EBRD expects Albania’s growth to linger around same 2017 levels for next two years

EBRD expects Albania’s growth to linger around same 2017 levels for next two years

TIRANA, May 11 – London-based European Bank for Reconstruction and Development expects Albania to register the highest growth rate among Western Balkan economies in the next couple of years, but warns the completion of the two major energy-related projects that

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Albania secures €90 mln in funding to rehabilitate key Tirana-Durres railway segment

Albania secures €90 mln in funding to rehabilitate key Tirana-Durres railway segment

TIRANA, May 10 – Albania has secured financing to rehabilitate its key Tirana-Durres railway segment and link it to the country’s sole international airport in a project that will revitalize the country’s degrading railway system that has almost seen no

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Albania’s top exporting industry at risk as workers turn down low-paid jobs

Albania’s top exporting industry at risk as workers turn down low-paid jobs

TIRANA, May 9 – Garment and footwear companies in Albania have been facing rising difficulty in finding new workers in the past few years amid hesitation and refusal of potential employees to work for low wages, rising competition by call

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Tax evasion concerns mount following only few thousand of high-income earners

Tax evasion concerns mount following only few thousand of high-income earners

TIRANA, May 9 – Only a few thousand Albanians declared annual income of more than 2 million lek (€15,600) with tax authorities for 2017, in an ongoing annual trend hinting of high tax evasion due to progressive taxation having increased

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Eurozone, internal political risks threaten Albania’s economy, Fitch unit says

Eurozone, internal political risks threaten Albania’s economy, Fitch unit says

TIRANA, May 9 – U.K.-based BMI Research, a unit of Fitch, expects Albania’s economy to slow down to 3.7 percent in 2018, from an estimated 9-year high of 3.9 percent in 2017 on increasing external Eurozone-related and internal political risks.

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Banks write off hundreds of millions in NPLs

Banks write off hundreds of millions in NPLs

TIRANA, May 8 – The stock of non-performing loans in Albania’s banking system registered a sharp cut in 2017 as banks continued to write off bad debt from their balance sheets and restructure loans with big borrowers. Reports by the

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German companies become more optimistic, but Albania remains least attractive SEE destination

German companies become more optimistic, but Albania remains least attractive SEE destination

TIRANA, May 8 – German companies operating in Albania perceive the country’s economic situation to have considerably improved in the past few years and are more optimistic about future prospects, but yet about 40 percent of respondents describe the current

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European Commission downgrades Albania’s 2018-19 GDP growth outlook

European Commission downgrades Albania’s 2018-19 GDP growth outlook

TIRANA, May 7 – The European Commission has downgraded Albania’s growth outlook for the next couple of years as two major energy-related projects that drove Albania’s FDI and economic growth recovery for the past four years complete their investment stage

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UK-based Gulf Oil International denies involvement in Albania Gulf scandal

UK-based Gulf Oil International denies involvement in Albania Gulf scandal

TIRANA, May 7 – UK-based Gulf Oil International has distanced itself from the Gulf Albania scandal which saw thousands of local consumers cheated with cheap pre-paid fuel coupons days before an Albania affiliated company had its operations suspended and its

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More than 50,000 consumers continue to pay off accumulated unpaid electricity bills

More than 50,000 consumers continue to pay off accumulated unpaid electricity bills

TIRANA, May 4 – More than 50,000 household and business consumers continue to pay their accumulated unpaid electricity bills over the 2007-2014 period in monthly instalments, says state-run OSHEE distribution operator. The accumulated debts are being collected under a late

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                    [post_content] => TIRANA, May 11 – London-based European Bank for Reconstruction and Development expects Albania to register the highest growth rate among Western Balkan economies in the next couple of years, but warns the completion of the two major energy-related projects that drove growth in the past four years and high level of public debt remain key barriers and growth will linger around the same 2017 levels.

In its latest Regional Economic Prospects report, the EBRD has slightly revised upward Albania’s 2018 growth outlook and now expects the country to grow by 3.8 percent, up 0.1 percent compared to last November, as credit growth recovers due to declining non-performing loans. The 2019 forecast is the Albanian economy will recover to 3.9 percent, up from an estimated 3.8 percent.

The EBRD’s 2018-2019 outlook is considerably more optimistic compared to the World Bank and the IMF which expect the Albanian economy to slow down to 3.5 to 3.7 percent in the next couple of years, but yet considerably below the Albanian government’s more optimistic scenario of growth picking up to 4.2 and 4.3 percent.

The construction of two major energy sector projects is driving investment, although the direct economic impact on GDP is expected to decelerate in the short term before the economy starts enjoying the operational benefits of the two projects from 2020 onwards,” says the EBRD.

The Trans Adriatic Pipeline bringing Caspian gas to Europe and the Devoll Hydropower project by Norway’s Statkraft, whose investment stage completes by the end of this year, have been Albania’s top FDI projects since 2014 triggering total investment of about €1.5 billion, equal to about 14 percent of the country’s GDP.

Experts say Albania’s FDI could suffer a €200 million blow starting 2019 unless any other major projects replace TAP and the Devoll Hydropower.

The EBRD warns Albania’s public debt at about 70 percent of the GDP, a high level for Albania’s stage of development, leaves little room for increased government spending and tax incentives.

“The high level of public debt remains a significant constraint on any fiscal stimulus but credit growth is expected to continue as the health of the banking sector improves and as the level of non-performing loans declines further,” says the EBRD.

The London-based financial institution expects oil prices to remain at about US$ 70 per barrel for 2018, up 24 percent compared to 2017, something that could trigger increased production and exports in Albania’s oil industry.

The EBRD expects growth in the six EU aspirant Western Balkan economies to pick up for 2018 as the end of a political crisis in Macedonia boosts investor confidence there and the region’s largest economy, Serbia, recovers to 2.9 percent in 2018 on stronger consumption and investment.

The EBRD’s growth outlook for neighboring Greece, Albania’s traditional second largest trading partner is at about 2.2 percent for the next couple of year following an eight-year recession ending in 2016 that saw the Greek economy shrink by about a quarter, with negative effects on trade and investment ties with Albania and remittances from about half a million of Albanian migrants there.

An earlier EBRD report has shown Albania and other Western Balkans EU aspirant countries could need up to two centuries to catch up with EU living standards.

The 200-year gap is the pessimistic scenario that the EBRD predicts for the region to fully converge with average EU living standards compared with a baseline scenario of 60 years and an optimistic scenario of 40 years.

London-based EBRD is one of the country’s largest lenders with investment of almost €1 billion in some 80 projects in the country.
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                    [post_content] => TIRANA, May 10 - Albania has secured financing to rehabilitate its key Tirana-Durres railway segment and link it to the country's sole international airport in a project that will revitalize the country’s degrading railway system that has almost seen no investment at all during the past quarter of a century following the collapse of the communist regime.

The project is expected to considerably improve transportation links between the country’s two largest cities, home to about 1 million residents, and serve as a faster alternative to current road transportation. In addition, a new 7.4 km-long rail link will connect both cities to Rinas International Airport.

Albania’s Infrastructure Minister Damian Gjiknuri says the new railway segment will improve the quality of travelling and create new jobs both during its construction and operation stage.

"It will only take 12 minutes to travel from the Tirana city center to the airport and 22 minutes from Tirana city center to Durres," Gjiknuri said this week after a loan agreement 'ceremony with EU and EBRD officials.

The €90 million project is financed by the European Union through Western Balkans Investment Framework grants of €35.5 million, a €37 million by London-based European Bank for Reconstruction and Development and Albanian government financing of about €16 million.

The government has already launched an international pre-qualification tender to select a company that will build the new segment. Construction is expected to be completed in two and a half years once the contract with the winning company is signed.

The project involves the rehabilitation of the existing railway line between Tirana and Durres with an approximate length of 34.17 km and the construction of a new rail link approximately 7 km in length to connect with Tirana International Airport.

Minister Gjiknuri says Albania is also working to rehabilitate rail segments linking Albania to Montenegro, the country's sole operational international rail link, and examine opportunities to connect to neighboring Greece and Macedonia, hopefully benefiting from EU funds supporting connectivity in the region.

Albania’s state-run railway transport has been constantly degrading in the past two decades with both passenger and freight transportation on a constant downward trend, and costing Albanian taxpayers millions of euros due to rising losses.

Only a mere 66,000 passengers chose to travel by train in 2017, down from 189,000 in 2015 and about 4 million in the early 1990s soon after the collapse of the communist regime which banned private ownership of cars and when public trains and buses were the key mode of transport, according to state statistical institute, INSTAT.

Rail freight transport, mainly carried out only through Montenegro, recovered to about 150,000 metric tons in 2017 after hitting a record low of only 76,000 metric tons in 2016, eight times less compared to the early 1990s.

The demolition of the landmark downtown Tirana train station, which will finally be back under the new rehabilitation project, has also contributed to the sharp decline in passenger numbers in the past four years.

The downtown station first opened in the late 1940s under communism but was demolished in late 2013 to pave the way for the construction of a new boulevard, leading to a sharp cut in the number of rail passengers after the train station was transferred to Kashar, some 10 kilometers away from the city center, turning unappealing to downtown commuters.

The state-run Albanian railways posted losses of 712.7 million lek (€5.27 mln) in 2016, up 32 percent compared to 2015 as both passenger and freight transports more than halved.

Albania would have already had a modern railway network in Tirana and Durres had it not unilaterally cancelled a contract with U.S. giant General Electric back in 2005.

In March 2010, the Albanian government was fined $20 million by an arbitration court over the unilateral annulment of a 2003 contract, worth €74 million with General Electric. The project cancelled in 2005 was aimed at modernizing the Tirana-Durres railway segment, known also as the electric train, which would have been linked with the Mother Theresa International Airport.

The Albanian Railways employs about 1,100 people, but its fleet has been reduced to only 34 passenger carriages and 360 wagons in the past few years.
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                    [post_content] => TIRANA, May 9 – Garment and footwear companies in Albania have been facing rising difficulty in finding new workers in the past few years amid hesitation and refusal of potential employees to work for low wages, rising competition by call centers offering much better benefits and a new migration wave.

A businessman in Durres, the country’s second largest city, says he has some 300 vacancies in his garment factories but is having trouble finding workers as demand for new products increases

“Young men and women in the city feel offended to work in the garment and footwear sector although wages are much better compared to a decade ago while village youngsters prefer working in the agriculture rather than in factories,” entrepreneur Nazmi Grori is quoted by local Monitor magazine.

The situation appears the same even in other cities where shortage of workers is cited as a key concern for the sector producing the country’s top exports, but which mainly pays workers at minimum wages of 24,000 lek (€188), the lowest in the Western Balkan region, although experienced workers get much better.

"I am covering transportation costs. I have also increased wages and pay workers a minimum of 1,200 lek (€9.4) a day and a maximum of 1,700 lek (€13), but yet interest in working has declined," says Jozef Bazhdari, the administrator of a textile factory in Shkodra, the country's largest northern city.

Competition from the call center industry, employing about 25,000 workers and a wave of migration with about 100,000 Albanians having left the country to seek ungrounded asylum in wealthy EU members since 2014 seem to be the main reasons behind the situation.

In addition, wages and working conditions in garment and footwear factories are considered poor and few companies have shifted to a full cycle of production allowing them to offer competitive wages.

The garment and footwear sector, locally known as façon, has been producing the country’s traditional top exports in the past quarter of century of transition to a market economy, and currently employs more than 100,000 people in about 500 factories nationwide, being one of the top private sector employers.

Relying on cheap labor costs, the industry produces low value-added exports due to Albania importing raw material to produce garment and footwear products, the overwhelming majority of which are destined for Italy.

The sector is mostly involved in cut-make-trim production and overwhelmingly imports raw materials, designs and patterns but there are also a few emerging Made in Albania brand that have upgraded to full cycle production.

An earlier study has shown workers in Albania’s thriving garment and footwear factories face poor working conditions, overload and don’t even manage to get the minimum wage which is the region’s lowest.

The 2016 survey conducted by the Gender Alliance for Development Center showed half of the employees don’t manage to get the minimum wage at the end of the month because of penalties and the high quota of work they face despite having to work even Saturdays as a normal working day with no bonuses for working 48 hours a week in violation of the country’s Labour Code.

The garment and footwear sectors, Albania’s traditionally top exporting industry in the past two decades, saw its exports increase by an annual 10 percent to 117 billion lek (€866 million) in 2017, accounting for more than 40 percent of the country’s total exports, according to state-run statistical institute INSTAT.

The sector’s prospects seem grim and Albania could lose its cheap labour costs competitiveness unless its factories upgrade to full production cycle and increase wages that could appeal to jobless workers.

Albania’s exports are currently poorly diversified with three-quarters of them relying on ‘garment and footwear,’ 'minerals, fuels and electricity’ and ‘construction materials and metals,’ exposing the country's economy to industry-specific shocks such as the mid-2014 slump in commodity prices significantly reducing the country’s key oil and mineral exports.

Albania’s official jobless rate is at 13 percent and youth unemployment at about a quarter, but real figures are estimate much higher as people in rural areas possessing agricultural land are automatically counted as self-employed in the agriculture sector despite the modest income they manage to earn.
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                    [post_content] => TIRANA, May 9 – Only a few thousand Albanians declared annual income of more than 2 million lek (€15,600) with tax authorities for 2017, in an ongoing annual trend hinting of high tax evasion due to progressive taxation having increased the tax burden on high income earners since 2014 when Albania abandoned its 10 percent flat tax.

Some 8,700 individuals submitted declarations with the tax authorities in 2017, a 5 percent increase compared to the previous year and record high since 2011 when high-income earners were first asked to submit reports, says Albania’s tax administration.

The self-declaration affects those who have income from more than one job and have to pay for the difference of their total annual personal income and their monthly income that has already been taxed at lower rates.

Albania currently applies progressive taxation of up to 23 percent on personal income for monthly wages of more than 130,000 lek (€1,017) under a system that excludes the first 30,000 lek (€225) from taxation and applies a 13 percent rate on income from 30,000 to 130,000 lek.

The number of the officially high-income earners represents only about 1.3 percent of some 666,000 workers in the public and private non-agricultural sector and is reported to mostly involve government officials, MPs and high-level public administration employees.

The tax administration says the 8,700 high-income earners paid an extra 275 million lek (€2.1 million) in taxes following the declarations at an average of €241 person.

With monthly income of more than 130,000 lek (€1,017) taxed at 23 percent, experts say tax evasion in the private sector has risen with the progressive taxation increasing tax burden on high income earners.

Private sector workers in the country are commonly declared with tax authorities as receiving minimum wages to avoid paying high taxes and get the rest in ‘envelope wages.’

"The progressive taxation effect has not been important as far as assistance it was supposed to provide to low-income households is concerned and has considerably punished middle-income earners," says Selami Xhepa, an economy expert has told a local TV.

"The number of those who file statements is related to a limited number of individuals, mainly high-level public administration officials, while the remaining part of employees that could have high income have found ways to evade that income and report in other forms and that is not having positive effects," he adds.

The declaration of income applies to both Albania residents and non-residents with income source in the country and abroad that have annual wage and non-wage income of 2 million lek (€15,600).

Individuals with annual income of not more than 1 million lek (€7,700) can also submit declarations to benefit tax deductible expenses in student loans and cover part of health spending.

Albania has the region's lowest minimum wage at 24,000 lek (€176) while average gross wage are at €357.

Since 2014, the corporate income tax and the withholding tax on dividends, rents and capital gains have increased by 5 percent to 15 percent, making the tax burden in the country one of the region’s highest.

The value added and personal income tax thresholds are one of the main causes leading to tax evasion in Albania, a survey has shown.

About 38 percent of companies surveyed by the Albania Investment Council, a government advisory body, rated the turnover thresholds that Albania applies on businesses to be included in the 20 percent VAT system and the progressive taxation the country applies on wages as the main two factors leading to tax evasion, one of the top concerns facing Albanian and foreign businesses operating in the country.
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                    [post_content] => TIRANA, May 9 - U.K.-based BMI Research, a unit of Fitch, expects Albania's economy to slow down to 3.7 percent in 2018, from an estimated 9-year high of 3.9 percent in 2017 on increasing external Eurozone-related and internal political risks.

The Fitch unit says the main risk is related to a slowdown in the Eurozone, the destination of two-thirds of the country’s exports, with slowly recovering Italy and Greece as the main trading partners.

The main external threat is related to Italy, the destination of about half of Albania’s exports, which could be heading for another election this summer following a political deadlock after the inconclusive March 4 general elections that have failed to produce a ruling majority so far.

“The Albanian economy will slow over the coming quarters, in line with a broad slowdown in the eurozone. Indeed, there are already signs that economic growth in the bloc is losing momentum after peaking in 2017," says BMI Research.

"In Italy, where around half of Albanian exports are sold, we are expecting real GDP growth to slow 1 percent in 2018, down from an estimated 1.5 percent in 2017, as political uncertainty and tightening monetary policy by the European Central Bank weighs on economic activity," BMI experts say.

Recessions in Italy and Greece, Albania’s top trading partners, had a huge impact on the Albanian economy in terms of trade exchanges, remittances, and foreign investment flows for several consecutive years following the 2008 global financial crisis.

The host of some 500,000 Albanian migrants, the Albanian economy is very sensitive to developments in Italy as about half of Albania’s exports are destined there and about a third of imports are carried out through Italy. The neighbouring country across the Adriatic is also one of the top foreign investors in the country with Italian-owned companied dominating the foreign-owned companies in the country.

The Fitch unit says the tense political environment triggered by opposition-backed protests continues to present downside risks for the Albanian economy, tainting investor and lender perceptions.

“The relatively bright outlook for domestic demand remains exposed to political risk, which could lead to slower growth than we currently anticipate. There have been frequent protests by the supporters of the opposition Democratic Party and the Socialist Movement for Integration against alleged criminal activity by members of Prime Minister Edi Rama, which risk tainting foreign investor and lender perceptions of the country,” says BMI Research.

BMI experts say protests against public private partnerships, such as the late March protest against the country's first toll road linking Albania to Kosovo which escalated into violence and the burning of the concessionaire's offices and toll booths over the high tolls, could hamper PPP projects in the country.

"Given that the toll road was based on the PPP model upon which so much of the investment going into Albania depends, any escalation in attacks against such projects will likely see the pace of investment slow, with negative consequences for headline growth," says BMI.

The Fitch unit has earlier warned protests against the government in early 2018 suggest political risk remains elevated in Albania. “Although we don't think the protestors will achieve their stated goal of forcing the government to resign, they will taint investors' perceptions of the country if they continue, and will likely add to the headwinds slowing Albania's accession to the EU,” BMI Research has said in an earlier report.

International financial institutions have also warned Albania’s economic growth will slow down in the next couple of years as TAP and the Devoll Hydropower, two major energy-related projects that drove growth since 2014 complete their investment stage by the end of 2018 and no major investment appear to replace them, except for a controversial €1 billion PPP project which the IMF has warned could undermine efforts to reduce public debt, already at 70 percent of GDP.

The government hopes tax incentives in the tourism sector will boost investment in a key emerging sector while PPPs will improve road and health infrastructure despite IMF warning of creating new arrears that will not only fail to bring public debt down to 60 percent by 2021, but could create hidden costs which if included in the debt stock could take it to 71 percent of the GDP, a high burden for Albania’s current stage of development.

The ruling Socialist Party of Prime Minister Edi Rama holds a comfortable majority of 74 votes in the 140-seat Parliament, allowing the Socialists to rule on their own in the second consecutive term after a coalition government in 2013-2017, but lack the required three-fifths of votes to trigger reforms in the country.

Albania is currently implementing a long-awaited reform in the highly perceived corrupt judiciary that has seen dozens of judges and prosecutors voluntarily resign or being dismissed for failing to justify their assets in an ongoing vetting process. The reform is seen as key to Albania’s EU integration bid and improving the business environment if properly implemented.

The country is hoping to launch accession talks next June pending a decision by EU leaders at the European Council after a positive recommendation by the European Commission, the EU’s executive arm.
                    [post_title] => Eurozone, internal political risks threaten Albania’s economy, Fitch unit says 
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                    [ID] => 136980
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                    [post_date] => 2018-05-08 15:35:38
                    [post_date_gmt] => 2018-05-08 13:35:38
                    [post_content] => TIRANA, May 8 - The stock of non-performing loans in Albania's banking system registered a sharp cut in 2017 as banks continued to write off bad debt from their balance sheets and restructure loans with big borrowers.

Reports by the country’s central bank show the stock of non-performing loans dropped by 30 billion lek (€234 mln) to 80 billion lek (€625 mln) at the end of 2017 when NPLs hit a 7-year low of 13.23 percent, in a process triggered by the compulsory write-off of bad loans that have spent more than three years in the banks’ balance sheets and new deals restructuring loans for big borrowers in trouble.

NPLs have been on a downward trend since mid-2014, when they hit a record high of about 25 percent of total credit, but lending has been struggling to recover to positive growth rates amid tight lending standards and poor demand by both businesses and households.

The sharp decline in the value of NPLs was a result of 16.7 billion lek (€130 mln) write-off in bad debt, as well as loan restructurings with some 35 big borrowers, estimated to hold about two-thirds of bad debt.

Starting January 2015 when new rules on the compulsory removal of bad debts became effective, commercial banks have written off about 48 billion lek (€373 million) in NPLs in the ‘loss category’ from banks balance sheets, says the central bank in its annual report.

Since the outbreak of global financial crisis, when NPLs started to sharply rise following a pre-crisis credit boom, the value of collateral taken back under banks' ownership following borrowers’ default on loans has grown from quite a modest figure to about 25 billion lek (€195 million) at the end of 2017.

The central bank says the process of managing non-performing loans has led to banks facing a relatively high number of cases in collateral execution and appropriations at the end of the legal process.

Perception on risk stemming from the 'collateral execution’ process remains relatively high, mainly affected by perceptions of small and medium-sized banks.

Albania's banking system is considered liquid, well-capitalized and profitable. Two recent internal market takeovers are expected to reduce the number of commercial banks operating in the country to 14 following more than a decade of 16 banks.
                    [post_title] => Banks write off hundreds of millions in NPLs
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                    [post_date] => 2018-05-08 11:51:00
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                    [post_content] => TIRANA, May 8 – German companies operating in Albania perceive the country's economic situation to have considerably improved in the past few years and are more optimistic about future prospects, but yet about 40 percent of respondents describe the current economic situation as bad and more than half expect it to remain unchanged or worsen.

The results are unveiled in a survey by DIHA, the German Association of Industry and Trade in Albania.

Some 38 companies from Albania, almost half of the DIHA members in the country, were surveyed as part of a larger study with German Chambers of Commerce in 16 Central and South East Europe countries.

Poor fight against corruption and crime, lack of transparency in public procurement, lack of legal security and unpredictability of economic policies due to frequently changing tax laws and regulations are the top concerns for German businesses operating in the country, in barriers that remain almost unchanged to the previous years.

The tax burden, one of the top concerns for some local and foreign investors due to Albania having increased the corporate income tax and the withholding tax on dividends, rents and capital gains by 5 percent to 15 percent since 2014, is not perceived as a major barrier by German companies who have rated corruption and lack of transparency in public procurement as the top two concerns for the past two years.

Cheap labor costs, the productivity and motivation of employees and their qualification are rated the best doing business indicators in Albania in the ninth DIHA annual business survey.

However, only one out of ten companies think the Albanian work force is well-prepared by the national education system for the German company needs and three-quarters of respondents are willing to provide in-house training.

More than three-quarters of German companies in Albania and joint ventures with Albanian partners, some 77 percent, say they are satisfied with their Albania investment and would reinvest if they were given the opportunity once again, ranking Albania in the bottom five among 16 South East Europe destinations, better only compared to Latvia, Croatia, Kosovo and Macedonia.

When it comes to Albania's attractiveness as an investment destination, Albania ranks the least attractive among 20 destinations, worse even compared to Kosovo and Bosnia and Herzegovina on a list topped by the Czech Republic and Poland.

German companies in Albania are engaged in important sectors such as banking, construction, production, retail sales and logistics.

Germany is one of the top 10 foreign investors in Albania but the stock of foreign direct investment from Europe's largest economy remains quite modest and has been declining since late 2016 after a German-led consortium managing the country’s sole airport was acquired by a Chinese joint venture.

German FDI stock at the end of 2017 dropped to €116 million, down from a peak level of €144 million in the third quarter of 2016, €112 million in early 2014 and a mere €52 million a decade ago, according to Albania’s central bank.

Europe’s largest economy, Germany has emerged as the second largest trading partner for Albania in the past couple of years with the 2017 trade exchanges accounting for 6.8 percent of the total, the same to neighbouring Greece, the traditional second largest partner of Albania after Italy, according to state-run statistical institute, INSTAT.

Albania's trade exchanges with Germany, dominated by Albanian imports of machinery, equipment and spare parts slightly dropped to 61.5 billion lek (€480 million) in 2017.

Since the late 1980s just before the collapse of Albania’s communist regime, Germany has invested more than €800 million in development projects in Albania, mainly energy, water supply and sewerage, becoming the country’s main donor.
                    [post_title] => German companies become more optimistic, but Albania remains least attractive SEE destination
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                    [post_date] => 2018-05-07 13:54:07
                    [post_date_gmt] => 2018-05-07 11:54:07
                    [post_content] => TIRANA, May 7 – The European Commission has downgraded Albania’s growth outlook for the next couple of years as two major energy-related projects that drove Albania’s FDI and economic growth recovery for the past four years complete their investment stage and no major investment replaces them.

In its latest ‘Spring’ European economic forecast report, the EU’s executive arm, expects the Albanian economy to slow down to 3.6 percent in 2018, down from a nine-year post crisis high of 3.8 percent and recover to 3.9 percent in 2019 to register the highest growth rates among regional EU candidates.

The 2018 and 2019 growth forecasts for Albania are 0.2 to 0.3 percentage point lower compared to last November’s Autumn report of the European Commission, making them on par with other international financial institutions such as the World Bank and the IMF.

Meanwhile, the Socialist Party Albanian government is optimistic the country’s growth will recover to 4.2 percent in 2018 and gradually accelerate to 4.5 percent by 2021 when its second consecutive term of office expires.

The European Commission expects Serbia and Montenegro, two regional countries which have already opened accession negotiations, to grow between 3 to 3.5 percent over the next couple of years.

Macedonia, whose growth dropped to zero in 2017 following internal political crisis hitting investment, is expected to post growth of over 3 percent as investor confidence bounces back.

Both Albania and Macedonia are hopeful of launching accession talks with the EU next June pending the green light by EU heads of government following positive recommendations by the European Commission last April.

“Albania’s GDP growth is expected to soften slightly and temporarily in 2018 as investment activity decelerates in connection with the energy-related investment projects. The growth rate is, however, expected to pick up to last year’s pace in 2019,” says the Commission.

“In this forecast, private consumption expenditure is set to remain the main growth driver, expanding more than 3 percent over the forecast horizon. Following the expected dip in 2018, investment growth is projected to reach 6 percent in 2019. Employment is forecast to increase by around 3 percent annually commensurate to output growth,” it adds.

The Trans Adriatic Pipeline bringing Caspian gas to Europe and the Devoll Hydropower project by Norway’s Statkraft have been Albania’s top FDI projects since 2014 triggering total investment of about €1.5 billion, equal to about 14 percent of the country’s GDP.

The Commission says investment in tourism facilities following a package of tax incentives Albania approved in late 2017 and higher oil and mineral prices are expected to give a boost to exports of goods and services.

 

Risks to outlook

The risks to the EU’s growth outlook depend on the European Council's upcoming decision on Albania's accession negotiations and weaknesses in public finance management.

"The risks to the growth outlook seem to be balanced. On the upside, progress in the accession process towards EU membership may give a boost to the economy. On the downside, delays in the implementation of much-needed structural reforms may lower confidence and performance," says the Commission.

"Weaknesses in public finance management continue to pose a challenge for the execution of public budgets according to plan and constitute a negative risk to this fiscal projection."

Public debt at about 70 percent of the GDP and the declining but still high level of non-performing loans holding back credit growth are two of the main barriers of the Albanian economy.

International financial institutions such as the IMF and the World Bank have warned the ambitious €1 billion public private partnership program the government intends to apply in the next four years could create new accumulated unpaid bills to the private sector and hamper efforts to bring public debt to 60 percent of the GDP by 2021.

Commenting on the considerable strengthening of Albania’s national currency against the Euro in the past few months, the Commission says exports are not going to suffer any major setback due to recovering oil and mineral prices following the mid-2014 slump.

“The recent real appreciation of the Albanian currency has weighed on price competitiveness, but higher prices for oil and other commodities are expected to boost the extractive industry and its exports,” says the European Commission report.

The Euro is currently trading at a 10-year low of 127 lek, with a significant negative effect on exports, two-thirds of which are destined to Eurozone countries, and the country’s highly euroised economy.

GDP growth in Albania’s main trading partner Italy, which has been involved in a political deadlock following the inconclusive March 4 elections, is forecast to remain unchanged at 1.5 percent in 2018 and slow down to 1.2 percent in 2019 following double-dip recession between 2008 and 2013.

Albania's traditional second largest trading partner, Greece is expected to pick up to 1.9 percent for 2018 and accelerate to 2.3 percent in 2019 after escaping one of its worst recessions in modern history in 2016.

Recessions in Italy and Greece, the host of about 1 million Albanian migrants, have significantly affected Albania during the past decade mostly in investment, trade and remittance flows.

The European Commission says Albania continues to remain moderately prepared in developing a functioning market economy and coping with competitive pressure and market forces within the EU.

In its latest country report published this week, the Commission recommends opening accession talks with Albania, an EU candidate since mid-2014, but the final say is expected next June by the EU’s heads of government.

“Reforms crucial to improving the business environment progressed but require further efforts, including reduction of the informal economy. The comprehensive judicial reform advanced but needs to be fully implemented," says the report.

Dozens of judges and prosecutors have voluntarily resigned or been dismissed after failing to justify the source of income for their assets in the vetting process that Albania is implementing as part of its long-awaited justice reform.

In addition to strengthening rule of law, the reform is expected to significantly improve the country’s business climate where corruption and inefficient judiciary are among the top two concerns.
                    [post_title] => European Commission downgrades Albania’s 2018-19 GDP growth outlook
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                    [post_date] => 2018-05-07 10:48:38
                    [post_date_gmt] => 2018-05-07 08:48:38
                    [post_content] => TIRANA, May 7 – UK-based Gulf Oil International has distanced itself from the Gulf Albania scandal which saw thousands of local consumers cheated with cheap pre-paid fuel coupons days before an Albania affiliated company had its operations suspended and its managers disappeared.

The UK based giant says Sun Petroleum Albania, an offshore company operating a chain of petrol stations in the country, had been granted a license to operate service stations under the Gulf brand, but failed to pay the license fees in accordance with the contract leading to the termination of the contract.

“This is obviously a regrettable situation and it is important to understand that Sun Petroleum Albania shpk is an independent third-party company, to whom Gulf had granted a license to operate service stations under the Gulf brand," says Frank Rutten, the vice president of Gulf Oil International UK Ltd. as quoted in a statement.

Commenting on the pre-paid fuel coupons that customers can no longer redeem, the Gulf vice president said "this in itself is not an action that had in any way been pre-approved by Gulf Oil International.”

“As there are ongoing investigations taking place in Albania and the situation is still to become 100 percent clear, Gulf Oil International cannot make any comment at this time, however we will make every effort to assist in protecting the Gulf brand," he added.

Albanian prosecutors have issued arrest warrants over two Albanian managers and a Georgian citizen over the fraud scandal that is estimated to have cost a total of €5 million in damage, of which €1.5 million to customers in pre-paid fuel coupons and another €3.5 million in unpaid taxes and debts to suppliers.

Albania’s main opposition Democratic Party says Albanian businessman Besnik Sulaj, who they claim has close links with the ruling Socialists, is behind the fraud scheme. The opposition Democrats claim Gulf used to trade locally produced and refined oil from ARMO refiner which was managed by a company linked to Sulaj for more than a year until late 2017 when it went bankrupt leaving a mountain of debts to the tax administration and unpaid wages to about 1,000 workers.

Last April, Gulf Albania sold thousands of pre-paid fuel coupons as cheap as 120 lek (€0.94)/litre, 30 percent below market prices, in a scheme that is believed to have mostly tricked transport companies.

Due to the high tax burden levied on fuel, Albania paradoxically has one of Europe’s highest oil prices, but suffers one of Europe’s poorest consumption rates.

At €1.42/liter, Albania’s diesel prices are almost on par with the UK and France and considerably higher compared to Europe’s superpower Germany at €1.23/litre, says the Global Petrol Prices portal.
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                    [post_date] => 2018-05-04 12:59:10
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                    [post_content] => TIRANA, May 4 – More than 50,000 household and business consumers continue to pay their accumulated unpaid electricity bills over the 2007-2014 period in monthly instalments, says state-run OSHEE distribution operator.

The accumulated debts are being collected under a late 2014 nationwide electricity reform that made the collection of household and business debts compulsory and electricity thefts punishable by prison in a tough nationwide campaign that is estimated to have halved grid losses and lifted state-run electricity operators out of collapse. The reform is however estimated to have considerably curbed consumption among poor households not affording to pay off their debts at one time and benefit reduction in their late payment penalties.

In addition to their monthly electricity consumption, household consumers pay a fixed 2,800 lek (€22) a month for their old debts while pensioners and those receiving financial assistance are offered 1,200 lek (€9.3) monthly instalments.

The 54,200 indebted consumers who were paying their loans in monthly instalments at the end of the first quarter of 2018 represent only about 5 percent of total 1.2 million electricity contracts in the country.

The OSHEE distribution operator says about 346,000 debtor consumers paid off their debts at one time since December 2014, benefiting 70 to 80 percent discounts in their late payment penalties.

The state-run operator says its grid losses dropped to about 28 percent in early 2018, down from a record high of 50 percent in early 2013 when the operator was brought back under state control following a failed short-spell privatization by Czech Republic's CEZ.

However, the company's principal amount of bad debt for 2007 to 2014 bills is estimated to have dropped by only about 30 percent in the past three years and remains huge at about 47.8 billion lek (€371 million) and little likely to be recovered as many of the debtor businesses have gone bankrupt and a considerable number of debtor households are among those who left the country during the past four years of the asylum exodus when about 100,000 Albanians are estimated to have left the country.

Almost half of Albania’s population lives in energy poverty, recognized as spending more than 10 percent of household income on energy, according to a World Bank report.

The situation reflects the high prices charged on electricity to households in one of Europe’s poorest countries although the country meets the overwhelming majority of up to 80 percent of its needs through domestic hydro electricity generation depending on favourable weather conditions.

A survey by a local Albanian NGO has found two thirds of Albanian households say they face difficulty in paying off their monthly electricity bills and massively undertake actions to reduce their electricity consumption, especially during winter, something which practically places them under energy poverty.

The situation is also a result of poorly insulated buildings, lack of central heating systems and electricity massively used for heating and cooling facilities.

At €0.0824/kWh (tax included), Albania’s household electricity prices in 2017 were twice lower compared to the EU 28 average of €0.2, but higher compared to several regional countries including Serbia, Kosovo and Bosnia and Herzegovina, according to Eurostat, the statistical office of the European Union.
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            [post_date] => 2018-05-11 12:58:26
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            [post_content] => TIRANA, May 11 – London-based European Bank for Reconstruction and Development expects Albania to register the highest growth rate among Western Balkan economies in the next couple of years, but warns the completion of the two major energy-related projects that drove growth in the past four years and high level of public debt remain key barriers and growth will linger around the same 2017 levels.

In its latest Regional Economic Prospects report, the EBRD has slightly revised upward Albania’s 2018 growth outlook and now expects the country to grow by 3.8 percent, up 0.1 percent compared to last November, as credit growth recovers due to declining non-performing loans. The 2019 forecast is the Albanian economy will recover to 3.9 percent, up from an estimated 3.8 percent.

The EBRD’s 2018-2019 outlook is considerably more optimistic compared to the World Bank and the IMF which expect the Albanian economy to slow down to 3.5 to 3.7 percent in the next couple of years, but yet considerably below the Albanian government’s more optimistic scenario of growth picking up to 4.2 and 4.3 percent.

The construction of two major energy sector projects is driving investment, although the direct economic impact on GDP is expected to decelerate in the short term before the economy starts enjoying the operational benefits of the two projects from 2020 onwards,” says the EBRD.

The Trans Adriatic Pipeline bringing Caspian gas to Europe and the Devoll Hydropower project by Norway’s Statkraft, whose investment stage completes by the end of this year, have been Albania’s top FDI projects since 2014 triggering total investment of about €1.5 billion, equal to about 14 percent of the country’s GDP.

Experts say Albania’s FDI could suffer a €200 million blow starting 2019 unless any other major projects replace TAP and the Devoll Hydropower.

The EBRD warns Albania’s public debt at about 70 percent of the GDP, a high level for Albania’s stage of development, leaves little room for increased government spending and tax incentives.

“The high level of public debt remains a significant constraint on any fiscal stimulus but credit growth is expected to continue as the health of the banking sector improves and as the level of non-performing loans declines further,” says the EBRD.

The London-based financial institution expects oil prices to remain at about US$ 70 per barrel for 2018, up 24 percent compared to 2017, something that could trigger increased production and exports in Albania’s oil industry.

The EBRD expects growth in the six EU aspirant Western Balkan economies to pick up for 2018 as the end of a political crisis in Macedonia boosts investor confidence there and the region’s largest economy, Serbia, recovers to 2.9 percent in 2018 on stronger consumption and investment.

The EBRD’s growth outlook for neighboring Greece, Albania’s traditional second largest trading partner is at about 2.2 percent for the next couple of year following an eight-year recession ending in 2016 that saw the Greek economy shrink by about a quarter, with negative effects on trade and investment ties with Albania and remittances from about half a million of Albanian migrants there.

An earlier EBRD report has shown Albania and other Western Balkans EU aspirant countries could need up to two centuries to catch up with EU living standards.

The 200-year gap is the pessimistic scenario that the EBRD predicts for the region to fully converge with average EU living standards compared with a baseline scenario of 60 years and an optimistic scenario of 40 years.

London-based EBRD is one of the country’s largest lenders with investment of almost €1 billion in some 80 projects in the country.
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