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Private and Financial Sector Development

A primary World Bank Country Assistance Strategy (CAS) objective is to promote sustainable sector growth, reflecting on the National Strategy for Socio-Economic Development's (NSSED) theory, which treats the private sector as the driving force behind growth. Relative political stability and commitment to reforms since 1998 have led to robust growth in private sector activity. However, to sustain private sector growth leading to poverty reduction, it is necessary to improve the business environment and complete the structural reform agenda (especially enterprise and financial sector privatization). A Foreign Investment Advisory Sector (FIAS) study identified poor governance and weak institutions as the overarching problem deterring foreign direct investments (FDI).

In an attempt to overcome such obstacles, the World Bank's CAS is geared towards the creation of more accountable and transparent institutions. The Bank Group is supporting the government's efforts to improve the institutional and legal framework by assessing administrative barriers to investment (FIAS) and subsequently streamlining administrative procedures (PRSC II, 2003); improving the legal framework for bankruptcy, resolution of debt, and commercial disputes through the ongoing Financial Sector Adjustment Credit, 2002 and PRSC I and II, 2002-2003, respectively; and establishing with the Multilateral Investment Guarantee Agency (MIGA) an investment promotion agency.

Microenterprises and small enterprises dominate Albania's economy. A number of donor initiatives, including Southeast Europe Enterprise Development (SEED) are specifically working to assist micro, small, and medium enterprises. The need for a business climate extends to rural areas, where many of Albania's poor live, highlighting the need for a sound rural strategy. Improving infrastructure, especially in rural areas is also essential for enabling business environment.

Although the necessity for growth and reform is evident in the enterprise sector, tangible progress continues in the financial sector reforms. Since 1997, the government has liquidated the insolvent state-owned Rural Commercial Bank, privatized the National Commercial Bank to an investor consortium that included the IFC and EBRD, and put the Savings Bank - the last remaining state-owned and Albania's largest - under a governance contract in preparation for its privatization, which is well advanced at this point. Close IDA-IFC cooperation has been instrumental in helping Albania move forward with financial sector privatization. The IFC is helping the government market the Savings Bank while planning to invest in it. The ongoing Financial Sector Institution Building Technical Assistance Project and the proposed Financial Sector Adjustment Credit (2002), which will be presented to the Board with the CAS, will also support the government in privatizing the Savings Bank as well as INSIG. Meanwhile, the government of Albania, IFC and EBRD are in the process of negotiations for acquiring up to 40 percent in the share capital of INSIG. Respective agreements for the final transfer of the shares will mark the first stage of pre-privatization of INSIG.

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