The Scream of an Economy without Industry and without Production of Goods

by Artan Gjergji, Expert of Economy & Finances 

For years, economists—sometimes in stiff, bureaucratic language, and at other times quite openly—have been trying to sound the alarm over the failure of politics to secure a stable economy in the country, with the goal of definitively breaking away from the transitional economic model. It must be acknowledged from the outset that some progress has in fact been made in this direction. Yet this is less the merit of successive governments than the result of the extraordinary efforts of individuals—millions of Albanians. Through their struggle for survival, Albanians themselves have carried both the country’s economic growth and its broader development. In economics, this phenomenon is commonly referred to, somewhat euphemistically, as “Adam Smith’s Invisible Hand.”

The Development of Industry Over the Years

For many years, Albania’s economy managed to stay afloat amid the waves of a new capitalism, a doctrine that was entirely unfamiliar to us, and with which we had had little time to become acquainted even before the communist era (the fragile, roughly twenty-year capitalist period during King Zog’s rule). Meanwhile, the communist system severed every connection with free and private enterprise, grounding itself entirely in Bolshevik Marxist-Leninist doctrine, through theories of collectivizing assets, agricultural products, and property, all the way to the infamous kulaks and the cooperatives that supposedly produced everything, yet in reality produced nothing.

Even those who claim otherwise forget that Albania survived thanks to Enver Hoxha’s “skill” in maintaining di(naco)plomatic relations with great powers such as Yugoslavia (until 1947), the Soviet Union (until 1961), and China (until 1975). Khrushchev’s famous quip—“The amount of wheat Albania needs is what the mice eat in Russia’s granaries”—is an excellent summary of this philosophy. The fact that, after the break with China, Albania faced serious economic problems in securing bread for its people, to the point of rationing even basic foods through coupons, is perhaps the clearest proof of the failure of a centralized system that never managed to prove itself—not only in Albania, but anywhere, even to this day.

Albania’s sister countries in the East—the Warsaw Pact states—were not in the same position. First, because they had centuries-long histories as empires or kingdoms, with accumulated capital and reserves, as well as long-established traditions of private property and free enterprise, supported by industrial revolutions (including in transport), which form the foundation of economic development. Second, because many of them inherited vast fossil and mineral resources—oil, gas, iron, coal, copper, and so on—giving them the luxury of surviving in international import-export markets, even in trade with the capitalist countries of the time.

By contrast, according to historical data, during communism Albania was able to export little more than copper products and the famous leeks of the Myzeqe plain. Thus, while the Eastern European countries had historically accumulated capital, they also managed to translate revenues from natural resources into serious investment in light and food industries—where they were relatively competitive—as well as in heavy industry, from military production to machinery and spare parts. Even if their products could not compete in Western markets on quality, they still enjoyed a sufficiently large market within the former communist bloc.

 

Did Albania Have Industry? And Was It Efficient or Profitable?

I have made this long introduction in order to highlight clearly the enormous difference Albania faced at the start of the 1990s compared with the capitalism of the other former Eastern bloc countries. Even the limited heavy and light industry we had managed to build had been a “gift” from allied states and, as a result, remained excessively dependent on Russian technology (which had not been renewed since 1960) or Chinese technology (which had not been renewed since 1975).

This was the main reason our industry was not efficient: its costs far exceeded its profits. With each passing year, it was pushed further out of the game until it finally died along with the system itself by the end of the 1990s. Any attempt by nostalgics of Albania’s communist regime to blame the new post-1990 leaders for the closure of factories and plants is nothing less than a total misunderstanding of economics and capitalism, combined with a bad faith that persists to this day. Albanian industry had already entered decline at the beginning of the 1980s due to the lack of technological investment, which meant rising costs and vanishing efficiency.

Workers remained employed only through the state budget, which was financed largely through the printing of paper money by the State Bank. But money—the lek—had no real value as long as the market lacked goods and services. The old phrase “the lek has become paper,” meaning worthless money, comes precisely from that time.

After the 1990s, the Albanian economy evolved in an amorphous way, without a clear economic model, financed mainly by foreign capital (investments and humanitarian aid) as well as by the savings of individuals, who on a small scale could only open small businesses, primarily in services and trade. Nothing was done with industry; even privatization did not move in that direction. Large assets were fragmented into tiny foundries and workshops resembling kiosks, entirely detached from any real concept of industry.

Then came the fashion of fake and lazy capitalism, where people could earn returns of up to 300 percent in short periods, despite spending their days sitting in cafés. Rentier and pyramid schemes distorted even the modest and rudimentary understanding of capitalism we had begun to form, making us live in a false dream. Then came 1997, and that wound continues to haunt us to this day.

Development Without Real Development: The Amorphous Rise of Micro-Industry After the 1990s

But did we learn anything from all this? Unfortunately, no. Even though we started over from scratch, we continued to act as traders, offering services on a small scale. We continued to sell off public property for next to nothing, privatizing every public asset through favors and patronage without thinking about serious investors. We handed over, through concessions or virtually for free, all our assets and natural resources, without insisting that their processing be carried out in Albania—something that could at least have helped us rebuild part of our industry.

Thus, copper ore from the heart of our underground wealth travels thousands of kilometers to be processed in Turkey or China, only to be resold back to us as copper wire at prices a hundred times higher. The oil sector follows the same logic. So does the bitumen of Selenica, coal, ferronickel, and more. In every sector, if one looks carefully, one finds the same concessionary scheme neatly stitched together by legal and political interests that never once took national interests seriously.

This is why, even after 35 years, our economy still has neither light industry nor heavy industry. Meanwhile, neighboring countries, with far more cautious policies, have managed to keep their light industries alive—mainly in food production—but have also revitalized heavy industries such as military manufacturing and automobile production. Skoda in the Czech Republic, Warszawa in Poland, Dacia in Romania, Zastava in Serbia—these eventually became factories for some of the world’s largest car brands.

Albania missed that train long ago. The only sector in which we have specialized, amorphously and without direction, is trade. But even there we are not competitive internationally. We are merely traders among ourselves. Everyone sells something to someone else within the domestic economy, and we are not competitive even in the markets of our Albanian brothers in Kosovo.

As for industry, apart from the small foundries and workshops inherited from the fragmented privatization of the supposedly “major” industrial works of the communist era, very little has been invested in genuine industry. Even where light manufacturing production lines do exist, they are mostly small-scale and concentrated in food processing, including agro-processing. Another segment, which carries relatively little weight in GDP, is the sequential part of what is known as active processing—or, more commonly, the fason industry—which mainly focuses on individual technological steps, such as cutting, sewing, filling, or gluing, taking advantage of cheap labor for foreign partners. 

Yet this segment of our present industry never managed to become a fully integrated process from A to Z—a “closed cycle,” as the term goes. In other words, it never became a strong pillar of the country’s productive sector, even though its undeniably positive role in providing employment and softening the social wounds of unemployment for vulnerable groups should be acknowledged.

Still, it is worth mentioning that the largest technological investments in Albania remain a handful of factories involved in processing:

- construction materials (steel, duralumin, sandwich panels, etc.),
- dairy products, or
- alcoholic and non-alcoholic beverages.

Beyond that, on a smaller scale, there are workshops producing oil, mainly olive oil—and that is largely where the picture ends. Even these industries, modest in size and operating at limited scale and capacity, have served more to meet domestic demand than to export, preventing them from growing exponentially over time or becoming competitive in international markets.

Another point worth stressing is that the amorphous development of the economy—or the lack of clear development strategies—combined with misguided fiscal policies, has also prevented the creation of sustainable supply chains within business cycles. As a result, most of these modest industries rely heavily on imported raw materials, failing to create meaningful added value within the domestic economy and becoming sectors of mere circulation and consumption, much like trade itself.

 

The Cry Over the Gradual Ruin of Industry—and Its Consequences

Some may say: all right, but what problem does the absence of industry—or worse, its disappearance—actually create for us? Why has it become so alarming lately? After all, Albania receives income from many directions: remittances, tourism revenue, income from real estate sales to foreigners (which, strangely enough, even the Bank of Albania classifies as foreign direct investment), and perhaps also income from illegal sources. A considerable number of Albanians, after all, do not seem troubled by the origin of money, so long as it enables consumption and investment.

In reality, the problem is far greater than the cries of industrial actors or field experts suggest. Public appearances by business representatives are becoming more frequent regarding a long list of difficulties. A few days ago, for example, I watched an interview with Mr. Arben Shkodra, Secretary General of the Albanian Producers’ Union, on journalist Aurora Sulçe’s program on A2-CNN. The concerns raised include:

- lack of access to finance, which prevents firms from growing;
- unfair competition from businesses in neighboring countries, which are supported by their governments;
- the heavy fiscal burden imposed by the government (the sharp increase in the minimum wage, combined with the tax burden, is among the highest in the region);
- the appreciation of the lek, which destroys stable business revenues, especially for exporters;
the increasingly severe shortage of labor caused by new waves of emigration toward the West.

 

All these factors have pushed business toward total decline, reducing its productive power and leaving it at the mercy of competition from imported goods. Moreover, the departure of workers and the increase in costs have made these micro-industrial businesses unattractive even to their foreign partners, causing them to lose long-term contracts they had maintained for years.

 

Agriculture and Livestock Farming Face the Same Fate

Agriculture and livestock farming are in exactly the same position. Just a few days ago, a professional analysis in Monitor magazine raised the alarm over growing meat imports, both as a result of increasing domestic consumption and the shrinking number of livestock farms. In another program on A2-CNN, agricultural policy expert Ilir Pilku stated that Albania’s livestock meat production in live weight in 2024—with a population of 2.4 million—is around 20 percent lower than it was in 1927, when Albania had only about 1 million inhabitants.

 

Likewise, official INSTAT statistics show a marked increase in imported food products, accompanied by higher imports of agricultural goods such as fruits and vegetables.

 

Link of the article in Albanian language: KLITHMA E NJË EKONOMIE PA INDUSTRI E PA PRODHIM MALLRASH