Digitization challenge: Study unveils Albania’s strengths and weaknesses - Kogonuso

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Jun 13, 2018

Digitization challenge: Study unveils Albania’s strengths and weaknesses

TIRANA, June 12 – Differently from economic, social or rule of law indicators, digitization in Albania’s developing economy has followed a relatively satisfactory pace and in some sectors such as banking has the same development level compared to leading innovators, a study has shown.


A global trend, digitization has revolutionized financial services in Albania with banks offering more and more POS, ATM as well as online banking services, says a study examining Albania’s challenges in the digitization of the economy and its impacts on the labor market.

Albania’s labor market has also benefited from digitization especially due to cheap labor costs and good language skills such as the case of the call center industry, employing about 20,000 people and engaged in marketing campaigns and customer care services mainly for Italian companies outsourcing work to Albania, says Adriatik Kotorri, a finance professor at the public University of Tirana, in his study supported by the Friedrich Ebert Foundation in Tirana.

Hundreds of workers work in accounting, audit, design and IT services mainly destined for EU-based companies outsourcing work in Albania.

Albania’s emerging travel and tourism industry has also been benefiting from e-commerce portals such as booking.com and AirBNB.

The overwhelming majority of 97 of Albanian enterprises have access to the internet, but only 7 percent of them are engaged in online sales, according to state-run INSTAT statistical institute.

In addition, access to public services has received a major boost with the e-Albania government portal offering both businesses and households a series of online documents and services.

Albania is also now in its last steps of full digitization of audiovisual transmissions while e-platforms are also gaining the upper hand in the education system.

“One of the main concerns over digitization is its impact on unemployment. In principle, it is expected that there will be job cuts and difficulty for people aged above 50 to keep their jobs. But I believe the impact could not be what it looks like. The impact of digitization on Albania’s labor market is not a black and white issue. Albania has its strengths and weaknesses in this process and faces new opportunities and threats,” says professor Kotorri in his study.

Albania’s young population is rated as the country’s top strength in the digitization process.

At a median age of 37, Albania has Europe’s second youngest population, while technology penetration is quick due to EU-based companies also operating in Albania through their subsidiaries such as the banking and insurance sectors.

“Because of increasing the quality of services and being perceived well by the public, governments in Albania have had a positive approach toward the digitization of public services, attempting to promote and use them more and more,” says Kotorri.

However, being a mere consumer of digital products, requires huge funds to purchase technology and puts Albania’s small and developing economy at a disadvantage.

The ongoing brain drain is another weakness.

“Even though at a lower level, Albania still suffers the migration of qualified workers and talents toward Western countries where they are valued more which negatively affects Albania’s labor market,” says the author of the study.

Yet, the cheap labor cost, foreign language skills, a still unsaturated market, the European integration agenda are considered opportunities for Albania’s digitization prospects.

The key threats to Albania’s digitization prospects include the rapidly ageing population due to a sharp decline in birth rates and ongoing migration, tougher competition from emerging Asian economies offering similar services at more competitive rates and protectionist EU policies such as a 2017 Italian law curbing the supply of call center jobs from non-EU member countries such as Albania, giving a blow to the local call center industry which has now been diversifying into online trading platforms.

Starting this year, Albania has been offering tax incentives to IT companies involved in software development, offering them a reduced 5 percent corporate income tax, compared to previous 15 percent rate.

As elsewhere around the world, digitization and automatization has also had its first victims in Albania with the banking and manufacturing sectors as the most affecting due to online services and robots and machinery replacing workers.

A late 2017 study by McKinsey Global Institute showed up to 800 million global workers could lose their jobs by 2030 and be replaced by robotic automation, but poor countries like Albania that have less money to invest in automation will not be affected as much.



Poor capacity

In its latest country report on Albania, the European Commission says the capacity for technological absorption, research, development and innovation in Albania remains low.

“Substantial efforts to strengthen the link between business and academic and research institutions are needed. Upgrading the economy from low-technology, labour-intensive and low-cost production areas requires more research and innovation. This is particularly the case in sectors like agriculture and food, energy, and sustainable tourism which are crucial for Albania’s economic development,” says the Commission whose positive recommendation on Albania’s opening of EU negotiations will be decided later this month by EU leaders at the European Council.

Earlier this year, a report Switzerland-based World Economic Forum think tank showed Albania is one of Europe’s least prepared countries in its readiness for the future production through the adoption of emerging technology.

The report classifies Albania as a nascent country with a current limited production base that exhibits a low level of readiness for the future through weak performance across the drivers of production component.

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