Albania urged to identify priority sectors for regional economic area, future EU integration

Albania urged to identify priority sectors for regional economic area, future EU integration

TIRANA, Jan. 29 – As Western Balkan countries prepare to adopt measures for an EU-backed regional economic area, a test before their apparent eventual European Union integration, Albanian economy experts say the government should initiate a process of dialogue with

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Insurance market growth slows down for fourth year in a row

Insurance market growth slows down for fourth year in a row

TIRANA, Jan. 29 – Albania’s insurance market slowed down for a fourth year in a row in 2017 as it remained overwhelmingly non-life oriented and reliant on compulsory motor insurance accounting for two-thirds of the market income. A report by

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Albania’s euroisation needs to drop by 10% to avoid annual losses of €67 mln, IMF experts say

Albania’s euroisation needs to drop by 10% to avoid annual losses of €67 mln, IMF experts say

TIRANA, Jan. 29 – As Albania’s central bank prepares to apply de-euroisation measures in a bid to reduce the current high level of Euro-denominated loans and deposits in the country’s banking system, experts estimate Albania has to significantly reduce its

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IMF: TAP, Devoll contribution to GDP turns negative

IMF: TAP, Devoll contribution to GDP turns negative

TIRANA, Jan. 25 – The contribution that the Trans Adriatic Pipeline and the Devoll Hydropower are expected to have on the Albanian economy will turn negative this year when the two major energy-related projects complete their investment stage, the International

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Fast-track procedures on new Vlora airport okayed amid environmental concerns

Fast-track procedures on new Vlora airport okayed amid environmental concerns

TIRANA, Jan. 25 – The Albanian government has approved fast track negotiation procedures with a Turkish consortium that has offered to build a new airport in Vlora, southern Albania, making it the country’s second international airport and breaking the monopoly

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A third of Albanian call center workers suffer health problems, study shows

A third of Albanian call center workers suffer health problems, study shows

TIRANA, Jan. 24 – About a third of call center workers in Albania suffer health problems such as hearing and vision loss, a study has shown. Surveying some 1,000 call center operators in the country’s main cities, the study conducted

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Drought triggered financial problems, high grid losses paralyze WB-supported electricity reform

Drought triggered financial problems, high grid losses paralyze WB-supported electricity reform

TIRANA, Jan. 23 – As a five-year $150 million World Bank supported power recovery project nears completion by late 2019, the Washington-based lender has downgraded Albania’s overall implementation progress to moderately unsatisfactory from a previous satisfactory. In an update on

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VAT, income thresholds rated as top tax evasion factors, survey shows

VAT, income thresholds rated as top tax evasion factors, survey shows

TIRANA, Jan. 22 – 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

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Lending standards to remain tight in early 2018 amid high NPLs, poor demand

Lending standards to remain tight in early 2018 amid high NPLs, poor demand

TIRANA, Jan. 22 – The 16 overwhelmingly foreign-owned banks operating in Albania expect lending standards to further tighten for both businesses and households in the first quarter of this year, according to a survey conducted by the country’s central bank.

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Albania revises growth, debt targets in optimistic scenario turned down by IMF, World Bank

Albania revises growth, debt targets in optimistic scenario turned down by IMF, World Bank

TIRANA, Jan. 19 – The Albanian government has reviewed its mid-term macroeconomic scenario slightly revising upward the country’s GDP growth for the 2018-2021 period, but delaying the public debt target of 60 percent of the GDP for 2021 in considerably

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                    [post_content] => TIRANA, Jan. 29 - As Western Balkan countries prepare to adopt measures for an EU-backed regional economic area, a test before their apparent eventual European Union integration, Albanian economy experts say the government should initiate a process of dialogue with the country’s business community to identify the sectors Albania can decently compete both regionally and within the European single market.

Selami Xhepa, an economy expert who heads the Pashko European Institute, a Tirana-based think tank, says regional economies should be able to pass this first easier test before facing tougher competition from a much more competitive market such as the European Union.

"That is the reason why we should focus and orient our policies and economic resources in those sectors where Albania can decently compete not only in the region, but always keep in mind the European perspective," Xhepa said last week on the sidelines of the Tirana Economic Forum, bringing together Albanian and regional experts to discuss the Balkans’ future.

"That is a big challenge even for entrepreneurs themselves who have to understand that this process has an end, it has a date and in this sense they have to build their own agenda on how to adjust and handle that pressure. That is the first exercise. We should not forget that the perspective we aspire to is European and competition with the European Union will be much tougher," says Xhepa.

The Union of Producers has already identified the garment and footwear manufacturing sector producing the country’s top exports, olive oil, water, fish and oil and minerals as Albania’s competitive products which the Albanian government can support to boost their regional competitiveness.

Albanian producers have earlier voiced concern that the EU-backed regional economic area initiative that the six Western Balkan leaders agreed to in mid-2017 at the Trieste Summit will put ‘Made in Albania’ products at a disadvantage unless the Albanian government provides tax and subsidy incentives to make them more competitive regionally.

Based on the principles of non-discrimination and creating a level playing field for all within the region, the Western Balkan regional economic area will enable unobstructed flow of goods, services, capital and highly skilled labour, making the six regional economies more attractive for investment and commerce, accelerating convergence with the EU and bringing prosperity to all its citizens, according to an action plan. The regional economic area initiative foresees the implementation of actions at all levels in the period between 2017 and 2020 with some actions extending until 2023.

"We should first understand that the Balkan region continues to have the weakest economies compared to the West. In this sense, the competitiveness of our region is problematic and I believe that is the reason why the European Union initially asked for regional integration, because our economies are more or less comparable regarding standards, technology, organization etc. In this way, that would be a kind of exercise which if successfully handled, then regional economies will be able to even face tougher competition from the European Union," added Xhepa.

 

Central bank worried

Addressing the forum, Albania's central bank governor Gent Sejko said regional countries, including Albania have to tackle problems with the business climate, including corruption and tax evasion, as the main barriers to economic growth and the attraction of foreign direct investment.

"A common complaint by foreign investors is that our markets are too small and fragmented and poorly attractive. Although that is partly inaccurate, we should do more to boost our integration regarding trade and infrastructure," said Sejko, adding that the individual low-tax policy race is not productive for the region as a whole.

"Competing for the same group of international investors, regional countries often try to boost their individual profile, offering tax incentives or subsidies. That race to the bottom is not productive," he added.

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 Albania one of the region’s highest and a key concern for foreign and local investors. Most regional economies apply flat tax regimes of about 10 percent.

"Addressing those issues requires vision, strong institutions, determined political action but also regional coordination," Sejko added, suggesting a regional stock exchange to develop financial market and reduce financing costs.

A recent report by UNCTAD, the United Nations body responsible for international trade, has shown regional EU aspirant Western Balkans countries need to undertake business climate reforms and boost cooperation to attract increasing levels of foreign investment.

The recommendations come at a time when FDI in the region as a whole is declining at a faster pace compared to global FDI with the exception of Serbia and Albania, the two key Western Balkans players. It also came few months after regional leaders at the Trieste Summit reconfirmed support to an EU-backed regional economic area of 20 million consumers to facilitate the EU integration process for the six EU aspirants.

FDI in the Western Balkans, largely perceived as lacking rule of law and where corruption remains a key barrier to attract big investors, accounted for only about 0.27 percent of total global FDI in 2016. Regional FDI declined by 5 percent compared to a global decline of 2 percent, unveiling the region's lack of competitiveness as a whole.

 

Moderately prepared

In its 2016 country report on Albania, the European Commission says Albania is moderately prepared in developing a functioning market economy.

“Albania has some level of preparation in terms of capacity to cope with competitive pressure and market forces within the Union. Some progress was made particularly as regards improving higher and vocational education as well as prioritising infrastructure investments,” says the EU’s executive arm.

“However, the quality of education needs to be raised at all levels to better equip people with skills in line with labour market needs. Gaps in transport, energy and digital infrastructure still hinder Albania's competitiveness and constrain trade, which remains below potential and sectorally concentrated. Albania's capacity for research, development and innovation remains low,” it adds.

As the European Commission is expected to unveil an enlargement strategy early next February, only Serbia and Montenegro, which have already launched accession talks, have been apparently selected as the sole Western Balkan aspirants that could join the block by 2025.

Short and mid-term enlargement prospects for the six Western Balkan countries have been hampered by internal developments in the bloc with the Brexit, the migrant and financial crises as well as rising populism high on the agenda.

Albania, an EU-candidate since mid-2014 is hoping to launch accession talks this year as it has launched the implementation of its long-awaited justice reform, a key requirement by the European Commission, that would also boost investor confidence in the judiciary.

Catching up with the average EU income could take Albania and other EU aspirant Western Balkan economies about six decades unless current sluggish GDP growth doubles to 5 or 6 percent, the World Bank has warned in a recent report

“With faster growth of 5 to 6 percent, convergence could be achieved in just two decades. That will require a bold and sustained implementation of structural reforms and steady progress in EU accession processes,” says the Washington-based financial institution.

Albania, whose consumption and GDP per capita is at only a third of the EU average, will need 35 years to catch with the EU average income if it continues growing under the current 4 percent rate and 20 years if growth accelerates to an annual 5 percent, World Bank officials have said citing an optimistic scenario.
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                    [post_content] => TIRANA, Jan. 29 - Albania's insurance market slowed down for a fourth year in a row in 2017 as it remained overwhelmingly non-life oriented and reliant on compulsory motor insurance accounting for two-thirds of the market income.

A report by Albania's Financial Supervisory Authority shows insurance premiums in the eight private companies operating in the market grew by an annual 5.4 percent to about 16.2 billion lek (€121 million) in 2017 as the number of insurance policies recovered by 12 percent to 1.26 million, hinting a drop in insurance rates.

The small insurance market of about 1 percent of the GDP has been slowing down in the past few years with annual growth rates dropping from 36 percent in 2014 to 21 percent in 2015 and 17.5 percent in 2016 following a moderate contraction in 2013, when it suffered its first blow following the 2008 global financial crisis.

The market continued remaining non-life oriented with its insurance premiums accounting for 92 percent of the total and compulsory-oriented with 61.5 percent, the watchdog said.

Paid claims in the insurance market, the overwhelming majority of which belongs to vehicle insurance, continued their upward trend, increasing by 15.8 percent to 5.5 billion lek (€41.2 million).

Compulsory vehicle insurance slightly increased its market share in the non-life segment to 66.8 percent, being the key driver of the compulsory denominated market.

Meanwhile, insurance against fire and natural forces only increased by 3.6 percent to about 1.4 billion lek (€10.6 million) in 2017, despite the country being regularly hit by natural disasters such as flash floods in the past few years, leaving businesses and households completely uncovered.

The Financial Authority and the government have announced an initiative to make insurance against natural disasters such as flooding and earthquakes compulsory for every business and household for a reasonable rate, but some experts have described the initiative as a new hidden tax the government is trying to impose.

Insurance companies whose annual turnover is at about €112 million at a modest per capita insurance of about €35 million, see the introduction of compulsory natural disaster insurance as a golden opportunity to boost their income considering about 1 million home and businesses that could almost double their annual income.

The life insurance market, dominated by the compulsory credit life insurance, also increased by 23 percent to 1.2 billion lek (€9 billion) in 2017. Only three companies operate in the life insurance market including former state-run Insig, whose life insurance operator was acquired in 2017 by two of the country's richest men, Samir Mane of the owner of Balfin Group and Shefqet Kastrati of the Kastrati group.

The acquisition was made from Eurosig, an Albanian-owned insurer which acquired state-run INSIG insurer for 2.2 billion lek (€15.8 million) in early 2016, increasing the insurer’s market share to 20 percent.

Albania’s insurance market is dominated by Austrian companies holding about 60 percent of the market share.
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                    [post_content] => TIRANA, Jan. 29 - As Albania's central bank prepares to apply de-euroisation measures in a bid to reduce the current high level of Euro-denominated loans and deposits in the country’s banking system, experts estimate Albania has to significantly reduce its euroisation levels in order to avoid annual losses of dozens of millions of euros.

A recent IMF working paper by international and Albanian experts estimates that Albania loses a total of about 9 billion lek (€67 million) annually, 0.6 percent of the GDP, from its high euroisation levels at about 50 percent.

The losses include 6 billion lek (€45 million) in seigniorage income for the central bank, indicating the difference between the value of money and the cost to produce it, and another 3 billion lek (€22.4 mln) in the high foreign currency reserves the Bank of Albania is obliged to hold to address the possible need for emergency liquidity assistance in Europe’s single currency, something which reduced the banking system’s refinancing needs and the possible size of the portfolio of domestic financial assets.

Experts estimate Albania’s current euroisation level of about 47 percent needs to drop by only 10 percent in order not to negatively affect the country’s banking system and economy.

“Albania’s euroization level is just about 10 percent above the level predicted by the model, if Albania had the average euroization level as justified by the structural features of its economy and by strong macroeconomic performances,” says the IMF working paper.

“This result places Albania in the category of Bosnia and Herzegovina, Bulgaria, and Macedonia, for which euroization is close to the benchmark value predicted by the model. However, the level of euroization in Albania is increasing and, thus, diverging from its empirical benchmark, calling for measures to stop and reverse the deposit euroization trend,” it adds.

The report shows Euro-denominated deposits increased by 10 percent to about half of total savings in the banking system over a decade until 2016. Meanwhile, the share of foreign currency credit, the overwhelming majority of which is denominated in Euro, dropped by 10 percent to 60 percent over a five-year period until 2016.

Albania had some €1.9 billion in Euro-denominated loans and about 2 billion euros in deposits at the end of 2016, according to the European Central Bank.

Experts say high euroization entails lower seigniorage revenues, reduces the effectiveness of monetary policy, and heightens the vulnerability of the financial systems to exchange rate swings.

Albania’s central bank has been holding its key rate to a historic low of 1.25 since May 2016, but the pass-through of its easier monetary policy has been poorly reflected on boosting credit, which has been struggling to return to positive growth rates in the past few years, negatively affected by a declining but still high level of non-performing loans and poor demand by both businesses and households.

 

Euroisation vs deeuroisation

 Small and open economies, such as Albania, tend to be more euroized, experts say in the IMF working paper, adding that remittances, which amount to a high share of GDP in Albania, lift the euroization benchmark.

Albania conducts two-thirds of its trade exchanges with Eurozone countries, mainly Italy, and receives about €600 million in remittances from more than 1 million migrants, mainly in Italy and Greece, 40 percent less than pre-crisis peak level a decade ago.

Experts estimate the optimal level of euroization for a small and open economy with strong economic links to the euro area is higher than zero, but lower than the levels observed in many candidate and potential candidate countries for European Union accession in the Western Balkans.

“Conceptually, there is an optimal euroization level, below which the costs of deeuroization measures outweigh the benefits. The costs of euroization include losses of seigniorage, which amount to 0.6 percent of GDP each year in Albania, impairment of monetary policy transmission, and financial stability risk due to unhedged exchange rate exposure in the economy and the absence of a lender of last resort in foreign currency,” experts say in the IMF working paper.

On the other hand, financial euroization supports financial sector deepening. “Measures to mitigate intermediation in foreign currency make such intermediation more expensive, go against public preferences, hinder access to attractive funding sources, and deprive investors of portfolio diversification opportunities. Disincentives to intermediation in foreign currency may not lead to a proportional increase in local currency intermediation, resulting in some disintermediation or slowdown in financial deepening,” experts add.

The report shows domestic interbank payments in euros represent approximately 20 percent of total domestic interbank payments in Albania. Euro-denominated transfers represent on average 24 percent of the value of total banking system transfers for corporations and 39 percent of the value of total transfers for households.

Some 90 percent of euro transactions consist of wire transfers between individuals. There is also a widespread use of euros for cash transactions between banks and customers. Approximately 35 percent of cash transactions are denominated in euros, of which 40 percent are not related to placing deposits or paying loans but to direct payments between customers. These figures support the notion of a pervasive use of euro banknotes as a means of exchange, especially for larger value transactions, experts say.

In a report examining the euro’s international role, the European Central Bank says unofficial loan and deposit euroisation is salient feature among EU aspirant Western Balkans countries with Kosovo and Montenegro, already using the euro as their de facto currency without the EU’s blessing.

The report says unofficial euroisation is determined by factors such as confidence in the domestic currency, trade relations with the euro area and remittances.

The Euro is a common currency in real estate, car sales while huge inflows from several major energy-related foreign direct investment and the rapidly growing tourism sector have taken Europe’s single currency to an eight-year low of 133.6 lek with a negative impact on the country’s exports.

“Agents in the [Western Balkan] region continue to prefer euro cash for reasons that are predominantly related to trust. In particular, depreciation expectations and memories of past crises are important determinants of households’ decisions on whether to save or pay in euro cash,” say the European Central Bank in a report.

Albania's central bank says de-euroisation measures, intended at reducing the current high levels of foreign currency in the country’s banking system, will become effective in the first half of this year.
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                    [post_content] => TIRANA, Jan. 25 - The contribution that the Trans Adriatic Pipeline and the Devoll Hydropower are expected to have on the Albanian economy will turn negative this year when the two major energy-related projects complete their investment stage, the International Monetary Fund says.

In a late 2017 country report, the IMF expects the effect that the two key projects will have on the Albanian economy in 2018 to be at a negative 0.5 percent of the GDP, some €60 million, as foreign direct investment by the TAP consortium and Norway's Statkraft significantly drops.

The two major energy-related projects had a positive contribution of 0.3 to 0.5 percent of the GDP from 2014 to 2016 before it dropped to 0.1 percent in 2017, turning into key drivers of Albania's economic growth of 1.8 to 3.9 percent in the past four years.

The Albanian government estimates the country's GDP was at €11.6 billion; $13.1 billion in 2017.

The lower contribution is related to a sharp decline in imports and domestic expenditure as the two major energy related complete their investment stage this year before becoming fully operational by 2020.

Prospects are more pessimistic for the next couple of years when the two projects’ contribution to the GDP will continue to remain negative with FDI at only 0.8 percent of the GDP, some €100 million, in 2019 before dropping to zero in 2020.

FDI involving the construction of two hydropower plants by Norway’s Statkraft, one of which has already been made operational, and the Albanian section of the Trans Adriatic Pipeline bringing Caspian gas to Europe is estimated at a total of 14 percent of the GDP, about €1.5 billion in the 2014-2019 period.

The IMF’s calculation takes into account the GDP formula consisting of consumption, government spending, investments, and net exports.

The Washington-based lender of last resort expects the Albanian economy to slow down to 3.7 percent in 2018, down from an expected 3.9 percent in 2017 as the TAP and Devoll Hydropower project reduce their FDI contribution by an estimated €180 million in 2018 alone and by €360 million in 2019.

FDI related to TAP/Statkraft was at a peak level of 3.8 percent of the GDP in 2016-2017 but is expected to drop to 2.3 percent and 0.8 percent of the GDP in 2018 and 2019 respectively before becoming zero in 2020.

“Despite the slowdown of these FDI projects in 2018, GDP is expected to grow 3.7 percent due to a recovery in private credit, an expansion in public investment, and a boost in confidence from increased political stability,” says the IMF.

The Albanian government’s growth expectation for 2018 is at 4.2 percent, 0.5 percent higher than the IMF and 0.7 percent more optimistic compared to the World Bank’s forecast.

With TAP and the Devoll HPP completing their investment stage by 2018, Albanian authorities are already looking for new investment opportunities that would fill their huge gap of more than €200 million euros in annual FDI.

The two major energy-related projects have been the key drivers of FDI in the country in the past three years at a time when oil and mining investment almost paralyzed following a slump in commodity prices in mid-2014, with a negative impact also on the country’s poorly diversified exports.

With no major FDI projects in sight, the ruling Socialist Party government intends to fill the gap expected to be created starting 2019 with a package of incentives stripping luxury tourism investments of taxes for a 10-year period as well as a rather controversial €1 billion public-private partnership project to upgrade the country’s road, health and education infrastructure. The ambitious PPP project has already triggered concern over the benefits the country will have considering the troubled experience Albania has had with concessions, already costing taxpayers dozens of millions of euros in commitments the Albanian government has for specific services offered in key health sector as well as the customs scanning and waste management.

Experts say improving the business climate, fighting corruption, and reforming the highly perceived corrupt judiciary are key to making the Albanian economy more competitive in the Western Balkan region, which the World Bank estimates will need between three to six decades to catch up with the average EU income.
                    [post_title] => IMF: TAP, Devoll contribution to GDP turns negative
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                    [post_date] => 2018-01-25 11:52:08
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                    [post_content] => TIRANA, Jan. 25 - The Albanian government has approved fast track negotiation procedures with a Turkish consortium that has offered to build a new airport in Vlora, southern Albania, making it the country’s second international airport and breaking the monopoly the country’s sole international airport has enjoyed to date.

The fast track procedures are aimed at paving the way for the airport's construction by mid-2018 through a special law and contract that will be approved by Parliament.

Infrastructure Minister Damian Gjiknuri said the Turkish consortium has offered to invest Euro 100 million for the new airport in Vlora in details that will be determined during a 90-day negotiation period with government representatives.

“One thing is for sure. This airport whose construction will kick off in record time is a work that will turn the page not only on southern Albania, but also Albania and Albanians who will have a new travel alternative. Albanians will have one of the best airports in South-East Europe and Albanian tourism will get a huge impetus," said minister Gjiknuri.

The airport is located 133 km, a 2-hour drive from Tirana, making it competitive only in case it attracts low-cost carriers.

While the investment will be private, the Albanian government is expected to guarantee the concessionaire a minimum annual income in traffic guarantees in return for the investment and operation over a period of time that will be determined during the negotiations.

The concession contract is expected to be similar to the Durres-Kukes highway linking Albania to Kosovo which is set to become the country’s first toll road this year. In addition to the average €5 tolls the concessionaire will collect, the Albanian government will pay the investor a total of €65 million in the next 30 years, at an average of €2.16 million annually, in traffic guarantees in return for highway investment and maintenance.

The Turkish consortium that has offered to build the Vlora airport is composed of Cengis, Kalyon and Kolin Construction, three companies also involved in the construction of Istanbul's third airport, multi-billion dollar investment that will partially launch operations by February 2018.

The project to build a regional airport in Vlora, southern Albania, comes as part of the assistance the Albanian government has been receiving from the Turkish government and its Turkish Airlines, to open up new airports and set up its national carrier in a bid to offer passengers a new alternative to Tirana International Airport, the country’s sole international airport, and reduce current ticket prices, among the region’s highest.

The government says it is also planning to make operational the Kukes airport, a United Arab Emirates investment in north-east Albania, which has been ready for use since 2007, but only became available in mid-2016 after the country's sole airport had its exclusive rights on international flights lifted in return for extending its concession term for 2 years until 2027.

In addition to the Vlora airport, which is expected to mainly cover unserviced regional countries, the government also plans to build a new tourist airport in Saranda, southernmost Albania, one of the country's top destinations.

The operation of two new airports could extend TIA's concession by another six years, depending on the year they become operational.

Prime Minister Rama has earlier unveiled the ‘Air Albania’ national carrier will initially connect Tirana to regional unserviced countries such as Kosovo, Macedonia, Montenegro and Bosnia and Herzegovina and several Western Europe destinations.

Due to expensive prices and low number of low-cost carriers, more and more Albanian passengers have been travelling through neighboring Kosovo, Macedonia or Montenegro airports in the past few years.

Some 17 airlines connect Tirana to European destinations, mostly Italy where most passengers fly considering an estimated community of some 500,000 Albanian migrants in the neighbouring country across the Adriatic.

The Tirana International Airport, which in October 2016 was taken over by a Chinese consortium, handled about 2.2 million passengers in 2016, being the country’s main hub.

Italian carriers have the major market share in Albania’s air transport industry following the bankruptcy of an Albanian-owned company in 2013.

 

Environmental concerns 

The airport's location at the Akerni village, some 20 km outside Vlora, an area where a small military air base used to operate, has also triggered environmental concerns, with a watchdog warning the airport investment and its operation threatens a protected area.

The Protection and Preservation of Natural Environment in Albania, an environmental NGO, says the airport's proposed location at Akerni village threatens the "Vjosa-Narta Protected Landscape, a 194 km2 area rich in wetlands and aquatic birds encompassing the Narta Lagoon along with the delta of the Vjosa River and its surrounding areas with freshwater wetlands, marshlands, reed beds, woodlands, islands and sandy beaches.

"The construction of this kind of infrastructure threatens the ecologic integrity of this area because of the habitat alienation during the investment phase and disturbance during the operational phase. In addition, this construction violates the regulatory and legal norms on protected areas. National and international standards and legislation on the management of protected areas and areas of special natural values, prohibit the construction of these kind of structures that have a devastating impact on the ecosystem," says PPNEA Association.

“Vjosa-Narte represents one of the important areas regarding the special biodiversity values, especially for avifauna. This area is well known internationally as an International Biodiversity Area; it is part of Emerald Network as an area of special conservation interest at a global level; it is known by BirdLife International as a key biodiversity area for birds; it is an area under the evaluation of Natura 2000 in Albania and above all, it is part of the protected areas," the watchdog says, appealing to the government to reconsider the airport's location.

 

Local residents happy

Local residents see the construction of the new airport as a new opportunity that gives added value to their lands, where the salt business is one of the few employment opportunities in the local marshlands.

"Akerni is a village that has relied on salt and extracting salt, including me all my life, I hope we will not get disappointed," a local resident told reporters.

"We were hopeless and were constantly worried about our children’s future in this area," another resident told a local TV.

The Novosela local government administrator Kanan Shakaj describes the investment as a golden opportunity.

"It was a dream that came true. Having an elite tourism without an airport is meaningless. Tourists can come easier and the local area and its infrastructure and employment develop," Shakaj says.
                    [post_title] => Fast-track procedures on new Vlora airport okayed amid environmental concerns
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                    [post_date] => 2018-01-24 12:28:24
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                    [post_content] => TIRANA, Jan. 24 - About a third of call center workers in Albania suffer health problems such as hearing and vision loss, a study has shown.

Surveying some 1,000 call center operators in the country's main cities, the study conducted by local ‘Together for Life’ association showed 31.8 percent of workers said working in call centers, one of the country's key employers for young men and women, had caused them not only stress, but also hearing and vision problems.

Ilda Lamçe, an operator who worked in call centers both in Vlora and Tirana, says there is no healthcare assistance at workplaces and operators are not paid extra money for working on holidays and at evening shifts.

"I have worked both in Vlora and Tirana call centers and there are a lot of problems. Firstly, there was no doctor and health assistance at workplace. In every case workers had health problems, and there were lots of cases, an ambulance was immediately called, as there was no first aid at the workplace," Lamçe, a woman in her 30s said.

"We have also worked for 12 hours a day. The official holidays was another issue. We worked on holidays and were allowed to take days off based on Italian legislation. There were also cases when workers were given their summer holidays in October. However, only few people dare speak about those issues, especially in front of the cameras because they are afraid they could be fired," she added.

International studies have shown visual problems are the most common health consequences over working in call centers due to long exposure to video display units. Experts say there are also auditory problems because of intense headset use and acoustic shocks and voice deformation due to continuous talking. Hearing problems seem to be the most common problems for call center operators in Albania, with doctors suggesting regular check-ups and avoiding long working hours.

On the positive side, call centers have been one of the top employers in the past few years, serving as a catalyst for youth unemployment, and the mismatch between skills earned at universities and labor market needs, making use of good language skills by Albanian youngers, especially fluent Italian, and cheap labor costs.

About 40 percent of call center operators in the country hold a university degree, at a time when fluent Italian or English and negotiation skills are the only requirements to get a call center job.

The study showed the overwhelming majority of 90 percent of workers also financially support their families with the call center jobs, whose average wages are more than double the country’s minimum wage of 24,000 lek (€178).

“There is a perception that only students work on call centers. The study has shown that a considerable number of employees also support their families with the wages they receive from this sector," Eglantina Bardhi of the Together for Life Association told reporters.

About three-quarters of the estimated 25,000 call centers operators in the country are aged between 18 to 30 years old and women account for two-thirds of total workers.

The study showed lack of fixed-term contracts and a union protecting the interest of call center workers are two other challenges facing the call center industry.

Following a boom until 2016, dozens of call center companies in the country ceased their operations last year after Italian legal changes made the supply of services for Italy-based companies from non-EU countries such as Albania much tighter starting April 2017, according to the tax administration data.

Company representatives say the law regulating offshore outsourcing and a deal by 13 big energy and telecommunication operators in Italy with the Italian government to conduct 80 percent of their call center outsourcing work on home soil has already had severe negative effects for small operators in Albania. Big companies are already looking to diversify, shifting to English-language support services and speculative services such as online trading platforms or currency exchange investments.

More and more companies have recently diversified to mediating services in online trading platforms luring potential investors with high return rates and often targeting markets such as Italy and England. The services are considered highly speculative as customers tend to lose most of the times and experts say they cannot serve as replacement for call centers which can consider diversifying their services in languages other than Italian and also target new markets as a way out.
                    [post_title] => A third of Albanian call center workers suffer health problems, study shows 
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                    [post_content] => TIRANA, Jan. 23 - As a five-year $150 million World Bank supported power recovery project nears completion by late 2019, the Washington-based lender has downgraded Albania's overall implementation progress to moderately unsatisfactory from a previous satisfactory.

In an update on the project's implementation, the World Bank says the state-run Albanian power sector is once again under financial stress following a prolonged drought paralyzing domestic electricity generation and failure to meet loss targets in the distribution grid.

The World Bank says the situation is also a result of a financially unviable public sector obligation upon power generator KESH to purchase electricity in case of unfavourable domestic hydro-situation such as the situation in the second half of 2017 when the country was forced to make costly electricity imports of about €200 million, a considerably part of which were also handled by state-run KESH and the central government to assist cash-strapped OSHEE distribution operator.

Electricity losses in the distribution grid have dropped to 28 percent, down from a record 45 percent in mid-2014 when the distribution operator was nationalized following a failed short-term privatization, but are far from the mid-2019 target of 14 percent, says the World Bank describing overall progress in the past three years as moderately satisfactory.

Power utility KESH also cleared arrears of about €120 million to private and concession hydropower plants and OSHEE distribution operator increased its cash collection rates to over 92 percent, from about 62 percent in 2014 just before a nationwide campaign to tackle accumulated unpaid bills and cut off illegal grid connections by making power thefts punishable by imprisonment was undertaken. The rather aggressive nationwide campaign lifted state-run electricity operators out of crisis as hundreds of millions of euros were collected in accumulated unpaid bills and used to pay off debts and invest in the dilapidated grid which still needs huge investment.

The World Bank says key project components such as grid loss reduction and the sector's financial viability risk failing to be met by the end of June 2019, when the loan-supported project concludes.

"There is, therefore, a likelihood that unless there is a renewed effort to expedite the loss reduction program, a key project development objectives in loss reduction and financial viability would not be met by the scheduled closing date. This requires concerted actions by the government and implementing agencies to update the Financial Recovery plan and address implementation gaps, and the Bank will closely provide the necessary implementation supports," says the World Bank.

The World Bank has currently disbursed only about $52 million from its original $150 million soft loan meant to support the country's power sector reforms, in particular the reliability of the electricity supply and the sector's financial viability.

The Washington-based lender expects the Albanian economy to slow down to 3.5 percent in 2018 and 2019 as major energy-related projects that have driven growth in the past few years complete and no new major projects appear to replace their contribution to FDI.

 

IMF, Energy Community concerned

The International Monetary Fund has also warned Albania needs to reinvigorate the implementation of the electricity sector reform and diversify domestic sources of electricity in order to reduce negative effects from adverse weather conditions such as the prolonged drought paralyzing the country's wholly hydro-dependent domestic electricity generation in the second half of 2017.

"Continued drought conditions could affect electricity generation beyond 2017. Power shortages could damage growth. Expensive electricity imports could pose quasi-fiscal risks for the budget," says the IMF.

"Reduction of distribution losses is lagging behind plan while further market liberalization and restructuring have been delayed," says the IMF in its latest country report.

Albanian authorities say they are optimistic the Trans Adriatic Pipeline, set to bring Caspian gas to Europe through Albania by 2020 will help diversify Albania's energy sources by activating a World Bank-funded thermal power plant on natural gas rather than costly diesel while a new major hydropower plant by Norway's Statkraft will increase domestic electricity generation.

With about three quarters of domestic electricity produced by state-run KESH utility through its major three HPPs on the Drin cascade, private and concession HPPs are set to further increase their share as the major Devoll Hydropower project by Norway’s Statkraft completes by 2018.

Vienna-based Energy Community has also recently opened a dispute settlement procedures against Albania for failing to unbundle its state-run OSHEE distribution operator currently serving as both an electricity distributor and supplier, leading to the country not meeting its obligations under the Energy Community Treaty.

"Only when separated from other segments of the energy supply chain can distribution system operators act independently and consumers benefit from greater choice of electricity supply companies, which in turn offer improved services at a fair price," says the Energy Community Secretariat, an international organization dealing with energy policy, which has also initiated procedures against Bosnia and Herzegovina and Ukraine.

 

Poorly diversified sector

Albania's electricity situation slightly improved last December following heavy rainfall causing massive floods in some parts of the country, filling the empty reservoirs of the country big hydropower plants.

Albania’s domestic electricity generation is currently wholly hydro-dependent triggering the government to offer incentives for liquid gas-fired thermal power plants as the major Trans Adriatic Pipeline bringing Caspian gas nears completion in a bid to diversify the country’s domestic sources.

The government has also urged investors to consider untapped potentials in solar and wind energy following a boom in the construction of small and medium-sized hydropower plants built under concession contracts in the past decade, currently producing about a quarter of domestic electricity, but being at risk of adverse weather conditions such as last year’s prolonged drought, the worst Albania faced in decades.

Meanwhile, a dispute between Serbia and its former breakaway province Kosovo over a long-standing electricity transmission issue continues to hold back a newly built German-funded Albania-Kosovo interconnection line.

The deadlock, which Germany is trying to mediate, has also halted Albania-Kosovo plans to set up a joint energy market and a power exchange helping Kosovo’s lignite-fired power plants and Albania’s hydro-dependent electricity system exchange electricity during their peak production levels, reducing dependency on costly imports.
                    [post_title] => Drought triggered financial problems, high grid losses paralyze WB-supported electricity reform
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                    [post_date] => 2018-01-22 17:05:15
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                    [post_content] => TIRANA, Jan. 22 - 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.

Albania currently excludes businesses with an annual turnover of less than 5 million lek (€37,262) from the VAT system and applies progressive taxation of up to 23 percent on personal income for monthly wages of more than 130,000 lek (€968) under a system that excludes the first 30,000 lek (€224) from taxation and applies a 13 percent rate on income from 30,000 to 130,000 lek.

The changes on the personal income tax were introduced in 2014 after the ruling Socialist Party lifted the 10 percent flat tax the country had been applying on both companies and households and introduced a 15 percent rate corporate income and progressive taxation on wages, triggering concerns of a higher tax burden on businesses and high-income earners.

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 Albania one of the region’s highest and a key concern for foreign and local investors.

Starting April 2018, the 20 percent VAT threshold on businesses will be lowered to an annual turnover of 2 million lek (about €15,000), down from a current 5 million lek (€37,000) in a move which is expected to have a negative impact on dozens of thousands of small businesses, already facing tough competition by supermarket chains and shopping centers. The move could also trigger higher informality as small businesses will try to keep their annual turnover below the new threshold.

The apparently strict enforcement of tax procedures and confidential relations with the tax administration were rated as the top two factors promoting tax evasion for 2017, according to the survey conducted by the Albania Investment Council, an advisory body serving as a linking bridge between the business community and the government set up in 2015 with support by London-based European Bank for Reconstruction and Development.

About a quarter of respondents said businesses' corruption culture and their political affiliation is the number one cause that encourages informality.

The poor capacity of both the tax and customs administration was rated as the second most important issue for businesses in their informality concern.

Respondents also cited the politicization of the tax administration and recruitment being made on political affiliation rather than professionalism as a major problem in relations with the tax administration.

The politicization of the tax administration has been an ongoing issue in Albania's public administration during the past quarter of a century of the country's transition to democracy, costing taxpayers millions of euros in court compensation for unfair dismissals.

"Young graduates with a minimum of 1 to 2 years of work experience can never be part of the tax inspection department and inspect professionals who have been operating for years," a business representative was quoted as saying on condition of anonymity.

The late 2017 survey with some 150 Albanian and foreign-owned businesses operating in the country showed perceptions on relations with the tax administration, the tax evasion phenomenon and VAT refunds have considerable improved compared to 2015 when the government launched a rather aggressive nationwide campaign against informality, estimated at about 30 percent of Albania's GDP.

The reduction of the administrative red tape, the enhancement of the administration’s professionalism but also incentivizing the companies which comply and invest in the country are some of the main business requests to promote formalization of the economy and private investments, showed the Investment Council survey.

A late 2016 survey by the same advisory body showed VAT refunds, ongoing reference prices at customs points and relations with the tax administration are some of the key concerns facing businesses in Albania.
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                    [post_content] => TIRANA, Jan. 22 - The 16 overwhelmingly foreign-owned banks operating in Albania expect lending standards to further tighten for both businesses and households in the first quarter of this year, according to a survey conducted by the country’s central bank.

The pessimistic early 2018 expectations come as credit struggled to return to positive growth rates in 2017 amid a declining but still high level of non-performing loans and poor demand by both businesses and households.

“Demand for new loans is expected to generally remain unchanged for businesses and slightly drop for households in the first quarter of 2018. Banks expect a slowdown both for loans denominated in the national and foreign currencies while interest rates are expected to fluctuate at the same levels,” the survey says.

Non-performing loans, the perceived macroeconomic-situation and specific sector-related problems were the main factors contributing to tighter lending standards on businesses which banks applied through reducing the amount of approved loans, stronger collateral requirements and higher interest rates on risky loans.

Meanwhile, the households' financial situation, developments in the real estate market and non-performing loans at about 15 percent negatively affected credit to households.

High competition in the banking market, where 16 commercial banks operate, amply deposit-funded liquidity and good levels of capital adequacy ratio, measuring banks' financial strength were the main indicators with a positive impact on lending for both households and businesses in 2017.

Credit to businesses and households failed to return to positive growth rates in the first 11 months of 2017 amid poor confidence and tight lending standards fuelled by a declining but still high level of non-performing loans, according to the central bank.

The negative growth rate was also affected by an ongoing process of bad debt write-off from banks’ balance sheets which has reduced the level of NPLs to about 14.3 percent, down from a record high of 25 percent in mid-2014 following legal changes making the removal of loans that have spent three years in the ‘loss’ category compulsory.

However, when adjusted for exchange rate effects and loan write-offs, growth of credit to the private sector recovered by an annual 3.1 percent in the third quarter of 2017, led by loans to households with a 6.8 percent increase and credit to enterprises rising by only 1.4 percent, says the European Commission in its latest quarterly report on Albania.

Lending in the national currency also increased to about half of the total at the end of 2017, compared to only slightly more than a quarter just before the onset of the global financial crisis in 2008. The increase comes in a gradual process that aims to discourage high levels of Euro-denominated loans and deposits in the country’s banking system preventing the transmission of the central bank’s easier monetary policy and placing depositors and borrowers at currency risk.

Albania’s central bank has announced it will start implementing a de-euroisation strategy in the second half of 2018 in a bid to discourage credit and savings in Europe’s single currency, currently accounting for about half of the total. The strategy involves several measures, including charging higher fees on transactions in foreign currency.

The poor credit growth in the past few years has reportedly led to an increase in informal borrowing and some banks have increased lending abroad at a time when the deposit-funded local banking system remains highly liquid and profitable.

"Despite the monetary policy easing and excess liquidity—especially in euros—banks remain reluctant to lend to corporates and are increasing foreign placements," says the International Monetary Fund in its latest country report.

Although loan interest rates have sharply reduced as the key rate has been held at a historic low of 1.25 percent since May 2016, the average rates of 6.8 percent on lek-denominated loans and at 4.2 percent on Euro loans in late 2017 are perceived too high considering deposit rates of slightly above zero.

Albania’s Economic Sentiment Indicator, measuring both business and consumer confidence, was down by 3.9 percentage points in the final quarter of 2017, but remained above its historical average. The situation was a result of a deterioration in confidence by the key construction, trade and industry sectors as well as consumers. Early 2018 prospects remain pessimistic for both businesses and households, shows a Bank of Albania survey.

Capacity utilization rates in the country's main industries ranged from 60 to 70 percent in the final quarter of 2017, unveiling the untapped potentials and growth being mainly-led by some large energy-related investment such as the Trans Adriatic Pipeline and Devoll Hydropower, whose investment contribution is set to conclude by the end of 2018.

The Albanian banking system has been well-capitalized, liquid and profitable during the past eight years with the Albanian-owned assets increasing their share to 11.5 percent at the end of 2016.

Commercial banks operating in Albania posted record high profits of about 17 billion lek (€125.5 mln) in the first three quarters of 2017 as non-performing loans continued their downward trend and credit returned to positive growth rates, according to the Bank of Albania.

The banks’ record high profits, almost treble compared to the same period in 2016, came at a time when deposit rates are close to zero, spending on provisioning against loss sharply dropped and net income from other activities mainly related to commission fees and foreign exchange operations increased.
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                    [post_date] => 2018-01-19 13:43:03
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                    [post_content] => TIRANA, Jan. 19 – The Albanian government has reviewed its mid-term macroeconomic scenario slightly revising upward the country’s GDP growth for the 2018-2021 period, but delaying the public debt target of 60 percent of the GDP for 2021 in considerably more optimistic forecasts compared to what international financial institutions predict for the Balkan country.

In its 2019-2021 macroeconomic and fiscal framework that the Albanian government approved this week, the ruling Socialist Party expects the country’s GDP growth to recover from an expected 3.9 percent in 2017 to 4.2 in 2018 and gradually accelerate by 0.1 percentage points to 4.5 percent by 2021 when its second consecutive term of office expires.

Meanwhile, public debt, currently hovering at 71.5 percent of the GDP, a high level for Albania’s stage of development is expected to achieve the 60 percent target only by 2021, compared to an initial 2020 target in the previous 2018-2020 macroeconomic framework.

“Fiscal policies on the mid-term 2019-2021 period will be clearly oriented toward fiscal consolidation and guarantee an optimal level of investment at 5 percent of the GDP. Fiscal consolidation and the reduction of public is crucial to reduce macroeconomic risks holding back economic growth and triggering macroeconomic instability,” says the finance ministry.

“The fiscal consolidation targets that the public debt level as a percentage of the GDP will continue its safe downward trend it embarked on in 2016. Public debt is expected to drop to 66.4 percent of the GDP in 2019, 63.5 percent in 2020 and to 59.9 percent in 2021,” it adds.

The Albanian government expects the 4.2 to 4.5 percent growth from 2018 to 2021 to be fuelled by internal demand such as private consumption and investment while net exports are forecast to have a small impact.

The finance ministry expects private consumption to improve as a result of recovering consumer confidence and improvements in the labor market which will likely be transmitted in a gradual increase in salaries boosting households’ disposable income. Easier lending standards are also expected to boost consumer loans although consumers are expected to continue being characterized by a ‘prudent consumption behavior.’

The gradual increase in investment is expected to be triggered by a better capacity utilization rate, currently ranging between 60 t0 70 percent, the acceleration of economic growth and easier lending standards.

The government says the completion by 2018 of the Trans Adriatic Pipeline and the Devoll Hydropower, the two major energy-related projects that have fueled FDI and economic growth in the past few years, are expected to have a negative impact on investment starting this year as the overwhelming majority of machinery and equipment has already been imported.

Investment growth is expected to slow down to 4.8 percent in 2018, down from about 10 percent in 2017 and imports are also expected to slow down to 2.5 percent, down from 5.1 percent in 2017.

Albania’s debt servicing cost has sharply declined in the past three years as interest rates remain at a historic low, but costs are expected to increase as central banks are putting an end to the easier monetary policies.

Albania spent about 36 billion lek (€270 million) in debt interest rates in 2016, some 3.4 percent of the GDP, compared to about 5 percent of the GDP for about a decade until 2013 with a negative on public investment, especially priority infrastructure, health and education.

 

IMF, World Bank scenarios

The Albanian government’s forecasts are sharply more optimistic compared to what the International Monetary Fund and other international financial institutions expect for the Albania.

The IMF expects Albania’s growth to range between 3.7 to 3.9 percent from 2018 to 2021 as investment by large energy related projects such as the Trans Adriatic Pipeline and Devoll Hydropower project taper off and no new major projects appear in sight to replace them. The World Bank’s forecast is even more pessimistic as it expects the Albanian economy to slow down to 3.5 percent in 2018 and 2019.

The IMF's public debt forecast is even more pessimistic, with the Washington-based lender of last resort expecting the country's public debt to only drop to 64 percent of the GDP by 2021, in a forecast that excludes commitments for public-private partnerships but incorporates central and local government of about 1.1 percent of the GDP, some €120 million.

The International Monetary Fund has warned the Albanian government’s ambitious Euro 1 billion public private partnership project could create hidden costs which if included in the debt stock could take it to 71 percent of the GDP.

In a calculation, excluding existing PPPs and assuming the construction phase of newly-proposed PPPs takes four years and costs €1 billion, the IMF expects Albania’s public debt to increase to 73.4 percent of the GDP in 2018 and only slightly drop to 70.9 percent by 2021, which is about 11 percent of the GDP higher compared to the Albanian government’s target of bringing debt down to 60 percent by 2020 and eying a long-term debt target of 45 percent of the GDP.

The IMF’s role in Albania was downgraded to advisory in early 2017 after the conclusion of a 3-year binding deal supported by a €331 million loan also conditioning the government’s tax policies.

The Arbri Road linking Albania to Macedonia, some 150 schools, hospitals and healthcare facilities are on the PPP agenda for the next four years which the government intends to use as a replacement for the expected decline in foreign direct investment along with a package of tax incentives on the tourism sector as two major energy related projects complete their investment stage by 2018.

The government intends to repay concessionaires over 12 years in annual instalments while road concessionaires are also expected to collect tolls to meet investment costs.

The Albanian government expects GDP to increase from €11.6 billion in 2017 to about €15 billion in 2021, making Albania one of the region's fastest growing economies at an average of more than 4 percent.

However, Albania, whose consumption and GDP per capita is at only a third of the EU average, will need 35 years to catch with the EU average income if it continues growing under the current 4 percent rate and 20 years if growth accelerates to an annual 5 percent, World Bank officials have said citing an optimistic scenario.

In a recent report, the World Bank says it could take about six decades for Albania and other EU aspirant economies to catch up with the average EU income unless current sluggish GDP growth doubles to 5 or 6 percent.
                    [post_title] => Albania revises growth, debt targets in optimistic scenario turned down by IMF, World Bank
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            [post_content] => TIRANA, Jan. 29 - As Western Balkan countries prepare to adopt measures for an EU-backed regional economic area, a test before their apparent eventual European Union integration, Albanian economy experts say the government should initiate a process of dialogue with the country’s business community to identify the sectors Albania can decently compete both regionally and within the European single market.

Selami Xhepa, an economy expert who heads the Pashko European Institute, a Tirana-based think tank, says regional economies should be able to pass this first easier test before facing tougher competition from a much more competitive market such as the European Union.

"That is the reason why we should focus and orient our policies and economic resources in those sectors where Albania can decently compete not only in the region, but always keep in mind the European perspective," Xhepa said last week on the sidelines of the Tirana Economic Forum, bringing together Albanian and regional experts to discuss the Balkans’ future.

"That is a big challenge even for entrepreneurs themselves who have to understand that this process has an end, it has a date and in this sense they have to build their own agenda on how to adjust and handle that pressure. That is the first exercise. We should not forget that the perspective we aspire to is European and competition with the European Union will be much tougher," says Xhepa.

The Union of Producers has already identified the garment and footwear manufacturing sector producing the country’s top exports, olive oil, water, fish and oil and minerals as Albania’s competitive products which the Albanian government can support to boost their regional competitiveness.

Albanian producers have earlier voiced concern that the EU-backed regional economic area initiative that the six Western Balkan leaders agreed to in mid-2017 at the Trieste Summit will put ‘Made in Albania’ products at a disadvantage unless the Albanian government provides tax and subsidy incentives to make them more competitive regionally.

Based on the principles of non-discrimination and creating a level playing field for all within the region, the Western Balkan regional economic area will enable unobstructed flow of goods, services, capital and highly skilled labour, making the six regional economies more attractive for investment and commerce, accelerating convergence with the EU and bringing prosperity to all its citizens, according to an action plan. The regional economic area initiative foresees the implementation of actions at all levels in the period between 2017 and 2020 with some actions extending until 2023.

"We should first understand that the Balkan region continues to have the weakest economies compared to the West. In this sense, the competitiveness of our region is problematic and I believe that is the reason why the European Union initially asked for regional integration, because our economies are more or less comparable regarding standards, technology, organization etc. In this way, that would be a kind of exercise which if successfully handled, then regional economies will be able to even face tougher competition from the European Union," added Xhepa.

 

Central bank worried

Addressing the forum, Albania's central bank governor Gent Sejko said regional countries, including Albania have to tackle problems with the business climate, including corruption and tax evasion, as the main barriers to economic growth and the attraction of foreign direct investment.

"A common complaint by foreign investors is that our markets are too small and fragmented and poorly attractive. Although that is partly inaccurate, we should do more to boost our integration regarding trade and infrastructure," said Sejko, adding that the individual low-tax policy race is not productive for the region as a whole.

"Competing for the same group of international investors, regional countries often try to boost their individual profile, offering tax incentives or subsidies. That race to the bottom is not productive," he added.

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 Albania one of the region’s highest and a key concern for foreign and local investors. Most regional economies apply flat tax regimes of about 10 percent.

"Addressing those issues requires vision, strong institutions, determined political action but also regional coordination," Sejko added, suggesting a regional stock exchange to develop financial market and reduce financing costs.

A recent report by UNCTAD, the United Nations body responsible for international trade, has shown regional EU aspirant Western Balkans countries need to undertake business climate reforms and boost cooperation to attract increasing levels of foreign investment.

The recommendations come at a time when FDI in the region as a whole is declining at a faster pace compared to global FDI with the exception of Serbia and Albania, the two key Western Balkans players. It also came few months after regional leaders at the Trieste Summit reconfirmed support to an EU-backed regional economic area of 20 million consumers to facilitate the EU integration process for the six EU aspirants.

FDI in the Western Balkans, largely perceived as lacking rule of law and where corruption remains a key barrier to attract big investors, accounted for only about 0.27 percent of total global FDI in 2016. Regional FDI declined by 5 percent compared to a global decline of 2 percent, unveiling the region's lack of competitiveness as a whole.

 

Moderately prepared

In its 2016 country report on Albania, the European Commission says Albania is moderately prepared in developing a functioning market economy.

“Albania has some level of preparation in terms of capacity to cope with competitive pressure and market forces within the Union. Some progress was made particularly as regards improving higher and vocational education as well as prioritising infrastructure investments,” says the EU’s executive arm.

“However, the quality of education needs to be raised at all levels to better equip people with skills in line with labour market needs. Gaps in transport, energy and digital infrastructure still hinder Albania's competitiveness and constrain trade, which remains below potential and sectorally concentrated. Albania's capacity for research, development and innovation remains low,” it adds.

As the European Commission is expected to unveil an enlargement strategy early next February, only Serbia and Montenegro, which have already launched accession talks, have been apparently selected as the sole Western Balkan aspirants that could join the block by 2025.

Short and mid-term enlargement prospects for the six Western Balkan countries have been hampered by internal developments in the bloc with the Brexit, the migrant and financial crises as well as rising populism high on the agenda.

Albania, an EU-candidate since mid-2014 is hoping to launch accession talks this year as it has launched the implementation of its long-awaited justice reform, a key requirement by the European Commission, that would also boost investor confidence in the judiciary.

Catching up with the average EU income could take Albania and other EU aspirant Western Balkan economies about six decades unless current sluggish GDP growth doubles to 5 or 6 percent, the World Bank has warned in a recent report

“With faster growth of 5 to 6 percent, convergence could be achieved in just two decades. That will require a bold and sustained implementation of structural reforms and steady progress in EU accession processes,” says the Washington-based financial institution.

Albania, whose consumption and GDP per capita is at only a third of the EU average, will need 35 years to catch with the EU average income if it continues growing under the current 4 percent rate and 20 years if growth accelerates to an annual 5 percent, World Bank officials have said citing an optimistic scenario.
            [post_title] => Albania urged to identify priority sectors for regional economic area, future EU integration
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