This article has been written for Albanian Free Press newspaper and www.afp.al
By EDUARD ZALOSHNJA
Tirana Stock Exchange has been established two decades ago, but it doesn’t operate as a real stock exchange. No companies have listed their shares so far in it. And without a real stock exchange, we cannot talk about stock companies, which indicate the existence of social capital.
Why has the stock exchange in Albania never been successful?
At the core of capitalist production is the combination of financial capital with human and natural resources. In many countries of the world, the latter two are not an obstacle for economic development. But, the lack of the financial capital, which in developed countries is activated through the stock exchange, is often a serious obstacle, because the individual or family capital accumulation has its limits. Meanwhile, by securing financial capital through the stock exchange enables companies to invest in order to expand more than they would be able to through individual or family financial capital.
Albania is one of the countries which have faced many obstacles as a result of the lack of a functioning stock exchange. There are three factors which have caused this problem to the Albanian economy: 1-lack of social capital; -the Ponzi schemes of the ‘90s and double financial statements. Let us analyze them.
In today’s Albania, the level of social capital is among the lowest in the world. At first glance, it looks like a natural response against extreme collectivization that the communist regime imposed. But, if we look into Albania’s past, we will see that the spirit of community and cooperation was not that strong even before communists came into power. This could only be noticed in several villages which had achieved a relative social equality (especially in the maintenance of common pasture) or the traditional neighbourhoods in urban areas (when it came to street cleaning).
In the current conditions, as a result of the lack of a tradition of cooperation between the members of Albanian society, it’s hard to create a large company, where thousands or tens of thousands shareholders will be the joint owners of this company. In the best scenario, Albanians could join their capital with family members, cousins or close friends and the possibility of the growth of companies created this way is limited by the inability to accumulate large amounts of capital and the inability of the predecessors of these founders to continue their family business.
The Ponzi schemes of the ‘90s
The small amount of social capital in Albania could be partially explained by the current absence of large stock companies, but not entirely, because several large companies were set up in the middle of the ‘90s and they operated almost like stock companied, but, instead of selling their shares in the stock exchange, they collected deposits directly from the public. But how was this possible? What Albania was lacking in social capital, was complemented by the government with the implied support given to those companies. And when they went bust, the government went bust too. But in the long-term, this also damaged the confidence of the Albanian people on the future of large domestic stock companies.
Double financial statements
Another important factor which explains the absence of large Albanian stock companies is the widespread practice of double financial statements. In the minds of simple Albanians, there’s a perception that there is no domestic business which reports its real profits. Under these circumstances, how can we expect them to rush to the stock exchange and purchase the shares of an Albanian company? Based on their judgement, an Albanian company may report a 10 euro earning per share (which is distributed to shareholders), while the real earning per share may be 50 euros (which goes in the pockets of the company’s founders).
How can these problems be overcome?
Different companies have addressed the lack of social capital and the lack of trust of people beyond family or friendly links, in two ways: through the state’s intervention and/or by attracting foreign capitals. The Chinese model requires foreign investors to be convinced that the country has achieved political and legal stability, in order for their investments not to be in danger. They must also be convinced about the fact that Albanian officials will do everything to improve infrastructure and not fill their pockets with funds allocated for the development of infrastructure. Once foreign investors are convinced on these two things, then we will see more capital arriving in Albania, similar to countries of Southeast Asia or Eastern Europe. But how long should we wait until we see Albanian large stock companies? Let us wait and see…
Note: The views expressed in this article are the author’s own and do not necessarily reflect Albanian Free Press’ editorial policy