovation has become a priority for Albania

Progress has been made in developing an ecosystem supportive of innovation and start-up activity. Under the framework of the EU for Innovation projects, implemented between 2018 and 2021 with the support of the European Union, GIZ and Sweden in the amount of EUR 7.5 million, the start-up ecosystem has seen a significant boost, resulting in the adoption of a dedicated Law on Support and Development of Start-ups in 2022, which envisages a state-budget allocation in support of the innovation ecosystem. Numerous private-sector-backed initiatives have been set up, providing acceleration programmes for high-potential start-ups, technical assistance, mentoring and training on investor relations, with some offering the possibility for small-scale monetary awards. Some examples include the UpLiftAlbania acceleration programme, Growpreneur and the flexible start-up Support Programme, which has an explicit focus on providing incubation opportunities for start-ups outside of Tirana. The project ended in early 2022, but a successor programme is already planned, which, even though it is dependent on support from international development co-operation partners, will ensure the continuity of these efforts. In addition, NAIS established “TechSpace” in 2019, an initiative to develop start-ups dedicated to training on technology, innovation and entrepreneurship activities, as well as mentoring start-ups in the field of ICT.

Despite this progress, these efforts primarily focus on business incubation services, while support to more mature SMEs seeking innovations remains highly limited. Technology audits previously offered by AIDA have not been available recently.

Financial support for innovation remains limited

In 2018, the government set up a number of co-financing grant programmes managed by AIDA, including the Innovation Fund and the Start-up Fund, and allocated a total of ALL 73 million (approximately EUR 600 000) to these financial schemes in 2019. This constitutes a significant increase compared to 2018, albeit from very low levels. Absorption capacity was over 90%, and 26 companies benefited from a grant from the Innovation Fund during that year, offering co-financing grants to support innovation audits or investments in technological equipment. In addition, 19 micro and small enterprises benefited from a grant from the Start-up Fund for a combined total of ALL 24 million (approximately EUR 200 000). However, all AIDA’s finance programmes were halted in 2020 as funding was repurposed to emergency measures in response to the COVID-19 pandemic and have not fully resumed at the time of writing. ALL 150 million (approximately EUR 1.25 million) in funding has been tentatively allocated for 2022, which would be an important signal, increasing reliability and providing longer-term investment opportunities for SMEs. The new Start-up Law envisages further state-budget support for start-ups, to be managed by the Ministry for the Protection of Entrepreneurship. Some funding for innovation activities is also available via the Challenge Fund, part of the EU for Innovation project and funded by the international development co-operation partners, which has launched four calls for innovative start-ups and innovation service providers, including incubators, as described above.

As in the previous assessment, indirect financial support is equally limited, though the Albanian tax regime envisages some VAT reduction for companies involved in software production. There is, however, no direct focus on SMEs.

Limited outreach and exchange between businesses and academia remain a key obstacle to building a knowledge economy

Collaboration between the business community and scientific research institutes remains nascent amid limited funding and incentives for stakeholders. Expenditure on R&D, even if increasing, remained chronically low at 0.3% of GDP in 2020, far below the government’s target of 1% of GDP by 2022 (European Commission, 2021[3]). Financial incentives to spur business-academia collaboration remain largely non-existent. Under the framework of the National Programme for Research and Development, NASRI provides some financial support to consortia between research institutes and businesses. These are, however, small in scale and do not resemble innovation vouchers or competitive-operation grants in design. Nevertheless, some initial steps have been taken to stimulate exchange between the private sector and academia. Several agreements have been signed with universities under the TechSpace initiative to support joint research. Equally, in 2021, with support under the EU for Innovation project, Albania’s five leading universities established Tirana.Inc at the University of Tirana, whose aim is to foster entrepreneurship and innovation among university students by providing training, working space and advice. In the long term, these initiatives may increase exchange and collaboration between businesses and the research community.

There are still no technology transfer offices operational in Albania, despite an explicit commitment in the National Industrial Property Strategy (2016-2020). Plans to establish a science and technology park have also not developed further since the last assessment.

Lastly, progress has been made in aligning intellectual property rights to the acquis, and a new Law on Trade Secrets was adopted in July 2021. In line with the National Industrial Property Strategy (2016-2020), several awareness-raising and outreach activities, in collaboration with the Albanian Chamber of Commerce and several universities, have been organised. In addition, patent application fees were reduced for young researchers to incentivise scientific research among youth. However, the impact of these efforts is yet to be seen, and continuing shortages in the legal framework for intellectual property in defining the ownership of intellectual property produced through publicly funded research continue to impede commercialisation opportunities.

The framework for environmental policies targeting SMEs is well designed

Green policies targeting SMEs are included in the new SME strategy – the Business Development and Investment Strategy (2021-2027) – as part of the “green and digital transformation” pillar. In addition to promoting the circular economy (Box 13.14), the strategy is expected to provide a stronger push for eco-innovation in the post-COVID-19 economic recovery. In particular, specific awareness-raising and capacity-building activities are planned to be conducted to promote green investments (through various promotional tools, marketing campaigns and virtual events). The newly adopted Start-up Law and the related measures are expected to facilitate peer-to-peer learning and the development of products and services that contribute to a green and circular economy.

Moreover, the Integrated Waste Management Strategies Policy Document and National Plan (2020-2035) should also accelerate the green and circular transition (Box 13.14). Although it does not target SMEs specifically, it serves as a mechanism to link all actors and operators involved in waste management with the objective of meeting the United Nations’ Sustainable Development Goals in this regard.

While business associations are involved in the development of green policies, poor co-ordination of measures and budgets hampers proper implementation

The Ministry of Tourism and Environment, the Ministry of Finance and Economy along with the National Agency of Environment are involved in the conception and implementation of environmental policies targeting SMEs. The private sector has been consulted in developing new strategies, mainly through the Union of Chambers of Commerce and Industry of Albania, which has been part of roundtable discussions on all policies regarding the environment. Moreover, different research centres and universities (such as Polis University and the University of Tirana) also participate in consultations.

Overall, implementation of the green measures included in the previous Business and Investment Development Strategy (2014-2020) has remained limited, apart from certain awareness-raising activities (see below). As highlighted in its evaluation report, inaccurate division of competencies across institutions has hampered proper implementation and timely monitoring of SME policies and corresponding funds. This statement is also valid for greening measures. While a Sectoral Steering Committee on Environment, Climate and Waste Management was established in 2019 to co-ordinate the work of line ministries and offer technical support on Chapter 27 of EU accession negotiations (on Environment and Climate Change), it does not target SMEs specifically and was not engaged in the implementation of Business and Investment Development Strategy (2014-2020) measures. Moreover, Albania’s Economic Reform Programme (2022-2024) does not foresee any measures to address the private sector’s green transition. No substantial budget, funded either from the government or international funds, has been mobilised for implementing greening measures.

While monitoring and evaluation mechanisms are envisaged under the Business Development and Investment Strategy (2021-2027), they lack specific indicators to measure green targets.

Limited financial incentives are available for SME greening, including as part of post-COVID-19 economic recovery programmes

Since the last assessment, Albania has not established national mechanisms to provide financial incentives and instruments to encourage SME greening. Only a few guarantee funds operating in Albania cover green investments, such as the Albanian Agribusiness Support Facility and the KfW-supported Rural Credit Guarantee Fund with its dedicated “green window”, for which it received additional funding in 2020. The Albanian-Italian Programme for the Development of Albanian SMEs was being revised at the time of writing and should cover blue economy55 and green start-ups in the upcoming period. However, the uptake of these schemes has been reportedly limited. Some financial support programmes funded by international development co-operation partners are available to SMEs. The EBRD has provided a EUR 10 million loan to ProCredit Bank Albania to support companies affected by the COVID-19 pandemic in investing in modern technology and energy efficiency projects. Access to green finance is planned to be further improved with the Business Development and Investment Strategy (2021-2027), in particular as part of boosting the start-up ecosystem.

While limited progress has been achieved at the national level, the municipality of Tirana is providing financial support for 2020-22 to new green businesses based on eco-friendly business models or existing businesses that aspire to develop green products or services. The total amount of the fund is EUR 307 000, and each beneficiary will be supported with direct grants of EUR 4 200, with an aid intensity of 80% of eligible costs. In 2020, 26 SMEs and entrepreneurs benefited from this support.

Information-based tools are available to SMEs to engage in greener practices, but other non-financial tools remain scarce

Some campaigns and capacity-building workshops have been organised to address the barriers related to SMEs’ lack of awareness of green opportunities and obligations stemming from the economy’s commitment to reaching the net-zero goal. For instance, awareness-raising campaigns have been organised with the support of the Food and Agriculture Organisation to present green practices in the Agriculture, Forestry and Other Land Use sector. Workshops have also been organised as part of the revision process of the Nationally Determined Contribution (for 2021-30), in which the private sector was presented with the foreseen measures on how to adapt their technologies to lower GHG emissions.

In addition, for ten years now, the annual Green Businesses award competition has been organised to raise awareness and encourage SME eco-innovation. It aims to serve as an incubator for small-scale green development ideas, using local resources and reviving the traditions of production and community-based markets in an environmentally friendly way.56

Environmental certification, such as international Environmental Management Standards, is promoted by the General Directorate of Accreditation through specific brochures. Moreover, the recognition of green best practices through eco-labelling is legislated in Albania.57 While the legislation requests the Ministry of Tourism and Environment to adopt guidelines on the criteria for granting eco-labels for each product or product group, only one guideline on textiles has been developed to date. A certification body responsible for delivering eco-labels is yet to be established in Albania.

As in the previous assessment, regulatory instruments and green public procurement policies that would incentivise SMEs to adopt greener practices remain non-existent in Albania.

Progress has been made in improving the export environment, with further actions to be taken during 2022

Export promotion in Albania is included in the newly adopted Business Development and Investment Strategy (2021-2027) (Government of Albania, 2021[28]). Though the government included export targets in the document and outlined a plan to design an export strategy, the document itself was not finalised at the time of the assessment – it is set to be adopted in November 2022. The export strategy will aim to remove export barriers for SMEs, intensify capacity-building activities and develop digitalised solutions to support SME internationalisation. The government body responsible for the design and implementation is the Ministry of Finance and Economy, which the National Committee for Trade Facilitation will assist. AIDA has been tasked with its implementation.

To support SMEs in their export promotion efforts, the Business Development and Investment Strategy (2021-2027) aims to provide strategic direction to increase and diversify exports and their destinations to better integrate into GVCs. The government strives to create an enabling environment that enhances export sophistication and innovation through developing export support services that improve SMEs’ competitiveness.

Export diversification and sophistication are apt targets for the government, given the low complexity of Albania’s export base. The economy’s exports heavily rely on goods with limited technological content and value added, including garments and leather products (in which it has a competitive advantage), as well as minerals, metals and agro-food products60 (OECD, 2019[86]). The Business Development and Investment Strategy (2021-2027) envisages identifying key drivers of competitive advantage by conducting intensified sectoral and market assessments.

Increasing SMEs’ capacities to export will be crucial in shifting to a more sophisticated export base: 60% of Albanian SMEs claim they do not have export capabilities, and 54% do not express plans or desires to export (Regional Cooperation Council, 2021[50]). While the Business Development and Investment Strategy (2021-2027) envisions increased capacity-building activities to boost SMEs’ export capabilities, SMEs’ lack of will to export is a more difficult problem to navigate, one not mentioned in strategic documents. In order to further shift to a more export-oriented economy, increasing SMEs’ export capabilities should go hand-in-hand with incentivising exports in the first place.

The Business Development and Investment Strategy (2021-2027) is linked to a broader SME law adopted in April 2022. It envisages new measures to facilitate access to finance for SMEs offered by AIDA for export promotion and a new state guarantee instrument. Another new provision includes establishing an Advisory Council for SMEs, which would deal with measures to increase tangible support for the internationalisation of SMEs, as well as broader technical assistance.

With limited capacity, AIDA is redesigning its SME support schemes and conducts regular monitoring and evaluation of its export support programmes

AIDA enjoys a broad mandate whose support for SMEs ranges from technical assistance, capacity-building activities and customer support to providing information on foreign markets and potential importers and exporters, customs assistance, trade participation and market research. However, its limited resources can hinder the execution of AIDA’s mandate, despite its relatively high human resources capacity.

The economy has a monitoring system in place for its export promotion support programmes, particularly the grant schemes, which have been monitored and evaluated annually following implementation by AIDA. The Ministry of Finance and Economy and AIDA conduct a thorough evaluation at the beginning of each year, which aims to assess the efficiency and effectiveness of internationalisation projects launched. While AIDA’s operations in 2020 were halted as the agency’s financing was directed to mitigating the effects of the COVID-19 pandemic, its support for SMEs aiming to export, subsided, as AIDA focused on background work with the Ministry of Finance to redesign the grant schemes to be offered in 2022, including the Competition Fund aiming to support companies to access foreign markets by providing the necessary financial assistance for export promotion activities. The results of the annual reports and evaluations performed in previous years have been used to redesign the schemes and combine work streams, including internationalisation, into one comprehensive support fund.

Albania has intensified its efforts to upgrade its position in GVCs; however, AIDA’s limitations might hamper future efforts in developing MNE-SME linkages

SME integration into GVCs is also governed by the Business Development and Investment Strategy (2021-2027), although, as is the case with export promotion, the regulatory framework has not been finalised. The strategy emphasises upgrading local SMEs’ capacities in line with the needs of export-oriented investors and increasing Albania’s appeal as an investment destination. The government aims to design and implement a dedicated support scheme that provides grants to consortia and higher education institutions for collaborative projects to increase the capacity of SMEs to participate in GVCs. However, designing the schemes is still underway, with the implementation intended to take place in 2024-2027.

For a small, open economy like Albania, sustainable growth will have to be export-led. Attracting export-oriented FDI and improving the capacities of local SMEs that could become their suppliers and integrate into GVCs is key to boosting productivity and, therefore, improving competitiveness. As one of the first contact points and main interlocutors of potential investors, AIDA is the main actor in attracting and retaining FDI.

Although the government took action to reinforce AIDA, expanding its mandate and increasing the number of staff in 2020 (OECD, 2021[16]), its limited resources may reduce its capacity to attract and support inward investments and encourage linkages between domestic suppliers and foreign MNEs established in Albania. Furthermore, despite successfully implementing the e-Albania initiative, which digitalised many government services and facilitated access to support programmes, the agency itself still falls short in developing digitalised solutions and tools to bring down information barriers and facilitate the collaboration of foreign-based MNEs with domestic SMEs.

On the other hand, the government has made progress in introducing new programmes related to SME integration into GVCs. The United Nations Industrial Development Organisation (UNIDO) is co-ordinating the Country Programme for Inclusive and Sustainable Industrial Development in Albania (2020-2024), which comprises 20 projects structured around industrial competitiveness, market access, entrepreneurship development and green growth. UNIDOS’s support will oscillate between the industrial modernisation of export-oriented industries and the upgrading of agro-food value chains (UNIDO, 2020[87]). In addition, the Albanian government, together with the Swiss Agency for Development and Co-operation, launched the RisiAlbania project, including an initiative to facilitate GVC participation through a global Good Agricultural Practices certification61 programme for Albanian agricultural exports.

In addition, Albania has made considerable progress in cluster formation and development. Since the last assessment cycle, after conducting comprehensive studies on clustering potential and surveys among SMEs, the government formed a wood cluster to facilitate technology and knowledge transfer within the industry. The cluster was formed in collaboration with GIZ with the main goal of facilitating GVC integration and boosting the companies’ participation in international development projects. The project is an example of Albania’s close co-operation with business associations and academia, as well as a whole-of-government approach, which has been at the core of establishing the cluster, together with GIZ’s technical assistance in cluster development (GIZ, 2021[88]).

Albania has strengthened the regulatory framework for e-commerce but lags its regional peers in digitalisation and the uptake of e-commerce

Since the previous assessment, the government has adopted a number of laws and legislations to regulate e-commerce and e-payments. The recently adopted Business Development and Investment Strategy (2021-2027) constitutes the main strategic framework for promoting e-commerce and innovation. The government also adopted a new Law on Payment Services that includes dedicated regulations on facilitating e-commerce for SMEs.

Another strategic framework adopted by the government, Albania’s Digital Agenda (2015-2020), has been extended to 2022. Through the Digital Agenda, the government aims to promote e-commerce and the digitalisation of business processes among SMEs. The Digital Agenda (2015-2020) foresees introducing widely available broadband infrastructure to enable companies to access a variety of online services, including e-commerce.

The government set a 50% target of businesses using ICT for e-commerce purposes, which is an ambitious goal, given remaining low levels of digitalisation (Ministry of Innovation and Public Administration, 2015[89]). Nevertheless, to achieve the target, the government plans to launch two new online portals in 2022. One is an informational website providing insight into the procedures necessary for companies to adopt e-commerce and e-business solutions. It will include information on relevant legislation and available support programmes, a digital self-assessment tool, a detailed guide on the decision-making process and possible costs for the company, as well as case studies of local SMEs that managed to adopt e-commerce and e-payments into their business operations. Another one is a B2B match-making portal that aims to connect relevant suppliers with potential customers domestically and abroad. As envisioned in the Business Investment and Development Strategy (2021-2027), the Albanian Union of Chambers of Commerce and Industry are tasked with its implementation, with the support from the EBRD.

In addition, since the last assessment cycle, the government has launched initiatives with an objective to stimulate digitalisation processes and e-commerce uptake, such as Digital Jobs Albania,62 which aims to grant improved access to online work opportunities. The joint project of the Albanian government and the World Bank entails three months of training on digitalisation and information technology skills for women entrepreneurs to facilitate their access to jobs on line.

Also, in collaboration with the World Bank, Albania conducted a thorough assessment of its ICT sector and e-commerce uptake, which showed that during the COVID-19 pandemic, almost 20% of surveyed Albanian firms had either started or increased online business activity (World Bank, 2020[90]). This demonstrates progress since the last assessment cycle, during which Albania was the furthest behind in e-commerce activities in the WBT region.

In terms of digitalisation and uptake of e-commerce practices, Albania still lags behind its regional peers, both by business and consumers. While in the Western Balkan region, 14% of the population reports purchasing goods on line, in Albania, that percentage is 7% (World Bank, 2020[90]). Despite progress in strengthening the legal framework for e-commerce, the Albanian government has yet to introduce policies fostering a conducive environment for digitalisation and e-commerce. However, to create a more enabling environment for e-commerce, in 2020, as envisaged in the Business Development and Investment Strategy (2021-2027), the government mobilised a dedicated budget to promote e-commerce, amounting to ALL 47 801 100 (approximately EUR 397 000). This constitutes an increased commitment to digitalisation initiatives, given that in 2019, no budget was allocated for this purpose.