COVID-19 impact on Albania's private sector: taking stock, looking ahead

Albania entered the COVID-19 crisis soon after the destructive earthquake in November 2019. The COVID-19 outbreak hit Albania even harder. To explore the ramifications of this unprecedented shock on Albanian firms, the World Bank’s Enterprise Analysis Unit and IFC undertook a survey in June 2020, re-contacting the same businesses that participated in the Enterprise Survey in 2019. This blog summarizes findings from the survey and contrasts the impacts of COVID-19 on the Albanian private sector with those observed in Georgia, Moldova, Italy, Greece, Bulgaria, Slovenia and Croatia.¹ While there are differences among these countries in the evolution of the pandemic, the timing and the extent of containment measures, the pre-pandemic economic situation, and the period in which the surveys were undertaken, cross-country comparisons are useful to understand the impact of COVID-19 on Albania's private sector from an international perspective. To bring the numbers to life, findings from the survey are complemented by a virtual interview with Ms. Ajten Goci, co-owner of an Albanian firm, Segment Ltd., engaged in renting of heavy machinery for the construction and food processing sectors.

A sweeping decline in demand and a plunge in sales… 

COVID-19 inflicted a staggering toll on Albanian firms, but the country is not an outlier in the extent of the impact: 71% of firms in Albania reported decreases in demand, which is less severe than in Greece and Moldova, comparable to Italy, Georgia and Bulgaria, and worse than Slovenia and Croatia.² As demand plunged, sales went down by 52% on average, which is similar to in Moldova, Italy, and Georgia, but worse than in Greece, Bulgaria, Slovenia and Croatia. Segment Ltd.  experienced a sharp fall in sales, accompanied by supply chain disruptions in the countries that produce the machinery and equipment, further affecting the firm’s inventory. Due to increased uncertainties, the firm decided to refrain from placing long-term orders.

Figure 1. Impact on demand and sales 

…forced firms to reduce employment

Adjustments to employment in Albania has been very widespread.  Twenty eight percent of firms reduced the number of permanent workers, a much higher share than in Greece, Italy, Moldova and Croatia, but comparable to the other countries. On average, Albanian firms cut their number of permanent full-time workers by 11% which is significantly worse than in Greece, Italy and Croatia, though better than in Georgia, and comparable to levels in Slovenia, Moldova and Bulgaria. Differentiated impacts on employment may have been partially associated with the structure of the governments’ COVID-19 support packages. For example, Italy precluded layoffs along with providing short-time work programs, while in Albania, wage subsidies were available for firms having layoffs. Segment Ltd. is among the firms that have not laid-off workers to support the post-pandemic recovery and retain skilled labor, considering the difficulties that Albanian firms face in finding high-skilled workers. 

Figure 2. Change in permanent full-time workers 

Financial strain has been acute

COVID-19 hit Albania's firms’ finances hard. While a similar share of firms reported decreased liquidity and cash flow availability across the countries, 58% of firms in Albania reported delaying payments to their suppliers, a share considerably higher than in the other seven countries. Moreover, nearly 40% of Albanian firms anticipate falling in arrears in the coming months, higher than in Georgia, Bulgaria, Slovenia and Croatia, similar to the levels in Greece and Italy, and lower than in Moldova. Ms. Goci's experience so far has been better than average as her priority has been sustaining cashflow to cover the basics, such as rent payments and payroll. 

Figure 3. Effects on firms' finances

Albanian firms were remarkably flexible, though less so in using digital tools

A remarkably large share of Albanian firms reported adjusting their operations in response to the crisis (77%) but, despite recent strong process in digitalization, moving towards online activity or remote work has been relatively difficult. Eighteen percent of firms reported starting or increasing online business activity, lower than Georgia and Moldova, comparable to Greece, Italy, Slovenia and Croatia, and better than Bulgaria. Only 15% of Albanian firms reported shifting to remote work modalities, roughly half the average in other countries except Bulgaria. These findings may indicate challenges faced by Albania's private sector in operationalizing digital technologies. Segment Ltd. is among the firms that were able to leverage online platforms and use them to promote its products and services in neighboring countries. “This was a game changer for us as our operations have always been run through conventional means”, Ms. Goci underscored. Her company has seen immediate results with its exports growing by 30%. 

Figure 4. COVID-19 adaptation measures among firms

Protecting workers’ income has been a priority of the government’s policy response

Overall, with nearly half of firms receiving government support as of June, the coverage of government assistance in Albania has been relatively narrower than in Italy, Greece, Slovenia and Croatia but still broader than in Georgia, Bulgaria and Moldova. However, considering the size of the government as a share of GDP, Albania's government extended relatively stronger support than many other countries. Protecting the income of workers through wage subsidies has been the main objective of the government’s support of the private sector and benefited 88% of the firms that received any type of government support. The focus on wage subsidies is somewhat similar to that of Slovenia, Croatia, and Greece, and considerably higher than in other countries. The government also provided credit guarantee schemes enabling firms to use commercial-bank overdrafts to pay salaries as well as to obtain working-capital and investment loans. As of June, this helped 21% of the firms that received any support, worse coverage than Italy and Greece, but better than the other four countries. Another 21% of firms benefited from deferral of debt obligations, while only 11% and 7% received cash transfers and fiscal relief respectively. Segment Ltd. benefited from one form of government support: the 3-month deferral of payments on loans³. 

Figure 5. Access to government assistance

Concluding remarks

The survey underscores the severity of the pandemic’s impact on Albanian firms. The government’s most important firm-level support appears to have been wage subsidies which is an effective instrument for temporary shocks. If the COVID-19 crisis prolongs, providing further wage subsidies will be challenging given the limited fiscal space. The government will likely have to continue making difficult choices, and the private sector will likely need to make further adjustments as the pandemic continues. Acceleration in digitalization may enhance firms' ability not only to cope with the crisis but also to expand access to new markets and increase sales, as experienced by Segment Ltd. Growing amount of data and worldwide experience will help explore other policy options. 

_{1. Georgia has similar income per capita and strong tourism as Albania; Moldova is a lower income country with large outmigration and remittances inflows; Italy and Greece are Albania’s main trade partners with strong tourism sectors; Bulgaria and Slovenia are somewhat similar small economies in a
more advanced stage of transition; and Croatia is a Western Balkan country with a strong tourism sector. Other countries in ECA where the same survey was undertaken include Cyprus, Czech Republic, North Macedonia, Poland, Romania and the Russian Federation, with the growing list available here.}

_{2.Throughout this blog, the differences highlighted in text are statistically significant at least at 10% level.}

_{3.Segment Ltd did not use benefit from the government wage subsidies because as mentioned above, the firm avoided layoffs and preferred to retain its skilled workers.}