EUROPE'S POOREST NATION by every economic measure, Albania has been isolated and underdeveloped for centuries. Economists estimated the gross domestic product per capita at about US$450 in 1990, a figure that placed Albania below Lesotho and above Sri Lanka as the world's thirty-second least developed country. Ironically, Albania possesses significant fossil fuel and mineral deposits, including oil and chromite, as well as a topography and annual rainfall suitable for generating hydroelectric power. Large-scale drainage projects begun after World War II turned marshes into fertile fields in Albania's lowlands, and the country's Mediterranean climate offers ideal conditions for cultivating fruits and vegetables. But Europe's highest birth rate and a mismanaged postwar industrial expansion, which failed to create enough productive jobs to absorb the flood of people entering the work force, left Albania with an abundance of literate but unemployed and unskilled workers. At the start of the 1990s, thousands of desperate Albanians fled abroad seeking jobs because of the wretched standard of living and limited economic opportunity at home.

Albania's communist economic system, with its strict central controls, egalitarian incentive system, and bias toward heavy industry, collapsed in the early 1990s, idling almost all of the country's production lines. In early 1992, the government was piecing together a new, market-based economic mechanism. The People's Assembly passed many new laws on privatization of state property and protection of free enterprise, private property, and foreign investments, and lawyers drafted new civil and commercial codes, banking and tax laws, and labor, antitrust, and social security regulations. The structure of Albania's productive capacity was clearly going to change radically as the government broke up collective farms and privatized state lands and enterprises and as managers adjusted to free-market conditions. Nevertheless, agriculture was certain to remain the economy's cornerstone for the foreseeable future. The farm sector produced over 30 percent of Albania's net material product (see Glossary) and employed over 50 percent of the work force before the centrally planned economy buckled. However, farm output failed to keep pace with the demands of Albania's burgeoning population, and the entire sociopolitical system began to crumble when the farm sector could no longer supply adequate food to urban areas or raw materials to factories.

The orthodox Stalinists of the ruling Albanian Party of Labor (APL) worshiped heavy industry and for decades offered it investment monies, which usually flowed from foreign coffers. That investment brought expansion and diversification to the country's entire industrial sector, but production was constrained by the mismanagement and inefficiency that characterize communist systems. Before the communist economy imploded in 1990, industry accounted for over 40 percent of Albania's net material product and employed about 25 percent of the nation's work force. The industrial sector's most important branches were petroleum production, electric-power generation, mining, engineering, and light industry. The transportation and trade sectors had registered improvements in absolute terms over prewar levels of development, but both lagged behind European standards.

Starting in the 1920s, Italy, Yugoslavia, the Soviet Union, and China in turn supported the Albanian economy before war or political spats prompted Tiranė to break off each relationship. Enver Hoxha, first secretary of the APL, launched a policy of strict autarky when the country's last foreign patron, China, stopped aid infusions in 1978. Rapid population growth and lagging farm and industrial output, however, soon brought hunger and economic chaos. Tiranė delayed significant economic reform until popular discontent threatened to explode into revolution. By 1991, a chain reaction of supply shortfalls had paralyzed the entire economy, and Albania cried out for humanitarian aid, this time from the West. Albania's opening to the world had a major impact on the freedom of enterprises and people to participate in foreign trade, but the country's escalating foreign debt and currency problems rendered it incapable of importing badly needed materials and equipment.

The totality of the collapse of Albania's communist economic system made introducing free-market reforms more difficult, in the view of some Western authorities, than in any other East European country. So critical was the need for heating fuel in the winter of 1991-92 that people stripped wood from park benches, and the nurses at an orphanage in Shkodėr locked up branches and twigs to keep them from thieves. Mobs stormed warehouses, factories, bakeries, flour mills, shops, and hotels, taking everything they could carry and destroying much of what they could not. Italian soldiers escorting food convoys found that they had to guard their own garbage trucks after armed gangs descended on the vehicles to pick through their contents. Thieves stole medicine, medical equipment, and even ambulances from hospitals. Fires in storehouses and factories burned out of control because fire fighters had no equipment in good repair. Opposition political leaders blamed the communist APL for instigating unrest in hopes of demonstrating to the impressionable that the isolation and apparent order of the old regime were better than the present chaos and the ways of the wider world.

Despite Albania's economic dysfunction and backwardness, Western economists predicted that the country stood a good chance of prospering if its government could restore order and take advantage of the country's fertile lands, relatively rich mineral resources, favorable location, potential for tourism, and generally literate work force.

Albania's communist regime published few economic statistics, and Western scholars found that the sparse data made available were often neither accurate nor consistent. No statistical yearbook was issued for fourteen years after 1974, and data on performance of the oil industry were treated as a state secret after production began falling in the 1970s. Observers specializing in the Albanian economy have posited that the communist government released data only when performance results were positive and that data on aggregate economic growth were not published when they were close to or below the population growth rate.

For more recent information about the economy, see Facts about Albania.

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Source: U.S. Library of Congress