Albania: Economics of the Gangland

SERBIANNA (USA) Tuesday, September 27, 2005 By M. Bozinovich

In Albania, poverty goes along with corruption, illegal trafficking of drugs and people, organized crime, social exclusion, vendettas and high-profile murders. Albania is often referred to as one of the key points for illegal traffic to Western Europe, and the political elite has been persistently accused of having a hand in these illegal trade activities. Albania is the bastion of poverty and, along with the Albanian-dominated Kosovo, an emerging European gangland.

While only 18% of Albanians have uninterrupted electricity and 1 in 6 households have a running water, Fatos Nano, the leader of the Albanian Socialist Party and a former prime minister, lived in a villa with 28 bathrooms that once belonged to Mehmet Shehu, communist dictator's Enver Hoxa right-hand man. The rent was a mere $16,000 a month.

Disinterested in producing anything, Albanian criminal entrepreneurship is flourishing. Albania is a major transit route and warehouse for international organized crime and government has failed to crack down on the smuggling of heroin and cigarettes and the illegal traffic in people. Allegations abound that government officials themselves are involved in the illicit trade of drugs, people, weapons...

Transparency International ranks Albania at 92nd place among 133 countries, with a corruption perception index ranging between 1.7 and 3.5 out of 10. About 60% of the population ranks corruption as the biggest social problem, much higher than unemployment or local incomes.

Combating corruption and criminality, or at least projecting an appearance to combat them, is one of the main conditions for signing a Stabilization and Association Agreement with the EU. According to the European Commission, however, concrete results in the fights against corruption remain very limited.

Dissatisfaction over corruption, conflicts over high prices, poverty and human trafficking, brought an estimated 50,000 people to the streets of Tirana in February 2004. The protesters were imitating the "rainbow" revolutions of the Eastern Europe but apart from the well wishing, the protest achieved nothing. Since 1992, Albania has been in a perpetual planning to eliminate the corruption so that its inefficacy to ever get it done dubs any such plans an empty rhetoric.

The 2005 elections in Albania, nevertheless, were dominated by the issues of corruption and criminality.

Speaking at his pre-election news conference in August, Albania's newly elected Prime Minister Sali Berisha said that the "criminals have made attacks in town centres in broad daylight, taking the lives of many people. The criminals have gone on an unacceptable spree. They should not allow the criminal hordes to take advantage of the current power vacuum and achieve their ominous goals" and called on the police to use "iron fist" against criminals.

Once elected, Berisha urged the deputies of the Assembly of Albania to help functioning of the rule of law by launching government reforms in the fight against corruption and organized crime which, he remainded, also constitute the main obstacle to Albania's integration into the European Union and NATO. Berisha stressed that over 60% of the taxes paid by citizens are misused in the vast Albanian system of corruption.

"The new government will be a government of clean hands and the fight against corruption will begin from the prime minister and the new cabinet through the implementation of the law on the conflict of interests," Berisha said.

Rise of Economic Vendettas

Blood feuds have existed in Albania for over 1,000 years and is regulated by an Albanian tribal law known as the Kanun. Proliferation of vendetta killings is also helped by a widespread popularity of weapons among the population. Men of all ages routinely enter Albanian cafes toting automatic weapons and in the 1990s, a gangster occupied northern town of Bajram Curi and proclaimed himself a police chief. Many of the police themselves are weary of retribution for arrests and fear for their lives if an unfortunate death during apprehension of criminals was to happen.

According to a recent BBC report, in an unnamed village north of Shkodra two families live confined to their own homes because of blood feuds. Although none of them killed anyone, the feud is ongoing because it involves their father around 60 years ago. Another man there has been homebound for 6 years, while reports circulate that entire families, afflicted by vendettas, have moved to the Ionian coastal areas where they have dug up caves in inaccessible places in order to secure their families.

What once was exclusively reserved for murder disputes, the vendetta attacks of an economic sort are multiplying across Albania.

Gjok Jaku, mayor of the town of Lezha, Albania, lies in a bed in Tirana military hospital suffering serious injuries after gunmen shot him in the legs.

Although the Prosecutor's Office reported that the crime rate in Albania has decreased by 4% in the first six months of 2005 recent attack on a Mayor of an Albanian town of Lezha, 45 miles north of the Albanian capital Tirana, illustrates the peril of law enforcement and public service in Albania. Mayor Gjok Jaku was shot by a gunman in the legs on Sept. 23 at the hall outside his flat after deciding to destroy an illegal construction built by the suspect's family at the town's public cemetery.

The Albanian newspaper Albania that is friendly to the government reported in August that the Prosecutor's Office has set up procedures for the registration of assets, property, and businesses belonging to criminals and people under investigation for illegal activities. The list is to be compiled from drug and sex traffickers, prostitutes and human traffickers. The paper further claims that the action is suppose to get started in September when prosecutors return to work after their summer vacations. The expectation is for the office to launch a detailed investigation in the origin of suspicious property and assets, such as land, buildings, bars, hotels, and cars that are in possession of criminals and criminal suspects.

Many ridicule this initiative as recording what is obvious to anyone. Moreover, no one seriously believes that the government will ever move on any of the criminals it registers because the politicians themselves are either "bought" or may be quickly killed. Ironically, registering assets and property of Albanian criminals may actually enhance their social standing by making their "frivolous" activity publicly known.

According to the Albanian newspaper Gazeta Shqiptare, the Counter-Economic Crime Section at the Tirana Prosecutor's Office has recorded no case of an investigation being started against economic crime from its founding to date. Officers from the Counter-Economic Crime Section admit that the law allows them to start investigations but claim that carrying out this function is hampered by a shortage of personnel and the overburdening of investigators. The officers also say that the Prosecutor's Office is not informed of crimes in the economic sector apart from those cases uncovered by the taxation police. The taxation police typically investigates big corporations that consistently claim to operate at a loss.

The Prosecutor's Office and the taxation police tacitly admit that dozens of big businesses consistently churn out negative profit balances and claim to operate at a loss. While some of the reporting may be to evade taxes on profits, some fear that the losses may actually be real. If the reported losses are real, some officials fear that these businesses may turn into pyramid schemes reminiscent of the the one in the 1990s which triggered anarchy, looting and widespread killing in Albania.

Tirana based Gazeta Shqiptare is accusing the Counter-Economic Crime Section of turning a blind eye and a deaf ear to corruption and its dangers.

However, there may be an existential reason to turning the blind eye.

Some of the Albania's terror-led growth: A pair of buildings called the Twin Towers in Tirana, Albania, are owned by Yasin Al-Qadi, a Saudi businessman, who laundered money for Osama bin Laden through extensive business dealings in Albania.

Estimates vary but it's believed that up to 50% of Albania's GDP is generated from various illegal activities - ranging from people and drug trafficking to the smuggling of cars and cigarettes. The construction industry has boomed in the last two years and government admits that large amounts of illegally earned money has been laundered through the construction of hotels and apartment blocks. Surveys carried out in 1998 and 1999 by the World Bank found that a weak judiciary was the main cause of corruption in Albania and bribes were found to take 7% of firms' revenue in Albania.

More importantly, the illicit wealth of the Albanian criminal enterprise has built a powerful political-criminal nexus. For example, Nehat Koula, a gangleader charged with killing a policeman, was acquitted on grounds of "self-defense". Koula was Nano's protector during his prison stay under communism.

Then there is a diplomatic dimension of the Albanian political-criminal nexus: Zani, an Albanian mafia chief, provided bodyguards for the Italian prime minister during his visit to the city of Vlora. Zani was in prison for 9 months, yet his mother has been received officially by senior members of the government.

Productionless Growth

In 1992, Western governments and international financial institutions presented Albania as the "economic miracle of Eastern Europe," pointing to its 11% growth rate that was the highest in the region. However, the reports failed to mention that the industrial production was near zero, that Albania had no industrial product to offer to the world. Almost half the GDP was from foreign aid or the remittances of Albanians working abroad, and the trade deficit was soaring.

By 2000, Albania still had no industrial product to offer to the world but was growing its GDP at at brisk 7% although, according to the World Bank, only 8 Albanians in 1000 had a personal computer, only 1 in 1000 had access to the Internet and only 39% of its roads were paved.

In 2005, the Albanian GDP is also growing - at a robust 4.7% rate - still has no industrial product to offer to the world and is running a $600 million trade deficit. Albania exports food and vegetables, textiles and footwear valued at $475.8 million and imports virtually the entire line of industrial and technological products at $1.4 billion per year: chemicals, machinery and equipment, minerals, fuels, electricity...

The $600 million trade deficit is covered by Albania's robust current account surplus pumped annually at least by $600 million, 20% of GDP, from the Albanian diaspora. Up to 25% of Albanians of working age have left the country since the demise of communism and most of them are in Italy and Greece. Both of these countries are Albania's major trading partners (Italy 71.7%, Greece 12.8%).

Although there are 16 commercial banks, of which 14 were foreign owned at the end of 2003, Albania is still a cash only economy. According to Emmanuel Decamps, a foreign banker working in Albania, a very different set of banking rules are in play in Albania.

"The usual banking rules do not apply here," says Mr Decamps, a Frenchman who is general manager of Fefad Bank, one of 14 foreign financial institutions operating in Albania. "When someone comes for a loan I have to be like a detective, judge their appearance, go and see their home, meet their family. There's very little bookkeeping - Albania still has a very informal, cash-based financial system."

Only 10% of people have bank accounts or any kind of a promissory paper from a bank. According to the Economist Intelligence Unit, "the inadequacy of Albania's financial sector has been an important factor inhibiting the development of the economy... there are few cash dispensers, and payment by credit card is rare."

With only a net of $209 million in foreign direct investment, Albania's other source of foreign money are donations by the EU and others more interested in security and intelligence issues then the economy of Albania. Recently, for example, US paid several million dollars to Albania for contributing its dozen or so soldiers to the Coalition of the Willing troops in Iraq.

Spinning Into Surreal

Forget the direct investment. Strategic issues fuel donations to Albania. Germany, for example, is more interested in spinning its economic relation with Albania then actually investing, or for that matter buying anything Albanian. With only 5.6% of Albania's imports, Germany has triumphantly declared that the "Albania's economy is clearly oriented towards the EU, which takes 92.1% of the country's exports and supplies 71.2% of its imports" and that the "German-Albanian relations are close and characterized by a spirit of partnership. Germany is the second-largest bilateral donor and is highly regarded for its efforts to promote the reform process in Albania".

In a similar vain of surrealism, World Bank has declared that "Albania is also making important progress in its path towards EU integration" but concerned that its loans may go unpaid because Albanian impotence to export anything declared that "It should seek to boost foreign direct investment".

In Albania itself, a belief in growth without production also predominates. "We still face big problems but the foundations for economic stability and growth are being laid," said Kastriot Islami, Albania's ex-finance minister in 2003. "Reducing corruption in the system and reforming the administration of tax and customs is our top priority."

Corruption and criminality do not afflict Albania exclusively. Indeed, the entire Balkan region is plagued with corruption and major efforts, and great deal of patience, are fostered by the international community to eliminate it. So far, however, all of the effort appears to have minimal and limited success.

According to the conclusion of case studies in sustainability of anti-corruption measures in the Balkans done by CPS in partnership with the Soros Foundations Network, "the reviewed projects had only a short-term impact, if at all. Projects generally failed to create a self-sustaining constituency for further reform, and when success was achieved it often depended heavily on contingent factors such as the presence of a 'champion' or the availability of an exceptional level of donor resources for a single, receptive client." In other words, anti-corruption measures in the Balkans ceased to have any effect as soon as the money that funded the anti-corruption project was spent.

While eliminating corruption may not be the singular panacea for economic growth, neither are the attempts to buy oneself out it. The likelihood that this kind of success comes to Albania will, in all probability, have to come in concert with similar successes in the region that is still plagued by uncertainties, fostered in large measure by Albanian politicians that advocate separatism in, at least, 3 of their neighboring countries.

Siding with the Albanian separatists in the Serbian Province of Kosovo, Albanian President Alfred Moisiu recently said that "It is high time that we come to the conclusion that an independent Kosova is the best solution both for the people of Kosova and for the region as a whole". According to the Senior Economic Adviser to the OSCE, Daniel Linotte, there "are significant positive relationships between arms sales and trafficking, and conflicts" where separatism and corruption are mutually reinforcing social behaviors that arise out of lack of good governance.

It, indeed, defies logic to believe that more Balkan division will lead to more prosperity, let alone elimination of corruption. Settling down the separatist spirits of the region may need to be the elixir of choice in cheering for a more prosperous Balkan future.