Potential for diversification of the rural sectors in …ec.europa.eu/agriculture/sites/agriculture/files/...Potential for diversification of the rural sectors in Albania and Montenegro

Final deliverable

26 August 2011

“POTENTIAL FOR DIVERSIFICATION OF THE RURAL SECTORS IN ALBANIA AND MONTENEGRO”

TENDER N° AGRI-2010-EVAL-01

Naccon GbR

Rutenweg 6

72072 Tübingen

Germany

Authors: Thomas Wehinger, Birgit Schäfer in collaboration with Milan Markovic, Ratko Batakovic, Ilir Mehmeti, Edvin Zhllima, Ivanka Simonovic, Horatiu Popa

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

Potential for diversification of the rural sectors in Albania and Montenegro NACCON

Table of content

Executive Summary I

1 Introduction 1

1

2.1.1 Diversification concept in the EU Rural Development Policy 2

for diversification and rural development the RDPs of

tenegro 11

tating

18

) for the identification of areas with

3 and situation of rural areas in Albania and Montenegro 27

3.1.1

mes for diversification of rural economy

4.1.1 Albania - Agriculture and rural development sector 54 .2

nd rural development sector sector

activities and rural areas with a high potential for diversification of the rural economy 60

5.1 Albania - Areas with highest need for economic development 63

5.2 Albania - Areas with a high potential for diversification 64

1. Background 1

1.2 Objectives 1

2 Literature review and methodology 2

2.1 Literature review 2

2.1.2 Support measures 4 2.1.3 Definition of rural areas and the concept of “rurality” in

member states, candidate countries and in Albania and Mon 7 2.1.4 Spatial dimension of groups of diversification activities

Key endogenous and exogenous factors to rural households for facili2.1.5and impeding economic diversification 13

2.1.6 Spatial dimension of criteria and indicators influencing the development of rural economy 16

2.1.7 Implications on the methodology applied for the study

2.2 Methodology 19 2.2.1 Outline of the tasks and methodology 192.2.2 Methodology of the SWOT analysis 21 2.2.3 Geographical Information System (GIS

a high potential for diversification 25

Socio-economic characteristics

3.1 Albania 27 Situation analysis 27

3.2 Montenegro 39 3.2.1 Situation analysis 39

4 National program 54

4.1 Albania – Tourism sector 55 4.1.3 Albania – SME sector 55 4.1.4 Montenegro - Agriculture a 57 4.1.5 Montenegro - Tourism 57 4.1.6 Montenegro – SME sector 58

5 Identification of economic

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5.2 Albania - Areas with a high potential for the development of enterprises regardless of the specific activity 64

.1 small

5.2.2 SWOT Analysis for the diversification of rural economy in Albania 64 cessing and

of wine

76

5.2.8 of diversification of the rural economy

ing

91

6.1

6.1.1 Albania - Needs and potentials for diversification 92 .2 96

6.2 easures for the 99

6.2.1 aches and cluster development for rural areas with high

res to support the 101

6.3

5.2.3 Albania - Areas with a high potential for small-scale promarketing of dairy products 68

5.2.4 Albania - Areas with a high potential for small scale processing and marketing of olive oil 70

5.2.5 Albania - Areas with a high potential for processing and marketing 72 745.2.6 Albania - Areas with a high potential for rural tourism

5.2.7 Albania - Areas with a high potential for renewable energy from forest residues Albania - Other types 78

5.3 Montenegro- Areas with the highest need for economic development 79

5.4 Montenegro - Areas with a high potential for diversification of the rural economy 80

ent of small 5.4.1 Montenegro - Areas with a high potential for the developmenterprises regardless of the specific activity 80

5.4.2 SWOT Analysis for the diversification of rural economy in Montenegro 81 5.4.3 Montenegro - Areas with a high potential for small-scale milk process

and marketing 83 5.4.4 Montenegro - Areas with a high potential for processing and marketing of

vegetables 85 5.4.5 Montenegro - Areas with a high potential in rural tourism 87 5.4.6 Montenegro - Areas with a high potential for renewable energy from forest

residues 89 5.4.7 Montenegro - Other types of diversification of the rural economy

easures to 6 Recommendations on needs and feasibility of using m92 facilitate the diversification of rural areas

Needs and measures for improving the potential for diversification of the rural economy 92

6.1 Montenegro - Needs and potentials for diversification

Recommendations for the design of support mdiversification of the rural economy in Albania and Montenegro Territorial appropotential 99

6.2.2 Recommendations for the design of IPARD measudiversification in rural areas with high potential

General conclusions and outlook 108

7 References 109

8 Annex Error! Bookmark not defined.

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List of tables

Ta Overview ivities conducted by ble 2-1: on the spatial dimension of economic actinterviewed entrepreneurs in Albania and Montenegro 13

Table 2-2: “Push” and “pull” factors for rural non-farm economic development 14

Table 2-3: Influencing factors of the potential for diversification of rural households 15

Table 2-4: Indicators for the typology of rural regions 17

Table 2-5: Qualitative assessment of the feasible potential for specific economic activities 23

Table 2-6: Calculation of the value of each criterion 24

Table 3-1: Main macro-economic indicators of Albania (2003 - 2008) 30

Table 3-2: Active enterprises by size and start-ups by counties in Albania (2009) 31

Table 3-3: Poverty headcount ratio in rural and urban areas (in %, 2002 / 2008) 32

Table 3-4: Share of agriculture in the economy (2003 – 2008) 35

Table 3-5: Mechanisation level of farms (2007 / 2008) 37

Table 3-6: Main macroeconomic indicators of Montenegro (2003 - 2009) 42

Table 3-7: Share of agriculture in the economy (2003 - 2009) 48

Table 3-8: Distribution and structure of family farms (General census 2003) 50

Table 5-1: Database for the identification of areas with a high potential for diversification with a GIS in Albania 61

Table 5-2: Database for the identification of areas with a high potential for diversification with GIS in Montenegro 62

Table 5-3: SWOT Analysis on the socio-economic situation in rural areas of Albania with regard to economic diversification 65

Table 5-4: Estimated amounts of MAPs exported from Albania in 2001 78

Table 5-5: SWOT Analysis on the socio-economic situation in rural areas of Montenegro with regard to economic diversification 81

Table 6-1: Needs, potentials and feasible measures to facilitate diversification of rural economy in Albania 95

Table 6-2: Needs, potentials and measures to facilitate diversification of rural economy in Montenegro 98

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List of figures

ible potential of economic 22

Figure 2-5:

rs in the Albanian economy

main crops in 2008

46

Figure 3-9: oreign tourists in Montenegro (2003 - 46

Figure 3-10:

nes

64

Figure 5-2: in Montenegro - Results of the entrepreneur 80

Figure 6-1: I charts in Albania

igure 6-2: Albania - Overview of the assessment of the REC BI for selected diversification activities with high potential 94

Figure 6-3: Overview of the REC BI charts in Montenegro 96

Figure 6-4: Montenegro - Overview of the assessment of the REC BI for selected diversification activities with high potential 97

Figure 2-1: Diversification of rural household income and diversification of economic activities 6

Figure 2-2: Theoretical, technical, economic and feasible potential 13

Figure 2-3: Outline of tasks and the methodology 20

Figure 2-4: Structure for the assessment of the feasactivities

Example for the REC BI 24

Figure 3-1: Share of added value of different secto(2003 - 2008) 31

Figure 3-2: Contribution of single income source to overall household portfolio (Kukes and Shkoder 2007) 33

Figure 3-3: Number of overnight stays of foreigners and Albanians in hotels (2003 - 2008) 34

Figure 3-4: Agricultural land use – harvested area by 36

Figure 3-5: Value of agricultural production (2000 – 2008) 36

Figure 3-6: Share of credits per sector (in %) 38

Figure 3-7: Evolution of credit interest rates (2007 - 2010) 38

Figure 3-8: Total overnight stays in Montenegro (2003 - 2008)

Overnight stays of domestic and f2008)

Agricultural land use in Montenegro (2008) 48

Figure 3-11: Agricultural production volume indices (2000 - 2008 with 2005 = 100) 49

Figure 3-12: Number of family farm holdings grouped by agricultural zo 51

Figure 3-13: Average number of livestock unit per family holding grouped byagricultural zones 51

Figure 5-1: REC BI for SMEs in Albania – results of the entrepreneur interviews

REC BI for SMEs interviews

Overview of the REC B 93

F

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List of maps:

Map 3-1: P pulation density at district level

pulation density by M 1

o 29

Map 3-2: Po unicipalities (Census 2003) 4

Re

Mu

c

Developme Albania (2002-2009)

Enterprise b 67

Map 5-4: Areas with a high potential for small scale milk processing and marketing

lb le oli

lbma

lb pro

Alb sidues as renewable en

e

o le milk processing n 84

Map 5-11: Mo

ith 90

Map 3-3: gional development index (2009) 44

Map 3-4: nicipalities grouped into natural zones 49

Map 5-1: E onomic disparities in Albania - Poverty (2008) 63

Map 5-2: nt of rural population in 63

Map 5-3: irth rate in Albania (average of 2007 and 2008)

69

Map 5-5: A ania - Areas with a high potential for diversification in the small-scave oil sector 71

Map 5-6: A ania - Areas with a high potential for small scale wine processing and rketing 73

Map 5-7: A ania - Areas with a high potential for tourism development andtected areas 75

Map 5-8: ania - Areas with a high potential for forest reergy 77

Map 5-9: R gional Development Index in Montenegro 79

Map 5-10: M ntenegro - Areas with a high potential for small-scaa d marketing

ntenegro - Areas with a high potential for processing and marketing of vegetables 86

Map 5-12: Montenegro - Areas with a high potential for rural tourism 88

Map 5-13: Montenegro - Areas with a high potential for economic activities wrenewable energy from wood residues

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and Rural Development ral Development

nt

GVA Added Ha Hectare

INSTAT

ICT d Communication Technology

LAU LEADER

MSE mall Enterprises

OECD

iness Index

SEE MEs Small and Medium Enterprises

SWOT Strengths, Weaknesses, Opportunities, Threats TEUR Thousand Euro TORs Terms of Reference UNOPS United Nations Office for Project Services USAID United State Agency for International Development

Acronyms and Abbreviations CAP Common Agricultural Policy DG AGRI Directorate General for Agriculture EAFRD European Agricultural Fund for RuENRD European Network for Rural DevelopmeERDF European Regional Development Fund ESF European Social Fund EU European Union EUROSTAT Statistical Office of the European Community FAO Food and Agriculture Organisation of the United Nations GDP Gross Domestic Product GIS Geographical Information System GAO Gross Agricultural Output

Gross Value

HDI Human Development Index Institute for Statistics of the Government of Albania

IPA Instrument for Pre Accession IPARD Instrument for Pre Accession for Rural Development

Information anLAG Local Action Group

Local Administrative Unit Liaison Entre Actions de Développement de l'Economie Rurale

LEK Albanian Lek (Albanian currency) LFA Less Favoured Area MAFCP Ministry for Agriculture, Food and Consumer Protection

Micro- and SNUTS Nomenclature of Territorial Units for Statistics

Organization for Economic Co-operation and Development RDP Rural Development Plan REC BI Resources, Business Environment – Competencies BusSAA Stabilisation and Association Agreement SAPARD Special accession programme for agriculture and rural development

South Eastern Europe S


Executive Summary

Background

nom characterised by smal o businesses. Only a few e gen n insufficient shift from agriculture

igher-w with limited alternative employment portunitie s also caused by transitional challenges as found in

tu e European Union

) is on- in November 2010, d Albania

h count plementation of the overall IPA framework under uncil Re With regard to IPA Component V – Rural Development ARD) - t draft IPARD Rural Development Programmes as

the

es

e overal rmation on the possibilities for nomic icultural activities in rural areas in Albania and

egrorst r identifying

ions/terr ing economic activities of rural populations cou

second (at NUTS 3 level or below) in wo cou

ost s tential. With the ed in in both ries fa order to

thei

analys th specific objectives were determined by the t of th and at municipality level in enegro

study baseline analysis for the design and improvement of ally-f ed to the IPARD programme and

bly for to facilitate diversification in non-agricultural activities and the creation of new job opportunities in rural areas in Albania and Montenegro.

iterature 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.

1. The eco ic development of rural areas in Albania and Montenegro ismany l highly fragmented, low-productivity farms and micrincom erating opportunities within farming and ato h age and profitable income activities op s are prevailing, what iother Wes

both coern Balkan, albeit the overall situation in Montenegro is more favourable.

2. In ntries the accession process towards membership in thving received candidate status (EU going with Montenegro ha

an being a pre-candidate country.

3. Bot ries are preparing for the imCo gulation 1085/2007. (IP he authorities are setting up well as IPARD operating structure.

Objectiv

4. Th l objective of the study was to gain more infoeco diversification of non-agr

. Montene fi5. Th specific objective was to dev

l for diversifyelop a set of criteria fo

reg itories with a potentiain both ntries.

6. The specific objective was to identify rural areasntries with the highest needs and potential fothe t r diversification and to outline

applied in order to utilise this pothe m uitable measures to be acquir

untformation the feasibility of using individual measures under IPARD

mies was to be assessed inco cilitating diversification in the rural econoenable r design.

7. The es undertaken to accomplish boexten

te availability of data at district level in Albania

Mon .

8. The shall also serve as anation inanced rural development measures relatpossi other international donors and organisations trying

L

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10. The concept of diversification in the EU Rural Development Policy takes into account th o food sector has undergone in the last decades under the pressure of the markets leading to specialisation, rationalisation and increase of size of

businesses, regional concentration, abandoning of farming in disadvantaged

ural

anced territorial development” in the Europe

vestment possibilities as well as by emphasising approaches mainstreaming LEADER. With the aim of a balanced territorial

t in the programming period 2014 - 2020, an efficient coherence of policies

eas 35.2% of farmers were with other gainful activities not related to

r the mobilisation of local endogenous capacities, but differences

elopment programmes.

f diversification in the EU Rural Development Policy under the EAFRD

small food processing units under axis 3, including farmers for direct

e structural changes the agr

agricultural 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 RDevelopment 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 “bal2020 smart growth strategy have impacted the programming level.

12. Until 2006 farm households were the centre of support. In the EAFRD 2007–2013, economic diversification was broadened towards a semi-sectoral approach to include also SMEs and a wider spectrum of interritorial developmenand effective complementarity of support programmes at EU and national and regional levels will be more than ever important in order to achieve synergy effects.

13. 9.9% 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, wherthe 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 fobetween 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 dev

17. The concept oand IPARD 2007 - 2013 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 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.

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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”: non-agricultural 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.

3 representing

DPs - an alternative definition for

t of

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 2007 – 201all 27 member states show that in only six RDPs the unmodified OECD definition was used. In seven RDPs - a modified version and in 22 Rrural 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 concepdiversification 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

for member states and the measure “Dive313 rsification and economic development of rural areas” for candidate countries was undertaken.

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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

been done in recent research projects, which stress the importance of a

e the

holder consultations, which included four expert interviews in both countries,

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.

. For the purpose of this study, i.e. the definition of criteria for ide27 ntifying 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

t“s rongly 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.

. From the literature review29 “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 hasgeographic 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 enhancquality of life, so that only a territorial approach can make conclusions on preservation or enhancement of rural diversity.

thodology Me

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.

• Stakecase study interviews with rural micro and small entrepreneurs (farm households

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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

orted the identification of needs and potential,

tential for diversification. The thematic maps of a GIS allow the identification of areas with a high theoretical potential for the specific economic

d their analysis

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 suppwhile 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 po

activity.

38. The amalgamation of results of endogenous and exogenous factors anwith 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

e main factors were analysed over a period of six yearsof th (2003 – 2008) 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

tin erviews 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

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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

d, but the support for the modernisation of agriculture and the

tion, the commitments of bilateral and multilateral donors to a variety of rural

-oriented eco-tourists, which expects high and services.

activities in rural areas; village renewal and infrastructure development; bee- of the overall budget.

of rural economy, the REC BI visualised strengths and

scale. The findings were complemented by the stakeholder interviews.

which include also rural tourism and territorial rural development approaches. In the draft RDP 2011 – 2013 under IPARD the implementation of diversification measures under Axis 3 is not plannedevelopment 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 addidevelopment 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 exclusivequality standards

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.

45. Under the National Programme for Food Production and Rural Development in Montenegro, four economic diversification measures are implemented (diversification of economic keeping; processing on family farms), which have a low share

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

na d storage of local products).

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 rdive sification

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 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

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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:

orthern and southern

entified.

n part of the coastal areas with Herzeg Novi, Kotor, Tivat and Budva have indices above average.

processing and marketing of milk (municipality of Niksic and in

R

53. ities to foster the rural economy

ssment of endogenous (REC BI) and exogenous (PESTEL

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 (ndistricts, 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 id

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 norther

• As most potential diversification activities with a strong spatial link were identified: small-scalemountain 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

th the lower population densities, per capita and householdmarkets associated wiincomes 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.

ecommendations

The results of this study have shown that the identification of needs, potentials and feasible measures to facilitate specific diversification activbased on a structured assemodel) 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.

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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

56. The key objective of an area-based approach for the rural economic diversification tribute to a more effective allocation of public funds through an

eet the challenges of the regional market, the common European

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.

should be to conintegrated 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 mmarket 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

eD velopment 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

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rvices or energy

ic

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 seproduction 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-economqualification 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.


1 Introduction

1.1 Background

The economic development in the rural areas in both countries - Albania and Montenegro -

mbership in the

1.2 Objectives

of the Study “Potential for diversification of the rural sectors in

criteria for identifying regions/territories with a potential for

l for

dividual measures under IPARD in both

Th t of

is characterised by many small highly fragmented, low-productivity farms and micro businesses. Agricultural production as part of the food supply chain and the input supply still remains an important part of the income for the rural population. The agri-food sector in Albania and Montenegro is facing similar transitional challenges as found in other Western Balkan countries: ongoing privatisation, particularly of agricultural land, underdeveloped and uncertain markets, especially for credit and land, an incomplete and weak legal and institutional environment, limited research, innovation and entrepreneurial capacities and low quality products. This may be an indicator for a few income generating opportunities within farming and an insufficient shift from agriculture to higher-wage and profitable income activities, with most likely limited alternative employment opportunities.

Albania and Montenegro have already submitted their applications for meEuropean Union (EU) (in April 2009 and December 2008, respectively), with Montenegro having received candidate status in November 2010. Both countries are on the way to implement the overall IPA framework under Council Regulation 1085/2007 and with regard to Component V – Rural Development - by setting up draft IPARD Rural Development Programmes as well as operating structures (IPARD Managing Authorities and Paying Agencies). However, the availability of IPARD funds is linked to the candidate status as condition for the official launching of the accreditation procedures. In both countries the implementation of Component 5 of IPA – Rural Development - is more advanced at this stage than of Component 3 and 4 (Human Resources – ESF alike measures and Regional Development – ERDF alike measures).

The overall objectiveAlbania and Montenegro” was to gain more information on the possibilities for economic diversification of non-agricultural activities in rural areas in Albania and Montenegro.

Specific objectives were: • to develop a set of

diversifying economic activities of rural populations in Albania and Montenegro; • to identify rural areas in the two countries with the highest needs and potentia

diversification (at the level of NUTS 3 or below) and to outline the most suitable measures to be applied in order to utilise this potential; and

• to acquire sufficient information in order to: o assess the feasibility of using in

countries, which would facilitate diversification in the rural economies; and o enable the designing of the content of such measures or sub-measures.

e study will also serve as a baseline analysis for the design and improvemennationally-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. Focus groups of this study were the farm households as well as micro and small entrepreneurs in rural areas of both countries.

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2 Literature review and methodology With regard to the objectives of this study the literature review focused on the following aspects, specifically within the context of the EU Rural Development Policy 2007 - 2013:

• Diversification of rural economies and types of diversification • Definition of rural areas

• Key endogenous and exogenous factors for the diversification of rural economy

• Definition of criteria for the identification of areas with the needs and potential for diversification

• Possible measures to utilise the potential.

Based on the literature review, the methodological approach used for the implementation and elaboration of the results of this study is described in the following sections.

2.1 Literature review

2.1.1 Diversification concept in the EU Rural Development Policy

The conceptual basis was formed by the main elements of interpreting the diversification approach in the EU Rural Development Policy. Agriculture in the EU has a strong impact on rural communities, the rural economy and the environment. However, its position within the overall and rural economy dramatically changed in the last decades under the pressure of the markets, which have not only led to specialisation, rationalisation and increase of size of agricultural businesses, but also to problematic regional concentration, abandoning of farming in disadvantaged regions and out-migration in rural areas (OECD 2006; Fritzsch et al. 2010a; EUROSTAT 2010). Rational responses to these changing economic circumstances were for farmers to seek enhancing their household income from sources other than conventional farming production either through economic diversification not comprising farm work, but directly related to the holding1, or through other gainful activities for the farmer not related to the holding (“pluriactivity”) (EC 2010c).

In EU-27 only about one out of every ten (9.9%) of the agricultural holdings reported another gainful activity directly related to the holding, with a proportion slightly higher (13.5%) for commercial holdings than for family holdings (EUROSTAT 2010: 433). Despite the fact that the economic diversification of farm households was still widespread in the EU in 2007, and even stagnant or decreasing in the EU-15 (Fritzsch et al. 2010; Ludvig et al. 2010a). Individual member states could report positive tendencies in the length (success stories), depth (share of farms with more than one diversified activities), and width (across all groups of farms) of economic diversification, especially when linked to territorial business clusters (Seiffert and Fink-Keßler 2007). Differences, however, between the countries are striking as a clear east-west and north-south divide is evident (Eurostat 2010, Ludvig et al. 2010a) suggesting that they may be to a large extent a transitional issue, and challenges for successful economic diversification not only in the EU-27, but particularly in potential candidate and candidate countries in SEE are persistent alongside the structural changes in

1 ”Other gainful activity is any activity other than one relating to farm work, including activities carried out on the holding itself (camping sites, accommodations for tourists, etc.) or that uses farm resources (machinery, etc.) or products (such as processing farm products, renewable energy production), and which have an economic impact on the holding. Other gainful activity is carried out by the holder, his/her family members, or one or more partners on a group holding.” (EUROSTAT 2010:432).

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the agricultural sector and rural economy (Fritzsch et al. 2010). Looking at the average 27 in 2007 with other gainful activities

not related to the agricultural holding, it is evident that regional employment opportunities

re

widely accepted that sustainable rural development requires widely

reducing their dependence on the production of subsidised primary These developments have reinforced the

goods and ed since the year 2000, complementary support schemes under P have not only taken account of the emerging challenges for

farmers, such as biodiversity protection, broad-based cultural landscape preservation, cts as cultural

and industries within a

access to skilled labour is one of the most frequent constraints for the sustainable

share of 35.2% of farmers (holders-managers) in EU-

are of major economic importance for the income portfolio of farm households in all types of rural areas as defined by the OECD2 (European Union/Directorate-General for Agricultuand Rural Development 2009, 164).

Among policy makers it is nowthe diversification of the economic base of rural areas. Economic diversification is held to offer considerable scope for improving the economic viability of many farm businesses and in turnagricultural commodities (Ludvig et al. 2010).European model of a multifunctional agriculture (EC 2000, 2003, 2010a; EC-DG Agri 2000), which recognises that agricultural production modes lead to a bundle of market and non-market outputs ranging from economic, environmental to social and cultural services. Particularly enforcthe second pillar of the CA

creation and maintenance of jobs, but also the notion of regional produassets. Regional value added chains have become more important for the broader rural economy. The mobilisation of local endogenous capacities and resources, the raising of the economic activities and the creation of employment opportunities have also bolstered the concept of diversification in the EU Rural Development Policy towards a semi-sectoral approach. This approach lead to the inclusion of micro and small entrepreneurs3 as eligible beneficiaries as well as by emphasising territorial approaches with the mainstreaming of the LEADER approach (EC 2006).

The growing importance of regional value added chains for the, the mobilisation of local endogenous capacities and resources for living rural areas, the raising of the economic activities and the creation of employment opportunities for the rural population as a whole With this understanding, the economic diversification concept takes account of the size, presence of multiple specialisations and linkages among sectors region’s economy to enhance potential for growth and to better resist any future structural changes or economic crises. Economic diversification implicates that some economic activity is already practiced and a new activity adds to the economic fabric of the company or an area providing income opportunities or security to market changes. Rural diversification therefore is often synonymic with the innovation of products and services (Ludvig et al. 20104).

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 absence of effective regional economic development programmes and skills development programmes. A potential disadvantage, which rural firms face in comparison with their urban-based counterparts, is the small size of the local market associated with lower population densities, per capita and household incomes. In parallel, the rural labour markets are of a small and narrow occupational composition. The lack of

Policy, JRAP, 30:2.

2 See for the OECD definition of rural areas chapter 2.1.4. 3 according to EC recommendation 2003/361/EC. 4 Based on Wagner, J. E. (2000): Regional Economic Diversity: Action, Concept, or State of Confusion, Journal of Regional Analysis and

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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 institutional loopholes make the delivery of business services to rural firms imperative, but at the same time more difficult and context-dependent (Smallbone 2009; Welter 2011).

With view to the EU Rural Development Policy 2020, and taking into account the aftermath

nd effective complementarity of support programmes at EU

of the global economic crisis of 2008, the EC considers agriculture as an “integral part of the European economy and society” (EC 2010b: 3) and as such - a major driving force in creating jobs in the directly or indirectly related upstream and downstream sectors and maintaining the social fabric of rural areas for a balanced territorial development (EC 2010b). The improvement of the rural economy through the promotion of diversification to further unlock potentials of local actors, both of farm households and other rural entrepreneurs, is of strategic focus in the EU Rural Development Policy towards 2020. This shall be achieved by empowering people in local areas, building capacity and improving local conditions and links between the rural and urban areas for a “balanced territorial development” (EC 2010a: 10).

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 development of a sustainable “rural economic fabric” in the current programming period and towards its contribution for a “balanced territorial development” in the Europe 2020 smart growth strategy have impacted the programming level. Until 2006, the farm households were the centre of support. In the EAFRD 2007 – 2013, economic diversification was broadened to include also SMEs and a wider spectrum of investment possibilities. With the aim of a balanced territorial development in the programming period 2014 - 2020, an efficient coherence of policies aand national and regional levels will be more than ever important in order to achieve synergy effects (EC 2010b, EC 2010c, EC 2010d)5.

2.1.2 Support measures for diversification and rural development

The concept of diversification in the EU Rural Development Policy under the EAFRD and IPARD 2007 - 20136 encompasses several types of economic diversification activities under axis 3 targeting farm households and rural micro and small entrepreneurs.

Support under axis 3 “The quality of life in rural areas and diversification of the rural economy” of the EAFRD 2007 – 2013 involves the following diversification measures as laid down in the Council Regulation (EC) No 1698/2005:

• Diversification into non-agricultural activities targeted at farm households (Code 311) • Creation and development of micro-enterprises with a view of promoting

entrepreneurship and developing the economic fabric (Code 312)

5 See also the strategic orientation for the EU Regional Development Policy towards achieving the EU 2020 objective of the need for “strategic intelligence” to identify the high value-added activities which offer the best chance of strengthening a region’s competitiveness by developing smart specialisation strategies to maximise the impact of Regional Policy in combination with other Union policies. “Smart specialisation strategies can ensure a more effective use of public funds and

few key priorities rather than spreading an also be a key element in developing multi-level governance for

can stimulate private investment. They can help regions to concentrate resources onvestment thinly across areas and business sector. They cin

integrated innovation policies” (EC 2010d). 6 Council Regulation (EC) No 1698/2005 for Member States and Council Regulation (EC) No 1085/2006 for Candidate Countries in the period 2007 – 2013.

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• Encouragement of tourism activities both as income- and non income-generating activities (small-scale tourism infrastructure) (Code 313).

For candidate countries, the structure of support under the IPARD axis 3 measure “Diversification and development of rural economy” is provided in the Council Regulation

the type of tourism operations referred to in Art. 55 of

e future they will more likely apply for support under axis 1.

by Annex I of the Treaty as it is under axis 1, but can include all agricultural and fishery products

start-up

pplicant, including a sound economic,

animal and plant health, animal welfare and occupational safety at a time when the decision for the grant is taken, instead of the community standards - at the end of the project implementation (before last payment claim) under axis 1. However, the

s

re l

(EC) No 1085/2006 and the Commission Regulation (EC) No 718/2007 referring to the Council Regulation (EC) No 1698/2005:

• Diversification of farm household income into non-agricultural activities (either on-farm or off-farm activities) by the definition of domains of diversification referred to in Art. 53 of Regulation (EC) No 1698/2005 (see above code 311);

• Raising of economic activities and creation of employment opportunities for the rural population as a whole through the development of micro and small enterprises (according to EC recommendation 2003/361/EC), crafts and rural tourism, with a view to promoting entrepreneurship by defining types of beneficiary enterprises and description of the type of operations referred to in Art. 54 (see above code 312) as well as description of Regulation (EC) No 1698/2005 (see above code 313).

With respect to the eligibility of diversification activities in general, and in particular alongside the food value chain under axis 3, three main differences compared to the “competitiveness axis" (axis 1) have to be highlighted under axis 3 laid down in the EC regulative framework for IPA with reference to Component 5:

• “Micro” and “small” food processing units are eligible, which do not yet have the processing capacities to fulfil the competitiveness requirements of the single European market under axis 1, but are viable enterprises for the local and regional markets in the Western Balkan countries with some of them having the potential for extending their business activities, so that in th

• Assistance is not restricted to agricultural and fishery products covered

and all processing steps.

• Most of the businesses are “micro” or “small”-scale, as well as oftenbusinesses. Therefore, the demonstration of the economic viability of the investment should be based on a simplified version of a business plan as applied in old member states. The simple business plan or investment concept should demonstrate the motivation and business perceptions of an afinancial and employment concept.

• All supported investments must comply with the relevant national minimum standards in force in the fields of environmental protection, public health,

harmonisation of the national legislative framework with the EU acquicommunautaire is an ongoing process across all sectors during the accession phase. Community standards are gradually transposed into national laws and alatest in force at the date of the EU entry (in some cases there are transitiona

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periods). Small food processors7 in EU candidate and pre-candidate countries need to assess carefully, what “minimum standard level” of th

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Divrural household

income

ersification of Diversification of ruraleconomic activities

On-farmactivities

Off-farmactivities

Unconventional agricultural products incl. farm woodland/ forests

Wage labour

Unearned income

Self imployment

Adding value toagricultural products

Non-agriculturalproducts and services

“Conventional” agriculture incl. organic farming or agri-environment

e envisaged investment is

n of economic activities serves as reducing the

from self-employment,

mode of production (e.g.

ent Policy to describe the

more adequate for their business development. For small scale agricultural producers, who sell small quantities (direct marketing), different minimum food hygiene and food safety conditions apply in the Member states8.

The definition of types of diversificatiocomplexity and manifold types of activities, which can be considered as "diversification" of economic activities in rural areas.

Looking at the income portfolio of a rural household, it either deriveswage labour or unearned income (e.g. pensions, social welfare, or other remittances), whereas for the study the focus was laid on the first type of income deriving from self-employment of rural households, i.e. farm households, rural micro and small entrepreneurs (see Figure 2-1).

With regard to the diversification of rural economic activities, a farm household can make a shift in the production of “conventional” commodities with the emphasis on diversifying into a broader range of agricultural products, or a change in the

pmlocation of the business unit of farm household

organic farming, application of specific agri-environmental measures). This type of farm diversification was excluded in the study. Instead, the study focuses on the use of farm resources (production factors) for “on-farm or off-farm” non-agricultural activities. The criterion “on-farm or off-farm” is used in the EU Rural Develo

members who diversify into non-agricultural activities. Some of the on-farm activities have thereby a stronger link to the utilisation of assets and resources of a farm household, i.e. towards a shift in the production of commodities. In other studies, this dimension does not only focus on the location, but can also implicate an economic differentiation of typical agricultural production and other non-agricultural activities (Ludvig et al: 2010).

Figure 2-1: Diversification of rural household income and diversification of economic activities

7 According to EU definition they can have up to 50 employees and a yearly turnover up to 20 million EURO, which is a rather big company in Western Balkan countries, including Montenegro and Albania. 8 See e.g. for conditions applying to direct marketing of food products in the Member States the practical guide issued in Romania “Minimum food hygiene and food safety conditions for small producers. How the small producers can continue to

rosper within the rules of the EU” (Barbu et. al 2010 - prepared by WWF-DCP Romania, fundatia ADEPT and work and pMilvus Group in cooperation with the National Veterinary&Food Safety Authority and supported by the EC Representation in Bukarest).


The diversification of rural economic activities by farm households or other rural micro and small entrepreneurs can be classified into three “diversification types”: non-agricultural products and services, adding value to agricultural products and unconventional agricultural

ersification of the rural economy under Axis 3 of the EAFRD and IPARD

lling of by-products such as skins, hides or wools tc.)

energy production (as service provider)

• Non-agricultural products and services:

• Tourism and recreational facilities: accommodation, catering, recreational facilities (sports facilities such as horse riding/trekking/trails, livery, motorsports, or shooting, leisure facilities such as picnic sites, fishing, activity parks, wildlife/trails/museums etc.)

• Crafts and artisan workshops and other micro and small enterprises (repair, butcheries, bakeries, farmers markets, etc.) often within the food chain

• Agricultural contracting services for other farmers (machinery or storage facilities), public agencies (gardening, snow ploughing service or landscape management), private persons or organisations

• Other types of services (child care, business services, social farming, children zoo, etc.).

2.1.3 Definition of rural areas and the concept of “rurality” in the RDPs of member states, candidate countries and in Albania and Montenegro

in o

animal and plant products, whereas the latter is practiced on a farm (see Figure 2-1).

Commonly identified sub-measures for the diversification and development of the rural economy RDPs of member states and candidate countries under the Axis 3 of the EAFRD or IPARD can be grouped under these three categories as follows (see Annex “Overview on the support for div2007 – 2013”; Pieniadz: 2009, Rantamöki-Lahtinen: 2009):

• Unconventional agricultural products: • Unconventional animal and plant products: speciality crops and/or animal

products such as aquaculture, rabbits, ostriches, mushrooms, berries, honey, special fruits/berries, medicinal plants, herbs, flowers, tree nursery, or pet breeding

• Farm woodland: renewable energy forestry (valorisation of wood residues), amenity/recreation, wildlife conservation, or wild plant collection (berries/medicinal plants/herbs)

• Adding value to agricultural products:

• Food processing (oil pressing, niche products, traditional food stuff), direct marketing of food products, see

• Renewable

In order to target national programmes and EAFRD and IPARD 2007 – 2013 funds to beline with the EU strategic guidelines and national rural development strategies, one has tdistinguish between the spatial dimension of rurality to define “rural” versus “urban” areas

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for the general purpose in the RDPs and the programming dimension of “rurality” for policy

my” and , and 313 (measures to diversify

typethe rural fabto live.

Spa

The tion analysis in their RDPs9, as well as for U-27 and in candidate countries, context-

ition of rural areas used cal administrative units (LAU

l if their population density is below 150

According to definition, rural regions account for 92% of the EU-27 territory. 19% of the population live in predominantly rural regions and 37% in significantly rural regions.

the socio-11

purposes to define appropriate measures under the different priority axes. Rural development measures under the EAFRD and IPARD in general are grouped according to their function, either sectoral or territorial, where the territorial measures are those which have a defined spatial dimension going beyond the support of specific (sub-) sectors of the economy. The targeting of specific territories in the EAFRD is different from the definition ofrural areas for the general purpose of the RDPs. They are specified taking into account the spatial needs of relevant sub-measures with the geographical scope and/or the type of eligible beneficiaries in delimitated territories, such as “Less Favoured Areas”, “High Nature Value Farming areas”, “Natura 2000 areas” or “LAG areas”.

Under the IPARD Axis 3 “Diversification and development of rural econorespectively under the Axis 3 EAFRD measures 311, 312the rural economy), eligibility for support must be defined by the type of investment and the

of beneficiary both targeted for each measure or sub-measure, with the aim to develop ric, but not necessarily by the place in which the potential beneficiary happens

tial dimension of “rurality”

EC proposed that for the general situastatistical and comparative purposes in the Erelated horizontal baseline indicators10 to define rural areas should be used, which are:

• The OECD definition of rural areas based on population density in a given NUTS II or III region, which is the only internationally recognised definfor statistical and descriptive purposes. In a first step, loe.g. municipalities) are identified as rurainhabitants per km². Then, regions are classified in one of the 3 categories:

o Predominantly Rural Region (PR): if more than 50% of the population of the region are living in rural communes (with less than 150 inhabitants/km²)

o Intermediate Region (IR): if 15% to 50% of the population of the region are living in rural local units

o Predominantly Urban Region (PU): if less than 15% of the population of the region are living in rural local units. The importance of rural areas in terms of shares of territory, population, Gross Value Added (GVA) and employment in those rural areas.

the OECD

These regions generate 45% of Gross Value Added (GVA) in the EU and provide 53% of employment, but tend to lag behind non-rural areas as regards the number of

economic indicators, including structural indicators .

9 See Commission Regulation No 1074/2006, Annex II: Content of a RDP referring to chapter 3.1: The general socio-economic context of the geographical area: the definition of the rural area (among other analyses) taking into account point 2.4 of the Annex to Council Decision 2006/144/EC (Community strategic guidelines for rural development. Programming period 2007 to 2013), which refers to the OECD definition of rural areas. 10 EC Directorate-General for Agriculture and Rural Development (2006): Rural Development 2007-2013. Handbook on common monitoring and evaluation framework (CMEF). 11 Council Decision (2006/144/EC) on Community strategic guidelines for rural development programming period 2007 to 2013.

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Yet, member states are free to adopt modified or own definitions of rural areas given that an explanation is provided in the RDP. The European Network for Rural Areas (ENRD) compiled and analysed the definitions of 23 national and 12 sub-national or regional RDPs representing all 27 member states for the programming period 2007 – 201312. The results

er distinctions between rural and urban areas. This was OECD criteria to take into account the socio-geographical

ost

It is oaccount the and potential remote rura population and decline to peri-urban areas under increasingdynamics.

However,understanding of the concept of diversification in relation to axis 3 alongside with an

mises, transport and communication

capital, and the role of in-migration.

reflect the different concepts of rurality applied in the member states. In only six RDPs13 (17.1%) of the sample the unmodified OECD definition was used, in seven RDPs (20%) a modified form of the OECD definition14 was used, and in 22 RDPs (62.9%) alternative definitions15 for the description of the rural areas were used. Reasons for modifying the OECD definition or using alternative definitions were manifold, but can be grouped in four main categories (ENRD 2010: 15f.). Reasons most frequently mentioned were the inclusion of nationally more relevant or clearfollowed by the roughness of the nature of the country and then by heterogeneity of administrative regions, as well as the commitment to national definitions. At the fourth place, factors such as the aspiration to have a policy tool for the identification of more urgent and specific needs of different areas were given as reasons. The rationale behind the adaptation of the OECD definition for mof the interviewed member states was that RDPs are not only territorial programmes but also sectoral ones, aiming at farms and forest lands, so that they need to be included wherever they are located, for example in the proximity of towns.

Programming dimension of “rurality”

bvious that a purely spatial definition of “rural” versus “urban” does not fully take into diverse situations in rural areas in the member states, candidate countries

candidate countries, neither their potentials nor their problems ranging from l areas suffering from de

pressure from urban centres or with positive economic and demographic

appropriate definitions of rural areas for each country or region, and an in-depth

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 rural development policy issues. These encompass distinctive characteristics of rural economies:

• Economic factors, such as the small size of local markets, characteristics of rural labour markets, the availability of business preinfrastructure, access to information, advice and business services, access to finance and the institutional environment, and

• Factors having influence on an area to generate entrepreneurship among rural populations such as entrepreneurial culture and attitude, nature and extent of social

mmes.

h regions (Andalusia and Navarra). Czech Republic, rural

ut not shown in the ENRD sample, Spain at national level).

and Hesse (also, but not shown in the ENRD sample, Germany at national level).

12 ENRD (2010): Thematic Working Group 1: Targeting territorial specificities and needs in Rural Development PrograFinal Report. 30 November 2010. http://enrd.ec.europa.eu/app_templates/filedownload.cfm?id=EF990AC4-EE09-9E3C-4F70-4B80861493F1. 13 These were Austria, Greece, Slovakia, Slovenia and two SpanisEngland, France and Wales used the OECD definition for analytical and comparative reasons, but not for the definition ofareas. 14 These were Flanders, Ireland, Italy, Portugal, Wallonia, the German land Brandenburg and the Spanish region Catalonia(also, b15 These were Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Hungary, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Romania, Sweden, the four countries of the United Kingdom, and the German Länder of Bavaria

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In most RDPs, the diversification measures 311, 312 and 313 in member states and in candidate countries and the measure “Diversification and economic development of rural areas” follow a combined (semi-) sectoral and territorial approach in order to define the type of investment and the type of beneficiary for each measure/sub-measure. Eligibility and/or financing criteria, which have a policy implication and/or territorial dimension, were analysed in RDPs of eight member states or regions and three candidate countries, which have accredited RDPs:

• Austria (311, 312, 313), Land Baden-Wuerttemberg (311, 312), and Land Thuringia/Germany (311-1: diversification into non-farm other than 311-2) defined the eligibility of diversification activities only by the types of investments and beneficiaries.

• Land Baden-Wuerttemberg linked the tourism activities to other Axes (2 and 3) and defined territories. Activities under measure 313 are either eligible in LEADER areas (313-1) or in registered nature parks (313-2). Also in Northern Ireland all diversification activities (311, 312, 313) are only eligible in LEADER areas.

easures 311, 312, 313-2 (tourism activities with

ania (312, 313) and the Land Thuringia/Germany (311-2: diversification in form

cted as being eligible for support due

for support.

eligible under measure 301.

• Czech Republic applied for their mbeneficiaries located above the threshold set in 313-1) a combination of the level of support and territorial boundary, i.e. regions as defined under the EFRD, for which the socio-economic (”development”) status is defined. The higher the development potential of a region, the lower is the support intensity for a beneficiary.

• Bulgaria (311, 312, 313), Czech Republic (313-1 tourism activities), Poland (311, 312), Romof on-farm holiday facilities, 313) defined the eligibility of diversification actions by the types of investments and beneficiaries combined with a spatial dimension of eligible rural communes, villages or municipalities based on administrative boundaries as laid down in national laws or based on a maximum threshold of inhabitants of a village/commune set. In some cases different thresholds were used depending on the type of measure.

• Candidate country Turkey introduced two-tier spatial dimensions. Due to limited funds, and in order to obtain the most possible impact for each measure, a selection of provinces (from a total of 88) was made according to their potentials. For the diversification measure 27 provinces were seleto their high potential for the identified eligible actions. Within these provinces, only rural areas as defined by adapted OECD criteria and a population size of settlements below 20,000 are eligible

• In the candidate country of Croatia diversification actions (measure 302) are eligible only in predominantly and mostly rural areas as defined by the OECD. However, with this delimitation only the county of City of Zagreb is defined as urban.

• The candidate country the Former Yugoslav Republic of Macedonia adopted a list of rural areas, which encompasses all settlements up to 30,000 inhabitants as being

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The definition of rural areas for general policy measures in Albania and Montenegro are described in the following boxes:

Definition of rural areas in Albania

Albania is in the process of adopting a formal definition of rural areas in collaboration with the Ministry of the Interior and INSTAT. Eligibility for rural development support will, for most programmes, be defined by the characteristics (and particularly employment) of the beneficiaries, rather than the place in which they happen to live. Thus, farms that happen to be located within the administrative boundaries of an urban area will not be excluded from receiving rural development support. Some programmes will be limited to communities that are in rural areas. The definition of rural areas will be based on settlement patterns defined through population density. The standard OECD definition (population density of less than 150 people per square kilometre) will be the basis for classification. Administrative units (such as communes) in which more than 25% of the population live in rural zones will be classified as rural. Where figures on the population density are not easily available, the standard administrative town boundary definition (agglomerations with more than 20,000 inhabitants) will be used until the figures are available (MAFCP, 2007).

Definition of rural areas in Montenegro

The detailed definition of rural areas in Montenegro has not finally been decided upon. Administratively and territorially, Montenegro is divided into 21 municipalities (opština), which include two subdivisions of the Podgorica municipality (gradska opština) representing the basic units of local self-governance with a total number of 1,256 settlements out of which 40 settlements are classified as "urban" (cities and towns above 10,000 inhabitants) and 1,116 as "rural" (villages). This classification has not yet been used for the definition of rural areas as eligible territories for measures under the agricultural component.

These results show that almost each country or region applies a different approach in implementing policy priorities through specific eligibility criteria as well as financing conditions of diversification measures in the RDPs. Old member states benefit from their

member

located in the administrative boundary of a regional town. On the other hand it can facilitate the implementation of administrative and financial procedures according to the complementarity rules, since apart from the EAFRD/IPARD funds, the ESF i.e. Component 3/IPA and the ERDF i.e. Component 4/IPA provide different types of assistance to SMEs in rural areas.

2.1.4 Spatial dimension of groups of diversification activities

For the definition of criteria in terms of identifying rural areas with high diversification potentials in Albania and Montenegro, the "spatial dimension" or “spatial link” of activity groups is of more relevance than defining “rural areas” as a general eligibility category for the rural development measures. The question, whether an activity is directly linked to the utilisation or valorisation of natural resources (e.g. agricultural land, forest land,

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 newstates, including new German Länder, prefer to use also a spatial definition or even several definitions according to the sub-measure for “rurality”. This may bear the risk that eligible beneficiaries or activities with high potential for economic diversification are excluded from the funds, because it happens that they are e.g.

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mountains, rivers, etc.) or other immovable physical assets is relevant for the spatial

atural rural tourism can be linked to traditional styles or

r

dimension of diversification activities of being either “strongly linked” or “weakly linked”. Other physical resources, such as animals and buildings, are in principle not restricted to a territory. Yet, in case of extensive production methods animals are usually linked to nresources, such as grassland, and historical places, e.g. to an area.

The activities, which are named in the following list, derive from literature review and the expert interview results. The list may not be complete, but it does provide information on the groups of activities in order to categorise with respect to the importance of natural resources. The groups are:

• Primary production (unconventional products) and wild collection of products (e.g. aquaculture, fruits and berries; mushroom production, wild collection of e.g. mushrooms, herbs, fruits, special tea, medicinal plants)

• Processing/marketing of food stuff (e.g. vegetables, fruits, wine, olives, milk products, jam, fruit juices, goat cheese), production of traditional food (FTP) and branding of products

• Production of renewable energies (e.g. off agricultural land, oil seed rape, forestry and other natural resources, wind energy or solar energy, water power, services fosun collectors)

• Rural tourism (e.g. accommodation and catering, recreational activities e.g. fishing, hunting, diverting traditional or historical (farm) buildings into "authentic" accommodation), recreational activities like skiing, sports, adventure tourism (e.g. off road adventure, canoeing, biking), nature tourism, religious tourism, health tourism.

The following activities with a weak spatial dimension are grouped in accordance, but the identification of areas with high potential is difficult or impossible, because the activity is not restricted to a specific area at all or to a low extent. The groups are:

• Processing/marketing of food stuff (honey production, to some extent micro/ small food processors - non-farm households - with transport and cooling facilities for fresh primary products)

• Rural tourism - other recreational services (e.g. pet farms, horse riding or music events)

• Contracting services (e.g. for energy supply, farming, forestry and landscaping, farm machinery in general, services for farm machinery)

• Other activities (e.g. traditional crafts, handicrafts such as woollen articles, wood carving, arts work, craft workshops, souvenirs), social and health farming.

Table 2-1: Overview on the spatial dimension of economic activities conducted by interviewed entrepreneurs in Albania and Montenegro provides an overview of diversification activities undertaken by the 20 entrepreneurs interviewed in Albania and Montenegro, grouped according to their type of spatial link.

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Table 2-1: Overview on the spatial dimension of economic activities conducted by interviewed entrepreneurs in Albania and Montenegro

Strong spatial link Weak spatial link Primary production and wild collection of unconventional products:

Other recreational services: horse riding, horse breeding;

aquaculture, fruits (strawberries), chestnuts wild collection of mushrooms, medicinal plants

Processing/Marketing of food stuff: vegetables, fruits, wine, olives, raki, cheese and other milk products, dried plums and mushrooms, essential oils

Contracting services: renting a tractor, contracting services (harvester, tillage)

Rural tourism: rural pensions, hotels, ethno-villages, restaurants, walking tours, product tasting, wine tourism (wine road in ME), religious tourism, health tourism

Other activities: marketing of other products (farm equipment, agricultural input)

2.1.5 Key endogenous and exogenous factors to rural households for facilitating and im

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peding econo

e on the potential for

etical potential describes the

annual amount of sustainable wood supply.

l implementation with respect to the capacity and the availability of necessary human and financial resources, as well as administrative limitations.

Source: Adapted after Rybach 2010, Weinreich 2010

mic diversification

diversification of economic activities in rural

This chapter provides an introduction and literature review on different approaches applied to describe and identify "endogenous and exogenous factors" and their “spatial” dimension, which have an influencareas.

The conceptual understanding of the dimensions of “potential categories” as developed in the field of renewable energy (Rybach 2010, Weinreich 2010 for the case of forests residues in Montenegro) are applicable for other economic activities in order to assessdifferent types of “business resources” available or required in a regional context. The maximum theoretical potential is distinguished from the technical, economic and feasible potential (see

Figure 2-2), which influence the degree of realization of the theoretical potential.

Figure 2-2: Theoretical, technical, economic and feasible potential

Theoravailable physical quantity of resources e.g.

Technical potential describes the possible volume e.g. amount of wood, which can beharvested under the current technical restrictions.

Economic potential is related to the cost-price relation and the demand of the market.

Feasible potential takes account of the limits, which derive from the practica


The differentiation into “potential categories” allows for the identification of relevant factors e pot

factors as ral non-farm economy e theory of the liveliho diversification of rural

at al. 2010).

“pull” factors f economic development

affecting th ential for diversification such as technical solutions, cost implications, demand and purchasing power, qualification of the entrepreneurs, human resources or administrative limitations.

Davis (2001) lists “push” and “pull”(RNFE) based on th

driving forces for the ruod approach for the

household income (see also Ludvig

Table 2-2: “Push” and or rural non-farm

“Push factors” “Pull factors” ••

•• Declining returns to farming

• • Temporary events and shocks

on labour in the RNFE

wer risk of RNFE compared to on-farm activities • Generation of cash in order to meet household

objectives

ban centres and outside of the region or country

• Higher return • Higher return on investments in the RNFE • Lo

Population growth Increase scarcity of arable land and decreasing access

to fertile land Declining farm productivity

• Lack of access to farm input markets Decline of the natural resource base

• Economic opportunities, often associated with social advantages, offer in ur

• Absence or lack of access to rural financial markets • Appeal of urban life, in particular to younger people

He summarizes his findings in the definition of driving factors of the RNFE with shifts in supply of and demand for goods and services in the rural economy, shifts in labour supply, risks, and seasonality of assets and labour employment. Although these factors target farm

overnight staysa or/and day-trip tourism are such criteria.

ed towards farm size and

members of farm households in a specific area or the share of active population working in agriculture.

• Risk assessment of the potential beneflinked to an area approach. In an ar start-up of micro and small enterprisessuccess, entrepreneurs will much easnumber of registered non-farm entein an area can be a proxy indicator for ssment or attitude towards self-employment.

• Farm labour demand is seasonal, in pa products. The availability of farm lareduced if it competes with labour requ

Chaplin (2002) found out that the propensitagricultural activities is strongly related to theand skills, which reduce the risk of failure (H

ra the age of household members.

households, they have implications on the identification of areas with high potential for diversification of the rural economy by using indicators, which are available in national statistical reports:

• The shifts of demand are closely related to the customers and clients with the necessary purchasing power. For tourism development activities in a tourist are

• Redundant farm labour could be another criterion, if the measure is targetfarm households. The criteria for diversification potential could be the

iciary is another criterion, which is indirectly ea, where economic growth is high and the has a good reputation and proves economic ier step into self-employment. Therefore, the rprises and/or the annual number of start-ups the risk asse

rticular for fruit, vegetables and horticulturebour e.g. in the summer months could be ired in tourist places.

y of farm households to diversify into non- level of the general education, experiences

uffmann: 1980; Woldehanna et al.: 2000), as structure andwell as the availability of public transport/inf

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However, Moellers (2006) found out that for rural households (based on results from empirical research in Slovenia and Macedonia):

• Infrastructure has no significant influence on the diversification of economic activities,

• Low wages do not allow the gathering of money for investments, • Rural households are more reluctant to take risks, • Low purchasing power of the consumer has a negative influence on the decision

n div

"Can off-farm in fication lead agricultural househo verty?" was the et. al. addressed i

es. put on the att elf-ated with sli . The

mem s time,

ability of lohe

qually have influence on the

o ersification.

come diversi lds out of poquestion Mayer n 2008 in her survey in Northern Albania with 82households in the district of Shkoder and

pecific emphwith 76 households in the district of Kuk

itude towards self-employment. The reasons for sS asis was employment were evalu ghtly higher scores in Shkoder than in Kukesperceptions of the household bers differed with regard to preferences toward

insufficient information on starting a business, andw cost credits and the risk assessment, which is

dependent employment, sparevailparticularly regarding the a

very high in Kukes and a bit lower in Shmost hindering factors starting a business.

koder. Obviously, risk assessment is one of t

Möllers (2006) on the other hand recorded a high prestige related to self-employment or starting an own business in a household study in Macedonia. Vice versa, this implicates that the prestige in case of economic failure is lost or damaged. Therefore, the intention for off-farm diversification can be strongly related to the risk assumptions in relation to social norms in a society. Institutional and social contexts in the form of local traditions and norms that determine gender roles within families and societies edecisions for rural entrepreneurship (Welter 2011).

Unearned income (remittances) has a negative effect on diversification, because it reduces the income risk and the push factors (Chaplin 2007). The high importance of education is confirmed by many studies. Ellis (1998), Chaplin et al. (2004), Möllers (2006) and Reardon et al. (2007) see positive effects of education and skills on households’ diversification behaviour. However, for future skills, needs in rural micro and craft-type enterprises training programmes must be adapted towards combined skills training and market research support for better strategic orientation (FBH 2011).

Fritzsch et al. (2010a) distinguish four groups of factors both with endogenous and exogenous character, which have influence on the potential for diversification of rural households.

Table 2-3: Influencing factors of the potential for diversification of rural olds househ

Influencing factors Indicators Need for diversification • dependency ratio

• farm size Internal conditions • age

• education • household’s labour capacity

External conditions • labour market conditions • regional purchasing power • remoteness

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Attitude towards non-farm income diversification • attitudes towards self-employed income activities • attitudes towards wage employment

Source: Fritzsch et. al. 2010a

Boente et al. (2008) argue that the necessary data for a more detailed analysis of trepreneurship capital on aen NUTS 3 level is not available and may only partially be found

epreneurship than individual behavioural factors

ecific economic diversification activities

e complexity of the contextual factors (Boente et al.: 2008; Welter 2011).

wth" (IAREG: 2010) and "Rural Future Networks" (RUFUS: 2010) provide some guidance for the methodology described in the next chapter. Both studies seek to i to describe re The project ble statistical data to d nces for rural cluster a entials for economic assessment of the potential for SMEs development in rural areas fo advantage of clusters of Porter (1985). The indica d Herrmann (2010) for the typology of rural areas16 are list

on NUTS 2 level. Thus, the necessary indicators, which would allow the assessment of “entrepreneurship” in an area are qualitative ones. One of the most frequently used indicators for the measurement of entrepreneurship capital is the start-up rate. Another possible indicator is the number of companies per capita, but none of them describes the qualitative dimensions, i.e. the capability of operating a business. Having an entrepreneurial orientation does not necessarily lead to successful business development or even innovation, if individual factors like skills, experience or access to financial resources are not sufficient.

Recent studies draw attention on the spatial context that can have more influence on the development of the rural economy and entr(Smallbone 2009, ECORYS 2010, Welter 2011). One criterion for the diversification of rural economy is the availability of qualified extension services supporting potential entrepreneurs (Ylli et al., 2010). In addition, the access to information, advice and business services finance, the overall institutional environment, the societal capital (Smallbone 2009; Welter 2011), as well as the sectoral economic structure (IAREG 2010; ECORYS 2010), which is with regard to rural diversification activities strongly determined by the nature capital and its valorisation, affect the development of rural entrepreneurship.

2.1.6 Spatial dimension of criteria and indicators influencing the development of rural economy

The identification of spatially-oriented indicators to assess the potential of a rural economy has been done in recent research. However, criteria and indicators, which are able to illustrate regional disparities in the potential for economic development are not harmonised. Some authors stress that in spatially-oriented studies the outcomes of rural entrepreneurship, and hitherto the potentials for spin a region, have to be in the focus of the analysis. For this purpose, quantitative data alone are not sufficiently meaningful, but need to be complemented with qualitative data to encompass th

Yet, the selected indicators used by the EU funded studies "Intangible Assets and Regional Economic Gro

dentify factors that as use availa

re suitable gional potentials fional differe

or economic development.escribe reg

he nalysis and pot development. Tllows to a great extent the concept of competitive

tors used by Schulz uned in the following table.

6 Schulz and Hermann (2010): Rural Regions in Europe1

RUFUS discussion paper No. 2010-4. Schulz and Her s: l, economic relevance of sectors is consistent to regions average, sparsely importance of

. A new typ rural regions. ology showing the diversity of Europeanmann use the indicators to classify rural areas in 5 type

Type 1 - socio-economic successfutourism sector, marginal nature capital

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Table 2-4: Indicators for the typology of rural regions

Rural typology Broader cluster description by additional indicators

Typology indicators for cluster analysis Indicators describing current state Indicators describing

potentials Additional indicators for

cluster description • Unemployment rate (% of economic active p.) • GDP in PPS per Inhabitant (Gross Domestic

Product in Purchasing Power Parities per Inhabitan

• Population change (1995 - 2995)

• Natura 2000 area as

• LEADER+ (percentage of area in LEADER Local Action Groups)

t) percentage of total area • Education (school • Employees in agriculture (%) • GVA from manufacturing (%) • GVA per employee in the service sector • Hotel and similar bed spaces (per 1000

inhabitants) • Campsite bed spaces (per 1000 inhabitants)

graduates with qualification for university entrance

Source: Scholz/Herrmann 2010

The IAREG project analyses the spatial dimension with respect to the agglomeration of industries and firms, location of firms, ownership structure, concentration of entrepreneurs, financial market imperfections, human capital, innovation capacities, social and

intangible firms’ behaviour and the economic growth path at the

then

entrepreneurship capital, infrastructure, or trade17. "All in all, a general conclusion that can be drawn by these research lines is a support to the hypothesis of the key role played by

assets in explaining regional level. The empirical analyses show the capability of intangible assets to foster productivity and create a virtuous framework for competitiveness." (IAREG, Del. 5.2. 2010: 19).

Gollardo (2009) from the Southern Rural Development Centre (USA) summarizes that the "…competitive advantage of a region is higher when specific industries, related to each other, are located within a geographic area. This geographic proximity generates intense rivalry, but also cooperation, among businesses within the same industry, which in turn spurs innovation and increases productivity. Related and supporting industries will locate in the same region as those highly competitive and innovative firms sharing the same infrastructure, workforce, and research/training facilities" (Gollardo, 2009: 1). Gollardo's analysis on potentials in the agro food sector is restricted to one single indicator, which is the business concentration. He uses the number of establishments in a region to identify territories having a cluster-based potential for economic development. He chose this indicator instead of total employment for three reasons: insufficient data availability, high mechanization of agricultural production and relevance of competition and cooperation between firms.

Type 2 - medium economic successful, high capital in tourism and nature, high importance of agriculture and service sector Type 3 - socio-economic lagging behind, marginal importance of tourism, high nature capital, diverse economic mix consists in

ining local economic performances. Summary. The publication summarizes the result of the research

the general average Type 4 - high percentage rate of unemployed person, low income by GDP per inhabitant, slightly in migration, low importance of tourism, marginal nature potential, manufacturing oriented Type 5 - low percentage rate of unemployed persons, highest income by GDP per inhabitant, slightly in migration, medium importance of tourism, nature potential scarcely under general average, manufacturing oriented 17 IAREG (2010): Intangible Assets and Regional Economic Growth, Deliverable 5.2. The role of regional and sectoral externalities in determproject elaborated by various authors. Not all of them are mentioned in this document.

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2.1.7 Implications on the methodology applied for the study

rural development policy summarise the challenges o

The authors of the study on the assessment of the impact of rural de in EU member stat mphasise the need for spe ific support program iversificati my. P

agri ultu f

no out an

jective. According to interviewed experts ent of ctive requires a place-based, territorial approach in order to

tion or enhancement of (cf. 2.3.5)."

206) conclude that “...rural/urban realms are ving conditions will probably not allow for a

oth. Employment and economic growth remain two phenomena

espect to the literature findings, influencing factors will be structured with a focus on

Conclusions of two recent assessments with regard to the EUf this study.

velopment policies es (Huelemeyer/Schiller: 2010) e c

mes with regard to the d on of rural econo focused

The impact of RDre and forestry. measures on the territorial cohesion is

little funds are allocated to measures tlimited and ono stimulate endogenou

c Toos potential, diversification o

is stated that there are rural economies and enhance the quexplicit strategies as regards impro

ality of life. "In general it ving rural diversity which makes it hard to carry

the assessm

rural diversity

evaluation against the obimpacts against the objemake conclusions on preserva(Huelemeyer/Schiller, 2010: 48).

Authors of the SEGIRA study (ECOSYS 2010: flowing concepts and human interventions and liclear distinction between brather determined along a continuum of territorially based conditions, which are shown by land use and socio-economic activities in a territory without clear (statistical/administrative) borders”.

It has to be stressed that this study focuses on the combination of qualitative and quantitative assessment, because the necessary indicators and spatial dimension to assess the impact against the objectives even in the member states have not been sufficiently developed.

With rcontextual micro-economic aspects, mainly natural resources and their valorisation, and other endogenous aspects, which are or can be influenced by the entrepreneur on the one side and general exogenous factors i.e. frame conditions on the other side (see further details in chapter 2.2) based on a mix of quantitative information (available spatial statistical data) and qualitative results from stakeholder interviews and discussions.

In parallel, but not subject of this study, support programmes and projects to enhance the diversification of rural economy also have to consider the specific needs for economic development in structurally weak rural areas.

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2.2 Methodology

The methodology applied is based on:

• Socio-economic situation analysis • SWOT analysis based on the REC BI for the endogenous factors (Strengths and

Weaknesses) and the PESTEL analysis for the exogenous factors (Opportunities and Threats)

• Recommendation for the design of the measures

• Stakeholder consultation

2.2.1 Outline of the tasks and methodology

The outline of the TORs has foreseen the following tasks:

Task 1. Develop a set of criteria for identifying rural areas in Albania and Montenegro that have a high potential for diversification of their economies

Task 2. Identify rural areas in Albania and Montenegro with a high potential for the diversification of their economies.

Task 3. Analyse the needs, potential, and feasibility of using measures to facilitate diversification of farm household income activities in selected areas in Albania and Montenegro

Task 4. Provide conclusions and recommendations for developing the potential for

trategic documents, studies, project reports, and other secondary literature.

3. Stakeholder consultations, which include

− Four expert interviews in both countries.

− Ten case study interviews with rural micro and small entrepreneurs (farm households and non-agricultural businesses).

− Two stakeholder round table discussions in each country to present and discuss preliminary findings.

The case study and the expert interviews in the beginning of the study were designed to validate the criteria for the methodology of the assessment of the potential for diversification. At the same time the results of the interviews provided an unprecise assessment of areas with a high potential for diversification. The findings of the interviews were then integrated in the SWOT analysis and for the design of the REC BI.

diversification of the rural sectors in Albania and Montenegro

Due to the gaps in the availability of relevant statistical data in both countries, stakeholder and expert knowledge is considered an important source of information and therefore was an integral part of the participatory elements of the methodology

The work approach was based on three pillars:

1. Quantitative analysis of statistical data at national level and where available at district level in Albania and at municipality level in Montenegro from the last six years if available.

2. Review of official programming and s

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The final methodology for the assessment of the potential for diversification is based on the REC BI in combination with spatial information for the identification areas with a high

the GIS, ntification for these areas. The indicators based on criteria of the REC BI, thus indicating areas, where

hs (potentials) and weaknesses (needs) of he GIS maps are used for the

h potential. Both methodological elements were used during the second round table discussion to express and exchange expert knowledge.

hat this methodology enables s and identify areas with a high

stakehold manner, visualise and

stakehold the results of this study.

the partici

Figure 2- tasks and the methodology

potential for diversification with a GIS. The indicators, which were processed in provided spatial information for the ideavailable statistical data are linked to thefactors/preconditions are available for the diversification of a specific economic activity indicating a potential for diversification.

With the REC BI it is possible to assess strengtSMEs implementing specific economic activities. Tidentification of areas with a hig

Results of the second round table discussion proved tstakeholders to assess the feasibility of economic activitiepotential in a most structured and efficient way. The participants elaborated their assessment of the REC BI for various economic activities in small groups. This way the

er could express their point of view in a well structured discuss the result with the colleagues during the workshop. The outcomes of these

er consultations are incorporated in

Figure 2-3 outlines the task and the methodology of the study with a special emphasis on patory elements implemented.

3: Outline of

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2.2.2 Methodology of the SWOT analysis

The amalgamation of results of endogenous and exogenous factors and their analysis with

nalysis the

d in the first phase of

nomic activities, which would enhance the of lysis is combined with thematic

maps of the Geographical Information System, where spatial information on this specific activity is available. During the second round table discussion rural development experts had the opportunity to express their own assessment of the feasibility of specific economic activities using the REC BI and reviewing the thematic GIS-maps, which were displayed during the workshop.

REC Business Index (REC BI) - analysis of endogenous factors

The 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 in three dimensions - Resources (R), Business Environment (E) and Competences (C). The assessment of the criteria is based on three factors/preconditions for each criterion (Figure 2-4). If relevant data for a criterion is available, the data was processed with a GIS indicating areas, where necessary factors to describe the potential of a specific economic activity are available (e.g. hectare of arable land used for vegetable production or number of bovines, urban population/consumer).

The processing of the data with a GIS provides an overview of areas and regions, where a potential for diversification can be valorised, if other criteria of the REC BI are sufficiently available as well. Equally this way of visualisation of areas with a high potential for a specific economic activities was used for the validation of the statistical data by expert knowledge during the round table discussion. The experts could easily refine the GIS maps, through their knowledge and experience.

regard to needs and potentials for the diversification of the rural economy were done by using the SWOT (“Strengths, Weaknesses, Opportunities and Threats”) analysis tool, whereby the analysis classified the endogenous factors as Strengths and Weaknesses and the exogenous factors as Opportunities and Threats. For the SWOT adimensions of the REC BI is used for the analysis of Strengths and Weaknesses and the PESTEL analysis describes the Opportunities and Threats.

Two levels of interpretation were considered:

A general SWOT analysis on the situation of SMEs with regards to the general socio-economic situation, thus focussing on micro- and macroeconomic aspects relevant for the performance of SMEs. This analysis is based on the information described in the situation analysis as well as the expert- and case study interviews implementethe study.

A specific SWOT analysis of ecodiversification rural sector. This qualitative SWOT ana

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Figure 2-4: Structure for the assessment of the feasible potential of economic activities

In the first column of the above figure, the three dimensions are listed (R-Resources, E-Business Environment, C-Competences). The second column lists the criteria, which are related to the dimensions marked with an "R" for Resources and the digit 1-4 for the

hich are related to the rces", the first digit for

does not have a significant effect on the activity or it

criterion of this dimension. In the third column the factors are listed, wcriteria of the dimension marked with "R" for the dimension "Resouthe criterion (R "1") and another digit for the factor (R-1."3"). E.g. R-1.1 is the code for the first factor of the criteria for the physical resources, which is related to the dimension of resources. The ranking is done with semantic statements related to each factor (Table 2-5).

Those factors, which are in favour of a successful economic activity are scored higher than the average of 4 (>4). Other factors, which hinder the full utilization of the potential are scored below average (<4). The lower the score is, the more negative effects this factor has on the feasible potential of the activity. The higher the score is, the more positive effects it has on the feasible potential. If a factorcannot be scored due to the fact of missing or inaccurate information, it will not be scored at all.

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Table 2-5: Qualitative assessment of the feasible potential for specific economic activities Dimension Score with "1" in the respecitive ranking

Criteria Don't score, if not relevant or no answerFactors/ Preconditions Ranking from 1 to 7

R - Resources 1 2 3 4 5 6 7R-1.1 Availability of farmland, buildings and/or building sites is… low highR-1.2 Availability of machinery, technical equipment is… basic excellentR-1.3 Availability of animals is… low high

R1-Physical R1 2 3 4 5 6 7

R-2.1 Number of under-employed or unemployed is… low highR-2.2 Number of young people 20-45 years is… low highR-2.3 Qualification of the population in rural ares is… low high

R2-Human R1 2 3 4 5 6 7

R-3.1 Availability of savings from own resources is … low highR-3.2 Availability of capital from family members is … low highR-3.3 Availability of assets for loan security is… low high

R3-Financial R1 2 3 4 5 6 7

R-4.1 Natural resources of the business for exploitation are .. poor richR-4.2 Natural resources outside the farm for exploitation are .. poor richR-4.3 Natural resources for tourism development are … poor rich

R4-Natural RE - Business Environment 1 2 3 4 5 6 7

E-1.1 Number of potential clients/customers is … low highE-1.2 Purchasing power of the potential clients/customers is… low highE-1.3 The disposition of clients toward the product is .. low high

E1-Consumer, Clients1 2 3 4 5 6 7

E-2.1 Number of already existing competitors is … high lowE-2.2 Market access of potentional competitors is … easy difficultE-2.3 USP Unique selling propostion is … weak strong

E2-Competition1 2 3 4 5 6 7

E-3.1 Supporting partners (e.g. extension service) are.. weak strongE-3.2 Market partners for cooperation are … weak strongE-3.3 Partners for technical support are … weak strong

E3-Partners1 2 3 4 5 6 7

E-4.1 Administrative structures are … hindering suppportiveE-4.2 Transport infrastructure - physical market access is … bad goodE-4.3 Availability of telecommunication services is low high

E4-InfrastructureC - Competences 1 2 3 4 5 6 7

C-1.1 Knowlegde on business accountancy is … low highC-1.2 Knowledge on the economy of small entreprises is … low highC-1.3 Knowlegde on marketing of products and services is … low high

C1-Management1 2 3 4 5 6 7

C-2.1 Experience and knowledge on marketing are … low highC-2.2 Communication skills and knowledge are … low highC-2.3 Knowledge and experience with IT are … low high

C2-Communication1 2 3 4 5 6 7

C-3.1 Experience in the respective business idea is … low highC-3.2 Experience with credits for investment is … low highC-3.3 Experience with training and skills acquisition is …. low high

C3-Experience1 2 3 4 5 6 7

C-4.1 Readiness to take risks of failure is … low highC-4.2 Attitude towards self-employment is … negative positiveC-4.3 Motivation for change and learning is … low high

C4-Motivation

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The assessment of the criteria Physical Resources (R1) is based on three factors/preconditions (R-1.1; R-1.2; R-1.3).

R-1.1 = Availability of farmland, buildings and/or building sites

R-1.2 = Availability of machinery, technical equipment

R-1.3 = Availability of animals

Table 2-6: Calculation of the value of each criterion Dimension Score with "1" in the respecitive ranking

Criteria Score with "0" if not relevant or no answerFactors/ Preconditions Ranking from 1 to 7

R - Resources 1 2 3 4 5 6 7R-1.1 Availability of farmland, buildings and/or building sites is… low 1 highR-1.2 Availability of machinery, technical equipment is… basic 1 excellentR-1.3 Availability of animals is… low 1 high

R1-Physical R 2,7 0 4 0 4 0 0 0 3 R - Resources a1 a2 a3 a4 a5 a6 a7 R-1.1 Availability of farmland, buildings and/or building sites is… low 1 high R-1.2 Availability of machinery, technical equipment is… basic 1 excellent lowR-1.3 Availability of animals is… 1 high R1-Physical R cR1 b1 b2 b3 b4 b5 b6 b7 n

The value cR1 (2,7) of the criteria - the three factors R-1.1 (value 2), R-1.2 (value factors (n=3). Each relevant and assessedweight to the criterion.

cR1 = (b1+b2+b3+b4+b5+b6+b7)/n

with b1 = (a1 * R-1.1) + (a1

a1 = 1; a2 = 2; a3 = 3; an = number of assessed

The scores for the factorthe Ranking from 1 - 7. Once the experts are facriteria, the assessment

R1 - Physical Resources is the sum (8) of the score of 4), R-1.3 (value 2) divided by the number of

factor/precondition contributes with the same

*R-1.2) + (a1 *R-1.3) 4 =4; a5 = 5; a6 = 6; a7 = 7

factors

s R-1-1; R-1.2; R1.3 are marked with a "1", indicating the score of miliar with the factors/preconditions of one

can be done on the level of the criteria, with one single score for all three factors at once.

Figure 2-5: Example for the REC BI

The visualization of the REC BI (see Figure 2-5) supports the identification of needs and potential, while implicating the necessary interventions with measures in order to fully utilise the theoretical potential. Although all criteria have a rather similar effect on the theoretical potential (strengths), the weakness would be the limiting factor. The reduction of the specific weakness is as important as the further development of the strengths.

R-Ressources

01234567

R1-Physical R

R2-Human R

R3-Financial R

R4-Natural R

E1-Consumer, Clients

E2-Competition

E3-Partners

E4-Infrastructure

C1-Management

C2-Communication

C3-Experience

C4-Motivation

C-Competences

E - Business Environment

actual capacity average attainment

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2.2.3 Geographical Information System (GIS) for the identification of areaa high potential for diversification

s with

diversification the relevant statistical n a Geographical Information System (GIS). The thematic

GIS theoretical potential for the nomi

When the thematic maps are used to discuss the results with experts, providing visualized information, it is a powerful instrument to verify the result of the data analysis by expert knowledge and allows an intensive communication process between stakeholders (e.g. round table discussions).

The challenge of this area-based approach is the availability of relevant data on the related geographical scale. In Montenegro, the 21 municipalities and in Albania the 36 district

ere selected as geographical scale to visualize the quantitative assessment.

Similar to other studies on the development of rural o e s IS will reveal the limits of a sp ect to available data and its proce

T e ults of the data processe IS it b

For the identification of areas with a high potential for information is processed withimaps of a allow the identification of areas with a highspecific eco c activity.

s w

econ my, th re ults of the Gatial approach with resp ssing.

h interpretation of the res d in G is lim ed ecause of

• the lack of specific and relevant statistical data, • the lack of updated data,

• limited detailed geographical scale of the available statistical data.

Based on th mee above ntioned criteria of the REC BI, the most relevant indicators available on the geogr nd analysed.

Two types o a direct measurement of a criterion influencing th duced in an area, or tons of vegetables).

potential.

st detailed statistical data is available for criteria of physical (R-1) and natural resources (R-2). The data on land use, production of cereals,fruits, vegetables and animals is available onthe level of districts in Albania. The data resources (R-3) is lacking specific informatpopulation, which are not specific enough criteria. The same applies to the availability o

Indicators for the assessment of the dimsignificant when it comes to consumers (E-market potential by the number of consumData on the average consumption of each nt of the potential turnover. Unfortunately, this data again is not available from official statistical sources. However, the percentage of urban population can still be used as a proxy for assessing the market potential for processing and marketing products in rural areas,

aphical scale were clustered a

f indicators were identified. Indicators which allow e feasible potential (like hectare of vegetables pro

Some information cannot be drawn from direct measurable indicators, but from proxy indicators, which allow an approximation of the potential of a specific activity. The indicators are closely related to the factors which determine the criteria of the dimensions for assessing the feasible

For the dimension "R - Resources", the mo

the level of municipality in Montenegro and on for the assessment of the criteria of human ion, other than unemployment rates or active to make a representative assessment of the f own financial resources (R-4).

ension of the business environment (E) are 1). Any economic activity has to consider the ers or clients (e.g. urban population, tourists). consumer would allow an assessme

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because the urban population is the main target group for products within an area, whereas the rural population with a high degree of self-sufficiency bears a low market potential for

dis potential consumer within the

s in the same field of economic activities, is only available on a

istrative, transport, telecommunication), especially when it comes

no detailed

hich ion is the lbania on

products. If a product is durable, preserved or long lasting, it could be easily sold in more tant regions, which would reduce the importance of the

area. Clients for tourism development usually come from outside the area.

Only very limited statistical data is available for other criteria of the dimension of business environment (E). An indicator for the criterion competition (E-2), which could be illustrated by the number of companiegeneral level (e.g. cafes, restaurants and hotels). For the analysis of competition in a specific field of economic diversification, the statistical information usually is not available or would need a much more detailed analysis and empiric data analysis. The same applies to business partners (E3 - supporting partners, market partners, technical support) and infrastructure (E4 - adminto rural areas.

The dimension "Competences" is the one with the least available quantitative data. Official data for education and entrepreneurial skills is not available. There is information on the qualification of management skills (C1), communication skills (C2), experience in business management (C3) or the motivation for self-employment, wwould allow a specific assessment of areas (C4). A possible proxy for this dimensstart-up rate of businesses (Bönte, Heblich, Jarosh, 2008), which is available in Athe respective geographical scale.

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3 Socio-economic characteristics and situation of rural areas in Albania and Montenegro

This chapter gives an overview on the socio-economic characteristics and situation in rural areas of Albania and Montenegro, focusing on exogenous and endogenous factors, which are generally viewed as having influence on the diversification of income of rural households. Trends in the evolution of the main factors were analysed over a period of six years (2003 – 2008) based on statistical data at national level and, where available, at district level in Albania and municipality level in Montenegro in order to highlight specifications and/or discrepancies in rural areas required for the focused interpretation of diversification potentials and supportive diversification measures. Additional information was gathered by reviewing official programming and strategic documents, studies, project reports, and other statistical material and secondary literature. Qualitative results of the

Albania is located in the Southeast of Europe, with a surface area of 28,748 km2. The total length of the land borders is 614 km. The neighbouring country in the north is Montenegro (172 km of border), in the north-east - Kosovo (115 km), in the east the Former Yugoslav Republic of Macedonia (151 km) and in the south - Greece (282 km). The coast line on the Adriatic Sea and Ionian Sea is 362 km.

Albania's infrastructure, specifically in rural areas, is far below the standards of other European countries. There are 13,051 km of roads, of which 9,451 km were classified as rural roads, and 2,631 national roads (INSTAT 2008). Several highways and main road construction projects are ongoing to substantially improve the transport situation. One of them runs north-south from the border with Montenegro via Shkodër, Durrës and Vlorë to the Greek frontier, another one - east-west from Durrës via Elbasan to the Macedonian frontier, and one north-east from Kukës to Durrës. 1,500 km of regional and local roads shall be rehabilitated in parallel with international funding. The railway network has 447 km of single track not connected to neighbouring countries and in poor condition.

3.1.1 Situation analysis

Infrastructure

The water supply system in rural areas deteriorated during the first two decades of transition, mainly due to the lack of maintenance and poor management capacity. In 2008 18.7% of the people did not have sustainable access to water sources but trends in improving this situation in rural areas are positive (UNDP 2010). In general, a few densely populated areas do not have sewerage systems to evacuate waste water from the different sources. Solid waste collection and disposal service do not exist in rural areas. The electricity grid essentially reaches all villages, but many rural households face regular power cuts and supply problems still occur throughout Albania.

expert interviews in Albania (4 experts) and Montenegro (4 experts), the first round table discussion in both countries as well as the interviews with entrepreneurs in Albania (10) and Montenegro (10) are incorporated in the concluding SWOT analysis on the socio-economic situation in rural areas in both countries with regard to strengths, weaknesses, opportunities and threats for diversification potentials.

3.1 Albania

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Geography, natural resources and environment

ll s local government units (Bashki) with 72 of them

having city status (Qyetete; agglomerations with more than 20,000 inhabitants), and an

gro. The total lake 35,000 ha.

Agricultural land including pastures accounts for about 39% (2,875,000 ha) of the total

er, iron ore, nickel, salt, and hydropower.

of protected al logging and hunting are the most widespread

demography

been a dominant socio-economic ctor over the past 15 years, with both internal and external (international) flows, and

Albania is divided into 12 counties (Alb. Qarqe or Prefektura), 36 districts (Rrethie) as weas 308 communes and 65 municipalities a

overall 2,980 villages (Fshatra). The country is subject to a variety of climatic regions with the coastal lowlands having typically Mediterranean weather; and the highlands having a Mediterranean continental climate. In both the lowlands and the interior, the weather markedly varies from north to south. Annual rainfalls in different areas of Albania vary in the total volume and allocation. In the lowlands near the Mediterranean Sea, the rainfall varies from 1,000 ml to 1,500 ml annually, in the mountains rainfall comes up to 2,500 ml.

The natural conditions in Albania are characterised by large hilly and mountainous areas (70% of the country with the highest peak Mount Korab with 2,754 m), distinctive relief and only small areas of lowland. The mean altitude is 708 m. Erosion is a great threat to arable land and mountain pastures. The alluvial plain is poorly drained and is alternately arid or flooded, and the plain's soil is of poor quality. Good soil and dependable precipitation are found in intermountain river basins, in the lake district along the eastern frontier, and in a narrow band of slightly elevated land between the coastal plains and the interior mountains. The two lakes of easternmost Albania, Lake Ohrid (Liqeni Ohrit) and Lake Prespa (Prespa e Vogël) are remote and picturesque. Lake Skodra borders on Montenesurface is about 1

territory of Albania. Around 36% of the area is wooded land, which faced during the last two decades of transition immense damages due to illegal logging. An estimated 60% of agricultural land is affected by severe soil erosion resulting from deforestation, poor agricultural practices, and overgrazing. Other natural resources are primarily petroleum, natural gas, coal, bauxite, chromite, copp

Albania is very rich in biodiversity both fauna and flora conducive to eco tourism development. The Albanian forests and remote areas of the mountains host some of the large mammals, such as brown bear, gray wolf and lynx. The golden eagle and other birds of prey are still numerous: 338 species of animals and 308 species of plants are protected. A total of 365,000 ha of land or 12.6% of the country’s territory with 802 protected areas (IUCN category) divide into two strict Nature Reserves (0.17% of the country territory), 14 National Parks (6.14%), 750 Nature Monuments (0.12% with an average size of 800 km²), 22 Managed Nature Reserves (2.18%), 5 Protected Landscapes (3.33%), and other protected areas (0.63%) (UNEP 2007). In addition to this rather low share areas (EU average is 18.6%), illegviolations.

Population and

Albania is a multicultural, multi-religious and multiethnic country. The population was growing with a relatively low rate of 0.6% p.a. from 3,073,734 in 2001 to 3,194,417 in 2009 (INSTAT 2010, Census 2001). Albania’s demographic profile is characterised by three main phenomena: large internal and external migratory waves, declining mortality rates, and declining fertility rates (in 2008 with 1.4 children/reproductive woman). For European standards the Albanian population is young - with an average of 32.5 years, the population below 15 years of age is now decreasing, and the population over 65 years is growing faster than the rest of the adult population. Migration hasfa

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permanent and temporary migration. It is estimated that about 860,485 Albanians migrated

has the

in rural areas decreased from 57.3% to

the highest education index with 0.934 (enrolment rate in education of 83.1%), ith 0.878 (enrolment rate 70.3%), the Central Region with

abroad. This means that the migrants account for some 27.5% of the total population.

Map 3-1: Population density at district level

The population density is 110 inhabitants/km² on average. The least populated areas are the north-eastern and south-eastern districts (INSTAT 2010). The density of population shows a significant difference between mountain areas and the fertile lowland. Tirana (587 inh./km²)highest population density followed by 7 districts in the south and 3 districts in the north of Tirana, with an average of 120 to 300 inh./km². The rest of the country has an average population of less than 120 inh./km², with the lowest rates in the north-eastern and the southern part of the country (17 inh/km² in the district of Tropoje).

From 2001 to 2009, the share of population

50.08% (INSTAT 2010). The average annual depopulation rate in rural areas was 11.3% ranking from annual rate of 30.5% (increase) in the district of Sarande to 49.3% (decrease) in the district of Vlore.

Education and vocational training

Albania still faces a low educational attainment rate, which markedly varies across regions and income groups. The dimension “knowledge”, which is one of the three dimensions of the UNDP Human Development Index (HDI)18, and operationalised by the “Education index”19, shows regional differences20 despite overall continuous improvements since 2002. Tirana has followed by the Coast Region w0.864 and the Mountain Region with 0.856. The enrolment ratio in education of the country was on average slightly higher for women (68.8%) than for men (68.8%) (UNDP 201021). The literacy rate is on average 96.5%, but Albania’s children complete only 8.6 years of

18 The three dimensions of the HDI are: “A long and healthy life”, Access to knowledge”, and “A decent standard of living”; http://hdr.undp.org/en/media/HDR_2010_EN_TechNotes_reprint.pdf. 19 The “Education index” is calculated based on the indicators “mean years of schooling” and “expected years of schooling”; for the calculation of the HDI in 2010 see http://hdr.undp.org/en/media/HDR_2010_EN_TechNotes_reprint.pdf. 20 UNDP differentiates in the Human Development Report 2010 for Albania among Tirana and three geographical regions (Coast, Centre and Mountain), under which the respective Districts are grouped (UNDP 2010: 68). 21 Calculated on LSMS 2008 data.

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schooling. According to the census in 2001, 19.8% of the population had an upper secondary (general and vocational) level, ranking from 15.6% in the Diber region to 22.7%

INSTA ieve 40% less scores than students areas s than those from non-poor families

(Sultana 2006). Figures from the Living Standashow that the level of educational attainmediscrepancies are not too big. 78.2% of the pecompared to 65.1% with upper secondary schor below.

The vocational education in Albania has a genview, and a low percentage of learners. Yet, wAlbanian Vocational Education and Training (Vat the improvement of quality and labour markeand diversification of the overall course portfosector (ETF 2006b, 2010).

Economic development and business enviro

The total GDP of Albania amounted to 8.86 bn.capita in 2008 and a constant increase since 8 was 7.85%; between 2003 and 2008 it ranged from an annual average in 2008. The unemploymen2008. The number of people working in agricu37.4% (448,000 persons) worked in the nopersons) in the public sector out of a total of 926,000 persons in 2003). Employment in thdoubled in this period, whereas the agricultur se. Almost 2/3 of this employment is self-employm nt (and often in low-productivity activities), and up to ¼ is part-time employment (EFT 2006a). In rural areas, non-farm development is often informal and restricted to low-grade const uction, underdeveloped service sector, and petty trade (MAFCP 2007). SMEs dominate Albania’s economy representing 99.6% of all registered businesses. The share of the SME sector in GDP is about 73% and the sector employs 71% of all workers. SMEs in Albania e on the local market and lack

ess than 5.3% of the medium he last

in Tirana ( T 2009). Students from rural areas achfrom urban , and poor children achieve 40% les

rds Measurement Study (LSMS) data 2004 nt is linked to the employability, but the rsons with tertiary education were employed ool, and 56.4% with lower secondary school

eral low reputation from a qualitative point of ith support from EU and other donors, the

ET) system is undergoing an reform aiming t relevance of existing courses with flexibility lio, as well as cooperation with the private

nment

EURO, with an average of 2,785 EURO per 2003. The annual growth rate in 2005.5 to 6.1%. The inflation rate was 3.40% as t rate decreased from 15% in 2003 to 13% in lture was 47.5% (569,000 persons) in 2007; n-agriculture sector and 15.1% (181,000 1,198,000 employed persons (compared to e private business outside agriculture has al sector only reports a moderate increae

r

concentratexport competitiveness. Less than 1.3% of the small and lcompanies in Albania have undertaken joint ventures with foreign partners over tthree years (EU SME Project Albania: 2010).

Table 3-1: Main macro-economic indicators of Albania (2003 - 2008)

Indicator Units 2003 2004 2005 2006 2007 2008 Population ,000 3,111 3,127 3,142 3,151 3,162 3,182 GDP (in current prices) mill. EUR 5,048 5,883 6,561 7,168 7,866 8,859 Share of value added: mill.

EUR 4,611 5,315 5,927 6,477 7,110 7,907

GDP/capita (calculated) EUR 1,623 1,881 2,088 2,275 2,488 2,785 Economic growth (change in GDP) % 5,80 5,70 5,70 5,50 6,10 7,85 Unemployment rate (1) % 15,00 14,40 14,10 13,80 13,50 13,05 Inflation (yearly average) % 3,30 2,20 2,00 2,50 3,10 3,40 Exchange rate (1 EUR =) Lek 137,50 127,70 124,20 123,10 123,63 123,20 Source: Instat 2009

Agriculture, forestry, hunting and fishery had a share of 18.50% of the total GDP in 200but in absolute terms decreased by 21.4% since 2003. In the same y

8, ear industry had a

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share of 9.00%, construction of 12.4% and service, transport and communication of 62.1%. The latter experienced the highest growth rate in terms of value added with an increase of 14.9%. The highest share of employment in the 2nd and 3rd sector apart from Tirana is found in the counties of Vlore, Durres, and Gjorokaster.

Figure 3-1: Share of added value of different sectors in the Albanian economy (2003 - 2008)

Figures from 2008 (INSTAT, 2009) on the size of registered business based on employee categories show

regional concentration in the urban areas of Tirana and Durres.

that 96.2% of the existing enterprises are micro-enterprises with less than 10 employees, and only 0.8% of the enterprises had 50 or more employees with a

Source: Instat 2009 The north-eastern Counties of Kukes and Lezhe have the lowest share of enterprises and the smallest in terms of size. With regard to an overall impressive start-up rate in 2009, micro and small enterprise start-ups in the counties of Diber, Vlore and Kukes were above average. The figures show that the regulatory environment for businesses has improved significantly. However, business activity and business growth did not entail a respective job growth22.

Table 3-2: Active enterprises by size and start-ups by counties in Albania (2009)

Groups by no of employees Counties Total employees, share in %

1-4 5-9 10-49 50+ New in 2009

As share of % in

total Total 106,477 97,900 4,539 3,238 800 12,823 12.0 Share 100% 91.9% 4.3% 3.0% 0.8% Berat 4,146 3,893 112 114 27 451 10.9 Dibër 1,945 1,762 84 85 14 303 15.6

Durrës 12,609 11,590 561 363 95 1,433 11.4 Elbasan 7,095 6,554 290 210 41 734 10.3

Fier 9,435 8,804 304 279 48 869 9.2 Gjirokastër 3,008 2,726 148 34 100 332 11.0

Korçë 7,812 7,350 220 4 201 1 784 10.0 Kukës 981 851 69 54 7 137 14.0 Lezhë 2,990 2,725 139 2 103 3 381 12.7

Shkodër 6,483 6,012 219 204 48 823 12.7 Tiranë 41,007 37,332 ,0012 1,295 379 5,312 13.0 Vlorë 8,966 8,301 392 43 1230 ,264 14.1

Source: Instat 2010

22 Source see World Bank and IFC – Doing Business ranking http://www.doingbusiness.org/rankings.

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Evaluation results for Albania of the OECD SME business index in the Western Balkans in 2007, based on the performance of the countries within 10 dimensions23 on a ranking between 1 and 5, highlighted a general low performance of the SME sector (OECD 2007). All 10 rankings were below 3, with the weakest scores (below 2) related to the dimension availability of skills, improving online access, strengthening technological capacity and e-business models and small business support.

Household income portfolio

High GDP growth rates have been accompanied by a reduction in poverty. However, there are still significant regional, urban-rural and gender disparitiecapital development. In 2008 Tirana had a GDP index ocompared to a GDP index of 0.856 and HDI score of 0.794 of the Mountain Region. As regards gender inequality, the4,887 USD for women and 8,845 USD for men (UNDP 2010).

While overall rates of absolute poverty24 have fallen, largely and increased remittances, the situation needs to be analyseline has fallen from 25.4% in 2002 to 12.4% in 2008, with living in poverty in 2002, compared to 14.6% in 2008; apopulation living in poverty in 2002 compared to 10.1% in2010). Although urban poverty rates are lower than rural poverty rates, they have decreased less (93.1% compared to 102.7%) in the perio to 2008. Even this

gregation may be insufficient, as it stresses the extreme exclusion faced y those urban migrants living in difficult conditions in impromptu settlements on the edge of

2002 2008

s, which also affect the human f 0.775 and a HDI of 0.854, in the least developed districts earned income (in PPP) was

as a result of sustained growth d further. The absolute poverty 29.6% of the rural population nd with 19.5% of the urban 2008 (INSTAT 2009, UNDP

d of 2002urban–rural disagbbigger cities. The importance of remittances is indicated by the fact that poverty rates tend to be higher in those households with no member who has permanently emigrated than in those with one or more members abroad (UNDP 2010).

Table 3-3: Poverty headcount ratio in rural and urban areas (in %, 2002 / 2008)

2002 2002 2002 2008 2008 2008 Region Urban Rural Total Urban Rural Total

Co 0.2 2 10.7 astal 2 0.9 20.6 15.0 13.0Centre 19.3 28.5 25. 1 6 0.3 10.9 10.7Mountains 24.7 49.5 44.5 14.7 29.8 .6 26Tirana 17.8 17.8 8.7 8.7 Albania .6 25.4 10.1 14.6 12.4 19.5 29Source: Instat 2009: Tr Pover

As ds the r l dis the mountainous districts the absolute poverty still ghest in the country; the share of the absolutely poor po in the ru eas o oastal icts is h r than in e centr

Different empirical surveys illustrate that the total figures on the size and composition of the income portfolio must be regar ith sus n, but regional discrepancies are prevailing.

ends in ty

regar era

giona c t

repancies in rural areas, inte is he hi

fpu onlati ral ar the c distr ighe th e.

ded w picio

23 The 10 criteria are: 1. Education and training of the en eurs, 2. Cheaper and faster start-up, 3. egislatioregulation, 4. Availability o 5. Improving on-line acce Getting m ut of the single market, 7. Taxation and

ngthening the technological capacity of small enterprises, 9. Successful e-business models and top-d 10. Developing stronger and more effective representation of small enterprises’ interests.

24 The poverty measure is calculated as the share of population living in absolute poverty below the national poverty line of LSMS World Bank methodology using consumption data as regarded more reliable indicator poverty in an

treprenss, 6.

Better l n and f skills, ore o

financial matters, 8.Streclass business support, an

USD 2 based on economy with a large informal sector like in Albania. (Instat 2009, UNDP 2010).

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According to the Household Budget Survey 2006 – 2007, the total household income composition derived on average from wage labour (33.13%), from private businesses, handicrafts, family farms or self-employment (33.13%), from pensions (15.62%), remittances (13.04%), money taken from family/friends living in Albania (1,03%), other payments and economic aid (2.78%), and other income (0.70%) with a total income of 418,094 LEK on average (about 3,394 EU

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R). A distinction between rural and urban households was not made. The lowest average total income was reported from northern

), whereas the highest household income was reported from

ssing. At the household level,

in Kukes it was 5.3%.

o ukes and koder 2007)

Source: Meyer et al. 2008

regions (Kukes, Lezhe, Elbasanthe regions of Tirana, Vlore and Gjirokaster.

A World Bank survey of rural household income has found that agriculture accounted for 37% of total income, remittances for 31%, and non-farm business for only 16% of total income. A typical rural household in Northeast Albania, the poorest region of the country, earned 67% from non-agricultural sources, principally remittances, 29% from agricultural, including 21% of livestock production and only 1% from proceearning and providing remittances through migration is often seen as a way to supplement consumption or invest in home improvement, education or farm inputs25.

Another study from 2007 on the combination, sources and contributions of the income of rural households in the districts of Shkoder (82 households) and Kukes (76 households) showed that 66% of the households in Shkoder and 50% in Kukes were relying on a combination of two to four sources of income (combinations between agriculture, self-employment, waged employment, and remittances). 98.8% of the households in Shkoder and 86.6% in Kukes had income from agriculture, with 32.3% being the only income source in Shkoder and 39.5% in Kukes. Not a single household in Shkoder had income from self-employment in non-agricultural businesses as the only source of income, whereas in Kukes the share of these households was 2.6%. The share of households with waged labour as the only source of income in Shkoder was 1.2%, whereas

Figure 3-2: Contribution of single income source to overall household portfoli(K Sh

25 World Bank, Rural Strategy Albania – Underpinning Growth and Sustainable Development. Remittances represent a majosource of income for Albanian economy. According to the Bank of Albania, remittances for 2005 are estimated to be EURO 802 million, or 11.6% of Albanian GDP (see Skrelji 2007).

r


The average total annual income per household was 7,080 EUR (1,660 EUR PCI) in Shkoder, and 3,200 (510 EUR PCI) in the district of Kukes. Around 60% of the farm household incomes come from farming activity, whereas in Kukes it was only about 40%. 22% of income derive from self-employment or waged labour in both districts. The level of income from agriculture in Shkoder is 3,760 EUR, almost twice as high as in Kukes (1,440 EURO) albeit bigger sized farms. With regard to average annual remuneration from self-employment in a non-agricultural business, the level in Shkoder is 2,595 EURO, 10% higher than in Kukes (2,280 EUR). Waged labour was 280% more in Shkoder than in Kukes due to the educational level of the respondents. Social transfer and remittances accounted for 38%

y one third of the

Source: Instat 2009

The potential for tourism development is available in many areas, but still not utilized and valorised. Tourism activities concentrate on the coastal area and some specific areas, like Ohrid and Prespa Lake. The already existing “sun and sand” beach tourism has some negative impact on the effort to develop a high-value cultural or eco-tourism sector. The massive sun and sand tourism is a highly competitive segment that attracts primarily discount-oriented travellers, but not tourists looking for authenticity. Mainly presented in all-

isolated tourism complexes, it will likely do great harm to the country’s efforts to build a high-value sector and will not have the expected spill-over effects for rural tourism (Albanian Government 2005).

n-

of the total income of a household in Kukes, compared to 14% in Shkoder (Meyer et al. 2009).

Tourism

Tourism has grown significantly over the past years; however, the effects of the global crisis on the tourism industry also affected Albania. The country is growing as seen by the increasing number of registered overnight stays in hotels. Approximatelforeign tourists are Albanians living abroad (National Tourism Agency 2010).

In 2008, over 200,000 Albanians were involved in tourism businesses, with an expected growth in the forthcoming years. The number of Albanian tourists is growing more rapidly than foreign tourists. Approximately one third of foreign tourists are Albanians living abroad (National Tourism Agency, 2010).

Figure 3-3: Number of overnight stays of foreigners and Albanians in hotels (2003 - 2008)

In tourism, the grey market should not be underestimated. Like in Montenegro, it probably accounts for double to three times the number of registered tourist overnight stays. The available private rooms are estimated to encompass in 2011 approximately 16,500 beds, in addition to the estimated 32,000 hotel beds compared to 8,649 registered beds.

inclusive packages in

Albania has the capacity to receive substantially more international overnight tourists than itis currently receiving, however, among tourism professionals it is still regarded as “no

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image” and a place for “adventurers” and “pioneering” tourists who are willing to be flexible and “forgiving” in exchange for being among the first ones to experience a unique new destination (UNDP 2005). The strategy and action plan for the development of the Albanian tourism sector based on cultural and environmental tourism highlights the importance to establish a new segment of tourism with the focus on attracting educated, independent travellers and specialized group travellers (upper-middle income individuals from Europe and North America). Potential is seen in the rural tourism to further develop nature tourism (trekking, mountaineering, wildlife, diving, hunting and fishing), history and archaeology tourism, as well as culture-specialised tourism products (folk festivals, rural lifestyles, village celebrations, etc.). With the renovation of traditional farm houses for accommodation, more exclusive-oriented eco-tourists could be targeted (Ministry of Territory Adjustment and Tourism 2003, Government of Albania 2005). With the completion of major infrastructure

uch as the new motorway from Tirana to Kukes, the attractiveness of remote

a), 1,027,000

southern coastal plains). Irrigation possibilities do exist

l as citrus in the southern parts. The more extensive, hilly areas (transitional sub-mountain zone) are mostly planted with fruit trees, olives, and grapes, temperate fruit trees, maize and wheat. There are extensive areas omountainous zone consists of intermountain valleys and summers and cold winters. Crops, such as maize, forages,wheat, fruit trees such as apples and plums can be grownpotatoes to be grown at higher altitudes. The even higher and pastures for livestock. All over the country pasture qucommon (Skreli 2007).

Table 3-4: Share of agriculture in the economy (20 Unit 2003 2004

projects, smountain areas can be valorised.

Agriculture

In Albania 699,000 ha are classified as agricultural land (24% of the total areha as forest (36%) and 446,000 ha as pasture (15%) (Cela 2010). The remaining 25% are classified as other types of land use, including urban areas, lakes and waterways, and unused rocky and mountain land. Albania can be divided into three major agro-ecological zones. The lowlands consist of the coastal plain and are the most productive agricultural areas of the country (northern andand a wide range of crops can be produced, such as cereals, forages, vegetables and grapes, as wel

f low and shrub forest. The high mountain peaks, with mild summer vegetables and winter in the valleys, with barley and zone mostly consists of forests

ality is poor and over-grazing is

03 – 2008) 2005 2006 2007 2008

Share of agriculture in GDP (current prices) % 23.5 22.3 20.6 19.4 18.9 16.0 Share of agriculture in total employment % 58.2 58.6 58.5 58.0 47.0 58.4

GAO at basic farm gate prices mill EUR 1,333 1,464 1,547 1,606 1,819 1,485

GVA at basic farm gate prices mill EUR 926 1,014 1,014 1,043 1,096 1,217

Share of agri-food export in total goods export % - - 8.5 8.6 7.7 6.6

Share of agri-food import in total goods import % - - 16.2 17.8 16.7 16.6

Source: Instat 2009

Agriculture and food production plays an important role in the economic development with a share of 16.0% of GDP in 2008, although declining trends are reported. GVA in agriculture per capita of rural population was on average 896 EURO, with a share of 18.5% of the total GVA in 2008 (Instat 2008). The overall agriculture and food production has slightly increased in the last ten years amounting to 2.14 bn EURO in 2008, which makes an increase of 12% compared to 2005, and out of which 26% was agro industry. Almost 60%

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of the population are self-employed or employed in the agricultural sector, with the highest rates in the regions of Berat, Diber, Elbasan, and Fier.

Figure 3-4: Agricultural land use – harvested area by main crops in 2008

Out of the total arable land (584,000 ha in 2008), 33.2% was utilised for fodder production, 14.3% for wheat, and 8.4% for maize and other cereals showing also a big share of unutilised areas and fallow land.

Source: MAFCP Statistical Yearbook 2009

There is an increased specialization trend both in livestock and in plant production. The value of production of field cops and fruit trees has constantly been increasing since 2003. This tendency is specifically noticed in fruit trees mainly in the regions of Korca and Diber. The vegetable sector grew particularly in the plain areas of the regions Fier, Berat and Durres, with an associated increase of cultivation under glass by almost 30% between 2003 and 2008.

The consolidation process is even more accelerated in the livestock sector, where the number of bigger farms possessing between 5 and 50 cattle tripled between 2003 and 2008, alongside with increasing commercially sized flocks of sheep and goats. However, the overall number of animals has decreased in the same period by 26.4% for cattle, 11.4% for sheep and goats, and increased by 18.0% for pigs, 32.7% for poultry, and 57.7% for beehives. A slight decrease in the value of livestock products was reported in 2008 (MAFCP 2009).

Figure 3-5: Value of agricultural production (2000 – 2008)


In 2008, 357,000 family farms (9.6% less compared to 2003) did exist in Albania with 88.8% being smaller than 2 ha (10.7% decrease) and managing 73.3% (1.6% less) of the arable land. Despite this consolidation process in the agricultural sector, the average farm size of

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1.2 ha (1.1 ha in 2003) remains very low, with the largest average size in Lezhe (1.56) and the smallest in the district of Shkoder (1.02 ha). A huge majority of the farms are therefore subsistence or semi-subsistence farms and are on average fragmented into 4.1 parcels per farm (average size of 0.3 ha). The highest number of fragmentation is found in Korce (6.4),

lds crop d a above,

and the average size of a farm household is 4.6 members.

The way of development in agriculture is varying a lot throughdepending on the access to financial and natural resources. Themechanisation, but big disparities exist between the fertile areaareas. The discrepancy in the mechanisation level is illustrated bethe plains of Korce one can find highly intensive apple orchardnearby at Prespa Lake one can find poor soils, small and fragmetechnological level based on horse power.

Table 3-5: Mechanisation level of farms (2007 / 2008)

Size of farms By hand only With animals ith tractors

whereas it is 2.8 in Shkoder (MAFCP 2009). In more than 80% of the farm househoproduction an nimal production is combined. 30% of all farmers are 65 years and

out the farm households re is a tendency to more s and the less favoured st by the two pictures. In s, but only some 10 km nted plots and a very low

W 2007 2008 2007 2008 07 2008 20

0-1 ha 121,297 118,863 46,435 40,452 114,985 97,976 1-2 ha 73,389 71,003 23,640 16,357 119,760 113,095 >2 ha 22,426 16,640 6,130 4,277 40,215 36,243


Forestry

Forests comprise 36% of the country's land area and constitute an extremely important natural resource base. Two thirds of the forests are state-owned (66%), 32% are communal forests, and only 2% are private forests (2007) (FAO 2009). One third of Albania’s wood resources are classified into high forests with about 47% of the total wood resources,

e low share of private ownership of forests in the rural areas and the lack of long- current

n, and the remaining is used for industry and export. Although the potential for energy use is high, the demand of the industry is very big, what currently ensures a good income for rural households (FAO 2009). A domestic market for wood materials such as pellets does not yet exist and there is not a single plant to process or use it.

coppices (29%) and bushes (24%). Only 10% of the high forest area (about 5.87 million m³ wood), 50% of the coppice area (18.25 million m³ wood) and 100% of the bush area (30 million m³ of wood) are used as fuel wood. The total reserves of fuel wood in Albania are estimated to be about 6 Mto. The sector has the potential to increase its contribution to the economic growth by generating revenues from timber sales, valorising wood residues, and producing biomass for renewable energy. However, misuse and illegal logging are very high due to thterm user rights of private persons for state or communal owned forests. Theaverage yield of firewood is 35-40% of the total forestry productio

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Credit supply

In 2009, 524 bank branches existed throughout the country showing an increasing trend. The least number with nine and eight branches was found in Kukes and Diber.

Figure 3-6: Share of credits per sector (in %)

The trade sector with 32.6% and the construction sector with 21% received the highest share of

portfolio. A decreasing trend was ved in the last three years.

Source: 10: Mon port fo

Figure 3-7: Evolution o it in st ra 200 10)

h r s of 12 to 0 credits are

unfavourable for any business activity in addition to the lack of collateral specifically in rural

8,0

10,0

Agriculture, hunting and silvicuture

credits (by amount) from the bank sector in 2009. The flow of credits to the three sub-sectors of agriculture, hunting and silviculture, restaurant and hotel, and fishery is very low - with about 6.1% of the total loan

obserBank of Albania, 20 etary Policy Re r 2009

f cred tere tes ( 7 - 20

The igh inte(

est rate14% in 201 ) for

areas.

Subsidised credit lines from the government and the international donor community partly provide alternatives for SME and the agricultural sector.

Source: Bank of Albania 2010

The financial situation of SMEs is not in favour of economic growth. Attempts to improve the conditions for the SMEs to draw bank loans were based on donor organisation (USAID and UNOPS) funding, but still excluding the majority of SME. The requirements for signing a loan contract are very high in particular for start-ups. The necessary loan collateral varies from 120% to 150% of the loan (Gov. of Albania, Ministry for Economy, Trade and Energy, 2007).

0,0

2,0

4,0

6,0

2002 2003 2004 2005 2006 2007 2008 2009

%

Fishery

Restaurants and hotels

16 %

18

te

10

12

14

2007 2008 2009 10/2010

Inte

rest

Ra

3-5 years over 5 years

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3.2 Montenegro

d in the southeast of Europe, with a surface area of 13,812 km2. The

Serbia and ) and in the south-west - Croatia (14

km). The Adriatic Sea coastline is 293.5 kilometres long. The distance between the westernmost and the easternmost point is 166 km. The dand northernmost point is 193 km.

3.2.1 Situation analysis

Infrastructure

The physical infrastructure standard and quality is belowhas sea and air access. The road network is 7,368 km lo(2006) with reasonable connections of domestic roads antotal length of the republic's rail network is 250 km runand connecting to the European network. All villageconditions of the water supply pipes and the lack of wa t

natu

Administratively and territorially, Montenegro is dividewhich include two subdivisions of Podgorica municipalitybasic units of local self-governance with a total number 40 settlements are classified as "urban" (i.e. cities and to1,116 rural (villages). On the basis of common features and natural resource endowment, Montenegro is nally classified into five characteristic agro-natural regions with adjoining municipalities, which are taken for the study as most appropriate grouping of municipalities share the Coastal Region with six municipalities (HerceUlcinj), the Central Region of Zetsko-Bjelopavlici withPodgorica) the Karstic Region with two municNorthernmountainous Region with five municipalities (Plejvja, Pluzine, Zabljak, Savnik, Mojkavaac), and the Polimsko-ibarski Region with six municipalities (Bijelo Polje, Berane,

plain completely disappears in the north, where Mount Lovćen and other mountain ranges plunge abruptly into the inlet of the Gulf of Kotor. Montenegro's section of the karst generally lies at elevations of 900 m above sea level, although some areas rise to 1,800 m. The lowest segment is in the valley of the Zeta river, which flows at an elevation of 450 m. The river occupies the centre of Nikšić field, a flat-floored, elongated depression typical of karst regions. The Zeta River Valley, or Bjelopavlići Plain, merges in the southeast with the second significant flat lowland in Montenegro, the Zeta Plain. The two plains are the most densely populated areas of Montenegro. The high mountains of Montenegro reach up to

Montenegro is locatetotal length of the land borders is 614 km. The neighbouring country in the west and partly in the north is Bosnia and Herzegovina (225 km); in the north and north-east -Kosovo (203 km), in the south-east - Albania (172 km

istance between the southernmost

European standards. Montenegro ng, with 4,742 km of paved roads d with neighbouring countries. The ning from Bar-Podgorica-Belgrade s are electrified. Poor physical stewater collection and treatmen

facilities are a problem throughout the country.

Geography, ral resources and environment

d into 21 municipalities (opština), (gradska opština) representing the of 1,256 settlements, out of which wns above 10,000 inhabitants) and like climatic conditions, geography conditio

owing similar features. The zones g Novi, Tivat, Kotor, Budva, Bar, two municipalities (Danilovgrad, iaplities (Niksic, Cetinje), the

Rozsje, Andrijevica, Plav),

Montenegro is characterised by a diversity of geo-morphological shapes with hilly and mountainous areas with distinctive relief and only small areas of lowland (15% of the surface is located at an altitude over 1,500 m, 40% between 1,001 and 1,500 m and 35% over 1,500 m). The terrain ranges from high mountains in the northern part of the country through karst segments in the central and western part to a narrow coastal plain. The coastal

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2,523 m. The mountainous regions are noted for their numerous lakes. Montenegro's and Tara. The largest lake in Montenegro and the Balkans is Lake

owfall in the mountains and a hot and dry summer.

xite, fresh water and adequate water supplies for hydropower, timber and a climate conducive to agriculture and tourism. In 2008, agricultural

for 38% (516,219 ha) of the total territory of Montenegro, 54% (743,609 ha)

given coastal, wetland and various types of Region

ic genera and families. Montenegro is

biggest rivers are LimSkadar (370 km²) bordering on Albania and lying with about 60% within Montenegrin territory.

The climate in Montenegro severely changes between Mediterranean, sub-continental and continental climate on a relatively small area. The coastal line gets between 1,260 (Ulcinj) and 1,940 millimetres (Herceg Novi) of annual rainfall, the central area between 2,000 and 4,500 millimetres, while the continental area has the least amount of rainfall ranging from 800 millimetres (Pljevlja) to 1,345 millimetres (Mojkovac). The climate is characterized by a short humid winter with intensive sn

Natural resources are primarily bau

land accounted of the land is covered by forests (83.5%) and woodland (16.5%). Although the natural conditions in Montenegro are suitable for a diversified development of agriculture, they are at the same time extremely complex and are limited by factors like rainfall, soil structure, and altitude.

There are numerous monuments of nature and specific natural landscapes creating an attractive tourism destination, especially for nature tourism or eco-tourism. The diverse landscape has resulted in significant biodiversityforest ecosystems in the mountains and hills. A unique cave fauna in the Karstic includes not only endemic species but also endemcategorized by Conservation International (major US-based NGO) as a biodiversity “hotspot” in the Mediterranean Basin, but uncontrolled clear cutting, extensive wildfires, and environmental deterioration threaten its high level of biodiversity (Grimes et al. 2005).

Protected areas of nature in Montenegro encompass 7.72% of the state territory. Five national parks cover the largest part of that territory:

• NP Skadar Lake (40,000 ha), NP Lovćen (6,220 ha), NP Durmitor (39,000 ha), NP Biogradska gora (5,400 ha), and NP Orjen (19,000 ha).

Internationally protected areas of nature are: • The river Tara valley (UNESCO, World Biosphere Reserves); Durmitor mountains with

the canyon of the river Tara (UNESCO, World Natural Heritage); Kotor-Risan bay (UNESCO, World Natural and Cultural Heritage); and Skadar Lake (Ramsar site, habitat of swamp birds). They cover 237,899 ha or 17.2% of the state territory.

Population and demography

Montenegro is a multiethnic, multireligious and multicultural country possessing a rich cultural heritage. According to the last population census in 2003, Montenegro has 620,145 inhabitants with 3.43 household members on average, a dependency ratio of 1.4 and an active population (aged between 15 and 64 years) of 79.4% (Monstat, Statistical Yearbook 2009). The population density is 45 inhabitants/km² ranging from 5 inhabitants/km² in Savnik and Pluzine to 296 inhabitants/km² in Tivat. The capital city of Montenegro is Podgorica with a population of 169,132 inhabitants, while the old historical royal capital Cetinje has 18,482 inhabitants.

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Looking at the main characteristics of rurality other than the types of settlement, data from the population census 1991 and 2003 were taken into account26. The total share of rural population has continuously decreased from 47.15% in 1991 to 43.9% in 2003 and 38.0% in 2010 (Monstat 2009). This equally applies to the majority of municipalities, except Herceg Novi, Kotor, Mjokovac, Savnik and Tivat. The highest average rate of depopulation is

ing

migration of young people

of

more obvious in distant

mountainous north-eastern areas. Some northern municipalities

as indicated by the higher share of agricultural

Monstat 2003). The school attainment of the employed

recorded in the northeastern (Polimsko-ibarski) region with 12.5% and the northern municipalities (11,7%) (see Annex).

Map 3-2: Population density by Municipalities (Census 2003)

A negative balance of migration (about 1% per year) and the growindex of age groups indicate a moderate depopulation of rural areas and a simultaneous ageing with a considerable out-

and with 38% of the overall population living in rural communities. About 8% of the Montenegrins live or work abroad (Monstat 2009, Census 2003). Negative demographic and economic trends (loss active population) are

rural areas in the

lack in basic prerequisites for social and economic development and depend more on agriculture

population.

Education and vocational training

Access to education and training is generally good with 97% enrolment for primary schools (7-14 years) and an overall enrolment rate for secondary education of 48.4 % (Monstat 2003). The ratio of third level education was 12.6%, whereas the rate in the Polimsko-ibarski Region was with 7.8% and in the Northern-mountainous municipalities with 7.2% below the country’s average (

26 A population and housing census is planned for 2011.

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population was 11.4% (in 2008) with vocational training after primary school, secondary general education (7.0%), secondary vocational training (48.0%), and tertiary education (21.3%), thereof 15.4% with the second stage of tertiary education (Monstat 2009). The combined primary, secondary and tertiary gross enrolment ratio has increased from 2003 by 6.7% to 80.7% (UNDP 2009). OECD indicators have pointed to a close relationship between education level, employment opportunity and income in Montenegro. The risk of unemployment is reduced with an increasing level of education attainment. However, the

ur forc of unemployment hose c the question how

effective the secondary schooling system is in preparing people foand skills required by the evolving market (Gribben 2008). Howeducational sub-systems or special issues have started and authnational life-long learning agency to participate in the EU’s Life-LAs for other sectors, the Montenegrin vocational education systeis organized in three secondary agricultural schools (Bar, Beeducation in agriculture is provided in the Biotechnical Faculty in P

Economic development and business environment

The total Gross Domestic Product (GDP) was around 3 billion EUamounts to EUR 4,702 (Monstat 2009)27, which is just about 20%(about 23,600 EUR). Most important sectors are the service sGDP) and tourism (around 21% of the GDP). Primary agriculture the GDP and together with processing industry for around 20%economic crisis has affected Montenegrin economy that is maiservices. The tourism sector reported a rapid growth in 2006, growth rate was smaller in 2009 due to the global economic crisiscollecting budgetary revenues and in increasing the employment

Table 3-6: Main macroeconomic indicators of Monteneg

Indicator 2003 2004 2005 2

2007 labo e survey highlighting the more or less similar rates amongst t ompleting primary and secondary education prompts

r acquiring the knowledge ever, reforms in different orities have established a ong Learning Programme. m in the field of agriculture rane and Šavnik). Higher odgorica.

R and the GDP per capita of the average of EU-27

ector (around 50% of the accounts for about 11% of of the GDP. The global

nly based on tourism and 2007 and 2008, while the . This caused problems in

rate.

ro (2003 - 2009)

006 2007 2008 2009 GDP per capita, in EURO 2,435 2,684 2,912 3,443 4,484 4,908 4,702 Growth rate of GDP - % 2.5 4.4 4.2 8.6 10.7 6.9 -5.7 Inflation rate (annual average) - % 6.7 4.3 3.2 2.0 4.5 8.2 3.4 Unemployment rate - %28 25.8 22.6 25.4 29.6 19.5 16.4 19.1 Source: Monstat 2008, 2009

The import of commodities amounted to about EUR 1.9 billiamounted only to about EUR 0.5 billion in the same year. Thiproblems for the sustainability of the economy. The index of earnand contributions) was 113.4, whereas in agriculture and forestry retail trade and repair 107.2 and in the hotel and restaurant secto

High unemployment, a high share of a grey market and regional e key political f employment in agriculture, forestry and water supply

on in 2008, while export s huge unbalance creates ings in 2007 (without taxes it was 120.3, in wholesale, r 107.2 (Monstat 2009).

disparities arand economic problems. The share o(including forestry) in 2008 was 7.6% compared to 71.0% in service and 21.4% in industry. The employment rate in the restaurant and hotel sector was 7.7%. The proportion of unemployed to employed persons in the northern municipalities is the highest with 0.64 compared to 0.26 in the central and coastal region (Monstat 2009), what is linked to the

27 MONSTAT Publication No.88 – Gross Domestic Product of Montenegro 2009, published September 2010

uced leading to lower figures (Monstat 2008). 28 In 2007, a new unemployment measurement was introd

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share of agricultural population (13.7 % in northern, 3.1% in central and 1.8% in coastal municipalities), whereas the share of active population was in all the regions similar to the total average of 42.5%. The overall share of women in employment was constantly 43.9% during the period 2004 to 2008. The lowest share of employed women was registered in the municipality of Plav (31.1%) and Pljevlja (33.6%), but with no distinct pattern between rather urban and rural municipalities (Monstat 2009).

In 2009, 42,018 enterprises were registered in Montenegro, compared to 33,576 in 2008 showing a growth of more than 60% compared to 2005 (Monstat 2009; DDSME 2010). The sectors with the highest overall growth rates in the number of businesses from 2005 to 2008 were construction with 213.6%, hotels and restaurants with 69.3%, and electricity, gas and water with 55.9%. The manufacturing sector has grown by 35.8%, the wholesale and retail trade incl. repairs by 32.1% and the agriculture and forestry commercial holding sector by only 15.1%. The lowest share of registered businesses in the 2nd and 3rd sector in this period was reported in the municipalities of the North-mountainous Region with 4.8% and in the municipalities of the Polimsko-ibarski Region with 11.1% (Monstat 2009).

The largest number of registered enterprises was in the municipality of Podgorica 11,542 (27.5%) followed by Bar 4,854 (11.55%) and Budva 4,751 (11.3%), while the smallest

(0.49%), Andrijevica 179 (0.42%),

1,497 (9.83%) and e in the 05,038

e th es b em eellowed by micro co ie 0, 29 , en ise

ntrepreneurs h he llest mber of employees at 2,979

number of registered enterprises was in Zabljak 206Pluzine 62 (0.15%) and Savnik 59 (0.14 %). The largest number of active enterprises was in the Municipality of Podgorica 4,699 (30. 85%), Budva 1,813 (11.9%), Bar 1,449 (9.51%) and Herceg Novi 1,394 (9.15%), while the smallest number of active enterprises was in Mojkovac 124 (0.81%), Plav 91 (0.59%), Zabljak 62 (0.4%), Andrijevica 36 (0.42%) and Savnik 21 (0.13%). In terms of geographical distribution, the central region accounts for 43%, followed by the southern region at 42% and the northern region of Montenegro at a mere 15%.

In 2009 the number of active SMEs was 15,229. Within the SME sector, micro companies account for 11,883 (or 78.02%) followed by small enterprises at entrepreneurs at 1,423 (9.34%), while medium enterprises have the smallest sharSME sector (426 or 2.8%). At the end of 2009, the SME sector employed 1individuals. Medium sized enterprises account41,361 (39.37%), fo

d for e larg t num er of ploy s at mpan s at 3 923 ( .44%) small terpr s at

29,775 (28.35%), while e(2.84%) (DDSME 2010).

ad t sma nu

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Map 3-3: Regional development index (2009)

Unit of local self-government (Municipality)

Development Index

(Montenegro=100) Andrijevica 57.78 Berane 62.95 Bijelo Polje 72.31 Kolašin 70.94 Mojkovac 72.89 Plav 20.27 Pljevlja 81.98 Plužine 49.83 Rožaje 57.59 Šavnik 45.97 Žabljak 81.95 Nikšić 88.93 Danilovgrad 89.78 Podgorica 145.97 Cetinje 73.07 Bar 91.99 Budva 362.40 Herceg Novi 164.99 Tivat 149.65 Kotor 201.91 Ulcinj 56.86 Montenegro 100.00

r capita (15%), population growth rate (25%) and population education rate (20%). The results for the period of 2007 - 2009 indicate that the municipality of Plav has the lowest development level, whereas the municipality of Budva has the highest one.

It is obvious that municipalities from the northern part of the country lag behind the national average. On the other side, the wealth of natural resources in these municipalities gives potential for their faster development and for diversification of economic activities.

The 2007 SME Policy Index presents the first comprehensive and comparative assessment of progress made in implementing the Charter. The OECD SME business index was evaluated in the Western Balkans in 2007. The performance of the countries were analysed with 10 dimensions29 on a ranking between 1 and 5. The biggest constraints for a profound development of the SME sector were found in inadequate skills, the lack of

Source: Strategy on Regional Development of Montenegro 2010 - 2014 (p.82).

Looking at regional economic development discrepancies, there are big differences among municipalities as shown in the regional development index (Strategy of Regional Development 2010 - 2014, prepared in July 2010). The index was derived on the basis of five parameters: income per capita (25%), unemployment rate (15%), budgetary revenues of local municipalities pe

29 See for the dimension the chapter on Albania.

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entrepreneurship and education, the low level of technological capacities, and non- legisla ranking) (OECD 2007).

Household income portfolio

GDP growth rates have been accompanied by an increase of the standard of living; however, regional disparities and disparities among social gr he G dex increased from 0.687 in 2003 to 0.768 in 2007. HDI in Monte se2003 to 0.828 in 2008 (UNDP 2009). Looking at the po s (head count) for Montenegro and the individual regions (north, centre, south and Podgorica region) based on the comparison of consumption with a minimum living st overty line the population, the head count was lowest in the centre (6.7), Podgorica (8.5) and so .5), and significantly higher among the population in the north (19.2). Overall, more than half of the poor reside in the north (62%). Slightly more than 25% of r live in the centre, and the south holds the smallest share (11.1%). With regard poverty and mic vulnerability, the head count for the north was the highest with 44.4, compared to 21.4 in the centre, 15.2 in the south and 23.3 in Podgorica (UNDP 2009).

Monthly average income and consumption data are available on the basis of 1,192 interviewed households, of which 730 households in urban a age 3.41 household members) and 462 in rural areas (average 3.45 household rs) were in ed (Monstat 2009). A rural household disposes on average of 10.8% less income including subsistence production for own consumption and 24.7% less income without su nce production for own consumption than an urban household, and also has a sligh her size in the number of family members. Looking at the compo ares, wage income represents in all households the most important share less than ha ural households. The second biggest share of income is from agricultural business ( tion for the market) and makes together with subsistence producti third of the income portfolio. The income from small businesses is negfrom 2005 to 2008, the total available monthly income (without subsistence production) of a

ousehold increased in the rural household from 433 EURO to 504 EURO (16.4%), 474 EURO to 669 EURO

8), however, showed a much higher share of agricultural income (between 2/3

whereby day visitors were not counted. Rural areas can benefit from this economic impact e and employment by spill-over effects from urban and

conducive tion and regulations (all below 2.5 in the

oups remain. T DP innegro increa d from 0.797 in verty rate

andard (p ) for uth (5

the pooto the econo

reas (aver membe terview

bsistetly hig

sition of shwith lf in r

p croduon of food and beverages one

ligible. In the period

hwhereas in urban households the increase was higher - from (41.1%). As regards the expenditure structure, there are no striking differences between rural and urban households. Including own production, rural households spend more income on food products, whereas urban households spend insignificantly more on recreation, culture, hotels and restaurants (Monstat 2006, 2007, 2008, 2009).

A household survey conducted by FAO in 2007 with 40 interviewed households mainly active in agricultural production in seven villages in Plljevlja and seven villages in Bijelo Polje, both municipalities with a high share of agricultural population (11.6%, respectively 12.3% in 200and 100% of the total income) (Batakovic/ Markovic 2009).

Tourism

In Montenegro, tourism accounts directly and indirectly for approx. 25% of the GDP (2009) with a growing tendency, although a decrease has been reported with the global economic crisis since 2008. Hotels and restaurants account for 8.8% of the total employment (2008) with a growing trend compared to 6.2% in 2005 (Monstat 2010, 2007). The Central Bank estimates that total income from tourism increased from 2001 to 2007 by 460%, i.e. from EUR 86 million to EUR 480 million with an average revenue per guest day of EUR 42.8,

through the transfer of capital, incom

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resort-based tourism (e.g. nautic, beach and ski resorts), countryside recreation needs of urban clients, and second-home development.

Montenegro’s rural tourism potentials are in particular nature tourism and ecotourism,

0

2,000,000

4,000,000

6,000,000

8,000,000

2003 2004 2005 2006 2007

Coastal Region

120,000

140,000

-46-

0

20,000

40,000

60,000

80,000

100,000

2003 2004 2005 2006 2007 2008

Zetsko-Bjelopavilici

Karstic Region

Northern-mountainous Region

Polimsko-Ibarski Region

0

1,000,000

2,000,000

3,000,000

4,000,000

2003 2004 2005 2006 2007

Coastal Region

cultural tourism, and adventure tourism in conjunction with sport activities, as well as health tourism. Traditional agro-tourism (holiday on the farm) is regarded less potential since the combination of agricultural produce, traditional “picture-book world” and fascinating and clean nature, good infrastructure facilities and services is hardly available (Ministry for Economic Development/GTZ 2008; Ministry of Tourism and Environment 2008; USAID 2008). The tourism business in Montenegro is seasonal and regionally concentrated.

Figure 3-8: Total overnight stays in Montenegro (2003 - 2008)

Between 2003 and 2008 the total number of registered tourists and overnight stays almost doubled (from 599,430 to 1,188,116 tourists, respectively 3,976,266 to

60,000

70,000

80,000

0

10,000

20,000

30,000

40,000

50,000

2003 2004 2005 2006 2007 2008


Karstic Region



7,794,741 overnight stays) with an average growth of 14.8% in the overnight stays. All regions, except the north-eastern municipalities of the Polimsko-ibarski Region, reported growing tourist overnight stays.

Sources: Monstat 2006, 2007, 2008, 2009

Figure 3-9: Overnight stays of domestic and foreign tourists in Montenegro (2003 - 2008)

While until 2006, the share of registered local tourists was higher than the one of foreigners (between 23.6% and 39.6% foreign tourists), the picture has completely changed since 2007 (86.8% for

Domestic tourists

eign tourists). In addition the total number of local

ins.

However, during the same period,

tourists decreased by almost 300% between 2003 and 2008, but with an increase of overnight stays in the Northern and Karstic Regions doma

8,000,000

0

2,000,000

4,000,000

6,000,000

2003 2004 2005 2006 2007 2008

Coastal Region

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Karstic Region



0

10,000

20,000

30,000

2003 2004 2005 2006 2007 2008


the share of tourists from Serbia and other neighbouring countries grew by 45%, although its total volume shrank to 36%. The clear winner were the international markets with an eightfold increase in overnight stays, with tourists from the EU accounting

Foreign tourists


for 46% and Russia for 20% of international overnight stays. Sources: Monstat 2006, 2007, 2008, 2009

During this period, about 90% of all overnight stays were counted between June and September, and 91.3% of them were registered in the six coastal municipalities (Monstat 2008, 2009; Ministry of Tourism and Environment 2008). The average number of days per guest was 6.6 nights between 2003 and 2008 compared to 2.1 nights in the other 16 municipalities, and only Cetinje, Kolasin, Niksic, Plevlja, Rozaje, Zabljac and Podgorica reporting above average numbers of nights (INSTAT, 2009).

The registere pacity of beds in 2005 was 120,270 (Monstat 2006) (54.1%) in commercial accommodations30 and 45.9% in private accommo

d ca with more than half dations

(registered rooms). Out of the registered hotel capacclassification satisfying international tourism market Environment 2008). A sectoral study31 estimated the tmarket in 2005 to be approx. 295,987 taking inaccommodation (17,5%) and holiday homes (second homaking 4.4 million of overnight stays. The share of regonly amounted to 18.6% and of commercial accommonumber of 40 village/agro-tourism beds was counted.

Despite these high total figures of overnight stays, the bnights/bed in 2005 in the registered accommodation faci2006 with 5,936,270 overnight stays in total), whereas nights/bed based on estimations of the sectoral study (estimated for 2005 with 15,066,870

nd for 2006 with 17,096,500 overnight stays in total) underlying the extreme seasonality in sm and Environment 2008).

the specific segments of foreign and local tourists, eight tourism clusters were

identified in the Strategy on Tourism Development 2020. Although, clusters 1 to 3 concentrate on the development o lBoka Kotorska), the direct rural hinterland of the coasclusters providing leisure activities for coastal tourists.(cluster 4), the Bjelasica and Komovi Prokletije–PSinjajevina, Žabljak–Plužine–Šavnik (cluster 6) and Durmitor (cluster 7) and the coast to Bjelasica and Kocultural sites, and existing tourism assets (mainly sevetourism and leisure activities (Ministry of Tourism and

In general, Montenegro has highly fragmented smalltourism resources and infrastructure are limited, accrestaurants are of poor quality, tourism assets are agout-migration left rural communities with limited skilled e to adequately respond to quality service and language requirem(clusters 5 and 8) se itietheir market products, but usually mutu

ities, only 12% are of high quality criteria (Ministry of Tourism and

otal bedding capacity incl. the grey to account unregistered private mes – 40.5%), with the latter alone istered private rooms in this survey dation to 23.4%, in which a minor

ed occupancy rate was low with 43 lities (in 2005 with 5,211,847 and in in the grey market, the rate was 51

athe tourism sector (Ministry of Touri

With focus on sustainable development of the lacking all-year type tourism products and the targeting of

f beach tourism ocations (1: Budva-Bar; 2: Ulicinj; 3: tal region shall be integral part of the In the regions of Skadar Lake-Cetinje lav, Rožaje (cluster 5), Durmitor–the corridors from the coast to the movi (cluster 8), the natural beauties, ral ski resorts) shall be developed for

Environment 2008).

tourism players in rural areas. Basic ommodations are run-down and the

eing and technically obsolete, and the labour abl

ents of tourists. Only in two of the eight clusters s joined a tourism organisation to effectively develop al mistrust impedes a common marketing. However,

veral municipal

30 incl. hotels, guesthouses, holiday villages, sanatoriEnvironment 2008: 11). 31 based on the study “Tourism Accommodation FacilInternational Institute for Tourism, Ljubljana (2005).

a, mountain huts, and camping bed places (Ministry of Tourism and

ities Inventory and Assessment of Tourism Turnover” (conducted by the

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rural tourism opportunities and its marketing are recognised by local political leaders and nges through investments (USAID 2008). Case study

food, beverages and

businessmen addressing the challeinterviews proved that there are good examples of highly professional enterprises providing tourism services in rural areas.

Agriculture

The share of agriculture, hunting and forestry (without agro industry) of the total GDP had a declining trend until 2007, but has been increasing again. The share of tobacco in total household expenditures declined from 56.6% (2000) to 38.9% (2008).

Table 3-7: Share of agriculture in the economy (2003 - 2009)

Indicator 2003 2004 2005 2006 2007 2008 2009 Share of agriculture in GDP (current prices) - % 10.5 9.8 9.0 8.4 7.2 7.5 8.2 Share of agri-food exports in total goods exports - % 18.0 19.0 14.5 11.1 13.6 10.8 n/a Share of agri-food imports in total goods imports - % 5.2 25.5 20.2 15.2 16.1 17.8 n/a Source: Monstat 2009

The Gross Agricultural Output (GAO) – primary production - in Montenegro, which includes also hunting, forestry and fishing, is currently around 246.8 million EUR per year. Its share of the total GAO was 8.2% in 2009, even higher than a year before (7.5%).

Figure 3-10: Agricultural land use in Montenegro (2008)

Agricultural area in Montenegro covers about 37.5% of the total surface area (2008). Agricultural land resources, with a total area of 516,219 ha or about 0.83 ha per capita (2008),

low land.

a decrease of 10.2% of plum trees. In the period 2003 – 2008, the production of grapevines s fruits (91.2%) increased; however, the traditional way

ost

Arable fields and gardens;

9% Orchards ;

Ponds, fish-ponds,

reeds; 1%2%

Vineyards; 1%

Meadows ; 25%

Pastures; 63%

represent together with the forests the most important economic attribute in the rural area. The share of pastures and natural meadows with more than 85% is the largest and has remained stable since 2003. Extensive land usage systems amount to 86.7%, whereas intensive production systems (field crops, permanent crops) amount to 11.9% of the total agricultural area (2008) but with only a slight increase of 5.5% in size since 2003. Almost 1/3 (30.7%) of the arable land is fal

Source: Monstat 2009

Maize, wheat and rye as main cereals are at a very low level in terms of area size covering 23.1% less, but reporting a significant increase of 80% in yields per ha between 2003 and 2008 (Monstat 2009). The geographical, climatic and pedological conditions favour the production of potatoes (covering 56.4% of the total vegetable area in 2008 with a slight decline of 2.6% since 2003, but an increase in yields per ha of 21.6%). Other vegetables are cabbage and kale, tomatoes, melons and peppers but no detailed data were available in terms of production. The main fruits are apples, pears and plums, where a significant increase was obvious in the total number of apple trees of app. 20% from 2003 to 2008 and

(25.2 %), olives (170.0%) and citruof production is still prevailing. As regards fodder crops, the production was done alm100% in an extensive way on meadows and pastures during the same period. In terms of

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total numbers of animals, livestock production declined in the period 2003 – 2008 by 10.4% in cattle, 72.1% in pigs, 16.5% in sheep, 37.0% in poultry, and 34.5% in the number of beehives (Monstat, 2008, 2009)

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707580859095

100105110115120

2000 2001 2002 2003 2004 2005 2006 2007 2008

Total Crops Livestock

.

milk of the GAO) and

duction (30 r the largest

contributor ene s a -cultural e my on 20 . Mo ign t p cts cow, sheep and goat milk and the

2007).

Montenegrin agriculture can be classified into five regions by climatic conditions, geography and natural resource endowment.

Map 3-4: Municipalities grouped i

fruit production (incl. fig, orange and kiwi). The most significant production in the

Figure 3-11: Agricultural production volume indices (2000 - 2008 with 2005 = 100)

However, livestock production is with around 170,000 tons of production (28%20,000 tons of meat pro %of the GAO) per yea

to Mont gro' griconoifican

(Mfarm

stat rodu

08)arest s

production of lamb with traditional breeds as well as veal and beef (Batakovic/ Markovic

Source: Monstat 2009

nto natural zones

The Coastal Region with 11.5% of the country is dominated by fruit (subtropical fruits and olives) and field crop production. On the hilly parts breeding of small ruminants, bee keeping and wild collection of medical herbs and wild fruit species (dog rose, fig, etc.) are main sources of additional income for rural households. The Zetsko-bjelopavlicki Region covers 14% of the total Montenegrin territory with good conditions for field crops, vine and

Karstic Region is livestock production, particularly goat and sheep production, with 21% of the total territory. Aridity and poor soil limit the production. The Northern-mountainous Region is territorially the largest region (32.5%) and it comprises all mountain municipalities of the central and northern parts of the Republic. Grassland and a small amount of arable land characterise the region with a short vegetation season.

The Polimsko-Ibarski Region comprises municipalities extending through the Lim and Ibar valleys (20.5% of the territory). Proportionally, this region has the largest share of arable


land 32.9% or 62,000 ha of the total arable land in Montenegro. A diversified agricultural production of field crops, vegetables, fruits and livestock has developed.

etween 2003 and 2008, the growth of total agricultural production was evident mainly in

recovered in 2008 in plant production but not in livesto

Montenegro’s agriculture is based on small-scale holdings with an average size of less than 5 ha. It is dcitrus growing in the coastal strip, vegetables andextensive livestock breeding particularly in the northemostly labour intensive and plays the role of a socincome or major part of income for almost 50,000 rura

However, reliable information on farm structures is vcarried out in 2003 with only about a quarter (26.4%) the land cadastre (136,558 ha out of 517,000 ha) indicagricultural land was not covered by the census.

istribution and structure of family farms (General census 2003)

Bcrop production, while livestock production had shown a significantly smaller, but stablegrowth. Due to the severe draught in 2007, there was an overall drop in production, which

ck production.

fragmented, low productivity family iversified and reaches from olive and

vine growing in the central part to rn part. Agriculture in Montenegro is

ial buffer as it is the main source of l households.

ery limited. The most recent census of all the agricultural land recorded in ated that a large number of owners of

Table 3-8: D

Category - farm size Item Up to 2 h

Total a 2 to 5 ha 5 to 10 ha 10 to 20 ha > 20 ha

Number of fa 28,572 8,563 3,762 rms 1,652 659 43,208 Share of farm egory (%) 66.1 19.8 8.7 s by cat 3.8 1.5 100.0 Area in ha 23,305 29,406 27,948 23,981 31,918 136,558 Share of area by category (%) 17.1 21.5 20.5 17.6 23.4 100.0

Source: Monstat, General census 2003

According to the first results of the Census of Acurrently 48,847 agricultural family holdings32, wland owned or managed by agricultural family h104,213 ha (49.4%) are agricultural land, 59,36land, and 47,193 ha (22.4%) are wooded and inNot counted is the so-called “common land” (pastof local families or the local commune. In addioperatives or enterprises do exist34. 1.20% (58under the agricultural holding limit with agricsubsistence farms have the highest share in followed by Cetinje (3.58%), and Bijelo Polje (2.8muncipalities of Bar (0.05%), Andrijevica (0specialised farm holdings are found in the conorthern mountainous part more extensive ag2008, 99.6% of all olive production and 98.5% ofive municiaplities of the coastal region, whereasthe municipality of Podgorica. Almost half of production) was recorded in the three muniDanilovgrad. In the same period, half of the total the two Municipalities of Bijelo Polje and Niksic

griculture of June 2010, Montenegro has hat is 13.0% more than in 2003. The total oldings increased to 210,766 ha, of which 0 ha (28.2%) are agriculturally unutilised fertile land33. The average size is 4.3 ha. ures, meadows), which belongs to a group

tion, about 100 agricultural production co-8) of all family holdings were households ulture as only source of income. These the municipality of Mojkovac with 4.42%, 7%). The lowest share was counted in the .07%) and Savnik (0.13%). The more astal and plain regions, whereas in the

riculture is practised. Between 2003 and f all citrus fruit production was done in the 89.3% of all grape production was found in the orchards (45.0% of apple and pear

cipalities of Podgorica, Bijelo Polje and potato production (50.6%) was achieved in . In relation to the data on the number of

32 MONSTAT – Census of Agriculture 2010, First Results 33 MONSTAT – Census of Agriculture 2010, First Results. 34 Official Results on co-operatives and enterprises will be available by MONSTAT in December 2010

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family farms per municipality, a correlation with specialisation is obvious. Detailed conclusions on the productivity level of the family farms cannot be drawn in the absence of

Source: Monst tural – first

35, with higher average rates mainly in

the ESU determination.

Figure 3-12: Number of family farm holdings grouped by agricultural zones

at 2010, Agricul Census results

3000

4000

5000

6000

7000

8000

ily h

oldi

ngs

(201

0)

0

1000

2000

Bar

udva

Nov

i

tor

Tiva

t

cinj

inje

ksic

rad

rica

asin

No

of fa

m

B

rceg

Ko Ul

Cet Ni

nilo

vg

Podg

o

Kol

Moj

ko Plje

Plu Sa Zab

ndri

je

Ber

elo

P

Ro

He

Da

vac

vlja

zine

vnik

ljak

Avi

ca

ane

Bij

olje

Plav

zaje

cipaMuni lities CoKarstic Region Zetsko- pavlici RegNorth inous Region Poims ki Regi

asta on l Regi

Bjelo ion ern-mounta

sko-ibar on

The average livestock unit per family holding is 2.5municipalities of the northern mountainous municipalities and in the municipality of Cetinje. In the period of 2005 to 2009, 50.7% of the sheep production was concentrated in the municipalities of Plejvlja, Berane, Bijelo Polje, Plav, Rozaje and Niksic, 53.7% of the overall pig production in the two municipalities of the Central Region (Danilovgrad and Podgorica), half of the cattle production (49.6%) in the municiaplities of Berane, Bijelo Polje, Plejvlja and Niksic, and 50.8% of the poultry production in Berane, Danilovgrad, Niksic and Podgorica.

Figure 3-13: Average number of livestock unit per family holding grouped by agricultural zones

35 As LSU are taken: bovine 0.8, sheep 0.1, goat 0.1, pig 0.3, and poultry 0.04

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0

1

2

3

y ho

l4

Bar

Budv

a

Her

ceg

Nov

i

Koto

r

Tiva

t

Ulc

inj

Cetin

je

Nik

sic

Dan

ilovg

rad

Podg

oric

a

Kola

sin

Moj

kova

c

Plje

vlja

Pluz

ine

Savn

ik

Zabl

jak

And

rije

vica

Bera

ne

Bije

lo P

olje

Plav

Roza

jeLSU

per

fam

ildi

ng (

Municipalities

5

6

2010

)

Source: Monstat 2010, Agricultural Census - first results

Forestry

54% (743,609 ha) of the total surface is covered by forests (83.5%) and woodland (16.5%), i.e. 0.9 ha for each inhabitant. More than half North-mountainous and Polimsko-ibarski Regions ha

the po illages hat have abundance of forests. About 67% s, while

rivate forests hold a share of 33%. According to the level of

newable energy production and the creation of employment is seen in the efficient use of wood residues (from forests, wood processing and viniculture), which is estimated to be used by only 17% of the available amount (Kovacevic 2010, Weinreich 2010).

Credit supply

In Montenegro, about 15 banks do operate offering credits to support agriculture among its other products. Banks usually give short-term loans for the purchase of basic herds, machinery, equipment for processing agricultural products, irrigation systems, etc.

The competitiveness of the banking products in Montenegro is reduced, mainly due to high interest rates (around 14-15%) and because farmers cannot provide a guarantee of their possessions in the rural areas. Farmers can achieve the purchase of equipment through leasing with an annual interest rate from 2.5 to 3%.

In addition to banks, several micro finance organizations operate in Montenegro, which offered favourable conditions to small-scale businesses a couple of years ago, however,

Coastal Region Karstic Region Zetsko-Bjelopavlici Region Northern-mountainous Region Poimsko-ibarski Region

of the forest area is found in the ving a much higher economic value than in

pulat nected with vt

value of forest areas, the

the coastal and Karstic Region. About 60% of ion are conare state-owned foresand areas t

pconservation, regulation, diversity, management, and the impact on environmental protection, even taking into account areas damaged in the past, the Montenegrin forests are among the best quality forests and highest areas of forest cover in Europe (0.9 ha/p.c.). Total growing stocks in forests of Montenegro are estimated around 72,000,000 m³, of which 41% are conifers and 59% are broadleaved species. The forests allocated to timber production involve 81% of all forests, while protected forests cover 16%, and forests of National Parks 3%. The total increment in all forests is estimated 1.5 million m³ (MAFME2008).

A big potential for re

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now they have almost the same requirements as the commercial banks (Batakovic/ Markovic 2007).

In general, small and medium enterprises crediting is regarded risky by commercial banks because of the high level of uncertainty encountered by all enterprises. Regarding the mortgage, the relation between credit amount and real estate value is about 1:3, and even higher for businesses in the rural areas. High capital expenses, such as interests, amount at certain banks to 1.5% per month.

Conditions for access to credits for small and medium enterprises from the Development Fund of Montenegro are defined by public announcement and the approval of credit is decided by the Board of Fund Directors. If there is a positive decision, the bank is informed first and then further works on the implementation of the loan agreement. A big number of small and medium enterprises do not have adequate credit guarantees due to the lack of registered property (Batakovic/Markovic 2007).

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4 National programmes for diversification of rural economy

constrained by the lack of data.

tting up of information database. It also tipulates the institutions responsible for the implementation of the agricultural and rural

extension service is subordinated under the MAFCP with the tasks being mainly directed to agricultural production rather than to non-agricultural economic activities. The offices are located in all 36 districts with local extension officers also situated at municipality or commune level., Agricultural Information Centres are placed in all 12 regional departments of the MAFCP (Ylli, Dulic and Currle, 2010). Following the provision of the Law, an annual National Action Plan is elaborated and enforced by a Decree of the Council of Ministers. The Action Plan defines the measures for implementation of the agricultural and rural development policy in the respective year. The beneficiaries of the measures are: farmers, groups of farmers, persons or legal entities involved in agricultural activities or any other activity related to agriculture, persons or legal entities in agro-processing industry, and persons or legal entities offering service to agriculture or other rural activities. Four priority axes are defined, which follow the structure of the EAFRD 2007 – 2013 with the following support measures under axes 3 and 4 related to diversification and the LEADER approach:

• Improvement of the competitiveness of agriculture and agro–processing industry • Land management and improvement of environment • Improvement of quality of life and encouragement of diversified economic

activities in rural areas through investment measures as well as projects that enhance the investments in the rural economy to improve services, training and preserve the rural heritage

• Development of local initiatives of farmers, people working in forest management and other rural actors to preserve and develop the natural and cultural local heritage, improve the environment, promote local brands, tourism and the use of renewable energy resources as well as creation of public–private partnerships, encouragement of entrepreneurship, etc.

In 2009, the MAFCP budget for supporting agriculture including irrigation and drainage infrastructure, extension as well as veterinary and plant protection services was EUR 48.4 million, out of which 14.5 million (30%) were spent on rural development measures, but which were based on a direct support scheme, and not on an investment scheme. Measures aiming at diversification activities in 2009 made up about 16% of the total budget: mushroom production (3623 EUR/ha; 2 projects with the total public amount of 7.5 TEUR); honey production (3.6 EUR/hive for farmers with more than 50 bee hives; 832 projects with the total public amount of 224.8 TEUR); intensive breeding of snails (EUR 3,623/ha; 9 projects with the total public amount of 23.2 TEUR); and the production of extra virgin olive

This chapter analyses information on the national programmes containing existing measures relevant for the diversification of the rural economy. For both countries, programmes targeting the agriculture and rural development sector, SME sector, and tourism sector were considered as relevant. Where possible, concrete figures were considered, however this task was

4.1.1 Albania - Agriculture and rural development sector

The legal frame for the support to agriculture and rural development is provided by the Law for Agriculture and Rural Development (No 9817/22.10.2007). The Law determines the programming of objectives and policy measures, the provision of public services for agriculture, research and training and the sesdevelopment policy. The

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oil (0.72 EUR/litre; 4 projects with the total public amount of 73.7 TEUR). For 2010, the only

based on a direct support mechanism.

In contrast to the established measures in the national RD programme of MAFCP or the toral Rural Development

Strategy (ISDRA) 2007 – 2013 of MAFCP, which constitutes a national strategy plan for

urism and highlights the importance of establishing a new and

eloping nature tourism (trekking,

ld be targeted (Ministry of Territory Adjustment and

ME development policies are prepared in

support measure implemented was for olive oil production up to 15 t/year36 and again

In the draft Rural Development Programme 2011 – 2013 under IPARD (draft version of March 2011) the implementation of diversification measures is not planned, but the support for the modernisation of agriculture and the development of processing and marketing of agricultural products is foreseen.

rural development measures planned under IPARD, the Inter-Sec

rural development in Albania, highlights the priorities of the rural development policy in accordance with the EC priorities on rural development. MAFCP identified non-farm rural businesses to be developed to improve income opportunities, reduce unemployment and emigration. Further potentials for economic diversification in rural areas are seen in the field of tourism (nature, farm and cultural tourism), as well as with the introduction of the territorial rural development through the LEADER-type approach (MAFCP 2007).

During the period 2000-2010, the total committed funds of bilateral and multilateral donor projects in Albania amounted to EUR 3,296 million, of which 43% were grants and the remaining - loans. The EC was the largest donor with CARDS and IPA programmes with about 14% of the total committed assistance. The EU commitments to the CARDS programme amounted to EUR 253 million and to IPA EUR 207 million. Donor contributions to the agricultural sector during the period 2000-2010 amounted to EUR 227 million, or about 7% of the total. The commitments to rural development projects amounted to EUR 61 million, or 2% of the total (MAFCP 2011).

4.1.2 Albania – Tourism sector

The strategy and action plan for the development of the Albanian tourism sector is based on cultural and environmental tosegment of tourism with the focus on attracting educated, independent travellers

and Northspecialized group travellers (upper-middle income individuals from Europe America). Potential is seen in rural tourism with further devmountaineering, wildlife, diving, hunting and fishing), in history and archaeology tourism as well as in culture-specialised tourism products (folk festivals, rural lifestyles, village celebrations, etc.). With the renovation of traditional farm houses for accommodation, more exclusive-oriented eco-tourists couTourism 2003, Government of Albania 2005).

4.1.3 Albania – SME sector

The Ministry of Economy, Trade and Energy is the responsible institution for business promotion policies including SME development. Sline with all SAA and European Partnership and European Charter for Small Enterprises. However, Albania has made slight progress in the implementation process (METE 2007; Bahiti/Rovena 2010). In the Business and Investment Development Strategy (2007 – 2013) the priorities for SME development are defined as follows (METE 2007):

• Harmonisation with sector strategies that have an impact on the SME sector,

36 The number of applications or total public expenditures in 2010 are not known to the authors.

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• Ensured transparency of decisions and actions affecting the business environment, • Ensured fair competition and support for the integration of SMEs in the international

market, • Development of information technologies and entrepreneurship culture.

g through banks has increased, but is limited to t-ups face obstacles receiving loans, since interest very high, even for the mid-term credits.

Strategy (ITBS), a National Competitiveness Programme for SMEs, an Albanian SME Development Programme and a training needs

ugh these measures, Albanian SMEs will have easier access to new production methods and technology available in the EU that help companies

SME development in Albania is still below regional average. As the results of a recent Training Needs Analysis (TNA) illustrates (based on a sample of around 250 SMEs), the main challenges for the improvement of national competitiveness remain in fields such as

The aim is to annually increase employment by 5%, the number of business by 15%, crediting to the private sector by 3 to 4 times in 4 years, the micro-crediting capacity by 3 to 4 times in 4 years, and gradually reduce the informal sector.

This shall be achieved by several actions: • Promotion of entrepreneurship and culture (management and training skills, increase

of labour force), • Development of growing business with internationalisation potential (improve business

climate for SME development, increase competitiveness through innovation and technology transfer),

• Improvement of SME financing (increase crediting and establish the Albanian Credit Guarantee Fund, increase the amount of micro-credit funds building the capacity of micro-credit institutions.

For this purpose METE established a SME Development Strategic Programme (2007 – 2009) and set up a SME Development Advisory Committee with representatives from Regional Business Agencies, Local Economic Development Agencies, Albinvest, commercial banks and consultancy agencies, entrepreneurs and professional organisations. In order to achieve the results in SME development for the period 2007 – 2009, a budget of EUR 150 million is needed, out of which only EUR 54 million are contributed by foreign donors and EUR 0.75 million were planned to be covered by the State Budget (METE 2007). SME financinsome sub-sectors and in particular starrates and the collateral requirements are

The Italian Cooperation and USAID are both promoting the guarantee and line credit programs. Italian cooperation launched a 25 million EUR credit line which will cover a part of the interest rates of the credits for SMEs with 5,5% interest rate for a max period of 8 years, accompanied with a grant of 1,8 million EUR since the beginning of 2010. The EU has supported Albania's SME sector with an EUR 2.2 million project (EU SME Project Albania) to facilitate access to innovation and technology that give firms a competitive edge in the market. This project enables the establishment of a 'Business Relay and Innovation Centre', which shall be a focal point to coordinate and deliver business innovation and technology services and initiatives for SMEs. The project supports the development of an Albanian Business Innovation and Technology

analysis for Albania’s SMEs. Thro

improve the quality of their products, efficiency and marketing. Other donors such as the EBRD are promoting non financial instruments for the SMEs development, which cover approximately half of the expenditure for technical assistance from Albanian service providers to SMEs.

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investment climate, law enforcement, corporate governance (both on the macro and enterprise levels), management skills and business enabling infrastructure (EU SME Project Albania). The analysis shows that the growth of existing SMEs is a result of commitment,business skills, social networking capacities and ways to deal with the inefficienci

es of the

m

wards productive activities, which lead to the generation of new jobs

pean Union – Agriculture and 06), while the legal frame is provided by the Law

y measures, support to general services in

the third group (axis) consists of two measures: Measure

0), which

system. Entrepreneurship and SME development do not have sufficient “systetransformation capacities” unless an institutional structure is in place to orient the entrepreneurial spirit toand economic growth (Xheneti 2008).

4.1.4 Montenegro - Agriculture and rural development sector

Montenegro’s agricultural and rural development policy framework is defined by the strategic document “Montenegro’s Agriculture and the EuroRural Development Strategy” (MAFWM 20on Agriculture and Rural Development (adopted in 2009). The development of the instruments and measures within the agricultural and rural development policy is regulated by the National Programme for Food Production and Rural Development (NPFPRD), adopted in November 2008, which provides the guidance for harmonisation of the Montenegrin agro-policy with the CAP. The NPFPRD comprises five groups of measures: market policy measures, rural development policagriculture, social transfer to rural population and technical assistance for programme implementation. With the NPFPRD, a diversification measure was introduced for the first time. Similar to the EU model, 2.3.1 - Diversification of economic activities in rural areas with allocated funds of 7% of the total budget for Axis 3; and Measure 2.3.2 – Village renewal and infrastructure development with 93% allocated funds of Axis 3. Additional diversification or territorial–oriented measures are: Measure 1.2 – Bee-keeping improvement (competitiveness, quality, education) and Measure 2.1.7 – Investments in processing on family farms. According to the data of the MAFWM, in 2009 the total of 80,000 EUR was spent on diversification support under the measure group 3, which was 5.5% of the axis expenses or 0.4% of the total budget for 2009. In the agricultural budget for 2010, the allocated amount for the support of the diversification of economic activities in rural areas was reduced to 60,000 EUR.

The MAFWM has prepared a draft IPARD programme (2nd draft version of 12/201also includes the measure “Diversification and development of rural activities”. The following priority activities are planned (2nd draft version of 12/2010):

• Support of rural tourism (construction and reconstruction of small accommodation facilities, leisure and recreational facilities),

• Support of services in villages, • Construction or modernisation of selling points of agricultural products (on-farm or

strategic location), • Traditional handicrafts in rural areas, • Processing, packaging and storage of local products.

4.1.5 Montenegro - Tourism sector

With the focus on the sustainable development of the lacking all-year type tourism products and the targeting of specific segments of foreign and local tourists, eight tourism clusters were identified in the Strategy on Tourism Development 2020, with all having strategic objectives in developing or linking to “rural tourism”. Although clusters 1 to 3 concentrate on the development of beach tourism locations (1: Budva-Bar; 2: Ulicinj; 3: Boka Kotorska), the

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rural areas near to the coastal region shall be integral part of the clusters providing leisure activities for coastal tourists. In the regions of Skadar Lake-Cetinje (cluster 4), the Bjelasica and Komovi Prokletije–Plav, Rožaje (cluster 5), Durmitor–Sinjajevina, Žabljak–Plužine–Šavnik (cluster 6) and the corridors from the coast to the Durmitor (cluster 7) and the coast to Bjelasica and Komovi (cluster 8), the natural beauties, cultural sites and existing tourism assets (mainly several ski resorts) shall be developed for tourism and leisure activities (Ministry of Tourism and Environment 2008).

The Tourism Master Plan (90% of the total contribution awarded by the EC, 8% by GIZ -German International Cooperation - and 2% by the Ministry of Tourism and National Tourism Organization in Montenegro) is both an inspiring vision for the long-term development of Montenegrin tourism and a great challenge for overall national

year 2020 tourism , foreign exchange

The strategy should contribute to the achievement of the following results: increase in the

lue.

nt within SMEs: 23.48% (projected 20%), (projected 30%),

2010; projected 60%).

ctors as well as international organisations in eral partnerships and cooperation in various

development. With the anticipated economic benefits, by the end of theshall become the leading industry (in terms of GDP, national incomerevenue, employment, etc.), making up 20% to 25% of GDP. The following objectives are envisaged: increase of accommodation capacity up to 280,000 beds with 100,000 of these (or 35.7%) in high-quality hotels and 110,000 (or 39.3%) in suites; 25.9 million overnight stays with 70% of them in hotels, mostly by foreigners; sizable tourist expenditure amounting to EUR 2,300 million; and the creation of about 75,000 new jobs. For implementing the aims of the tourism strategy, the municipalities elaborate master plans for the sustainable development of tourism in their regions.

4.1.6 Montenegro – SME sector

The Directorate for Development of Small and Medium-sized Enterprises (DDSME) is in charge of the SME policy in Montenegro, with 10 regional and local business centres in place (in Podgorica, PLjevlja, Bijelo Pole, Zabljak, Berane, Rozaje, Plav, Kolasin, Niksic, and Bar).

The new “Strategy for Development of Small and Medium-sized Enterprises 2011-2015” was issued in December 2010 by the DDSME comprising four strategic priorities:

• Improvement of the business environment, • Improvement of financial support, • Strengthening of SME competitiveness and promoting entrepreneurship and, • Support for beginners in business start-ups.

number of SMEs by 25%, increase in the number of employees within SMEs by 17%, increase of SMEs contribution to total exports of 35% and SMEs achieving a 50% share of GDP, total investments, turnover, profits and gross added va

Considerable success has been achieved in the past in the most flourishing SME sub-sectors in accordance with the objectives of the Strategy for Development of SMEs 2007-2010:

• Increase in the number of new SMEs: 32.17% (projected 30%), • Increase in employme• Increase of SME share in export: 31%• Increase of SME share in GDP: 20% (without data from

Institutions from the public and private seMontenegro through bilateral and multilat

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programmes and projects have participated in various segments and phases of creating and implementing the SME policy. However, this process has often been characterised by a lack of coordination between the responsible institutions, given the absence of appropriate instruments, which would provide a more efficient and effective implementation of SME policy in all its segments (DDSME 2010).

Various types of information and services which are important for entrepreneurial development are provided through the offices of the Ministry of Agriculture, Forestry and Water Management (MoA), the Ministry of Tourism (MT), the Employment Bureau of Montenegro (EBM) and various business associations, including some NGOs and donor projects. The Investment and Development Fund of Montenegro (IDFM) represents a key development finance institution, which support projects in the SME sector. This support has been implemented through credit-guarantee activities, which are offered under more favourable terms compared to the market rates and are adapted to the needs and capacities of SMEs. The Employment Bureau of Montenegro (EBM) provides support to the SME sector through an active employment policy, direct financial support and certain types of consulting services and training, directed especially towards potential entrepreneurs. A number of other institutions are also involved in advocating SMEs' interests and promoting SME development. These are the Chamber of Commerce of Montenegro and other associations and committees.

Although the objectives of the previous strategy were achieved through improved institutional framework for SME development, there is still a need for further improvement of the business environment, easier access to finances, introduction and certification of quality standards, increasing competitiveness, stimulating innovation, strengthening the dialogue and partnership between the public and private sectors and more advanced forms of institutional support for SMEs.

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5 Identification of economic activities and rural areas with a high

d and complemented by a descriptive SWOT

potential for diversification of the rural economy The first part of this chapter for each country emphasises the identification of the areas with the highest need for economic development and the disparities of rural areas with respect to economic development.

In order to assess the situation of small enterprises in rural areas in general and the feasibility of selected economic activities for diversification of rural economy the REC BI, strengths and weaknesses are visualizeanalysis. The GIS maps will describe the regional disparities and areas with a high potential for economic development, if relevant statistical data is available on the geographical scale.

At the end of the chapter other activities are described, which do not have a strong spatial dimension and can be implemented anywhere. They also lack statistical data on the relevant geographical scale.

Regional disparities of the development of small enterprises are described for the two countries using the following indicators:

Country Dimension Indicator Unit Albania Areas with the

highest needs E - Business Environment

Poverty (percentage of people living in absolute poverty) Population growth rate

%

% Areas with highest C - Competences Business birth rate %

potential

Montenegro

Areas with the highest needs

R Resources and E - Business Environment

Regional Development Index RDI*-Population education rate (20%) RDI-Income per capita (25%) RDI-Unemployment rate (15%) RDI-Population growth rate (25%)

%

RDI-Budgetary revenues of local municipality per capita (15%)

Areas with the highest potential

C - Competences Business birth rate %

*RDI = Regional Development Index described in chapter 3.2

Relevant data for the Regional Development Index in Albania is not available. Instead poverty and population growth are used as proxy indicators to describe the economic disparities on the level of the districts. The business birth rate is used to describe the level of entrepreneurship.

The following list describes the indicators for the identification of areas with a high potential for diversification of the rural economy with specific activities providing an overview on the available and processed data for the GIS.

The activities and the respective indicators, which are processed with the GIS, are chosen according to the groups of activities specified in chapter 2.1.4, if the relevant data need is available. This relevant data is missing especially in the field of primary production of unconventional products. For the other groups of activities with a spatial dimension those activities are processed, which might have a high potential according to the result of the first

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round table discussion. Although not all possible activities could not be analysed and

The available statistical data is limited, especially when it comes to purchasing power on the

ighted equally and therefore multiplied with 0.5. In case

processed, the selection provides an overview on the most relevant activities, for which datais available.

geographical scale and with respect to the difference between rural and urban households.

If two indicators are used to generate a GIS map the single indicator is weighted. For some thematic maps, the indicators are weof small scale milk processing and marketing the weight is 0.5, because the distance to the urban population - the potential clients - should be quite short. On the other hand the same indicator is weighted only 0.3 in case of olive oil and wine, due to the fact, that these products can easily be transported for long distance and stored for a long period. The distance to the potential customers to the producer is not as important as for milk products.

Table 5-1: Database for the identification of areas with a high potential for diversification with a GIS in Albania

Potential for Dimension Criteria Indicator Unit

R Resources R1-Physical Resources Percentage of milk production in the district out of total milk production (x 0.5)

%

Small-scale milk processing and

marketing Clien thin a E - Business Environment

E1-Consumers, ts Percentage of urban population widistrict (x 0.5)

%

R-Resources

R1-Physical Resourc il production in the al olive oil production in

the country (x 0.7)

es Percentage of odistrict out of tot

live o % Small-scale

processing and ma , Clien ation within a rketing of olive

oil E-Business Environment

E1-Consumers ts Percentage of urban populdistrict (x 0.3)

%

R-Resources

esourc tion in the ction in the

% R1-Physical R es Percentage of wine producdistrict out of total wine producountry (x 0.7) Small-scale

processing and marketing of wine E-Business

Environment E1-Consumers, Clien n within a

district (x 0.3) % ts Percentage of urban populatio

R-Resources R1-Physical Resources Number of natural monuments per 100 km² (x 0.5)

No/ km²

Rural tourism E-Business Environment

E1-Consumers, Clients Number of registered hotels, restaurants and cafes/1000 inhabitant (x 0,5)

No./ 1000

Renewable energy from forestry

total area in a district R-Resources R4-Natural Resources Percentage of area with forest out of %

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Table 5-2: Database for the identification of areas with a high potential for diversification with GIS in Montenegro

In Montenegro the most extensive data is available on the level of the 21 municipalities.

Potential for Dimension Criteria Indicator Unit

Resources R1-Physical Resources Total livestock units of bovine, sheep and goats in the municipality (x 0.5)

LSU Small-scale milk processing and

marketing Business Environment

E1-Consumers, Clients Percentage of urban population within a municipality (x 0.5)

%

Resources R1-Physical Resources Percentage of vegetable production out of total vegetable production in Montenegro (x 0.5)

% Small-scale processing and

marketing of vegetable Business

Environment E1-Consumers, Clients Percentage of urban population within a

municipality (x 0.5) % s

Renewable energy Resources R4-Na

from forestry

tural Resources Total sustainable production of wood m³ x100

Rural tourism Bu

E1-Con lients Percentage of total overnight stays in siness Environment

sumers, Cregistered hotels and pensions in Montenegro

%

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5.1 Albania - Areas with highest need for economic development

In Albania, the north eastern part of the country - the districts of Has, Kukes, Diber, Bulqize est

tes of poor people. The Indicator describes the absolute number of poor people in % of he ation t, based istricts in nd approxim

with n th 12 .

The development of the rural population underlines th rosperity of th s. W e pop , is declining in most districts of the north and north-east as well as in the south, except for Del ran

Ma Economic disparities in Albania - P )

and Librazdh, together with two districts at the coast Lezhe and Kurbin have the highrat total popul

the data oin a distric

theon data of the d 2002 a ated

e level of regions from 2009

is basic assessment of the pe district hereas th ulation is growing in the central zone of Albania it

vine and Sa

p 5-1:

de.

overty37 (2008

Map 5-2: alti

Development of rurpopula on in Albania (2002-2009)

37 The number of inhabitants living in poverty estimated on the base of the districts and approximated with the

data of the 12 regions in Albania (INSTAT 2009).

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5.2 Albania - Areas with a high potential for diversification

Types of economic activities can be manifold. For those that have a strong link to natural resources, the assessment of the REC BI was complemented with a GIS (primary production, processing and marketing, renewables and rural tourism).

5.2.1 Albania - Areas with a high potential for the development of small enterprises regardless of the specific activity

reneurs assessed the situation of small enterprises to be average, e criteria very high. Only the

esourc preneurs explicitly mentioned difficulties to generate enough fin ourcesmind that the REC BI is designed to vi f small enterprises, it shows a rather realistic assess rs, which is confirmed by the results of the socio-economic analysis in the previous chapter.

Figure 5-1: REC BI for SMEs in Albania – results of the entrepreneur interviews

Source: Own data from interviews of entrepreneurs

5.2.2 SWOT Analysis for the diversification of rural economy in Albania

The SWOT Analysis for small enterprises summarizes the main results of the socio-economic situation analysis and the results of the complementary experts and entrepreneurs interviews. The SWOT Analysis is structured according to the three dimensions of the REC BI – resources, business environment, and competences for the endogenous factors (strengths and weaknesses). Opportunities and threats are described according to the dimensions of the PESTEL analysis.

The following chart derives from the case study interviews, when the interview partners estimated the situation of small enterprises, based on their own experience and knowledge.

The interviewed entrepexcept for th on objectives and motivation, which was assessedfinancial r es are evaluated as a hindering factor. Some entre

ancial res for investments. Keeping in sualize strengths and weaknesses oment by the interviewed entrepreneu

0123456

R-PhysicalR-Natural

R-Financial

R-Human

E-Consumer, Clients

E-Business competition

E-Business partners, …

E-Infrastructure

C-Knowledge / education

C-Communication

C-Experience

C-Objectives and Motiviation

actual capacity average attainment

E=Business Environment

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uation in rural areas of Table 5-3: SWOT Analysis on the socio-economic sit

Albania with regard to economic diversification

Dimensions STRENGTHS WEAKNESSES

Natural resources for the production of food with great variety

General low resource endowment in micro businesses leads to low quality production/services Lack of environmental awareness Over utilisation of natural resources

Extraordinary landscape for eco tourism

ES

Number of female entrepreneurs is increasing

(grassland and forest land) leads to erosion and degradation Lack of physical assets for bank security Lack of own financial resources Low educational attainment at tertiary level and lack of qualified labour force Increasing number of elderly h

RE

SO

UR

C

ouseholds due to out-migration

BU

SIN

ES

S

EN

VIR

ON

ME

NT

Tradition and practice of direct marketing strategy Traditional products Women associations have been founded Existing farmers association Agricultural extension service is available on the regional level

Distance to urban centres and/or tourism agglomeration with clients/customers which have purchasing power Lack of cooperation among entrepreneurs for improving marketing of products Micro entrepreneurship and small-scale farming prevails Considerable informal market shares in all sectors Bad rural road infrastructure

High spirit for entrepreneurship Lack of detailed knowledge on markets

CO

MP

ETE

NC

ES

and missing business information Strong private initiative in tourist Low technological level accommodation and food

provision Low awareness on quality products Sense for hospitality Day-to-day planning dominant; isForeign language skills due to strategic planning is missing extensive experience of work Weak technological capacities abroad Low level of professional education Traditional farming practices as (Learning-by-doing prevails) good basis for “healthy” products

s Lack of knowledge on standardFluctuations in service and product quality Lack of marketing and communication skills for the SME development

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Dimension OPPORTUNITIES THREATS

EU approximation process enforces Little experience on implementation P

OLI

TIC

AL democracy of RD support schemes

Upcoming credit schemes Land title ownership not resolved Capacities for integrated Long-term user rights for state-programming of RD measures good owned pastures and forests not

developed

EC

ON

OM

IC

Close relationship to foreign countries Increasing international demand for “new” tourism places Economic growth trends and increase of purchasing power Demand for rural tourism increased Funds of different international donors (bi/multilateral organisations) are available Small but growing demand for quality and “healthy” products

Physical infrastructure not constructed/rehabilitated (local roads, sewerage system) Distorted markets Commercial banks are very reluctant providing loans to farmers and/or micro entrepreneurs “No-image” country among professional international tourism business Lack of regional economic development policies

Rich cultural heritage Rural exodus Education Emigration of economically active

SO

CIA

L

population Reduction of number of family members Lack of human capacities in rural

areas Gender empowerment increased in some parts of the country Lack of culture of active citizenship “Wild” nature and cultural heritage Weak civil society organisations attracts specific high-segment tourist Vocational training system not groups reflecting market demands

TEC

HN

O-

LOG

ICA

L Access to new technology from abroad is increasing

Low level of technological standards Low level of hygiene standards No country-wide access to internet No access to IT and communication

Rich and diverse natural endowment Lack of enforcement of national

EN

VIR

ON

-M

EN

TAL

(range of landscapes from high standards for nature protection mountains to Adriatic Sea, natural Environmental damages (e.g. heritage, productive agro-natural erosion, nitrate leaching) zones, forests) Public opinion and cost implications Favourable climate for vegetables, are less developed olive oil, wine production

LEG

AL

EU approximation process accelerates implementation of conducive legal framework

Lack of national standards Law enforcement is lagging behind National standards of agro tourism are lacking

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Spatial dimension of entrepreneurship in Albania

. It is used as a proxy indicator for the entrepreneurship capital. This indicator allows the identification of areas, where the

business d e favourable. The very high business birth rate in Bulqize is due to the fa rome raised strongly, which has increase of ente

Map 5-3: rise birth rate in Albania (average of 2007 and 2008)

The business birth rate is an important indicator to identify areas with a high potential for economic activities regardless of the specific activity

conditions for evelopment arct that the price for Ch

rprises in this field.

Enterp

led to an

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5.2.3 Albania - A potential for small- ssing and ma

REC Business

SWOT Analys. Weaknesses

reas with a high scale procerketing of dairy products

Index

The assessment ofeasibility of small-sprocessing and marketing

f the cale

sing small not

eligibility of Axis 1 of

07, 43 small dairies

ween 0.5

Many more farm

re operating in

of milk products is focuon micro and enterprises, which docomply with thecriteria IPARD/EAFRD and/or have limited capacities. In 20more than 3with a capacity betand 2 tons/ day are registered.producers andhouseholds athe informal sector.

is Strengths

Resources % of

or

res, animals)

R2 Family labour is available - approx. 40active employees work in agriculture

R3 Remittances allow moderate/small investment

R4 Milk production is part of most small farmsR4 Extensive grassland in mountain areas

R1 Farm buildings and machinery are missing in bad condition, small size of farms (hecta

R2 Lack of qualified employees in rural areas R3 Lack of own capital and loan security R4 Bad utilisation of natural resources R4 Over-utilisation of natural resources

Business Environment

is based on existing

us mass products are beneficial

E4 Good experience to overcome deficits in infrastructure

eas

E1 Increase of productivity customers

E2 Traditional products vers

E2 High competition from the informal sector E3 Weak partners and lack of cooperation E4 Difficult market access in remote rural ar

Competences

s

n

issing

C1 Experience to operate in difficult environment

C3 Experience with processing of traditional products

E4 Strong entrepreneurship (343 small dairieexisting)

C1 Informal sector provides little experience iprofessional management skills

C2 Professional marketing knowledge is mC3 Lack of knowledge on new technology and

standards

Opportunities ThreatsPESTEL Competition of high quality products in the retail

mInterest rates of bank loans are very high In

Demand for high quality traditional products is rising Purchasing power increasing Financial assistance available

arket

nformal business sector is not targeted by ational law enforcement

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Potential for diversification of the rural sectors in Albania and Montenegro NACCON Potential for diversification of the rural sectors in Albania and Montenegro NACCON

Map 5-4: Areas with a high potential for small scale milk processing and

within a an centres

by the experts are

with a potential the

he north and the

red as very small

% of il basic hygiene

cing a day and are

demand for

urces to invest units. The

modernisation of these processing units will be almost impossible, if they have to fulfil European standards. Measures

for small-scale processing units which would fulfil basic hygiene standards are urgently needed.

Combining the GIS map with the expert knowledge one can identify at least five areas with a high potential for activities in small-scale milk processing - two in the north near Shkoder/Kukes and two in the south near Korce and Vlore and south of Tirana.

marketing

The indicators used in the GIS for the assessment of the potential for small-scale milk processing and marketing are the percentage of milk produced and the percentage of urban population

of Tirana/Durres, Shkoder and Vloreindicate a very high potential.

The areas identified during the round table discussionmarked with a red dot. They partly overlap with the areas above average, highlightingmountainous areas in tsouth.

In 2007, 343 out of 416 registedairies38 are considered production units. Approximately 75these units do not fulfstandards. The dairies are produ0.5 to 2 tons of milk located in rural areas.

There is a bigmodernisation of the small processingunits. Few entrepreneurs will have thenecessary financial resoin big processing

out of the total populationdistrict. Areas next to the urb

38 Cela et al. (2007): An assessment of the competitiveness of the dairy food chain in Albania.

"It is estimated that the actual number of processing units to be higher due to the existence of many small unregistered and unlicensed dairies, especially of some seasonally working in hilly and mountain areas, which are in very poor production conditions."

-69- -69-


5.2.4 Albania - Areas with a high potential for small scale processing and marketing of olive oil

REC Business Index

A study of the olive oil value chain in Albania points out, that a large number of customers prefer to purchase olive oil from the producer (Leonetti et.al: 2009). Although bigger companies are in the process of modernisation and expanding their markets, micro and small companies try to stay in the market and use market niches. Olive oil is easy to store and to distribute. 105 to 120 micro and small local

are selling olive oil to processors are registered. These companies and the informal sector ers in rural and peri-urban areas.

SWOT Analysi

1.3 million consum

s Strengths . Weaknesses

Resources is

R4 Local varieties

R1 Poor processing facilitieR1 Capacity for olive oil productioincreasing

n

R4 Available natural resources R4 Capacity for production

s R3 Lack of collaterals for bank loans R4 Low quality and productivity of olive

production


E1 Consumers, who are used to buy olive oil from producer

E3 Supporting extension services

E2 Easy market access for competitors and s informal market with low quality product

E2 Competition from medium and large-scale processors

E3 Growers organisations are weak Competences

ressure for income

C1 Lack of business administration skills k

E3 Experience of existing producers and processors

C4 Strong pgenerating activities and sense of entrepreneurship

C2 Communication and marketing skills are wea

Threats Opportunities PESTEL for high quality traditional and

domestic oImport of cheap olive oil Competition of big co the retail market

Demandlive oil

Purchasing power increases Financial assistance available

mpanies in Interest rates of bank loans are very high Hygiene standards will increase

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Map 5-5: Albania - Areas with a high potential for diversification in the small-scale olive oil sector

The indicators used for the identification of areas with a high potential for processing and marketing of olive oil are the percentage of production and the percentage of urban population in the district. Due to the fact that olive oil is easy to store and to transport, the

south-west of Albania in the

existing natural

sale of the product does not need to be restricted to the nearby city centres. The indicator "urban population" therefore is weighted with 30%.

The highest potential can be identified in thedistricts of Vlore, Berat and Fier. Experts from the roundtable discussion pointed out that Tirana, Berat and Vlore may have a very high potential for small-scale companies. The areas with a high potential for olive oil processing are easy to identify, due to theconditions.

In recent years a lot of plantation was done in the low land of Lushnje and Fier.

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5.2.5 Albania - Areas with a high potential for processing and marketing of wine

ion of small wine producThe situat ers is very much similar to the situation of the olive oil producers. The sector is dominated by small grape growers with an average size of 0.5 ha

t of 2.261 EUR per ha a year. Wine processing and marketing has favourable conditions in Albania (Petrick et al. 2004).

REC Business Index

For s

SWOT Analysis .

of wine making a profi

mall-scale grape growers, versification into processing arketing of their own wine

a long tradition. vements in wine processing ology and bottling even on all scale provide the basis ture growth and economic pment. Quite often the

ssing and marketing of wine mall scale is established in

ies, accommodation and ng services. The

development of wine tourism is a

the diand mhas Improtechna smfor fudeveloprocein a scombination with tourism activitcateri

potential source of additional income, especially near the tourism centres along the coastal areas.

Strengths Weaknesses Resources as

duction possible R1 Small farm units and structure R1 Land consolidation and land market is not well

R2 Cheap labour in rural areR4 Quality wine pro

organised Business Environment

E1 Q n’t

E2 Strong competition from informal sector

E1 Consumers especially at the coast and near urban centres

uameet consumer expectations

lity standards of the "home made" wine do

Competences C3 Hygiene standards in wine processing are rather easy to implement

C4 Entrepreneurship and risk taking

C1 d

C2 C3 Experience and knowledge on new wine

processing technology are lacking

Professional marketing of wine needs goomarketing skills and Communication skills, which are missing

Opportunities Threats PESTEL Awareness of good quality wine is

growing on the consumer level Good influence from experienItaly and other foreign countrie

ce in s

es

Lack of income egative impact on restructuring the agricultural sectWeproCheAvailable fund and credit schem

opportunity has a nor

ak law enforcement - especially intellectual perty rights - branding can be difficult ap wine imports

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Map 5-6: Albania - Areas with a high potential for small scale wine processing ting

The indicators used for the identification of areas with a high

il

and marke

potential for processing and marketing of wine are the percentage of the total production weighted with 70% and the percentage of urban population within a district weighted with 30%. The highest potential can be identified in the south-west of Albania in the districts of Fier and Berat.

These areas are strongly overlapping with the areas with a high potential for olive oproduction. The support to small-scale processing and marketing in these areas could target both sectors.

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5.2.6 Albania - Areas with a high potential for rural tourism

The OECD (1994) characterises rural tourism as being located in rural areas featuring small-scale enterprises, open space, contact with nature and natural world, heritage, traditional societies and "traditional" practices. The other types of tourism are sand and beach holiday, city tourism and other artificial, resort-based tourism services.

REC Business Index

In the context of the rural desttoscacanarroprdene

SWOT Analysis . Strengths

velopment strategies of member ates and candidate countries rural urism is associated with small-ale accommodation, leisure tivities, active sports and wildlife d/or cultural tourism in rural eas. Experts taking part in the undtable discussion stated that iority should be given to less veloped areas and day tourism ar urban centres.

Weaknesses Resources R1 Abandoned traditional houses

R2 Human labour with language skills

R1 Lack with basic standards in remote mountain areas

R3 Lack of financial resources for rather high investments

R4 Lack of apprecia esources

of traditional and authentic accommodation

tion of natural rBusiness Environment

E1 H gtourism services

E2 R with a chainnovators

ch holiday sector

E3 Lack of attractive tourism services in remote areas

ospitality with a long tradition is aood basis for the development of

ural tourism is not well developed nce of a good market for early

E2 Competition from sand and beaE3 Weak tourism associations in rural areas

E4 Weak tourism infrastructure in remote areas

Competences C2 CC3 TraditC3 Authentic tradition

C3 Experience with tourism business in remote areas to go h

ommunication skills ion and hospitality is important

C1 Lack of business management skills

is not well developed - there is a long wayC4 Motivation for business development is hig

Opportunities Threats PESTEL Wild nature and attractive landscape

Week an centrAlbanEco a

Sand and beach holiday is predominant end holidays and day trips near urb

es are raising demand ia has an image of a wild country nd cultural tourism is growing

Marginal budget for the promotion of rural tourism Low environmental awareness Pollution of rivers and the landscape Negative image of Albania from the past

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Map 5-7: Albania - Areas with a high potential for tourism development and protected areas

Source: UNEP, 2007

The indicators for the GIS map on the left are the number of hotels, cafes and restaurants per 1000 inhabitants and the number of natural monuments per 100 km². The assessment of experts approves the findings that high potential areas are located in the south and north of the country. Other areas are indicated in the south of Tirana and south of Kukes. With the new motorway from Lezhe to Kukes and Kosovo, these areas are easy to access by car.

Another indicator for rural or eco-tourism are protected areas displayed in the map on the right. The protected areas usually indicate an attractive landscape and potential for this type of tourism. The identified areas in the GIS map overlap with some of the protected areas. In the north, the Valbona valley only partly overlaps with the identified area of a very high potential for rural or eco-tourism in Shkoder. In this case, the complete area of Valbona valley would be included into the area with a high potential for rural or eco-tourism.

At the same time the protected areas east and south-east of Tirana may bear a potential for rural tourism. A detailed analysis of the tourism infrastructure in these areas is necessary.

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5.2.7 Albania - Areas with a high potential for renewable energy from forest residues

l cutting of tilisation of the remaining forests and erosion.

REC Business Index

Although the utilisawood residdeveloped, the potendescribed here, sineasy to implement technique

S ysis . rengths

Despite the intensive use of hydro energy, the use of wood for heating is wide spread in Albania. Other types of renewables are underdeveloped (Cela et al. 2009). A few wind energy sites in Albania are planned or under construction. Biomass is not used at all, but bears a high potential, especially for food processing companies. Legal and illegafirewood causes over-u

More efficient technologies for the use of wood residues are not established, although they are compatible with non-renewable energy sources like gas and oil. All over Europe wood pellets are used for efficiently exploiting wood residues, especially from wood processing industry.

tion of ues is not yet

tial is ce it is an

c and contributes to the fabriof rural economy.

WOT AnalSt Weaknesses

Resources pe with complicated technology and machinery

igh and

R4 Residues from wood processing companies are not used

R2 Qualified labour force missing, which could co

R3 Investment for this type of business is hlack of own resources is predominant

R4 Over utilisation of the natural resources Business Environment

mpetition yet, early innovative entrehave good prospects

E3 Lack of supporting structures

E2 There is no copreneurs may

E1 convince potential clients No awareness of renewables - it will be difficult to

E4 Bad infrastructure Competences

e technology in C2 International contacts and

relatives abroad are supportivC1 Lack of managing skills C3 Missing experience with modern

renewables Opportunities Threats

PESTEL Growing energy prices and rising pressure for alternatives

Law on renewable energy use and necessary budget lines for the support of renewables are missing

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Map 5-8: Albania - Areas with a high potential for forest residues as renewable energy

The map provides information on the percentage of forest area out of the total area within a district.

The potential for an efficient use of the renewable resource of wood may be an interesting economic activity, since the prices for conventional energy sources, such as gas and oil, are constantly increasing. The areas in the north and the mountains seem to have a rather high potential.

Forest is an important source of income in the rural areas and provides low cost energy.

Very often this energy source is not utilised in the most efficient way. The processing of forest residues and waste from wood industry can be a profitable source of income. The actual capacity will raise many questions to be solved with regard to the feasibility.

Renewables from biomass other than wood residues

Hydro energy and firewood are the most important renewable energy sources in Albania. The utilisation of biomass and other residues as well as waste from processing companies has not yet developed. Some experts identified theoretical potential but feasibility studies would be needed to approve the technical and economic potential. During the second roundtable discussion experts evaluated the potential for energy from biomass. The assessment is similar to the assessment of the REC BI for wood residues. Theunfavourable conditions are dominant.

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5.2.8 Albania - Other types of diversification of the rural economy

chapter 2, differen

Plant parts used to Plant parts usedSalvia officinalis 1,000 leavesOriganum vulgare 800 herbSatureja montana 500 herbThymus vulgaris 440 herbHypericum perforatum 424 herbRubus idaeus 380 leaves/fruitsMelissa officinalis 350 leavesJuniperus oxycedrus 285 berriesCrataegus monogyna 240 leaves/berriesRosa canina 200 fruitsTrifolium spp. 152 flowersPrimula veris 105 flowersOrchis morio 100 tubers

85 berries75 herb

Juniperus communisSideritis ra eries

In t types of economic activities for the diversification of the rural

tural production and the wild collection of herbs, fruits, etc. has an important impact on the economy, especially in mountain areproduction of chestnuts has an important impact on the rural e

The collection of medicinal and aromatic plants (MAPs) is w2001, approx. 10,000 tonnes of MAPs were exported (Kathe ethe products are exported to the United States and Germany.

Table 5-4: Estimated amounts of MAPs exported from

Experts (Imami, Leargue that the collec16 million EUR ovulnerable rural houhouseholds and oinvolved. Exports a2007. Intensive haherb industry by oveMost of the medicinmaterial. Only few material in processing

S e W., HoHerze Bulgaria, Cr e91.

Picture 5-1: Cultivation of sage (Salvia off

cult spices has an old t here is little evidence about regional agglomeration of t example sage is c pa Lak uth-east.

economy are listed, which have not been discussed in detail. For these other activities described in this chapter no statistical data on the relevant geographical scale is available. One activity has to be mentioned explicitly - the collection and cultivation of medicinal and aromatic plants.

Collection and cultivation of medicinal and aromatic plants

Unconventional agriculas. In the area of Kukes, the conomy.

ell developed in Albania. In t al. 2003). More than 90% of

Albania in 2001

onetti and Stefanllari, 2009) tion of MAPs generates up to f annual income to most seholds. Up to 100,000 farm ther rural households are

ccount for 14 million EUR in rvesting threatens the wild r-utilisation of the resources.

al plants are exported as raw companies process the raw Still there is a pAlbania. otential for

of these products within the country. Assistance to these activities could enhance the fabric of rural economy. Very often the collection of these MAPs is done in protected areas.

ed -nc n

icina

A

ource: Kathgovina,

nnef S. and A. Heym, 2003: Moatia and Romania. Federal Ag

icinal and Aromatic Plants in Albania, Bosniay for Nature Conservation of Germany - Skirpte

lis) at Prespa Lake

part from the wild collection, theivation of herbs and

radition in Albania. T

hese activities. For ultivated near Ohrid Lake and Pres

e in the so

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5.3 Montenegro- Areas with the highest need for economic development

For mapping the areas with the highest needs for economic development, the Regional Development Index in Montenegro was applied.

Map 5-9: Regional Development Index in Mon

Source: Strategy on Regional Development of Montenegro, 2010-2014 (p.82).

The municipality of Plav in the very south-east of Montenegro has the lowest development index followed by Andrijevica, Rozaje, Savnik and Pluzine. Only in Podgorica and the northern part of the coastal areas with Herzeg Novi, Kotor, Tivat and Budva the Regional Development index is above 120. For the other municipalities the index is below 100, what means below the average of Montenegro.

tenegro

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Potential for diversification of the rural sectors in Albania and Montenegro NACCON Potential for diversification of the rural sectors in Albania and Montenegro NACCON

5.4 Montenegro - Areas with a high potential for diversification of the rural

l areas based on their own experience and knowledge.

which micro and small rural

te enough financial

bed activities. This may result lectio preneurs,

having established well functioning small businesses.

Figure 5-2: REC BI for SMEs ininterviews

economy economy

5.4.1 Montenegro - Areas with a high potential for the development of small enterprises regardless of the specific activity

The following chart derives from the case study interviews. The interview partners assessed the overall strengths and weaknesses of the micro and small enterprise sector with specific regard to the rura

5.4.1 Montenegro - Areas with a high potential for the development of small enterprises regardless of the specific activity

The following chart derives from the case study interviews. The interview partners assessed the overall strengths and weaknesses of the micro and small enterprise sector with specific regard to the rura

The interviewed entrepreneurs rather stressed the weaknesses, The interviewed entrepreneurs rather stressed the weaknesses, enterprises have. Except for the criteria of objectives and motivation, the other criteria were evaluated with an average score. Only the financial resources are evaluated as a hindering factor. Some entrepreneurs explicitly mentioned difficulties to genera

enterprises have. Except for the criteria of objectives and motivation, the other criteria were evaluated with an average score. Only the financial resources are evaluated as a hindering factor. Some entrepreneurs explicitly mentioned difficulties to generaresources for investments. Keeping in mind that the REC BI is designed to visualize strengths and weaknesses of micro and small enterprises, it shows a rather realistic assessment by the interviewed entrepreneurs. The assessment was different from the results of the roundtable discussions with respect to the descri

resources for investments. Keeping in mind that the REC BI is designed to visualize strengths and weaknesses of micro and small enterprises, it shows a rather realistic assessment by the interviewed entrepreneurs. The assessment was different from the results of the roundtable discussions with respect to the descrifrom the se n of the interview partners, who were all rather successful entrefrom the se n of the interview partners, who were all rather successful entre

Montenegro - Results of the entrepreneur


0123456

R-Physical

R-Natural

R-Financial

R-Human

E-Consumer, Clients

partners, …


C-Communication

C-Experience



E-Business E-Infrastructure

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5.4 Montenegro - Areas with a high potential for diversification of the rural

l areas based on their own experience and knowledge.

which micro and small rural

te enough financial

bed activities. This may result lectio preneurs,

having established well functioning small businesses.

Figure 5-2: REC BI for SMEs ininterviews


Montenegro - Results of the entrepreneur

C=Compenteces

0123456

R-Physical

Clients

partners, …


C-Communication

C-Experience


R=Resources

R-Natural

R-Financial

R-Human

E-Consumer,


E-Business E-Infrastructure

E=Business Environment

actual c pacitya average attainment

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5.4.2 SWOT Analysis for the diversification of rural economy in Montenegro

The SWOT Analysis of Montenegro describes the main results of the socio-economic situation analysis and the complementary expert and entrepreneur interviews with regard to the potential for economic diversification in rural areas clustered according to the three dimensions of the REC Index – resources, business environment, and competences – for the endogenous factors (strengths and weaknesses), and the six dimensions of PESTEL for the exogenous factors.

Table 5-5: SWOT Analysis on the socio-economic situation in rural areas of Montenegro with regard to economic diversification

Dimensions STRENGTHS WEAKNESSES

RE

SO

UR

CE

S

Natural resources favour niche food products, renewable energy (biomass) Experienced entrepreneurs Large number of abandoned farmhouses for tourist facilities Environmental awareness growing Traditional houses/ architecture as tourism assets exist (but not

Low professional knowledge level of employees Good agricultural practices in small-scale farming not applied leading to unsustainable business practices Lack of access to loans Poor use of own resources Large number of elderly households Low level of rehabilitation of existing

renovated) rural tourism assets Undefined property rights

BU

SIN

ES

S E

NV

IRO

NM

EN

T

Demand for quality products exists High number of foreign tourists as buyers Growing number of second holiday homes in rural areas creating additional demand Numbers of tourists increasing

Joint marketing through creation of associations weak due to general mistrust among individual entrepreneursLack of good regional development policies Tourism products not developed Purchasing power distant in urban and tourism (coast) areas Increasing competition Bad rural road infrastructure Small quantities sold Distortion in markets Old equipment

Highly motivated and experienced

CO

MP

ETE

NC

ES

entrepreneurs as best practice Lack of professional skills – marketing, communication, standards

examples Low level of foreign languages Trust in own capabilities Ignorance of economic trends and Proven hospitality and experience in forecasts rural tourism Low level of service culture quality Poor technical support

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OPPORTUNITIES THREATS

EU candidate status enforces transparency of political institutions

The capacities of the public administration are improving slowly

Democratic institutions exist Pre-occupation with agricultural

PO

LITI

CA

L

production not with diversification Strategic documents developed and adopted Lack of local strategies for rural

development National support to agriculture and rural development Weak links between stakeholders Improved institutional capacities

EC

ON

OM

ICA

L

EU candidate status provides opportunities for additional funds for investment support Economic growth trends Consumer preferences for local and traditional products growing Purchasing power is increasing Good economic relation and exchange with neighbouring markets Demand for rural tourism destinations increased Programmes for micro credits and loans with reduces interest rate are in preparation

Physical infrastructure (local roads) not sufficient Insufficient market information Uncontrolled imports of agricultural products Low level of sales of traditional products on the official market Big informal tourism market Low efficiency and competitiveness of processing industry High interest rates to farmers and SMEs

Rich cultural heritage Ageing and depopulation in rural areas Hospitality of population Professional education and vocational

SO

CIA

L

training does not meet market demand High level of well educated population as condition for further professional training Weak civil society organisations

Low level of social responsibility among society

TEC

HN

Relatively good internet access

O-

LOG

IC

Knowledge of old traditional food technology

AL Good technological level in agricultural

production Insufficient knowledge of food hygiene and standards

EN

VIR

ON

ME

NTA

L

Rich, diverse natural resources and biodiversity Unpolluted environment

Lack of awareness for environmental protection. Low awareness of external costs

Favourable climate and geographical Entrepreneurs do not want to pay higher location costs for environmental protection Large number of locations for different Good agricultural practices not enforced activities leading to environmental damages Great resources for tourism development Uncontrolled destruction of agricultural

land and deforestation

LEG

AL Harmonization of national and EU law

enforced with EU candidate status Selective law enforcement

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-83-

5.4.3 Montenegro - Areas with a high potential for small-scale milk processing

REC Business Index

.g. FAO). Some of the small

centres.

SWOT Analysis . Strengths Weaknesses

and marketing

Only 14 % of the total milk produced in Montenegro is processed in dairy plants.

ds or sold directly

Approximately 63% or 120 million litres are used for own consumption in farm householto customers (Markovic 2009). Fresh milk, cheese and kajmak are the most important products. Alpine pasture farming is commonly practiced. Processing of the milk takes place in the mountains, because of high costs for transport of small amounts. Specific types of traditional cheese are produced in

micro and small formal or informal enterprises. The modernisation of micro and small dairies has been supported by donor organisations (ebusinesses successfully sell their products to restaurants, hotels or even in super markets in the urban

Resources R4 Extensive pastures in mountain areas with low productivity are available and utilised

R1 Poor conditions of farm buildings, with little investments

R2 Montenegro has a big demand for labour especially during the season. It can be difficult or expensive to hire employees

R3 Poor farm households hav ital to invest

R4 Low yields of the cows

e very little own cap


E1 Existing consumer relations E1 In tourism areas restaurants and

hotels buy traditional products E1 Good functioning direct sales

strategy for the local market

E2 High competition from informal market and therefore low prices

E2 Easy market access for competitors E4 Difficult market access in remote rural areas

Competences C3 Experience with processing of traditional products

C4 Tradition as entrepreneurs - good understanding of the business

C3 Awareness on new technology and standards is low, even on the level of milk production

C3 Lack of hygiene standards and quality control

Opportunities Threats PESTEL Demand for high quality and

traditional products Purchasing power increasing Financial assistance available

Competition of companies with implemented standards and high quality products in the retail market Interest rates of bank loans Implementation of hygiene standards


Map 5-10: Montenegro - Areas with a high potential for small-scale m

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ilk processing and marketing

bovine, sheep and goats in the

Processing of milk has a long and outstanding tradition in these

scale milk processing

re kept.

ith a high cation into

often by w arm household, even on the mountain pastures during the

Low hygiene standards of many existing micro enterprises and growing competition from big dairy companies threaten the future developmen investment is needed to improve the food hygiene and food safety legis n.

The indicators used for this map are the share of urban population in the respective area (purchasing power) and the share of livestock units of

respective municipality.

areas.

Areas with a high potential for small-and marketing (on-farm - direct marketing of farmers and others) are located in Niksic,

er of cattle,where a high numbsheep and goats aOther areas are in mountainous municipalities in the north and east. The indicated areas wpotential for diversifithese activities were confirmed by the participants of the second roundtable discussion.

The micro enterprises are very run

latio

omen. Processing of milk mainly is the task of the women in the fsummer months.

t. Sometimes only little conditions as required by the national


5.4.4 Montene high potential for process rketing of

R Bu

diversifi al economy (Barbu et. al. 2010).

SWOT A

gro - Areas with a ing and mavegetables

siness Index EC

Processing and marketing of f the

y. Green markets, de

g and of y

activities of women in rural

f productivity, has an

vegetables is an important part orural economwhich exist in all towns, provifacilities for small-scale producers and processors to sell their products directly to a wider group of customers. Also the processinmarketing of small quantities vegetables are predominantleconomicareas. The small amount invested in the improvement opackaging and marketing important impact on the

cation of rur

nalysis engths . Str Weaknesses

Resourc ces are

R3 The investment needed is rather low

R4 Ses R1 Basic physical resouravailable

R2 Labour, under exploited farm labour is available

mall quantities produced

Business Environm

E1 Good market conditions due to

tion) ocessed

ven restaurants and hotels try to

E2 Cheap products from other countries E4 D

ent preferences of the customers - green markets are very popular

E2 USP (unique selling proposiespecially for traditionally prproducts

E3 Eprovide traditional food

E3 Good functioning direct sales strategy

ifficult market access in remote rural areas due to insufficient infrastructure (roads)

Compete rocessing of C1 L

nces C3 Experience with ptraditional products

C4 Tradition as entrepreneurs

ittle experience with business administration

Opportunities Threats PESTEL

oducts

and local/regional centres

ComstandmarkCheaHigh irements Imple t accompanied with skills development of micro processors

Demand for high quality and traditional prPurchasing power increasing in towns

Financial assistance available

petition of companies with implemented ards and high quality products in the retail et p imports

interest rates and strict collateral requmentation of hygiene standards is no

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5-11:Map ro - Areas with a high potential for processing and

marketing of vegetables

confirmed by the experts of the second roundtable discussion.

Monteneg

The indicators used for the identification of areas with a high potential for processing and marketing of vegetables (direct marketing and micro and small enterprises) are the share of vegetable production in the total national production and the share of urban population in the total population in a municipality.

Besides Niksic, the rural areas in the municipalities of Podgorica, Kolasin and Bijelo Polje have a high potential. This assessment described in the GIS map has been

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5.4.5 Montenegro - Areas with a high potential in rural tourism

REC Business Index

hand, bed capacities are not well occupied (see chapter tourism therefore should focus on specific recreational anand/or accommodation in traditional houses. The developmaccommodation is part of the general tourism strategy for eof Tourism and Environment 2008).

Therurrurentwith nature, and natural world, her"tratypbea city tourism and other artificial,touliketo holrurbeeboaa sm

OECD (1994) characterises al tourism as being located in al areas featuring small scale erprises, open space, contact

itage, traditional societies and ditional" practices. The other es of tourism are sand and ch holiday,

resort-based rism services. In Montenegro, in other countries with access the sea, the sand and beach iday is predominant. Eco and al tourism in the mountains has n promoted by the tourism rd as an area of activities with

great potential for micro and all businesses. On the other 3.2.1). The activities for rural

d outdoor activities for tourists ent of authentic and traditional co and nature tourism (Ministry


Resources R1 Abandoned traditional houses exist in R3 Investment in old or historical buildings is high, many places in the mountainous areas

potential

especially if prepared for high quality tourism R1 Existing holiday homes attract a lot of

domestic tourists R4 Nature parks provide an attractive

landscape and area with great recreational


E1 Well-known tourist destinations especially in the mountains with big theoretical potential

E4 Tourism infrastructure

E3 Tourism associations in rural areas are starting E3 Budget lines for the promotion of rural tourism E3 Lack of attractive tourism services in remote

areas Competences C3 Experience in tourism sector is very high -

even in remote areas C3 Welcoming hospitality C4 Risk assessment is rather positive

C1 Small businesses are usually lacking professional business skills, informal sector is big

C2 Communication skills of rural population are weak, especially when hosting foreign tourists

Opportunities Threats PESTEL Growing tourism sector in rural areas

Image of "wild beauty" promotes rural and eco-tourism

Sand and beach holiday is predominant Utilisation of natural resources is weakly regulated Landscape planning can be improved

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Eco and cultural tourism is growing

Map 5-12: Montenegro - Areas with a high potential for rural tourism

The indicators for the identification of rural areas with a high potential for

coast do have a high potential for economic activities, e.g. wine tourism and recreational

To take account of the under-utilisation of existing accommodation places, as

recreation activities are the share of overnight stays in registered hotels and pensions in the municipality. It is assumed that the potential for a successful business development in this area is directly linked to the number of clients already coming to the tourist destinations. Due to the high share of informal accommodation providers it is difficult to estimate the potential for the development of traditional and authentic pensions. Areas near the

activities.

w valoris di e tourism, s ld focu d t only for reasons of h already exi ecause the reconstruction of ore expensive than the construction of new buildings.

ell as toupport shou

e the cultural heritage ans on the reconstruction of olfair competition wit

d tra tions for quality eco and natur/traditional buildings. This is sensible no

sting pensions, but also b old buildings usually is m

-88-


5.4.6 Montenegro - Areas with a high potential for renewable energy from forest residues

REC Business Index

forestry has a great potential for farmers, who use part of twith additional investments to provide wood chips to these fowner of the concessions for felling.


The energy consumption in Montenegro is based on hydro energy with up to 50%, gas 1%, 3% coal, 36% crude oil and 7% wood39. The government of Montenegro is aware of the potentials to use renewable energy sources and launched a programme to modernise the heating systems of public buildings. In cooperation with the Kreditanstalt für Wiederaufbau (KfW) wood shavings heating systems will be installed in 47 schools. More efficient use of the natural resources from

heir already existing machinery acilities in cooperation with the

Resources R1 Physical resources are rather easy to be built

R4 Natural resources are available

R3 Private financial resources are lacking R3 The technology needs high investments


E1 Public institutions as clients E1 Planned investment in wood chips

heating systems

E2 Little experience with potential partners, because technology is new

E4 Infrastructure partly not well developed Competences C4 Motivation is high due to income

generating potential and already well developed feasibility studies

C1 Lack of business management skills C2 Communication skills will need to be improved C3 Lack of experience with this specific technology

Opportunities Threats PESTEL Rising prices for energy

Legal framework for the utilisation of natural resources

Lack of awareness on renewables Concessions for logging are restricted Control system for the utilisation of concessions is sub-optimal

39 Strategy of the Energy Efficiency of the Republic of Montenegro – Final Report, Podgorica, 2005.

FORS (2007): Feasibility study, commercial utilization of waste wood as a resource for economic development in Northern Montenegro.

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Map 5-13: Montenegro - Areas with a high potential for economrenewable energy from wood residues

ic activities with

The most important areas for wood production are in some of the least developed areas of Montenegro. Especially wood residues have proven to be compatible with other energy sources. Various studies approve the feasibility of the efficient use of wood residues in different types of heating systems. Renewable energy still has a high potential in Montenegro.

-90-


Mont

In Chapter 2, a list of economic activities for the diversification of rural economy is provided, which have a weak link to a specific area and little agglomriding, services for farm machinery, handicrafts). These implemented anywhere in the country. The potential for somand horse riding, is higher in semi-urban areas, whereas oareas (e.g. farm machinery services).

Marketing and processing of wine

Marketing and processing of wine in Montenegro is strofavourable areas in the centre and coastal area. The wiaround Podgorica with 89% of the total production. The privabiggest share. Bar (2,35%), Cetinje (3,01%) and Danilovgshare of the total production. The other municipalities in tareas have less than 1% share of the total production. Thesnot only for the processing and marketing of wine, but as wel

Renewable energy - other than biomass

The potential of wind and solar energy is not exploited. A srenewable energy in Montenegro is prepared. But still the constraints of the market access hinder the implementation o

The main focus of the energy development strategy of Monteof small hydropower units. Until 2015, Montenegro wants to of new small hydro-generating capacity.

Social and health farming

The feasible potential for social and health farming may be

tivities will need a very specific assessment, almost like an individual business plan. Still, measures for the diversification of rural economy should consider the manifold types and possibilities to generate income.

5.4.7 enegro - Other types of diversification of the rural economy

eration (e.g. pet farms, horse activities could generally be e activities, such as pet farms

thers would be located in rural

ngly linked to the climatically ne production is concentrated te company "Plantaza" has the rad (3,26%) do have a small

he central, carstic and coastal e areas would have a potential l for wine tourism.

trategy for the development of administrative procedures and f strategies and concepts.

negro lies on the development realize between 15 and 20 MW

higher in Montenegro than in Albania, but is still rather low. It will always be a very small niche for specialised and highly qualified entrepreneurs. EU member states, farms depend on payments within the well developed social welfare system with the necessary budget.

A detailed analysis of all potential activities is not possible within this study, because each of these ac

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6 Recommendations on needs and feasibility of using measures

In this chapter recommendations at programming level on the formulation of rural supportive for the diversification of rural economies in the identified

potential rural areas in Albania and Montenegro are provided

In a long-term perspective, a diversified and knowledge-basefood sector being integrated in the broader rural economdevelopment processes seems to be a favourable way to crin both countries. This comprises the multi-functional role ofthat rural areas offer important economic, environmental, cuwhich the entire society can benefit.

Due to the low urbanisation and the predominantly ruprevailing in both countries, “rurality” on the programmingspecific types of eligible measures/investments that are econrural areas, the sustainable use of natural resources and bnot by statistical and/ or administrative borders. Therefore, made to achieve effective coherence between interlinked polsupport, regional development, or vocational training) and thapproach and complementarity of the different support meas

6.1 Needs and measures for improving the potential fo

hs and weaknesses of enterprises - the micro level - ccount the policy, legal, financial and institutional conditions at macro and

meso level.

Considering that fun ral Development Programmes of Montenegro and Albania allocat ea ition in Albania they are no f m s equally to other sectors (Montenegro), anfunds for ComponentD – Obje nt ccessible. Therefore, it is advisab ra tial for one or more specific ac

6 Albania ntials for d

The needs, derivin be the potentials, deriving from the strengths (equal to or above a

to specific economic activities, which were analysed in detail in the previous hapters based on the REC BI are summarised in Figure 6-1. The first chart is a general

assessment of the potentials and needs provided by the interviewed 10 entrepreneurs.

to facilitate the diversification of rural areas

development measure .

d rural economy with the agro-y and in regional innovation

eate self-sustaining rural areas the agro-food sector to ensure ltural and social services, from

ral socio-economic character level needs to be defined by omically directly linked with the y the type of beneficiaries, but considerable efforts have to be icies (Rural Development, SME us, an integrated programming ures is necessary.

r diversification of the rural economy

The discussion on measures for the facilitation of the diversification of rural economy in both countries has to consider the strengtwhile taking into a

ds under the National Rued to rural diversification m

osures are very limited and in add

t investment-based type easures, national programmes for MSEd IPA upport are limited (Albania) or targeted

5 – Rural Development (IPARD) and Component 5 “Regional evelopment ctive: Economic Developme

le to support selected ru economic diversification

and Employment” are not yet al pilot areas, which have a high potentivities.

.1.1 - Needs and pote iversification

g from the weaknesses ( low an average score of 4), and n average score of 4) of MSEs

with regard c

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Figure 6-1: Overview of the REC BI charts in Albania

Qualitative assessment of the REC BI in Albania by interviewed 10 entrepreneurs (1)

REC BI for “Processing and marketing of milk products

(2)”

REC BI for “Processing and marketing of olive oil (3)” REC BI for “Processing and marketing of wine (4)”

REC BI for “Rural tourism (5)” REC BI for “ ewables from wood residues (6)” Ren

High potentials are related to the criteria of the existence of natural resources, markets for having a critical mass for the products/services and the motivation for entrepreneurship. The highest scored criterion is the motivation of potential entrepreneurs to start their own business. This business spirit may be due to missing employment opportunities and feeding the informal economy with micro enterprises on the one side, but deriving also from a general sense of entrepreneurship in the whole society in Albania arisen during the

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transition period, which can lead to a professionalization. Other criteria for the feasibility of economic activities are scored rather low due to their shortage and/ or shortcomings:

tences in

compared to milk and meat products, because they can easily be preserved. Milk processing (3.77) is much more demanding in terms of

ment, implying more costly investments. Rural tourism

physical and financial resources, skilled labour, business environment and compebusiness management, communication and experience. The results match also in their trend with the estimations of the interviewed entrepreneurs.

Based on the calculation of the average score for each activity based on the REC BIs (see Figure 6-2), the most feasible activities in rural areas of Albania are processing and marketing of wine (4.27) and olives (4.23). These are products, which have moderate obligation on hygiene and food safety,

competences and technological equipalso has a rather high REC BI of 4.09 due to the rich natural conditions and partly already developed tourism services, whereas renewable energy from forest residues has the lowest REC BI of 3.64.

Figure 6-2: Albania - Overview of the assessment of the REC BI for selected diversification activities with high potential

Table 6.1 presents feasible support measures structured according the three dimensions of the REC BI, which are based on the identified needs (weaknesses) and potentials

of the aggregated REC BI assessment results as well as the PESTEL analysis, nd with regard to their scope of intervention (endogenous factors at micro level and

exogenous factors at macro and meso level).

(strengths) a

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Table 6-1: Needs, potentials and feasible measures to facilitate diversificationof rural economy in Albania

Criteria - Needs and Potential Measures

Endo

geno

us

• Programmes for loan guarantee schemes • Training for specific needs of employees (e.g. small dairies,

rural tourism, marketing)

• Financial schemes for investment support • Subsidised national loan schemes (reduced interest rate)

Reso

urce

s

be used as collateral R2 Human resources

Lack of qualified labour force in rural areas

R3 Financial resources Lack of own financial resources Programmes and strategies for the financial support of SMEs are not

• Law enforcement with respect to the sustainable utilisation onatural resources

R1 Physical resources Missing physical assets, which could

objective-oriented and lacking funds R4 Natural resources

Sustainable use of natural sources is weak Available resources are in favour for rural tourism

Exog

enou

s • Handicap payments for less favoured areas, specific mounta

areas development programmes, agro-environmental measures

• Sustainable landscape management and planning • Funds allocated to the strategic guidelines

f

• Land consolidation programmes in

Edon

no

ions and producer

rs together

for

ge groups • Competition and fairs on quality products to bring partne

us

• Support to promotion material, promotion campaigns for traditional and local products

• Promotion and funding of business associat

• Strengthening extension service and business consultancy MSMEs

Busin

ess e

nviro E2 Competition

Regulations and law enforcement are weak, which causes unfair competition

E3 Partners Adm

• Simplification (gradual enforcement of EC standards in accession period) of minimum standards esp. food safety an

E1 Customers Existing (informal) consumer relations are in favour for the development of

nmen

t

Preferences of consumer towards traditional products Consume

business

r protection is weak

inistrative institutions are weak d

hygiene, for companies on the local/national market and micro

g) y

and legal framework is not fully functioning

E4 Infrastructure Quantity and quality of infrastructure insufficient

Exog

enou

s

enterprises • Law enforcement on property rights (marketing and brandin• Reconstruction of rural infrastructure and main roads for eas

access to regional centres

Endo

geno

us

• (Obligatory) training on entrepreneurship, business management, marketing and promotion competences

• Training on hygiene and environmental standards and technissues strongl

ical y related to the specific activity

• Support to internship of potential entrepreneurs nsultancies and extension service and

SME business development schemes • Start-up support via co

C1 Management Weak business administration skills

C2 Communication Weak marketing skillsC3 Experience

Comp

etenc

e

on new technologies C4 Motivation

Lack of formal entrepreneurship High motivation to start business

Exog

enou

s

• Coordination of activities for the support of SMEs with the other competent administrative bodies (Ministries)

• Capacity development of supportive structures in the publicadministration

• Efficient administrative procedures for business regi

s practical training or vocational skills development, with a special emphasis

Education system does not support

stration and law enforcement

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6.1.2 M enegro - Needs and potentials for diversificont ation

Ch ngthand the w age score of 4) of the activities lysed with the REC BI in detail in the previous chapters. The first chart - "Qualitative assessment of the REC BI for SMEs in Montenegro by the interviewed 10 entrepreneurs" is a qualitative assessment on the potential of SMEs in general.

Figure 6-3: Overview of the REC BI charts in Montenegro Qualitative assessment of the REC BI for SMEs in

Montenegro by the interviewed 10 entrepreneurs (1) REC BI for “Processing and marketing of milk products

(2)”

arts 2 to 5 of Figure 6-3 illustrate the streeaknesses (below an aver

s (equal to or above an average score of 4) ana

REC BI for “Processing and marketing of vegetables (3)” REC BI for “Rural tourism (4)”

REC BI for “Renewables from wood residues (5)”

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Except for rural tourism activities the competences of entrepreneurs are rather weak. The business environment on the other hand is estimated to be average. Natural resources are scored above average whereas the low scored availability of own financial resources implies lack of access to loan or funds. Estimations provided by the interviewed 10 entrepreneurs are in average above these assessments by activity indentified potential areas.

In general, the calculation of the average scores based on the REC BIs for the identified diversification activities with high potential in rural areas of Montenegro resulted in higher overall scores than for Albania (see Figure 6-4.

Figure 6-4: Montenegro - Overview of the assessment of the REC BI for selected diversification activities with high potential

Small-scale processing and marketing of vegetables has the score 4.91 and small-scale processing and marketing of milk - 4.00. This difference derives from a rather high assessment of the criteria of human and own financial resources, since the processing of vegetables has fewer requirements towards qualified human resources. The investment needed is much less than for milk processing, because fresh and processed vegetables ar

uch easier to store, since it does not need the intensive cooling. Rural tourism also has a

dimensions of the REC BI and indicates the identified needs (weaknesses) and potentials (strengths) by criteria based on the aggregated REC BI assessment results as well as the PESTEL analysis. Possible support measures for the diversification of the rural economy in identified rural areas are linked to their scope of intervention (endogenous factors at micro level and exogenous factors at macro and meso level).

e mrather high score of 4.73, which reflects the already existing tourism activities, the competences and experience with tourism and catering business. Renewable energy from forest residues has a REC BI score of 4.36, because of already existing Government decisions for the support of use of this technology in public schools.

Table 6-2 is structured according to the three

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Table 6-2: Needs, potentials and measures to facilitate diversification of rural economy in Montenegro

C Mriteria - Needs and Potential easures

Endo

geno

us • Financial schemes for investments support

• Subsidised national loan schemes (reduced interest rate) • Programmes for loan guarantee schemes • Training for specific needs of employees (e.g. small dairies,

rural tourism, marketing)

Reso

urce

s

R1 Physical resources Lack of collateral due to missing physical assets

R2 Human resources Lack of qualified rural labour force

R3 Financial resources resources, due

t

R4l sources are available, but not

Exog

enou

stal measures

Limited own financialto low economic performance of existing companies Programmes and strategies are noobjective-oriented and are lacking financial budgets.

Natural resources Naturasustainably used

•

• Law enforcement with respect to the utilisation of natural resources

Land consolidation programmes • Handicap payments for less favoured areas, specific

mountain areas development programmes, agro-environmen

• Budgets dedicated to the strategic guidelines

Endo

geno

• Support to promotion material cy,

l development.

us • Strengthening business services and business consultan

who support SMEs • Coordination of activities between economic development

and rura• Competition and fairs on quality products to bring partners

together

Busin

ess e

nviro

nmen

t

E1rotection is weak

E2

E3s

xog

Customers Consumer p

Competition Regulations and law enforcement areweak causing unfair competition

Partners Reliable administrative institutionand legal framework

E4 Infrastructure Infrastructure sufficiently developed in rural areas

Een

ous accession period) of minimum standards esp. food safety and

hygiene, for companies on the local/national market and micro enterprises

• Maintenance of infrastructure

• Simplification (gradual enforcement of EC standards in

• Creation of fair competition, by reducing informal sector

End

• Adult education programmes for potential SME entrep

os

• Trainings on entrepreneurship reneurs

geno

u • Promotion and funding of business associations and producer groups

Comp

etenc

es n

C4

Exog

enou

s

other policy

C1 Management Business administration skills are weak

C2 CommunicatioMarketing skills needed

C3 Experience Exchange of experience within the country

Motivation Lack of formal entrepreneurship

• National standards for local products. • Adequate standards for micro enterprises • Coordination of activities for adult education with

sectors

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6.2 Recommendations for the design of support measures for the diversification of

6.2 luste

Key objective of such an area-based approach for the economic diversification of rural areas should be to contribute to a more effective allocation of public funds through an integrated programming approach with the implementation of additional and complementary measures apart from the investment related support schemes (such as IPARD, IPA – Regional Development Component, national rural development programmes or SME support schemes). 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

tive frame a ent, arepreconditions determining the effectiveness and the efficiency of supporting measures for the economic diversification in rural areas.

An area-based approach should have priority in order to concentrate the limited resources to well defined and targeted activities in specific areas. This is of utmost importance since in both countries, apart from the capitals and few urban agglomerations, the majority of the country, including the surrounding communes of the cities, can be characterised as rural according to EU Member State definitions. Territorial development strategies promoting competitiveness to meet challenges of the regional market, common European market as well as the global economy should therefore seek to:

• Increase competitiveness, but advocating a more pro-active and collaborative approach and including the micro (entrepreneurs and work organisation) levels in

e , • Reduce system failures of weak connectivity and lack of transformative capacity within

and between (local/ regional) innovation systems.

According to OECD (2006), the concept for an area-based approach follows the definition of functional areas. In the sense of business development, this function can be described with the following criteria taking into account the necessary “critical mass” of active and potential entrepreneurs.

The respective area needs to have:

• A sufficient number of natural and physical resources, which can be utilized or exploited (attractiveness of landscape, natural resources, products to be sold, etc.),

• A sufficient number of actors in the field of activity (businesses, professionals, available skilled human resources, tradition, etc.),

the rural economy in Albania and Montenegro

Recommendations based on the study results with regard to the design of rural development measures for the diversification of the rural economy in areas with high potential for specific activities take into consideration possible territorial approaches under the EAFRD 2007 – 2013 and ERDF 2007 – 2013 in general, and in specific the frame provided under the current IPARD regulations for the development of the rural economic fabric.

.1 Territorial approaches and cpotential

r development for rural areas with high

respect to the legal, technical or administra s well as skill developm

addition to the macro and meso lev ls

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• A strong will of the actors to join forces in order to enhance synergies and set common objectives (registered associations, already existing or newly created business cluster),

• A sufficient number of customers/clients with an adequate purchasing power,

• The identification of stakeholders,

nto

lopment Programme based on participatory integrated area-based planning, or cluster support strategies, for creating of smart systems

r SME innovation development under the Regional Development Programmes are examples of territory-based development initiatives in the EU for rural entrepreneurs. They combine investment support schemes with local/ regional organisational governance development, networking and capacity building measures. However, the territorial boundaries for a LEADER area or SME strategy are not exclusive, since inter-regional and transnational networks and interregional as well as transnational cooperation are integral part of the approach to enhance the socio-economic fabric of rural areas. In order to support the commitment of rural micro and small entrepreneurs to a local development or cluster-oriented approach, the incentives could be a higher aid intensity, what is quite commonly applied under LEADER in the member states.

The long-term impact of a LEADER or a cluster approach has to be considered. From the experience of the LEADER programme, the responsible decision makers have to be aware of the time needed to establish functioning management capacities, to build up trust between the stakeholders and to generate synergies. Still a well functioning regional management or cluster management at meso level could provide the necessary condition to implement measures on the development of competences (Dimension C – REC BI) and the improvement of the business environment (Dimension E – REC BI). The provision of

for the extension of

clients.

For the next future, the implementation of such territorial approaches could be facilitated by other programmes and donor organisations rather than to be implemented within the IPARD

• An organizational structure, which would reduce transaction costs for all participants and accelerate the implementation of projects.

while taking i account the diversity of rural areas.

The LEADER-approach under the Rural Deve

fo

necessary financial resources for the support of investment is a basic precondition (Dimension R – REC BI) in order to motivate the business sector to cooperate and strengthen the commitment to a territorial approach. If the focus of a territorial approach is on business development and innovation, a cluster approach seems to be more appropriate, because the influence of local authorities and the dependency of public budgets is less relevant.

Targeting in parallel areas with specific handicaps or restrictions for the utilization of natural resources (e.g. Nature Parcs, less favoured areas) may be another way to identify areas with a high need for diversification. Very often these areas are of particular importance to the environment, while having limited possibilities or potentialsagricultural production for which complementary compensation payment schemes are developed. Thus, the SMEs, especially the farm households in these areas, have a strong need to diversify their economic activities. These areas are usually well defined according to national laws alongside the EU definitions and classifications. In order to be not restricted to the boundaries of such an area (e.g. Nature Parc), the geographical scale should be extended including the nearby regional centres of small municipalities as a source of potential customers and

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frame, due to the necessary administrative and institutional capacities, which are rather ocus

2 r the design of IPARD s to support the

Under the and programm egro and the envisaged IPARD-like measures in Albania, priority should be given to the agro food valusectors or ouris

as DER

ust be lem e the Ministries of Agricultur tra for the imple ready existing including a more fication towards rural developm

With regard to existing investment measures of he diversification of rural ec need

• Policy-related transaction costs (de g and control, evaluation), • Budg

• Im ssment.

nsa

resp he the transa are very high. Design o managing authority, paying agency and technical bodies as well as the creation of supporting structures for the beneficiaries are very intensive and time consuming.

Measures for diversification of the rural ec t and ea be ive procedure nsaction cost could be re :

• Su be given to tbu tourism to age versus

permission, im

• Su uld be given to spene n, since in the context of both countries, renovation of

n existing building of a small firm is rather cheap with own labour. Contributions in kind are not eligible expenditure under IPARD40 as public or private contribution of a beneficiary, different to the member states, where investments in kind, namely the provision of goods and services, may be eligible expenditures provided, that certain conditions are fulfilled41.

scarce and f ing on the agro-food sector within the Ministries of Agriculture in charge for IPARD implementation.

6.2. Recommendations fo measurediversification in rural areas w

measure “Diversificatione in Monten

ith high potential

Dev

e chm,

elopment of the Rural Economy” of the IPARD

ain, which should also include directly linked agricultural services or energy production from branches, such as rural t

biomLEA

It m

s. Efforts should also be intenapproach, supporting the leve

stressed that with the impe and subordinated adminismentation of rather complex procedu

sified to implement in parallel the territorially basedl of local self governance.

entation

tion of the IPARD programm and technical bodies need to be qualified

res, i.e. so as to strengthen their alsocio-economic quali competences,

ent aspects.

Axis 3 of IPARD for t to be considered: onomy, different aspects

sign, delivery, monitorinet for the assistance,

pact asse

on costs Tra

With

cti

ect to the pilot character of tction costs

programme for rural development in both countries, f the measures, capacity building for the

onomy should therefore be designed in a simpliaries, but comply with minimum administrat

essiest way in order to motivate

s. Traneficduche

ed through following aspectspport should

ildings for rural reconstruction of existing and traditional

protect the local identity and heritconstruction of new buildings with longer planning procedures (planning

pact assessment, etc.). pport sho

cessarily to constructiocialised equipment for the investment and not

a

40 See Commission Regulation (EC) No 718/2007, Art. 34 (3)(i).

41 See Commission Regulation (EC) No 1974/2006, Art. 54.

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• The implementation of EU standards for the investment is not obligatory for Axis

, public health, animal and plant

simple business plan template with a three year forecast for diversification investment is sufficient.

could be also an integral part (eligible sub-measure) under the

r of created jobs but taking into account the

n of jobs should have priority of

3 diversification. Investments have to comply with already existing national minimum standards referring to environmental protectionhealth, animal welfare and occupational safety, which are gradually aligned with Community standards during the accession period.

• Feasible conditions and minimum standards for micro enterprises, especially for on-farm processing activities and for small quantities, are to be set according to EU member states practices.

• A

• Approval of qualification with work experience and/or short-term training before last payment diversification measure.

Budget

The available budget is the most crucial aspect to be considered. In general, the budget allocated for diversification measure is limited and will not cover all potential beneficiaries under one programme.

Some recommendations should be considered with regard to the available budget: • Establishment of a Rural Development credit guarantee fund for the

compensation of lacking collateral and/or reduced interest rates to facilitate the access to loans for small entrepreneurs.

• In order to have the most possible outreach, a reduction of the public assistance to 30% of the eligible costs and increasing the eligible costs to 100,000 would reduce non profitable investment and irregularities.

• Higher aid intensity (up to 50%) should be dedicated only to areas with special socio-economic disadvantages, but still with a good potential for diversification in the specific activity.

• Specific beneficiaries should also gain a top up to the 50% (women, young people, or project located in a LEADER area).

Impact assessment

The impact assessment of the measures should consider the available budget and effects of different types of activities on the generation of income and job opportunities. Investment into processing units may be more risky but provide more job opportunities than tourism activities, when considering not only the numbeexisting jobs in the related agricultural production. If the economic feasibility is approved, those activities with the highest potential for the creatiofunding.

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Measure: Small-scale processing and marketing of agricultural products and/ or processing and marketing of small quantities

Small-scale food processors and direct marketing (on-farm) of agricultural products in Albania and Montenegro are important links in the overall food value chain, not only in an

ic underseconom tanding, to generate income and employment or to combat rural exodus.Territorially based agro-food systems disclose the ability to capture and create valu

e in rural

ourage the valorisation of local (traditional) food

griculture. Entrepreneurship is often evel, but one also has to consider that

chemes as well as semi-subsistence farming

as integrating viable “informal” small food processors into the

areas departing from policies that encproducts and knowledge, the organisation of production through cooperation among local actors as well as the return to a more sustainable aseen as the key to create economic growth at local lthe rationalization pressure of the global agro-food chain and concentration processes on the retail market require strong tools for entrepreneurs to survive in a market. Territorially based agro-food systems have a big potential to create trademarks. They are a very important tool to compete and promote entrepreneurship and rural development. As in both countries the tourism sector is developing, although one cannot directly compare the situations, a good marketing, distribution and business support make this market segment interesting for producers of local and fresh food in addition to urban consumers.

In order to achieve these aims, support for small-scale processing and marketing of agricultural products under IPARD or IPARD-like programmes should be complemented in parallel by national support schemes. They should be territorially oriented, such as “High Nature Value Farming”, agro-environmental measures (e.g. preservation of local breeds and varieties), “Less Favoured Area” support sand young farmer programmes to preserve traditional farming systems and biodiversity and restrain structural problems in the farming sector42.

The rationale of the sub-measure “small-scale processing and marketing of agricultural products” under IPARD or IPARD-like support schemes is to:

• Valorise agricultural fresh and processed products (1st and 2nd processing step) in specific regions (naturally favourable for specific products),

• Maintain traditional farming systems by linking small businesses to local markets, • Preserve the rural diversity, e.g. through traditional food products, • Create additional income for farm households, valorise rural labour and enhance

quality of life in rural areas, • Support upgrading of micro and small-scale producers to compete on the local

markets, as well formal sector to better ensure food safety and hygiene conditions,

• Mainstream raw, minimal process and value added agricultural products (and rural spaces) as unique and distinct lifestyle products (as overall mid-term strategic objectives).

For both countries, a strict delimitation of raw materials/food products is not advisable, but priorities can be defined through the financing conditions with regard to priority sub-sectors and regions.

42 Compare the provisions in Council Regulation (EC) 1698/2005.

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Beneficiaries • Members of farm households (on-farm or off-farm) • Registered micro and small agro-food processing firms (existing firms with

the intention to upgrade or start-ups) according to EC definition

Linkage to other measures in

• Under Axis 1, existing bigger and rather export-oriented (community st

IPARD andards) food processing companies apply

Type of estments

• Specific equipments, installations incl. ICT, cooling systems, specific cooling vehicles (only cooling part), sminv

(examples) all laboratory equipment for

monitoring etc. • Selling points for local and fresh food (not construction/reconstruction of

buildings, but renovation of interior) • Marketing concepts and actions (flyers, ICT) • Start-up training and coaching

Eligibility criteria - specific

• Eligible products are Treaty I and non-Treaty I products • Locally produced raw material (at least 50%) • Investment in compliance with national relevant minimum sta

common - see IPARD

force at date of decision on grant as laid down in the IPA Commission Regulation (EC) No 718/2007 (and not with Community Standards at the end of the project implementation as required for investments under Axis 1).

• Diversification plan (simplified business plan) must demonstrate economic and financial viability, marketing; for start-up additional motivational

ndards in

description. • Investments have to be combined with obligatory marketing actions/

packages (elaboration and print of flyers, website etc. between min. 1,000 to max. 2,000 EUR).

• Business start-ups: start-up training obligatory Geographical • Countrywi

tial dimcoverage

Spa• Alb

de for all products ension:

ania

: priority for pilot districts identified as potential area for selected products, see chapter 5:

o Milk processing: combination of high potential in relevant natural resources/agricultural production system, existing small-scale processing units/experience and know-how, and medium purchase power/regional centres as direct local market

o Olive oil processing: high natural resources/production system/knowledge and experience through tradition with high purchase power

o Wine processing: high natural resources/production system/knowledge and experience through tradition combined with good purchase power (above average)

• Montenegro: priority for municipalities identified as potential area for selected products, see chapter 5:

o Milk processing: combination of high potential in relevant natural resources/agricultural production system, existing small-scale processing units/experience and know-how, and medium purchase power/regional centres as direct local market; differentiation of areas with goat/sheep milk (like Niksic) should be made

o Vegetables: high natural resources/production system/knowledge and experience through tradition with good purchase power

Financing conditions

• Up to 50% public funding for beneficiaries in above mentioned pilot district (Albania) and priority municipalities (Montenegro) and the related priority products

• Up to 30% public funding for other areas than the priority areas combined with specific sub-sectors and other products

• If the project is located in a LEADER area, a top-up of additional 10% should be provided, if applied by the LAG

Ranking 40 points for female entrepreneurs and under 45 years

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20 points for female entrepreneurs 20 points for male entrepreneur and under 45 years 20 points either for upgrading from “informal” business to “formal” business, or direct on-farm processing and marketing

Measure: Rural tourism

Rural tourism can be any form of tourism that displays rural life, art, culture and heritage at rural locations, thereby benefiting the local community economically (generation of additional income and employment) and socially (increased attractiveness) as well as enabling interaction between the tourists and the locals for a more enriching tourism

farm/agricultural tourism, cultural tourism, nature tourism,

teristics, such as: it is experience-oriented, the locations are sparsely populated, it is predominantly in natural environment, it meshes

onality and local events and is based on the preservation of culture, heritage,

in both countries, also in rural destinations sions to

rism” under IPARD, in both countries this

ting firms or start-ups) according to

experience. Rural tourism is essentially an activity, which takes place in the countryside. It is multi-faceted and may entailadventure tourism and eco-tourism. As against conventional tourism, which is mainly the sand-and-beach tourism in both countries, and to a lesser extent the city sightseeing tourism, rural tourism has certain typical charac

with seastraditions and local food. Support for conventional and mass tourism activities should be exempted of the support schemes.

Due to the high degree of a grey tourism sectorthe measures should support the upgrading of not registered small rural pencompete on a higher segment tourism market, such as cultural or eco-tourism, which is in line with the strategic goals of tourism development in Albania and Montenegro.

Within the frame of the sub-measure “rural toustrict definition should be applied and investments conditioned to further criteria as elaborated below. Beneficiaries • Members of farm households

• Registered micro and small firms (exisEC definition

• Public institution / tourism offices / tourism association (non-profit)

Type of investments (examples)

Private sector: Start-up businesses and upgrade of existing rural tourism facilities, such as: • Accommodation: Support only to modernisation of existing small rural

premises (modernisation of small pensions built in a traditional style/peasant architecture or renovation of traditional houses/farm houses), small camping sites

• Improvement of leisure facilities in existing tourism locations, folklore and other events, souvenir shops

• Marketing concepts and actions (flyers, ICT) • Start-up training and coaching Public-sector: • Small tourism infrastructure: sign posts, feasibility studies, marketing

actions, data banks, ICT actions/equipment and software etc. Eligibility criteria -

pecific

ommon - see

• Rural accommodations up to 20 beds fulfilling minimum standards for rural pensions as provided, establishment of kitchen facilities for preparation of breakfast (B/B) allowed, but not restaurant

• Investment in compliance with national relevant minimum standards in force at date of decision on grant is taken as laid down in the IPA Commission Regulation (EC) No 718/2007

• Diversification plan (simplified business plan) must demonstrate economic keting; for start-up additional motivational

s cIPARD

and financial viability, mar

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description • Investments have to be combined with obligatory marketing

actions/packages (elaboration and print of flyers, website etc. between min. 1,000 to max. 2,000 EUR)

• Business start-ups: start-up training obligatory • Montenegro: Investment in the scope of the local/regional tourism strategy

Geographical coverage

• Countrywide Spatial dimension:

• Albania: priority of pilot districts identified as area with a high nature potential, in the proximity of Nature Parks/attractive landscape and existing tourism infrastructure, see chapter 5

• Montenegro: priority for municipalities identified as potential area with existing tourism facilities, see chapter 5: hinterland of the coastal areas, selected mountain areas or in one of the eight tourism clusters of Montenegro


• Up to 50% public funding for private beneficiaries in above mentioned prioritised pilot district (Albania) and municipalities (Montenegro) and for Montenegro also in the eight tourism clusters (overlapping exists)

• Up to 30% public funding for private beneficiaries of other areas than the priority areas

• If the project (private sector) is located in a LEADER area, a top-up of additional 10% should be provided, if applied by the LAG

• Up to 100% public funding for public sector beneficiaries (non-income generating activities)

Ranking: Private sector: 40 points for female entrepreneurs and under 45 years 40 points for male entrepreneurs and under 45 years 20 upgrading to a formal business

Measure: Renewable energy production from biomass (e.g. forest residues)

Bio energy is affordable, clean and renewable energy derived in most cases from material considered to be organic waste, often the by-product of agricultural and forestry activity. In

goals, but can also

ver, challenges such as

s being a too costly

tive framework has to be very supportive in establishing

Montenegro it is already seen, that biomass from forest residues and in addition biomass from agriculture (residues from orchards, vineyards) will not only play an important role in meeting international and national emission and renewable energy contribute to protecting the environment (soil erosion through fire wood cutting) and providing an affordable energy source for the rural population. Howequality, costs and sustainability first need to be explored through feasibility studies.

Support to the production of solar, wind or water energy is considered ainvestment under the limited IPARD funds and having a low impact on employment creation in rural areas. In addition, the regulasuch a business as energy provider.

Beneficiaries • Members of farm households (on-farm or off-farm)

• Registered micro and small agro-food processing firms (existing firms or start-ups) acc. to EC definition

• Forest associations Type of investments (examples)

• Specific equipments, installations incl. ICT, machines, etc. to make wood chips, pellets, etc.

• Marketing concepts and actions (flyers, ICT) • Start-up training and coaching

Eligibility criteria - • Eligible products are Treaty I and non-Treaty I products ast 80%) specific • Locally produced raw material (at le

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common - see IPARD

• Investment in compliance with national relevant minimum standards in force at date of decision on grant is taken as laid down in the IPA Commission Regulation (EC) No 718/2007

• Business plan • Investments have to be combined with obligatory marketing

bsite etc. between min. actions/packages (elaboration and print of flyers, we1,000 to max. 2,000 EUR)

• Business start-ups: start-up training obligatory Geographical Countrywide for all products coverage

•Spatial dimension:

• Albania: priority of pilot districts identified as potential areas in the northern and eastern mountainous areas

• Montenegro: priority of municipalities identified as potential area in the northern part of the country


lic funding for beneficiaries in above mentioned prioritised

mmes as

is located in a LEADER area, a top-up of

• Up to 50% pubpilot districts (Albania) and municipalities (Montenegro) – to be cross-checked with national forestry progra

• Up to 30% for other areas than the priority are• If the project (private sector)

additional 10% should be applied, if applied by the LAG.

Measure: Other SME activities

to be supported under IPARD in both countries are not directly linked to the natu

Other activitiesuse or valorthey do not supported activother relateunder the natiIPARD. This in ach should be applied for the other measures as

eneficiaries

•

isation of ral resources and can therefore not be territorially delimited. As have a spatial dimension, the geographical coverage is the whole country. The

ities should as a priority be directly linked to the agro-food value chain or be d activities. As for example honey production is supported in both countries

onal RD support scheme, this sub-measure should not be eligible under tegrated programming appro

well.

B • Members of farm households (on-farm or off-farm)

• Registered micro and small firms (existing firms or start-ups) acc. to EC definition

Associations

Type of activities

•

•

Unconven• Production/storage/processing facilities for production and marketing of

mushrooms, berries, medicinal plants, herbs, essential oils, wild collection

tional agricultural products:

of medicinal and aromatic herbs, aqua culture, artifacts, etc. Agricultural contracting services (farm households): Special machinery/office equipment for agricultural services, landscape

management, storage capacities, etc. Others: • Horse riding (if not part of a tourism activity) and horse pension facilities,

pet farms, children farms Catering services (local food products) – facilities, office equipment, salary

etc. – only for women associations

For all types of activities: • Marketing concepts and actions (flyers, ICT) • Start-up training and coaching

Eligibility crpecific

iteria - • Investment in compliance with national relevant minimum standards in force at date of decision on grant is taken as laid down in the IPA s

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common - see IPARD

) must demonstrate economic

obligatory marketing d print of flyers, website etc. between min.

: also salary of the coordinator

Commission Regulation (EC) No 718/2007 • Diversification plan (simplified business plan

and financial viability, marketing; for start-up additional motivational description

• Investments have to be combined with actions/packages (elaboration an1,000 to max. 2,000 EUR)

• Business start-ups: start-up training obligatory • Women associations (catering service)

Gc

eographical overage

• Countrywide


• Up • Wo

on a scale for public workers): 50% in the 1st and 2nd year, 25% in the 3rd year and 15% in the 4th year

• If the project is located in a LEADER area, a top-up of additional 10% should be provided, if applied by the LAG.

to 40% for all (except women associations) men associations (catering service): also salary of the coordinator (fixed

6.3 General conclusions and outlook

The results of this study have shown, that the identification of rural areas with a high potential for specific diversification activities based on a structured assessment of endogenous (REC BI) and exogenous (PESTEL model) factors is possible. A structured spatial analysis related to specific economic activities based on available territorial statistical data in combination with expert and stakeholder knowledge can provide sufficient information for the identification of areas with a high potential for the diversification of the

h as pet farms and horse riding, is higher in semi-urban areas due to the s are more likely to be located in rural

areas (e.g. f

The applied sis for a structured approach not only during the programming process of rural development

remain the saspecificities.

The assessme es indicates a substantial necessity for technical as ed business competences, skills develo supportive structures and organisations at all levels. Theremeasures a

rural economy. Types of economic activities can be manifold. For those that have a strong link to natural resources, which is for example the case for activities related to the agro food chain, rural tourism or renewable energy production, the REC BI can be complemented with GIS, when reliable data on territorial level is available. Economic activities for the diversification of rural economy, which have a weak link to a specific areaand little agglomeration (e.g. pet farms, horse riding, services for farm machinery, handicrafts) could generally be implemented anywhere in the country. The potential for some activities, suclink with the more urban clientele, whereas other

arm machinery services).

methodology based on the REC BI and PESTEL model provides the ba

measures to identify regional econothe evaluationcompared a

mic diversification potentials, but also for the purpose of at result and impact levels for a region. In addition, evaluation results can be

mong different countries, and linked to other sub-sectors since the criteria me, and only the indicators are to be adapted according to the regional

nt of the feasibility of the activitisistance, consultancy and training on market orientpment as well as the strengthening of

fore the combination of investment measures with capacity building nd strengthening institutional governance is most beneficial.

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