Privatization Case Of Albania Economics Essay

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The term privatization has become one of the most discussed topics in the last two decades in Albania. It started in the year 1991, based on the law Nr. 7501, with the privatization of farm lands, continued with that of big public companies and it is still happening in the year 2010. Privatization is not an easy process to be applied.

It needs a long time to study the market, to find the most efficient method of how to privatize and also, to find the best competitors who to sell it to. Most of the changes in the Albanian economy during the first years of transition are based on the process of transferring the ownership from public to private.

Our purpose is to create a brief overview of the history of privatization during the last 20 years in Albania. Having this, makes it easier to work better in the future.

The paper consists on two main points. We will discuss firstly the goal of privatization and why should the government apply it. We will see its advantages and disadvantages, the methods of this process with an eye in Albania.

The second point gives a more detailed view of the process in Albania. The steps, which means what was privatized during the years. Who were the ones that got to profit and the ones who lost from it. Finally, in section 3.3, with two main examples and a survey made by Mema (2005), we will see some of the post-privatization changes in the Albanian privatized enterprises.

2. UNDERSTANDING THE PROCESS

2.1 Definition of privatization

According to the Encyclopedic Dictionary of Economics, Banking and Business, (Hoti, I., 2001), privatization is the process of transferring the control from the government sector to the private one. It consists on fabrics., soils., buildings., mines. privatization, services. privatization (this includes telecommunication market, transporting, health services etc.), and rights. privatization (like patents, copyrights, printing offices etc.).

2.2 Goal of privatization

Based on the Encyclopedic Dictionary of Economics, Banking and Business, (Hoti, I., 2001), the aims of privatization consist on finding the macro economical equilibrium in an efficient use of a country’s resources, reducing its expenses, its public deficit and as well as unemployment. Privatization means productivity growth by liberalizing the market and also reducing the state’s control in economy. It arises the market freedom and creates space for concurrency. With privatization, the political role of the government vanishes and the decisions taken within a company are more realistic.

2.3 Advantages and disadvantages

2.3.1 Advantages

The government's task is to keep the government away from business, because business does not need the government1 [1] . This means less interference from the government in the economy life.

Privatization places the risk in the hands of private business. [2] 

As mentioned above, privatization increases the concurrence and also the speed of answering people's demands. [3] The quality of goods and services becomes better and their diversity increases. Privatization leads to lower prices and greater supply

Marketing is weaker in public institutions.

There is a lot of difference in the amount of investments. The private owners are more willing to invest in their own company, than the state into its own. Also, they pay more attention to the company and they are more careful hiring the professional employees.

By selling a public company, the government could reduce the budget deficit; it could also pay loans or increase its income and probably invest the money into something else.

We all know that the state subsidizes enterprises in difficulty. By privatizing, it has no control over them which, in this case, means no responsibility for them. [4] So, the government is not obligated to finance enterprises during bad times, unless it decides so by itself.

A private company does not depend on the elections. Usually, after they are held and the opposite party wins, a lot of changes happen in a public institution. Sometimes, it is better to keep stability in a company's structure or keep professional employees, no matter their political views.

2.3.2 Disadvantages

As mentioned before, when the government decides to privatize an institution, it loses all or most of its power over it. With no more shares in the ex-public enterprises, it has now a new task: to find another way to generate income in the future.

If, in the future, the private owners mismanage the company, whether they increase the prices of its products or services, whether they suffer harsh times and its effects fall on people, there is nothing people can do about it. There is nowhere they could turn to and complain. Meanwhile, in a public institution, they have this power, because of the right of voting. This stands mostly for monopolies. Consumers have not benefited as much as hoped with public monopolies which are now private ones [5] .

2.4 Methods

Some of the methods, which can be used to apply the process of privatization [6] and the ones used in Albania [7] , are:

- International Tenders - local or foreign buyers may participate in an open tender.

- Capital market - sale of Government shares in the capital market, where the Commission arranges to sell the entire or just a portion.

- Transfer of some portion of the shares to the employees - the part of the shares transferred, is decided by a Commission and it usually depends on their contribution to the enterprise.

- Renting allowance or management contract - this is made through an open tender, and not by transferring the ownership but only the management of it, for a certain period, based on the contract.

- Auctions

- Purchase by ex- wners etc.

Some of the problems faced by applying these methods in Albania will be discussed in section 3.2.

3. PRIVATIZATION IN ALBANIA

3.1 Main steps

The privatization in Albania passed into these steps [8] .

1. Land privatization, based on the law Nr. 7501, according to which, farm lands were distributed to the farmers.

2. Privatization of the wholesale and retail trade units, which were given to the salesmen with a low price.

3. Privatization of state flats. They were given to the people who were living in those apartments.

4. Privatization of Small and Medium Enterprises (SMEs). Most of them were given to that part of the population, who had contributed in its founding or its development.

5. Privatization of large state enterprises, which started some years after the period of transition and as a process, was more achieved than the ones in the first four steps, since Ministry of Privatization was already founded.

3.2 Winning and losing

Based on the steps mentioned in 3.1, we will now see a detailed view of the problems that occurred after applying the process, who were the ones that gained and who were the ones that lost from it.

1. Privatization of land of the collective and state farms was a well applied law, even though some objections. [9] 

2. Privatization of the wholesale and retail trade units, given to the salesmen in a very low price, created privileges only for one social group and even by denying the rights of the owners of the land these shops were built on. [10] 

2. Ina Aleksi, Kalo and associates [11] , say that -During the years 1991 - 1993, according to the urban privatization, about 220.000 state apartments were privatized, and 97 per cent of them were paid for in cash at the moment of sale.

The sale of state apartments to their users was a necessary step that had positive results. This step was both politically and socio-economically necessary. Hence to this, many Albanian families became possessors of the apartments they lived in, so they became owners.

From the political point of view, this step was an important move toward the detachment from the old system. From socio-economic point of view, it created more favourable conditions for migration of families inside the country as well as outside it. In the years of communism, it was very difficult to move in inside Albania and totally prohibited outside the country.

With the fall of the system and the privatization of the state flats, -people had less problems when they wanted to migrate because they could sell (or buy) an apartment. It also relieved the state budget from having to maintain these apartments, and it created favourable conditions for private individuals to maintain these apartments. It made it possible for owning families to make additional investments in their apartments, improving their quality, and allowing a higher standard of living.- as stated by them [12] 

But, in spite of positive sides to the process, as mentioned also by Mema (1997) and Ina Aleksi, Kalo and associates, the negative side was that they were sold to their tenants at a very low price, which was actually only a small part of the real market price. This resulted to a fact that many people were left homeless.

5. SMEs privatization was, most of the time, made out of the auction. As mentioned by Mema (1997), the people who had contributed in those enterprises were the only ones who won from this. And this was only a very small percentage of the whole population. A lot of people were left aside and did not profit anything.

6. Privatization of big public institutions is the most achieved process in the Albanian economic history. This is because of the foundation of the Ministry of Privatization and also because during the years, the Albanian economic experts had learned much from the past. The process of privatizing the big national assets ran slowly through the years, and the method used was the one with tenders. But, as pronounced by Mema (2005) [13] , the privatization lacked a program in most of the cases and the decision makers did not pay full attention to privatization implications. Some experts say that either the process happened very quickly or the price was too low.

3.3 Post - privatization

As stated by Mema (2005), to answer the question of what is happening with the privatized enterprises, is very difficult to find the right answer. In a survey made by him, the results say that around 67% of the enterprises had undergone several changes. 68 % had made changes in both structure of management as well as the production. 62% had made changes in the marketing structures and only 33% of the enterprises asked had not made any changes in the managing structures. In order to give a better view, let us take two examples:

. AMC (Albanian Mobile Communication), for some years after privatized, had very expensive service and low quality. [14] This problem began to resolve after the entering of the 3rd mobile company, Eagle Mobile, when both Vodafone and AMC started reducing the prices as the concurrence was harsh.

. On January 13th, 2004, Raiffeisen Bank and Ministry of Finance signed the Share Purchase Agreement by which the Government of Albania agreed to transfer 100% of the shares of Savings Bank of Albania to Raiffeisen Bank for $ 126 million. [15] 

After the privatization, Raiffeisen Bank maintained the powerful role of Savings Bank of Albania, and not only that, but it also increased its role in the Albanian banking system. According to the employees, Raiffeisen was the first bank in Albania to operate with the ATM service. Also, it was the first bank to install POSs, increase the number of its services, apply the multi-cash service (for business), the first bank in Albania to give credit cards etc.

4. CONCLUSIONS

Privatization in Albania was a new process which had its own weaknesses and achievements. Starting from the privatization of farm lands and state flats, which were two of the first steps applied, that opened the way to It kept the government away from business, increased the variety of services and products and the foreign investments in Albania. It also led to a higher life standard.

Some of privatized enterprises resulted as a success, some of them faced problems, but in general, it was the right choice since it open the way to concurrence and the market liberalization.

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