New York. Governments worldwide are taking extreme measures to prevent their countries from sliding into depression. Albania and Kosovo, with significant remittances from their respective émigré communities in the West combined with the highest unemployment rates in Europe, stand in the middle of a perfect economic storm.  In the coming months Kosovo and Albania can expect a decrease in remittances, decrease in foreign aid and investment, and increase in unemployment domestically and among its diaspora communities.  The question is what are Prishtina and Tirana doing to soften the economic impact?

 

In Albania and Kosovo a large segment of society relies on remittances sent from family members working mostly in Europe. According to Albanian and international organizations there are approximately 800,000 Albanian émigrés (Albanians from Albania), primarily concentrated in Greece and Italy.  The remittances from these émigrés account for an estimated 13% of Albania’s Gross Domestic Product (GDP), total market value of all the goods and services produced in one year.  Kosovar émigrés in the West total approximately 500,000, with majority residing in Switzerland and Germany.  Their remittances account for about 30% of Kosovo’s GDP, according to the US State Department.  Majority of  both Kosovar and Albanian émigré communities are employed in the service sectors in their respective host countries.   The service sectors are already feeling the repercussions from the recession. In England Polish workers are returning to their homeland due to the sudden drop in the construction industry and the high cost of living standards in the West.

But unlike the more stable economies of the former Eastern Block, Albania (where the unemployment is estimated at 16%) and  Kosovo (where the unemployment rate is estimated at 50%) a plunge in remittance is expected to have a serious impact on the local economy and on the respective political environment.  The return of Kosovar immigrants to Kosovo could lead to the strengthening of more nationalistic forces that find themselves politically and economically sidelined as Prishtina and the West seek ways to woo the Serb community into Kosovo’s governing structures.

Both Albania and Kosovo (more so Kosovo) can be categorized as consumer societies.  In addition to remittances both countries rely on foreign investment and international aid.  The international community has pledged 1.2 billion Euros (estimated 40% of Kosovo’s GDP) in aid in the coming year for Kosovo while Albania averages 300 million Euros in aid annually and over 400 million Euros in foreign investment.  The international community is expected to uphold its aid commitment for the current financial cycle.  However, as donor countries have begun to bail out their own financial institutions, a direct consequence to Kosovo and to Albania may be cut backs on international aid.  In addition foreign investments are also expected to decrease dramatically.  Albania and Kosovo’s highly volatile markets will, at best, attract a handful of investors in search of bargain basement deals.

If the financial crisis continues to spiral further out of control, Albania and Kosovo should brace themselves for an increase in unemployment and a significant drop in their respective GDPs. As Europe slides further into recession, a significant number of  ethnic Albanians working abroad can expect to lose their jobs.  In addition to loss of employment among the diaspora it should come as no surprise to either Prishtina or Tirana that repatriation of the Albanians to the homelands by Western European may soon follow.

What can Kosovo and Albania leaders do to lessen the impact of these economic hardships?  The suggestions below are by no means a solution but in an “every person for themselves” environment, Prishtina and Tirana should begin to develop economic strategies to deal with the economic crisis.  To begin with Prishtina and Tirana could place a temporary halt on the privatization of operational medium and large enterprises.  With the global economy strapped for cash it’s unlikely that either Kosovo or Albania will receive fair market prices for their nationally owned enterprises.  For example, the privatization of telecommunication and energy sectors, which tend to employ a significant number of workers, might bring much needed cash to a shrinking State budget, but with a heavy cost to the fragile social and economic environment in the form of additional layoffs.   Prishtina and Tirana may want to consider holding off on privatizing sectors that will lead to layoffs.  Contrary to popular belief, privatization in the short run does not lead to an increase in employment. At the same time Tirana and Prishtina could accelerate the selling of companies that have long been out of service.  A fixed portion from these sales could be used to establish a “Temporary Unemployment Support Fund”.  This Fund could be used to stimulate job creation and alleviate poverty.  Further funding can be allocated from the State budget and from international aid partners who could temporary re-direct committed aid to the Fund.

Tirana and Prishtina should begin negotiations with the major international lending institutions for emergency relief funds.  In particular both Kosovo and Albanian leaders should negotiate with IMF for such loan assistance programs as the Compensatory and Contingency Financing Facility (CCFF) and the Exogenous Shocks Facility.  These programs are bureaucratic in name and in process but would provide Prishtina and Tirana with much needed funding to address the needs of their citizens.

From Albania’s democratic movement to Kosovo’s independence, Albanian diaspora communities have raised money, and assisted Tirana and Prishtina in obtaining access to European decision makers.   Tirana and Prishtina should find ways to support their diaspora communities in these times of need.  This could include providing legal aid to the diaspora to give them the tools to stay in the host country and access the host country’s support systems, and support organizations that will advocate against targeted repatriation by the host country.   Prishtina and Tirana cannot avoid the impact of the world financial crisis but with a pro-active strategy they will get through the economic storm.

Fron Nahzi, Vice President, East West Management Institute, articles have been published in leading European and US newspapers.  For the past 17 years he has been working in international development in Eastern Europe and South East Asia.