Executive summary POTENTIAL FOR DIVERSIFICATION OF THE RURAL SECTORS IN ALBANIA AND MONTENEGRO

Transcription

1 Final Deliverable 26 August 2011 Executive summary to the study POTENTIAL FOR DIVERSIFICATION OF THE RURAL SECTORS IN ALBANIA AND MONTENEGRO TENDER N AGRI-2010-EVAL-01 Naccon GbR Rutenweg Tübingen Germany Authors: Thomas Wehinger, Birgit Schäfer in collaboration with Milan Markovic, Ratko Batakovic, Ilir Mehmeti, Edvin Zhllima, Ivanka Simonovic, Horatiu Popa

2 This report has been prepared by NACCON GbR at the request of the European Commission The views expressed are those of the consultant and do not represent the official views of the European Commission

3 Executive Summary Background 1. The economic development of rural areas in Albania and Montenegro is characterised by many small highly fragmented, low-productivity farms and micro businesses. Only a few income generating opportunities within farming and an insufficient shift from agriculture to higher-wage and profitable income activities with limited alternative employment opportunities are prevailing, what is also caused by transitional challenges as found in other Western Balkan, albeit the overall situation in Montenegro is more favourable. 2. In both countries the accession process towards membership in the European Union (EU) is on-going with Montenegro having received candidate status in November 2010, and Albania being a pre-candidate country. 3. Both countries are preparing for the implementation of the overall IPA framework under Council Regulation 1085/2007. With regard to IPA Component V Rural Development (IPARD) - the authorities are setting up draft IPARD Rural Development Programmes as well as the IPARD operating structure. Objectives 4. The overall objective of the study was to gain more information on the possibilities for economic diversification of non-agricultural activities in rural areas in Albania and Montenegro. 5. The first specific objective was to develop a set of criteria for identifying regions/territories with a potential for diversifying economic activities of rural populations in both countries. 6. The second specific objective was to identify rural areas (at NUTS 3 level or below) in the two countries with the highest needs and potential for diversification and to outline the most suitable measures to be applied in order to utilise this potential. With the acquired information the feasibility of using individual measures under IPARD in both countries facilitating diversification in the rural economies was to be assessed in order to enable their design. 7. The analyses undertaken to accomplish both specific objectives were determined by the extent of the availability of data at district level in Albania and at municipality level in Montenegro. 8. The study shall also serve as a baseline analysis for the design and improvement of nationally-financed rural development measures related to the IPARD programme and possibly for other international donors and organisations trying to facilitate diversification in non-agricultural activities and the creation of new job opportunities in rural areas in Albania and Montenegro. Literature review 9. The study is based on a thorough review of selected most recent publications and studies within the context of the EU Rural Development Policy with regard to diversification of rural economies and types of diversification, the definition of rural areas, key endogenous and exogenous factors for the diversification of rural economy, and the definition of criteria for the identification of areas with the needs and potential for diversification. -I-

4 10. The concept of diversification in the EU Rural Development Policy takes into account the structural changes the agro food sector has undergone in the last decades under the pressure of the markets leading to specialisation, rationalisation and increase of size of agricultural businesses, regional concentration, abandoning of farming in disadvantaged regions and out-migration in rural areas. As a consequence farmers have been seeking to enhance their household income from sources other than conventional farming production either through economic diversification not comprising farm work, but directly related to the holding or through other gainful activities for the farmer not related to the holding. 11. The conceptual changes and the role of rural diversification in the EU Rural Development Policy from a pluriactivity perspective of agriculture in the 1990s until 2006, the evolution of a sustainable rural economic fabric in the current programming period and towards its contribution to a balanced territorial development in the Europe 2020 smart growth strategy have impacted the programming level. 12. Until 2006 farm households were the centre of support. In the EAFRD , economic diversification was broadened towards a semi-sectoral approach to include also SMEs and a wider spectrum of investment possibilities as well as by emphasising territorial approaches mainstreaming LEADER. With the aim of a balanced territorial development in the programming period , an efficient coherence of policies and effective complementarity of support programmes at EU and national and regional levels will be more than ever important in order to achieve synergy effects % of the agricultural holdings in EU-27 in 2007 had another gainful activity directly related to the holding, with a proportion slightly higher for commercial holdings than for family farms, whereas 35.2% of farmers were with other gainful activities not related to the agricultural holding. 14. Although economic diversification of farm households is stagnant or decreasing in the EU-15, individual member states reported positive trends in the length (success stories), depth (share of farms with more than one diversified activities), and width (across all groups of farms), especially when linked to regional value added chains and territorial business clusters for the mobilisation of local endogenous capacities, but differences between the countries evidence a clear east-west and north-south divide. 15. Regional employment opportunities are of major economic importance for the income portfolio of farm households in all types of rural areas. 16. Challenges, which many rural SMEs in Western Balkan countries face, also prevail in Albania and Montenegro and can only partly be tackled through the means of IPARD in its current scope and in the absence of effective regional economic development programmes and skills development programmes. 17. The concept of diversification in the EU Rural Development Policy under the EAFRD and IPARD encompasses several types of economic diversification activities under axis 3 targeting farm households and rural micro and small entrepreneurs. 18. With regard to IPARD and looking at the eligibility of diversification activities under axis 3 in comparison to investments under the competitiveness axis 1, main differences need to be addressed in view of identifying feasible measures and potential beneficiaries: a. Micro and small food processing units under axis 3, including farmers for direct marketing, need to fulfil the national relevant minimum requirements but not the EU standards as required under axis 1 with the aim to firstly develop the rural fabric. -II-

5 b. Assistance under axis 3 is not restricted to agricultural and fishery products covered by Annex I of the Treaty as it is under axis 1, but can include all agricultural and fishery products and all processing steps. c. Due to the type of supported rural enterprises under the axis 3 targeting on micro, small-scale, as well as start-up businesses a simplified version of a business plan is sufficient. 19. The diversification of rural economic activities by farm households or other rural micro and small entrepreneurs was categorised into three diversification types : nonagricultural products and services, adding value to agricultural products and unconventional agricultural animal and plant products, whereas the latter is usually practiced on a farm. 20. Commonly identified sub-measures for the diversification and development of the rural economy RDPs of member states and candidate countries under axis 3 of the EAFRD or IPARD were analysed and three groups were classified for the study for which activity examples were provided: unconventional agricultural products, adding value to agriculture products, and non-agricultural products and services. 21. For the definition of rural areas and the concept of rurality in the RDPs of member states and in candidate countries one has to distinguish between the spatial dimension of rurality to define rural versus urban areas for the general purpose of RDPs and the programming dimension of rurality for policy purposes to define appropriate measures under the different priority axes. 22. For the general situation analysis in their RDPs, as well as for statistical and comparative purposes in the EU-27 and in candidate countries, the authorities should use two main context-related horizontal baseline indicators to define rural areas, which should take into account the OECD definition of rural areas. However, the countries are free to adopt modified or own definitions of rural areas given that an explanation is provided in the RDP. Results from an analysis of 37 RDPs for representing all 27 member states show that in only six RDPs the unmodified OECD definition was used. In seven RDPs - a modified version and in 22 RDPs - an alternative definition for rural areas was introduced. 23. In Albania and Montenegro definitions of rural areas for general purposes of the RDPs do not yet exist. Albania is in the process of adopting a formal definition based on a modified OECD definition, whereas Montenegro has not yet decided. In both countries administrative boundaries for settlements are used to differentiate between rural and urban areas. 24. A pure spatial definition of rural versus urban does not fully take into account the diverse situations in rural areas. Yet, appropriate definitions of rural areas for each country or region in combination with a thorough understanding of the concept of diversification in relation to axis 3 alongside with an integrated programming approach across sectors and funding possibilities are the pillars for an effective use of the support possibilities under the EAFRD and IPARD to tackle the policy matters of rurality. 25. An analysis of RDPs of eight member states and the three candidate countries with regard to the spatial dimension defined under the diversification measures 311, 312 and 313 for member states and the measure Diversification and economic development of rural areas for candidate countries was undertaken. -III-

6 26. Results show that old member states benefit from their integrated programming and implementation experiences to formulate and combine criteria according to policy priorities, while taking account of budget allocations and complementarity rules, whereas the candidate countries, but also many new member states, including new German Länder, prefer to use also a spatial definition or even several definitions based on territorial/ administrative boundaries and/ or the number of inhabitants depending on the sub-measure. This may bear the risk that eligible beneficiaries or activities with high potential for economic diversification to boost the rural economy are excluded from the funds. 27. For the purpose of this study, i.e. the definition of criteria for identifying rural areas with high diversification potentials in Albania and Montenegro, an important question is whether an activity is directly linked to the utilisation or valorisation of natural resources (e.g. agricultural land, forest land, mountains, rivers, etc.) or other immovable physical assets. This determines the spatial dimension of diversification activities of being either strongly linked or weakly linked to a territory, where the utilisation of theses natural resources implicates a high theoretical potential for the diversification into economic activities related to these natural resources. These areas were identified using available statistical data processed with a Geographical Information System (GIS). 28. The conceptual understanding of the dimensions of potential categories (theoretical, technical, economic, and feasible potential) as developed in the field of renewable energy was applied, since it is relevant for the other economic activities in order to assess different types of business resources available or required in a regional context. 29. From the literature review push and pull factors as driving forces for rural non-farm economic development were analysed in order to identify relevant endogenous and exogenous factors to rural households facilitating or impeding economic diversification. 30. The identification of spatially-oriented indicators to assess the potential of a rural economy has been done in recent research projects, which stress the importance of a geographic proximity that generated intense competition, but also cooperation among businesses that are interlinked. The stronger the capability of intangible assets is, the better is the productivity and innovation. 31. Impact evaluation of RDP measures with regard to the territorial cohesion is limited and focuses on agriculture and forestry. Too little funds are allocated to measures to stimulate endogenous potential, diversification of rural economies and enhance the quality of life, so that only a territorial approach can make conclusions on preservation or enhancement of rural diversity. Methodology 32. The work approach was based on three pillars: Quantitative analysis of statistical data at national level and where available at district level in Albania (36 districts) and at municipality level in Montenegro (21 municipalities) from the last six years if available. Review of official programming and strategic documents, studies, project reports, and other secondary literature. Stakeholder consultations, which included four expert interviews in both countries, case study interviews with rural micro and small entrepreneurs (farm households -IV-

7 and non-agricultural businesses) and two stakeholder round-table discussions in each country to present and discuss preliminary findings. 33. Due to the gaps in the availability of relevant statistical data in both countries below national level, stakeholder and expert knowledge was an essential part of the methodology. 34. The methodology implemented in this study reflects basic programming steps in the EU Rural Development Policy: Socio-economic situation analysis, SWOT analysis based on the Resources (R) Business Environment (E) - Competencies (C) Business Index (REC BI) for the endogenous factors (strengths and weaknesses) and the PESTEL model for a structured analysis of exogenous factors (opportunities and threats). 35. The developed REC BI provides a structured tool for the analysis of criteria, which influence the micro-environment and determine a successful business development. Twelve criteria are grouped under the three dimensions. The assessment of the criteria is based on three factors/ preconditions for each criterion, whereas their operationalisation was based on relevant indicators for the identification of areas with high potentials for specific activities. Each relevant and assessed factor/precondition contributed with the same weight to the criterion. 36. The visualization of the REC BI supported the identification of needs and potential, while implicating the necessary interventions with measures in order to fully utilise the theoretical potential. 37. If relevant data for a criterion was available, the data was processed with a GIS indicating areas with a high potential for diversification. The thematic maps of a GIS allow the identification of areas with a high theoretical potential for the specific economic activity. 38. The amalgamation of results of endogenous and exogenous factors and their analysis with regard to the needs and potentials for diversification of the rural economy were done by using the SWOT analysis tool for the general situation of SMEs and for specific economic activities in the selected rural areas. Situation analysis 39. The analyses of the socio-economic characteristics and situations in rural areas of Albania and Montenegro focused on exogenous and endogenous factors, which have influence on the diversification of the income of rural households. Trends in the evolution of the main factors were analysed over a period of six years ( ) based on statistical data at national level and, where available, at district level in Albania and municipality level in Montenegro. Qualitative results of the situation analysis, the expert interviews and the round-table discussions were incorporated in the concluding SWOT analysis. National programmes for diversification of rural economy 40. For both countries, programmes targeting the agriculture and rural development sector, SME sector, and tourism were analysed. However, this task was constrained by the lack of data. 41. For Albania, support for rural development under the national scheme of the Ministry of Agriculture, Food and Consumer Protection (MAFCP) is based on a direct support scheme. Measures aiming at diversification activities in 2009 accounted for about 16% of the total budget of EUR 48.4 million. The rural development measures only partly -V-

8 address the identified potentials in the non-farm rural businesses to be developed with the aim to improve income opportunities, reduce unemployment and emigration, and which include also rural tourism and territorial rural development approaches. In the draft RDP under IPARD the implementation of diversification measures under Axis 3 is not planned, but the support for the modernisation of agriculture and the development of processing and marketing of agricultural products under Axis 1 to support the competitiveness and alignment with Community standards in the agri-food sector. 42. In addition, the commitments of bilateral and multilateral donors to a variety of rural development projects amounted to EUR 61 million or 2% of the total budget. 43. In the Albanian strategy and action plan for tourism development nature tourism, history and archaeology tourism as well as culture tourism products are seen as potential rural tourism products targeting more exclusive-oriented eco-tourists, which expects high quality standards and services. 44. Albania has made slight progress in the field of SME development, but the achievements are still below regional average. Main challenges for the improvement of national competitiveness remain in the fields such as investment climate, law enforcement, corporate governance, management skills and business enabling infrastructure. 46. In the draft IPARD Programme, five priority diversification measures under axis 3 are planned (rural tourism; support of services in villages; construction or modernisation of selling points of agricultural products; traditional handicrafts; and processing, packaging and storage of local products). 45. Under the National Programme for Food Production and Rural Development in Montenegro, four economic diversification measures are implemented (diversification of economic activities in rural areas; village renewal and infrastructure development; bee- keeping; processing on family farms), which have a low share of the overall budget. 47. In the Montenegrin tourism sector, all-year type tourism products and specific segments of foreign and domestic tourism shall be targeted through the development of eight tourism clusters throughout the country having all strategic objectives by either developing or linking to rural tourism products. 48. In Montenegro, considerable success has been achieved in the most flourishing SME sub-sectors (increase in the number of new SMEs by 32.17%; in employment by 23.48%; in export by 31%, and in the share of GDP by 20% without data from 2010) mainly through improved institutional framework for SME development. But there is still a need for further improvement of the business environment and coordination between supporting institutions. Identification of economic activities and rural areas with a high potential for diversification 49. In order to assess the situation of small enterprises in rural areas in general a SWOT analysis was firstly compiled. For the assessment of the feasibility of selected economic activities for the diversification of rural economy, the REC BI visualised strengths and weaknesses and was complemented by a descriptive SWOT analysis for each activity. The GIS maps illustrate the regional disparities and areas with a high potential for economic development, if relevant statistical data was available on the geographical scale. The findings were complemented by the stakeholder interviews. -VI-

9 50. Results for Albania: The rural areas with the highest needs (poverty rate) are found in the north eastern part of the country - the districts of Has, Kukes, Diber, Bulqize and Librazdh and two districts at the coast Lezhe and Kurbin. As most potential diversification activities with a strong spatial link were identified: small-scale processing and marketing of milk (five areas with a high potential in Shkoder and Kukes, two in the south near Korce and Vlore and south of Tirana), olive oil (south-western districts of Vlore, Berat and Fier, and Tirana) and wine (south-west districts of Fier and Berat), rural tourism (northern and southern districts, as well as south of Tirana), and production of renewable energy from forest residues (northern districts and mountain areas). As an additional type of diversification activity but without strong spatial link the collection and cultivation of medicinal and aromatic plants were identified. 51. Results for Montenegro: Rural areas with the highest needs were identified with the Regional Economic Index. These are the municipalities of Plav in the very south-east of Montenegro, followed by Andrijevica, Rozaje, Savnik and Pluzine. However, only Podgorica and the northern part of the coastal areas with Herzeg Novi, Kotor, Tivat and Budva have indices above average. As most potential diversification activities with a strong spatial link were identified: small-scale processing and marketing of milk (municipality of Niksic and in mountain areas), small-scale processing and marketing of vegetables (municipalities Niksic, Podgorica, Kolasin and Bijelo Polje), rural tourism (coastal and southern municipalities), and production of renewable energy from forest residues (northern and central mountain municipalities). 52. As general conclusion it can be stated that there are many disadvantages, which rural firms face in comparison with their urban-based counterparts. Small size of the local markets associated with the lower population densities, per capita and household incomes are the general limiting factors. In parallel, the rural labour markets are of a small and narrow occupational composition. The lack of access to skilled labour, to qualified extension and business services, as well as to credit facilities are major constraints for the sustainable development of rural enterprises. The average size of a micro firm combined with the sparse distribution, remoteness as well as attitudinal barriers on the part of business owners, and low institutional governance in the public sector make the delivery of business services to rural firms imperative, but at the same time more difficult and context-dependent. Recommendations 53. The results of this study have shown that the identification of needs, potentials and feasible measures to facilitate specific diversification activities to foster the rural economy based on a structured assessment of endogenous (REC BI) and exogenous (PESTEL model) factors is possible. A structured spatial analysis related to the specific economic activities based on available statistical data in combination with the expert and stakeholder knowledge can provide sufficient information for the identification of areas with a high potential for the diversification of the rural economy. -VII-

10 54. The applied methodology based on the REC BI and PESTEL model provides the basis for a structured approach not only during the programming process of rural development measures to identify territorial economic diversification potentials, but also for the purpose of the evaluation at result and impact levels for a region. In addition, evaluation results can be compared among different countries, and linked to other sub-sectors since the criteria remain the same, and only the indicators are to be adapted according to the regional specificities. 55. The assessment of the feasibility of the activities indicates a substantial necessity for technical assistance, consultancy and training on market oriented business competences, skills development as well as the strengthening of supportive structures and organisations at all levels. Therefore the combination of investment measures with capacity building measures and strengthening institutional governance would be beneficial. These measures need to be accompanied by accessible credit lines for investments, as well as the enforcement of financial mechanisms, such as credit guarantee schemes in order to compensate the lack of collateral as well as to assimilate micro and small enterprises to use upcoming EU funds, such as IPARD. 56. The key objective of an area-based approach for the rural economic diversification should be to contribute to a more effective allocation of public funds through an integrated programming approach to achieve effective coherence between interlinked policies (Rural Development, SME support, regional development, or vocational training) and thus, an integrated programming approach and complementarity of the different support measures is necessary. Bilateral and multilateral support programmes and subsidised credit schemes for the support of farmers, micro and small enterprises are necessary in order to fully utilise and valorise the potential of the activity in the respective rural areas. Especially the measures targeting the endogenous factors most relevant for the feasibility of economic activities have an immediate effect. Thereby the streamlining and adequacy of policy measures, which target exogenous factors to increase the institutional capacities with respect to the legal, technical or administrative frame as well as skills development, are preconditions determining the effectiveness and the efficiency of supporting measures for the economic diversification in rural areas. 57. Territorial development strategies, such as cluster development promoting competitiveness to meet the challenges of the regional market, the common European market as well as the global economy should therefore target at increasing competitiveness, advocate a more pro-active and collaborative approach and include the micro (entrepreneurs and work organisation) levels in addition to the macro and meso levels, and should target at decreasing system failures of weak connectivity and lack of transformative capacity within and between (local/ regional) innovation systems. 58. The LEADER-approach under the Rural Development Programme based on participatory, integrated and area-based planning, or cluster support strategies for creating smart systems of SME innovation development under the Regional Development Programmes are examples of territory-based development initiatives in the EU for rural entrepreneurs combining investment support schemes with local/regional organisational governance development, networking and capacity building measures. 59. Due to the low urbanisation and the predominantly rural socio-economic character prevailing in both countries, rurality on the programming level needs to be defined by specific types of eligible measures/investments that are economically directly linked with -VIII-

11 the rural areas, the sustainable use of natural resources and the type of beneficiaries, but not by statistical and/or administrative borders. 60. Under the measure Diversification and Development of the Rural Economy of the IPARD programme in Montenegro and the envisaged IPARD-like measures in Albania, priority should be given to the agro food value chain, which should also include directly linked sectors or branches, such as rural tourism, agricultural services or energy production from biomass. Efforts should also be intensified to implement in parallel the territorially based LEADER approach, supporting the level of local self governance. 61. Measure fiches according to IPARD provisions were designed for small-scale processing and marketing of agricultural products and/ or processing and marketing of small quantities, rural tourism, renewable energy production from biomass (e.g. forest residues), as well as for other SME activities for both countries with specific regard to the type of beneficiaries, types of investments, selection of specific eligibility criteria, geographical coverage, financing conditions, and ranking criteria. 62. For the implementation of their IPARD programmes the Ministries of Agriculture and subordinated administration and technical bodies need to be qualified for the implementation of complex, interlinked and to most part new procedures, which require the strengthening their already existing competences, including a more socio-economic qualification towards rural development aspects. 63. With respect to the pilot character of the RDP in both countries, the transaction costs are very high. The measures for the diversification of the rural economy should therefore be designed in the simplest and easiest way in order to motivate beneficiaries, but comply with minimum administrative procedures, and to keep transaction cost as low as possible. Simplification of the application procedures especially under Axis 3 would reduce these transaction costs and reduce barriers for potential beneficiaries. -IX-