Lockdown Economy Albania

The COVID-19 pandemic has had enormous effects on every aspect of life. It is an example of a black swan event; it came unexpectedly and had a tragic and chaotic impact. Unlike any other crisis, peoples’ lives were directly affected. That of course, is followed by a decline in every field, from economic to social and lifestyle. There was no difference; small or large, south or north, all the countries were affected. Some might have handled it slightly better, some might not have had the means to properly know how to react to the situation. 

Albania is one of those small countries which was deeply economically affected and did not know how to correctly respond to the pandemic situation. It is important to mention that two years ago, Albania experienced a devastating earthquake, which had already left many families homeless and many businesses destroyed and were still recovering. Even unaffected Micro, Small, and Medium Enterprises (MSMEs) had been declining since 2018, because of new laws placed on small business owners. 

The lockdown period struck hard on micro-businesses, worsening their already unfavorable situation. During the lockdown many of the businesses could not survive, others barely keeping their businesses open and others having a marked profit decrease. Since micro-businesses are the backbone of Albanian economics, the damage to them resulted in a complete economic crisis.

The purpose of this qualitative research is to analyze the effects of the COVID-19 pandemic during and post lockdown in Albania, and look at some recommendations that small business owners gave themselves. This research may contribute towards a clearer image of the situation. By listening to the small business owners’ strategies and needs - the responsible institutions may take action.

The methodology involved an interview research strategy, conducting interviews with a set of uniform questions formulated by the Think Tank AlterContacts. The timeframe of the conducted interviews was between January and February 2021. 

What are the challenges that MSMEs in Albania faced during the pandemic lockdown?

As in every other country, Albanian businesses surpassed the pandemic shock, especially during the lockdown period. On March 9th, 2020, the announcement for a two-week lockdown was released. At that time, there were no registered cases of infection in Albania, though in nearby Italy cases were rising steeply. It was just a matter of days for the virus to spread to Albania since comings and goings between the two countries were frequent. In this alarming situation, the government still allowed the movement from or to Italy. People were not taking the COVID-19 virus seriously, thinking that it would "just be two weeks". No one could have imagined a three-month quarantine scenario.

Business owners had to stop operating and employees had to stop working. Since the announcement of a long quarantine period, things worsened. There were bills to pay, products missing, disappearing suppliers, services, and stopped production. The fear of going outside, even for essentials such as food and medicine, grew. People were afraid to go shopping or to work. Many of the businesses that were still open, remained empty.

The small business owners interviewed in the Lockdown Economy Albania reported that some of them had to slow down their operations, and some had to physically shut down (mostly restaurants and shops). Some of the business owners used the lockdown as the time to reflect and did not take immediate action. Others responded immediately. 

Each business owner interviewed mentioned the complexity of managerial duties. Entrepreneurs were shocked, unprepared, and unclear on what strategy to choose. Most owners of micro and small enterprises in Albania do not have a business degree or trained managerial skills, which made it even harder to decide what action was the right one. 

Some other crucial challenges that interviewed business owners faced were paying taxes, rent, wages, employees’ insurances, and other expenses such as water and electricity. With no incomes flowing in, it was extremely challenging to pay for them. The majority of the interviewed owners had to use their savings, without knowing how long the lockdown would last. 

How did the pandemic and lockdown affect the MSMEs in Albania?

As with most other nations, MSMEs in Albania are the engine that drives the economy. They are the backbone of the Albanian economy, constituting 99.8% of active enterprises and 80.3% of national employment. 77.2% of turnover comes from MSMEs. 80.3% of the working force depends on them, which not only shows their importance, but also the low share of large corporations. Micro-enterprises are especially important in rural and semi-urban areas with limited infrastructure. There, MSMEs are the only way to survive. 

Small and micro businesses have been facing numerous difficulties during the past three years. The new taxation policy for MSMEs triggered informal practices and incentivized the "grey market". Small businesses shrank with the new VAT scheme. The income of thousands of Albanian families was put at risk. During the same fiscal year, the profit tax for large enterprises was decreased by 50%. The new fiscal regulations only benefited large corporations. Micro-businesses could not survive that for long and many of them are shutting down. 

In 2019, a big earthquake hit the center of Albania, where most of the businesses were located. Many people lost their homes, business owners suffered damage to their locations. With the COVID-19 pandemic in 2020, the MSMEs in Albania suffer another economical and psychical shock. Things got worse, people were demoralized and hopeless about their future.   

The causes of intense economic suffering for MSMEs everywhere are a shortage of materials; the reduction in both global and local demand for products and services; problems in paying off loans and interest; cancellation of orders; and a serious cash deficit. Many entrepreneurs were obliged to close their businesses during the lockdown. Some found alternatives to continue their activities online. A few of the interviewed business owners started thinking of finding a second job since the incomes were not enough to pay even the daily expenses. 

What did the entrepreneurs do to stimulate their businesses?

Some of the interviewed business owners took immediate action and found alternative opportunities. Others just closed their business during the lockdown and spent time brainstorming on how to deal with the crisis in the upcoming weeks.

MSMEs such as restaurants began delivering their food in order to continue operating. However, the majority of people were eating homemade food, even at work, due to the strong fear of being infected and lack of money to spend on restaurants. 

The COVID-19 precautions, such as wearing masks and gloves, social distancing, the frequent usage of rubbing alcohol, were important to follow since that made people feel more secure. After the lockdown, many of the restaurants and coffee shops continued having sanitizing expenses. People preferred to drink their coffee or tea from a single-use plastic cup. The interviewed businesses kept positive relations with their clients and tried to lower the prices instead of benefiting from the crisis. 

All interviewees said that they were able to find a way out of the situation via social media marketing. Below are a few examples that show the importance of social media marketing, mentioned by them:

“…what we actually did on the other side, was trying to incentivize the customers to move to online [shopping]” 

“ …we had to reduce the budget of traditional campaigns while targeting social media marketing because of its transparent pricing and significant gains even in difficult times.”

“…this period made us get used to and engage in selling products online”

“Also, social media played an important role in advertising our business with the latest information. This really helped us to create a strong connection with our clients.”

All of the businesses found their simplest way out through promoting their enterpise via social platforms. Shops that were not operating online before started to look at it as the future of buying, others that could not operate online were just keeping their customers engaged through social media.

What are the three things that MSMEs need help with?

The first to react and take action during the COVID-19 crisis were the business owners themselves. But the MSMEs in Albania were already devastated by the recent earthquake and the damages it brought.

According to the Lockdown Economy interviews from Albania, the key things the entrepreneurs need help with are reduction of taxes; support in paying employees’ wages and insurances. Additionally, since technology is the future, they suggest that the government should provide subsidies to MSMEs to train their owners and employees on how to integrate technology into their business.

How are the businesses going now?

The interviews were conducted six months after the first lockdown, and at the time all interviewed businesses were doing better. There are fewer restrictions now, and small businesses have a chance to operate more freely. The situation is not yet the same as before the COVID-19 pandemic, but it is better than a few months before. According to the interviewees, the arrival of the vaccine has been a game-changer. People feel more secure. They are optimistic about the future, expecting things to get better as vaccinations continue.

Entrepreneurs started to make some investments in their businesses, because now that things have improved they are looking not only at surviving but also being competitive.

Technology shift 

Based on the Lockdown Economy interviews from Albania, we can see that one key strategy was the use of technology, especially social media marketing. All interviewed entrepreneurs shifted their focus to social media platforms, setting money aside to invest in maintaining their online presence. Before the COVID-19 pandemic, there were many MSMEs that did not consider it necessary to have a social media account or even a web page. During the lockdown, they opened Facebook and Instagram accounts to promote their businesses. 

Here are a few reasons why MSMEs shifted to social media platforms during the lockdown:

1. With the commencement of the lockdown, there was a category of businesses that could not operate at all. The fastest solution to it was keeping clients engaged and updated through social media platforms such as Instagram, Facebook, TikTok, and others.

2. Another category of businesses was continued doing their operations online, via social media platforms used for online shopping and restaurant delivery services. Education centers continued their services online via Zoom, Google meetings, and Microsoft Teams. Educational institutions are considering a hybrid method of both online and on-campus teaching. 

3. The third category was the businesses that were positively affected by the pandemic. One of the interviewed companies was a payment-service provider. The owner mentioned that the lockdown and post lockdown periods were the busiest for them because online payments increased dramatically: “Social media was a key trigger to invite people to try online services, register with us, and have a tolerance level that we could actually experience the application and the payments.”

Big companies have clearly given incentives to customers to shift the payment activity from cash to online. Another interesting finding from the interviews was about the attitude Albanians have towards electronic money: “If we take on a balance of online payments versus cash payments, unfortunately, cash is still king in Albania and continues to rule. People are very loyal to cash.”  

The reason why small businesses prefer not to shift their payment systems online is that it allows tracking of every single transaction. As mentioned above, one of the challenges of Albanian MSMEs was the further increase of the informal economy caused by the 2018 taxation policy. This does not make them want to be transparent. 

CONCLUSION

The COVID-19 pandemic severely affected MSMEs in Albania and further degraded its economy. MSMEs are the backbone of Albanian’s economy. The pre-pandemic situation of the MSMEs was already aggravated. With the coming of the pandemic and lockdowns, things got worse. 

Albanian MSMEs had different reactions to this "black swan" event. The most common strategies were ending hourly contracts with employees and consultants, layoffs and government-funded work allowance, negotiating contracts and terms. 

Integration of technology into businesses operations was the strategy most of them followed during the lockdown, which saved these businesses from complete closure. The pandemic forced small and micro-businesses to have a closer look at social media because during the lockdown customers were locked at home with access only to online content. Operations that have always been done physically could also be done by online methods. That gave entrepreneurs new insights and innovative ideas on how to move further. The pandemic became an opportunity for MSMEs to understand the importance of social media and technology integration into their businesses. 

Written by Rexhina Sufaj who holds a Bachelor Degree in Business Informatics from Epoka University with a major in business and technology.

Supervised by PhD Alba Kruja, Epoka University

Edited by Konstantinos Valtetsiotis

Editor-in-Chief - Julia Skupchenko

REFERENCES

Think Tank Alter Contacts, Lockdown Economy Albania: https://youtube.com/playlist?list=PLtxviGuiJz5LaWhDhe62-IXxldbquLxIq 

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