Albania to limit use of unsolicited proposals, scrap bonuses for PPPs

Albania to limit use of unsolicited proposals, scrap bonuses for PPPs

TIRANA, Jan. 22 – Albania is planning to scrap the use of controversial unsolicited proposals for public private partnerships in the road sector but continue allowing it for a series of other sectors it considers strategic. Legal changes already approved

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New migration wave hits Albania low-wage sectors

New migration wave hits Albania low-wage sectors

TIRANA, Jan. 21 – A new migration wave that has swept Albania in the past five years and rising desire among young men and women to leave the country has already had its first effects on the some of the

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Ruling Socialists cancel €244 mln PPP to Albanian ‘oligarch’ over alleged links to offshore scandal

Ruling Socialists cancel €244 mln PPP to Albanian ‘oligarch’ over alleged links to offshore scandal

By Ervin Lisaku TIRANA, Jan. 21 – Faced with mounting pressure over a recent public private partnership scandal and student protests over changes and higher financing in Albania’s public higher education system, the Albanian government has cancelled a costly highway

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Sale of Greek bank unit to Albania’s largest company okayed amid competition concerns

Sale of Greek bank unit to Albania’s largest company okayed amid competition concerns

TIRANA, Jan. 21 – Albania’s competition watchdog says it has approved the sale of Tirana Bank, a unit of Piraeus Bank, to a joint venture controlled by Albania’s largest company with operations in the country’s key sectors, but set a

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New merger cuts number of Albania commercial banks to 13

New merger cuts number of Albania commercial banks to 13

TIRANA, Jan. 17 – A new merger and acquisition between two small banks has reduced the number of commercial banks operating in Albania to 13, down from a decade of 16 until 2018 when two foreign-owned banks sold their Albania

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Hit by slump in oil prices, euro’s free fall, Albania’s exports receive first blow

Hit by slump in oil prices, euro’s free fall, Albania’s exports receive first blow

By Ervin Lisaku TIRANA, Jan. 17 – Albania’s exports preserved their double-digit growth for the second year in a row, but the December performance hints the country’s poorly diversified exports will find it difficult to preserve their growth rates for

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Bulgarian tycoon buys Telekom Albania for €50 mln

Bulgarian tycoon buys Telekom Albania for €50 mln

TIRANA, Jan. 17 – Greek-German-owned Telekom Albania has been sold to a Bulgarian investor who controls Bulgaria’s largest telecoms operator, putting an end to months of negotiations over the sale of Albania’s second largest mobile operator. Greece-based OTE Group, where

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Vegetable prices soar on lower domestic production, export orientation

Vegetable prices soar on lower domestic production, export orientation

TIRANA, Jan. 15 – Lower domestic production and orientation toward much more profitable foreign markets has led to a considerable increase in vegetable prices in Albania, a country where interest in fresh and dried vegetable cultivation has been on the

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Albania’s R&D spending remains one of region’s lowest

Albania’s R&D spending remains one of region’s lowest

TIRANA, Jan. 14 – Albania spends one of the region’s lowest amounts on research and development in a key barrier for the country’s emerging economy and its ability to innovate on products and services. A recent report by the UNESCO

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World Bank urges faster reforms to overcome expected economic slowdown

World Bank urges faster reforms to overcome expected economic slowdown

TIRANA, Jan. 14 – The World Bank says Albania has to continue doing business reforms and be careful with its ambitious public-private partnership program in order to maintain its growth pace for the next couple of years. The warning comes

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                    [post_content] => TIRANA, Jan. 22 - Albania is planning to scrap the use of controversial unsolicited proposals for public private partnerships in the road sector but continue allowing it for a series of other sectors it considers strategic.

Legal changes already approved by the government and submitted to Parliament for further review envisage the unsolicited proposal procedure will be scrapped for national road projects of key importance starting July 2019 and remain in use only for PPPs and concessions for the provision of works and services in ports and airports, electricity generation and distribution as well as natural gas distribution, the latter expected to receive a major boost due to expected 2020 Caspian gas flows from the under construction TAP project.

The proposed legal changes only partially meet recommendations by international financial institutions such as the World Bank and the International Monetary Fund that had demanded the full removal of such procedure, often criticized for leading to pre-determined winners in tenders with little competition due to bonuses awarded to companies initiating and conducting preliminary studies on the projects they propose in return for government financial support or operating them for a period of up to 35 years.

The practice of awarding bonuses of up to 10 percentage points for companies submitting unsolicited proposals, putting them at an advantage when tender procedures are held, will be replaced by financial compensation of up to 1 percent of the investment value in case the company initiating the project through a feasibility study fails to win a tender.

The government says the proposed financial compensation mechanism puts an end to giving an unfair advantage to companies that submit unsolicited proposals by placing bidders at equal competition.

Legal changes also envisage the establishment of a Committee for the Selection of Concession/PPP Projects, a collegial body chaired by the economy minister, that will also provide expertise in preparing feasibility studies and eliminate the need to rely on the private sector for such costly services.

With the use of PPPs to provide public services having considerably increased, the IMF and World Bank have often recommended in the past couple of years eliminating the practice of unsolicited proposals as a procedure that places bidders at unequal position and leads to controversial PPPs with no thorough cost-benefit analysis that could create new arrears undermining the public debt reduction agenda.

The winners of several major PPP road projects in the past couple of years have emerged through unsolicited proposals placing them at an advantage in tenders that later proved unattractive for potential competitors.

Public procurement has traditionally been one of the key concerns for local and foreign investors complaining of corruption and tailor-made criteria favoring specific companies with alleged links to ruling majorities.

In the latest Balkan Barometer survey, some Albanian companies cited tailor-made criteria for certain participants and deals before the tender is even published for not participating in public tenders.

An earlier survey by London-based European Bank for Reconstruction and Development has shown about 40 percent of Albanian households and businesses believe political connections are the key to factor behind success.

Last year, a report by the European Court of Auditors, the EU’s independent external auditor, showed about a third of all public procurement in Albania is carried out using the little transparent and limited competition negotiated procedure, making Albania the top Western Balkan country that overuses this procedure.
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                    [post_content] => TIRANA, Jan. 21 – A new migration wave that has swept Albania in the past five years and rising desire among young men and women to leave the country has already had its first effects on the some of the country’s main industries relying on cheap labor costs with employers complaining that finding qualified staff has emerged as one of the top challenges and a key threat to their survival in a small emerging market such as Albania.

The garment and footwear and the call center industries, two of Albania’s top private sector employers relying on cheap labor costs and whose products and services are mainly destined for the Italian market, are already facing serious challenges with finding new workers to replace ones that leave the country or to expand their businesses.

The two industries employ around 100,000 people, with the garment and footwear mainly employing unqualified but skilled women who are involved in cut-trim-make production of raw material coming from Italy in a low value-added industry that is already facing tough times due to Europe’s single currency having lost around 7 percent against the Albanian lek, significantly cutting profits for an industry that heavily exports to Eurozone countries, mostly Italy.

Employers complain there is unwillingness to work even among unqualified workers, who often prefer remaining jobless, rather than receive net wages of around €200 and have their social security and  health insurance contributions paid, guaranteeing them access to health services and future retirement benefits. The situation is now affecting companies even in areas such as Durres, the country’s second largest region, not to mention thinly populated northern Albanian areas, highly affected by migration that has drained local labor force.

The call center industry is also in the same boat.  Mainly involved in promotional campaigns and customer services for the Italian market, the industry employs around 20,000 young men and women and has served as a buffer against rising youth unemployment in the past decade and skills mismatch between labor market needs and what Albanian universities produce.

The industry that offers around double compared to the often ‘minimum wage’ payments of around €200 at the garment and footwear sector has been facing difficulty to expand during the past couple of years following Italian legal changes making the supply of services for Italy-based companies from non-EU countries such as Albania much tighter starting April 2017.

Call center employers say the departure of qualified workers and difficulties in finding decent replacements is negatively affecting their negotiations over higher value-added contracts requiring skilled employees.

The situation is no better in the emerging travel and tourism industry where lack of qualified labor force is one of the key barriers for its further development.

Employers complain the high seasonality of the sector that peaks in summer makes keeping qualified workers difficult for the remaining period of the year and high staff turnover is a problem they have to face each year.

The key agriculture sector, officially employing some 460,000 people who live in rural areas and own land and are counted as self-employed, but much fewer in reality, is also facing tough times in hiring workers as more businessman and farmers turn to larger farms and new products such as berries, mushrooms, often destined for exported.

Finding qualified staff is also emerging as a problem for sectors offering mid and high wages as moving abroad is high on the agenda even for university graduates and young men and women in their 20 and 30s.

While ungrounded asylum-seeking has curbed following a 2014-17 exodus when only few thousands Albanians were granted international protection, more and more have turned to learning German and legally move to Europe’s leading economy, in a phenomenon that has not spared skilled professionals such as doctors and nurses leaving the country.

 

‘Improving quality of services equal to $500 wages’

In its latest Transition report, London-based European Bank for Reconstruction and Development  suggest that improving the business environment and the quality of public services and other local amenities may significantly reduce people’s desire to leave Albania.

“Indeed, improving the quality of public goods can have a large impact on intentions to emigrate, comparable to the effect of raising wages by more than US$ 500 a month in a country such as Albania,” says the EBRD.

Average wages in Albania are at between $400 to $500, but the minimum wage is at only around $200, one of the region’s lowest.

The International Monetary Fund has also recently warned Albania needs stronger and more determined efforts to make current slowly recovering growth more inclusive by improving business climate and strengthening rule of law in order to reduce the appeal of emigration among the country’s residents.

An earlier 2017 ‘Skills needs in Albania’ survey with more than 2,500 businesses nationwide showed that unsuitable qualification and poor work culture were the most recurrent concerns for employers in the country.

Rapidly ageing population and high migration rates pose key threats to Albania’s labor productivity which already remains Europe’s poorest performing, warns the World Bank.

Albania’s population, although still one of Europe’s youngest, has been rapidly ageing in the past quarter of a century, with massive migration playing a key role.

Albania has around 1.2 million migrants abroad, almost 40 percent of its resident population, making it one of the countries with the highest per capita migration around the world.

Rising cost of living and poor income at home is what mainly drives Albanians and other EU aspirant Western Balkan citizens away from home in search of a better life.

GDP per capita in Albania and other EU aspirant Western Balkan countries is estimated at only a third of the EU average at a time when consumer prices are at only a third below the EU-28 average, according to Eurostat, the EU’s statistical office.
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                    [post_date] => 2019-01-21 16:18:34
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                    [post_content] => By Ervin Lisaku

TIRANA, Jan. 21 – Faced with mounting pressure over a recent public private partnership scandal and student protests over changes and higher financing in Albania’s public higher education system, the Albanian government has cancelled a costly highway PPP awarded to one of the country’s so-called oligarchs, arguing it wants to channel more funding to public universities.

The cancelled PPP is a €244 million 21-km highway linking Kashar, an industrial area just outside Tirana, to northern Albania Thumane village close to the entry of the Highway of Nation linking Albania to Kosovo, the country’s first toll road since Sept. 2018.

Last July, the Albanian government selected Albanian-owned Gener 2, one of the country’s leading construction companies under a 13-year PPP following an unsolicited proposal that placed the company at an advantage through a bonus in a no-surprise tender with little competition. The Albanian government had not concluded contract negotiations with Gener 2 yet, and reportedly suspended them in late December following a PPP scandal allegedly involving the winning bidder.

The PPP cancellation comes after media investigations into an offshore company that had €30 million in government-funded projects cancelled last December after falsifying links to a US-based company in what was dubbed as a major PPP scandal in Albania’s ever increasing use of concessions and PPPs to complete key road, health, education and waste management projects.

DH Albania, the phantom company that had its Albanian contracts cancelled, has been accused of alleged links with Gener 2 and its owner, Albanian businessman Bashkim Ulaj, who in late 2018 also inaugurated with much fanfare a new TV station, Tirana-based A2, which is branded as a CNN exclusive news channel affiliate.

A subsidiary of US-based Dunwell Haberman, DH Albania easily won public tenders to build a section of Tirana's outer ring road for €18 million and an electricity transmission line north of Albania worth around €12 million in the second half of 2018, in public tenders with virtually no competition at all. The Albanian unit falsely claimed it was part of a major US company with 20 years of experience allegedly registered in the state of Delaware in 1998, but later proved to have registered only in mid-2018.

The Voice of America in the local Albanian service claims the newly established company was favored by government authorities in receiving required licences and permits to run for the tenders.

 

Gov’t withdrawal

"I have decided to cancel the Thumane-Kashar public private partnership. Its budget will go to the ‘University Pact’ but to us this continues to remain an important road axis," new Infrastructure Minister Belinda Balluku said in a short press conference on Monday in her first appearance as minister after replacing former minister Damian Gjiknuri few days ago.

Most Albanian public universities have been boycotting classes since early December 2018, paralyzing university life with protests, demanding higher quality and lower tuition fees. Backed by considerable number of professors, students also want a 2015 higher education law cancelled, blaming it for the current chaotic situation in the country’s public universities.

The unstoppable student protests led to a reshuffle of more than half of the ruling Socialist Party government in late 2018 and Prime Minister Edi Rama giving in to some of the students’ demands by reducing fees for Bachelor studies, but keeping them unchanged for the more costly Master’s studies where only excellent student and those in need have been promised a cut.

Student protests in several public universities continue even after the so-called University Pact and calls for dialogue by Prime Minister Edi Rama. University professors in some faculties have also joined protests.

 

Controversial costly PPPs

The €244 million Kashar-Thumane project is part of a major €1 billion controversial PPP program that the Albanian is implementing to upgrade road, education, health infrastructure in a major project that has been criticized for lack of transparency and hidden costs that could likely affect Albania's plans to reduce public debt, currently at an unaffordable 70 percent of the GDP for the size of the Albanian economy.

The segment was part of a proposed larger 64-km Thumane-Rrogozhine highway linking south and southeastern Albania to northern Albania and Kosovo faster.

The government was planning a new 44-km Thumane-Rrogozhine PPP in another costly project worth around €670 million that would take the Kashar-Thumane-Rrogozhine cost to around €900 million, around 7 percent of Albania’s GDP, almost the same to a longer highway linking Albania to Kosovo inaugurated a decade ago.

Gener 2 was supposed to build the project in three years by securing funding on its own and receive taxpayer support for ten years for its investment and maintenance costs in a project that had been criticized for high costs of around €12 mln/km.

The Albania government was supposed to start paying the first 2.45 billion lek (€20 million) annual instalment to Gener 2 in 2020, according to the finance ministry.

The project was described as the second most important in the €1 billion PPP agenda after the Arbri Road linking Albania to Macedonia, already under construction through a 13-year €240 million PPP awarded to another Albanian company.

One of the country’s biggest companies, Gener 2 also runs two shopping centers in Tirana and is engaged in two hydropower plant constructions along the Valbona River, northeast Albania, in a project that has triggered strong protests by environmentalists and local residents relying on the emerging mountain tourism there.

International financial institutions such as the World Bank and the IMF have also voiced concerns about Albania’s PPP agenda especially the transparency related to them and unsolicited proposals favoring companies that propose them as well as possible accumulated arrears which could hamper the debt reduction agenda.

However, the ruling majority argues the PPP projects are essential to give an impetus to the country’s road, health, education and waste management infrastructure in projects which it says the government cannot fund and manage on its own. The government will repay concessionaires for about 13 years in annual instalments for the investment and management costs in return for initial private investment that is expected to complete the projects in three years, in costs that some economy experts have described much higher compared to traditional public procurement.

Taxpayer support to some controversial public private partnerships is expected to increase by around 50 percent to €100 million for 2019 as the government starts paying on three news public private partnerships, taking PPP spending to 3 percent of the previous year’s fiscal revenue, compared to 5 percent threshold that the government has set.
                    [post_title] => Ruling Socialists cancel €244 mln PPP to Albanian ‘oligarch’ over alleged links to offshore scandal 
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                    [post_date] => 2019-01-21 12:55:19
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                    [post_content] => tirana-bankTIRANA, Jan. 21 – Albania’s competition watchdog says it has approved the sale of Tirana Bank, a unit of Piraeus Bank, to a joint venture controlled by Albania's largest company with operations in the country’s key sectors, but set a series of conditions and restrictions that would prevent new investors from abusing possible future dominant position due to the huge impact of their business operations on the country’s economy.

A unit of Greece's largest lender with a local market share of around 5 percent, Tirana Bank was sold to Albanian-owned Balfin Group and Macedonia’s Komercijalna Banka for €57.3 million last August in a transaction where Balfin Group, already operating in a series of sectors, but not in the banking system, is reported to have a majority stake.

The competition authority says that due to its expected stronger market power, the bank’s new owners have the legal obligation not to abuse their position by applying discriminatory criteria for market operators and guarantee the stability of bank staff following the takeover.

The competition watchdog also says the bank must not carry out banking or financial operations with and for the benefit of people related to it although current banking legislation envisages that exposure to people related to the bank must not exceed 20 percent of the bank's capital adequacy ratio, which in Albania is at a minimum of 12 percent of risk-weighted exposures.

The watchdog also recommends the country's central bank that all current and future Balfin-controlled companied should be monitored and treated as operations connected to the banking system despite the scope of their activity.

Competition authorities fear the conglomerate merger between two companies with unrelated business activities, but cooperating in neighboring Macedonia where Albanian-owned Balfin runs construction and retail trade businesses, while not having any immediate market effect, could generate changes fuelled by external factors in the longer-run.

"Balfin Group, the main shareholder of Tirana Bank, controls a big number of companies both in Albania and abroad and the activity of Tirana Bank is expected to be influenced by the economic activity of Balfin-controlled companies and the economic and financial performance of those companies is expected to serve as a guarantee for the stability of Tirana Bank and the whole banking system in general," says the competition authority.

“The acquisition could orient the circulation of all liquidity and banking services by Balfin-owned companies to Tirana Bank which could significantly increase its future market share due to their good performance and return rates,” it adds, suggesting the monitoring of the behaviour of Tirana bank for a 1-year period.

Central bank not worried

While Albania’s central bank has not had its final say yet, the takeover of a medium-sized commercial bank with a market share of around 5 percent, does not seem to worry it.

Responding to concerns expressed by the competition authority, Albania's central bank says the change in ownership at Tirana Bank will not have any impact on its market position or negatively affect the implementation of the Bank of Albania's monetary policy or currency exchange operations.

Despite a series of mergers and acquisitions and new market entrants in the past couple of years, Albania’s central bank describes the country’s banking system as well-capitalized, liquid and profitable. However, due to poor demand and tight lending standards as a result of declining but still high non-performing loans, credit has been growing at moderate rates of around 4 percent when adjusted for effects such as euro’s free fall and the write-off of non-performing loans statistically keeping lending at negative growth rates.

A new merger and acquisition between two small banks has reduced the number of commercial banks operating in Albania to 13, down from a decade of 16 until 2018 when two foreign-owned banks sold their Albania units to local rivals.

Earlier this month, Albania’s competition authority okayed the sale of the International Commercial Bank, the Albania unit of Switzerland-based ICB Financial Group Holdings with units also in Tanzania and Bangladesh, to Albanian-owned Union Bank, where London-based European Bank for Reconstruction and Development also holds a minority stake.

Several other loss-making small banks operating in the country are also reportedly on sale as credit struggles to recover amid high deposit-funded liquidity but tight lending standards as non-performing loans stand at around 13 percent, down from a record high of 25 percent in mid-2014.

Experts say bank consolidation, the process by which one banking company takes over or merges with another, is expected to continue and further reduce the number of banks in the country, but at the same time not affect competition in a market where the four largest banks already hold more than two-thirds of total assets, at 68 percent at the end of 2017.

The International Monetary Fund has recommended that “ensuring that new market entrants have solid banking experience and meet fit and proper criteria to operate in the Albanian banking market will be critical.”

 

Albanian-Macedonian takeover 

Operational in Albania for about two decades as a unit of the Piraeus Bank, Tirana Bank had seen its market share almost halve in the past decade. The country’s seventh largest bank held assets worth about 78 billion lek (€627 mln) at the end of the third quarter of 2018, with a market share of 5.3 percent, according to the Albanian Association of Banks. The loss-making bank had 39 outlets and 429 employees at the end of September 2018.

Tirana Bank is the third Greek unit to have changed hands in the aftermath of the 2008-2009 global financial crisis and Greece’s severe recession hitting the banking sector there.

Alpha Bank Albania, a unit of Greece's fourth largest lender, is now the sole remaining Greek unit operating in Albania. Its late 2018 assets were at 5.3 percent, making it the sixth largest bank in the country.

Balfin Group is Albania’s largest company owned by Albanian investor Samir Mane who is now diversifying his investment portfolio also in the banking sector after successful operations in the mining, construction, retail trade and tourism sectors in Albania and Kosovo and Macedonia.

Komercijalna Banka is the largest Macedonia’s largest lender, where London-based also held a minority stake for more than two decades until late 2017.

Balfin-owned companies have an estimated annual turnover of more than €250 million in Albania and around €600 million in total considering operation abroad, mainly in Kosovo and Macedonia. Balfin-owned companies employ more than 3,000 people in Albania, mainly in retail trade and mining sectors, making it Albania’s largest private sector employer.
                    [post_title] => Sale of Greek bank unit to Albania’s largest company okayed amid competition concerns
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                    [post_date] => 2019-01-17 17:58:32
                    [post_date_gmt] => 2019-01-17 16:58:32
                    [post_content] => TIRANA, Jan. 17 - A new merger and acquisition between two small banks has reduced the number of commercial banks operating in Albania to 13, down from a decade of 16 until 2018 when two foreign-owned banks sold their Albania units to local rivals.

Albania’s competition authority says it has okayed the sale of the International Commercial Bank, the Albania unit of Switzerland-based ICB Financial Group Holdings with units also in Tanzania and Bangladesh, to Albanian-owned Union Bank, where London-based European Bank for Reconstruction and Development also holds a minority stake.

The merger, whose financial details have not been disclosed, does not have any major impact on the Albanian banking system as Union Bank will only gain a 0.7 percent market share to increase its share to 4.1 percent and remain one of the smallest commercial banks.

Locally known as the Malaysian bank, the ICB was one of the first commercial banks in Albania and has been operating for about two decades, but its Albania assets represented only 0.7 percent of total assets at the end of the third quarter of 2018 with only six outlets in the country’s three largest cities, according to the Albanian Association of Banks.

Meanwhile, Union Bank, whose majority stake is owned by Albanian investors, but where London-based EBRD also holds a minority 10 percent, has been operating in Albania since 2005 and had a 3.4 percent share in terms of assets in late 2018 with a network of 30 outlets in the country's main cities.

The main Albanian investors in the bank also run the country's largest money transfer company.

The new merger comes after the merge of Italy’s Intesa Sanpaolo and loss-making Veneto Banka Albania and the acquisition of the Albanian unit of the National Bank of Greece by Albanian-owned American Bank of Investments, reducing the number of commercial banks operating in Albania to 14.

Several other loss-making small banks operating in the country are also reportedly on sale as credit struggles to recover amid sluggish demand and a declining but still high level of non-performing loans of about 13 percent.

Experts say bank consolidation, the process by which one banking company takes over or merges with another, is expected to continue and further reduce the number of banks in the country, but at the same time not affect competition in a market where the four largest banks already hold more than two-thirds of total assets, at 68 percent at the end of 2017.
                    [post_title] => New merger cuts number of Albania commercial banks to 13 
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                    [post_date] => 2019-01-17 13:47:34
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                    [post_content] => By Ervin Lisaku

TIRANA, Jan. 17 – Albania’s exports preserved their double-digit growth for the second year in a row, but the December performance hints the country’s poorly diversified exports will find it difficult to preserve their growth rates for 2019 due to energy-related exports having received a blow and Europe’s single currency continuing to trade at a 10-year low.

Albania's exports grew by 13.7 percent in 2018, but growth was mainly fuelled by favorable weather-related conditions leading to a hike in hydro-dependent electricity exports and a pickup in commodity prices fuelling higher oil, mineral and steel sales.

However, Albania's exports in December 2018 dropped by an annual 1.7 percent and were down by 20 percent compared to last November, in the first monthly decline since 2016 when exports’ growth stagnated.

The situation reflects lack of electricity exports, lower crude oil exports following a new decline in international prices and euro’s free fall having hit traditional top exporting industries.

With the country facing a prolonged drought since mid-2018, Albania’s domestic hydro-dependent electricity generation has been paralyzed and state-run operators have been forced to switch to costly electricity imports since late 2018 in a situation that is expected to have negative effects for the country’s economy unless heavy rainfall fills the almost empty reservoirs of three state-run hydropower plants and more than a hundred small and medium-sized privately-run HPPs.

Due to heavy rainfall also causing flooding, Albania met most of its electricity needs through domestic production in 2018 and exported electricity worth around €60 million for the first half of the year, with a key impact on exports’ growth.

Meanwhile, a pickup in oil and mineral prices led to oil exports receiving a strong boost for most of the year, but a recent cut in prices could negatively affect the key oil industry, already suffering from the suspension of work at the country’s main refiner due to a conflict between the main oil producer and the company managing the refinery that employs around 1,000 people.

Crude oil prices dropped to as low as $53 a barrel in late December in a sharp decline from last October after gradually picking up since early 2016 following the mid-2014 slump.

Brent crude oil prices currently stand at $60 a barrel, having dropped from a three and a half-year high of $80 a barrel last October, with a negative impact on the country’s oil industry and new drilling plans.

Meanwhile, growth in the garment and footwear industry, Albania’s traditional top exporting industry slowed down to around 5.3 percent in 2018, down from 10 percent in 2017 and their contribution to annual exports growth dropped to the third largest compared to a key role in 2017 when exports grew by an annual 12 percent, according to INSTAT, the state-run statistical institute.

The industry that employs more than 50,000 people and relies on cheap labor costs, registered an annual 5 percent decline in exports in December 2018, hinting of tough times ahead for 2019. Garment and footwear producers have recently warned the top exporting industry is in severe difficulty due to the euro’s free fall against the Albanian lek having significantly cut profits and delays in value added tax refunds.

The euro has lost 7 percent against the Albanian lek during the past year and currently trades at around 124 lek, around 10 lek (€0.08) below its early January 2018 of around 133 lek, with a series of negative effects for Albania’s highly euroized economy, primarily affecting exporters to the Eurozone, but also sizable Euro-denominated savings and remittances.

While the Euro's free fall did not have any major impact on exports thanks to a favourable hydro-situation and a pickup in oil and mineral prices last year, the European Commission warns in a recent report that delayed negative exchange rate effects on the Albanian economy will likely appear this year when new investment decisions and contracts are made.

“The recent real appreciation of the Albanian currency weighs on price competitiveness and the export industries’ margins, but a negative effect on exports is likely to appear only in 2019 when new investment decisions and contracts will be made,” says the Commission.

Albania's trade gap slightly narrowed to 331 billion lek (€2.65 billion) in 2018, with exports covering only about half of what the country imports.

Italy was Albania's main trading partner with more than a third of total trade exchanges, some 36 percent, followed by Greece, Germany and China with each having a share of around 7 percent.

Albania’s exports contracted by 5 percent in 2015 following the mid-2014 slump in commodity prices and registered a mere 0.1 percent growth in 2016 before recovering by 12 percent in 2017 and picking up to 13.7 percent for 2018.

 

Exports to Kosovo 

Albania's exports to Kosovo registered strong growth for the second month in a row, taking advantage of a 100 percent tax that Kosovo introduced on imports from Serbia and Bosnia and Herzegovina in November 2018 in retaliation for their efforts in blocking the recognition of Kosovo’s independence and its membership in key international organizations.

Exports to neighboring ethnic-Albanian Kosovo, Albania's second most important destination for exports after Italy, rose by a strong annual 44.5 percent to 2.14 billion lek (€17.1 mln) last December, after picking up by 35 percent last November when Kosovo initially introduced a 10 percent tax on imports from Serbia, its main trading partner it declared independence from a decade ago.

Kosovo hiked the tax to a 100 percent tariff on Nov. 21 and even extending it to all international branded goods produced in Serbia and Bosnia and Herzegovina on Dec. 28.

Albania's exports to Kosovo rose by around 30 percent to 27 billion lek (€216 mln) in 2018, but imports from Kosovo registered only a modest 5 percent increase to account for only a third of what Kosovo imports from Albania.

Last November, Albania led exports to Kosovo among regional EU aspirant countries, overtaking Serbia, the traditional largest exporter to Kosovo, in a situation favored by trade tariffs paralyzing Serbian exports to its former province.

While Kosovo’s unilateral tax has received international criticism because of running against the regional free trade agreement, Kosovo authorities say it’s the only way to stop Serbian agenda against Kosovo’s independence and Euro-Atlantic integration a decade after its independence from Serbia.

Local Kosovo media say the blockade on Serbian imports is having an initial positive effect on local Kosovo producers, some of whom have increased production capacity and employment. However, import of raw material that was traditionally imported from Serbia and Bosnia remains a problem until new competitive suppliers are found.

While Albania will find it almost impossible to replace Serbian grains and flour as well as raw material for Kosovo producers, local experts say Albania can be quite competitive in replacing former Serbian steel and oil products which Albania heavily produces through Turkish and Chinese investors.

However, tariff and non-tariff barriers still in place and poor production capacities by the Albanian economy compared to other regional competitors will likely find the Albanian economy with few benefits from Kosovo’s tariff hitting more than €500 million of Serbian and Bosnian products.
                    [post_title] => Hit by slump in oil prices, euro’s free fall, Albania’s exports receive first blow
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                    [post_date] => 2019-01-16 13:36:28
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                    [post_content] => TIRANA, Jan. 17 – Greek-German-owned Telekom Albania has been sold to a Bulgarian investor who controls Bulgaria’s largest telecoms operator, putting an end to months of negotiations over the sale of Albania’s second largest mobile operator.

Greece-based OTE Group, where Germany's Deutsche Telekom holds a 45 percent stake, says it has agreed to sell its Albania operations for €50 million to Albania Telecom Invest AD, a joint venture led by Bulgarian businessman Spas Roussev, where Albanian-Bulgarian businessman Elvin Guri also has a minority stake.

Spas Roussev is the main shareholder in Bulgaria's leading telecoms operator Vivacom, purchased in August 2016 from Russia’s VTB for €330 million.

The sale, subject to approval by competition and electronic communication watchdogs, also marks the first major Bulgarian investment in Albania, a country where the stock of Bulgarian investment is at a modest €24 million, and a small commercial bank is the major Bulgarian investment.

The sale of Telekom Albania comes after a hike in losses in 2017 and Albania’s mobile phone market having embarked on an ongoing downward trend since almost a decade, triggered by tougher competition and smartphone apps replacing traditional phone calls and text messages.

"The sale of Telekom Albania concludes the successful investment in Albania for OTE Group. It is a strategic decision in the context of OTE Group's redefined priorities and growth plans in order to create value for all shareholders and support sustainable development," OTE's chairman Michael Tsamaz said as quoted in a statement.

Former AMC Albania was initially launched as a state-run operator in late 1995 as the country’s first mobile operator before it was acquired in 2000 by Greece’s OTE Group and rebranded Telekom Albania in mid-2015.

Telekom Albania is currently the second largest mobile operator in the country with a 36 percent market share, but posted significant losses in 2017 along with leading mobile operator Vodafone Albania as the mobile phone market suffered a double-digit decline in revenue, in an ongoing downward trend since almost a decade, triggered by tougher competition and smartphone apps replacing traditional phone calls and text messages, according to the electronic communications watchdog.

 

Telekom Serbia failed negotiations 

The sale to Bulgarian investors comes after failed negotiations with Telekom Serbia as a non-preferable option in a strategic sector such as telecommunications where some experts had voiced concern the country’s national security could be put at risk by non-EU and non-NATO service providers

In a tender held last September, Telekom Serbia, where the Serbian government holds a majority stake, was reported to have submitted the highest bid of around €61 million.

Unnamed Albanian government sources had warned the involvement of Telekom Serbia in the Albanian mobile telephony market could spark reactions that would have a negative impact even for the company itself due to concerns over national security in a sensitive sector such as telecommunications and amid fears of the public not welcoming the operator’s arrival over non-positive feelings and perceptions related to tense historical political relations between the two countries.

“The Albanian government’s stance is quite simple and clear, Serbian businesses are welcome in the Republic of Albania, but in this strategic sector, it is not our preference,” said Prime Minister Edi Rama.

 

Shrinking market

The number of active mobile phone subscribers suffered a sharp double-digit drop during the first three quarters of 2018, registering the first such slump since mobile services were launched in the country in the early 2000s.

A quarterly report by Albania’s electronic communications watchdog, AKEP, shows the number of active mobile phone subscribers, defined as those who made or received at least one call or text message in the last three months, fell to 2.85 million in Sept. 2018, down by a quarter compared to the third quarter of 2017 when Albania had 3.85 million active subscribers.

The decline by around a million comes at a time when the smallest and sole Albanian-owned operator ceased its operations at the end of 2017. The slump also comes amid higher use of smartphone apps replacing traditional phone calls and text messages, making holding two mobile numbers unnecessary and too costly for subscribers at a time when mobile fees have slightly increased following a sharp decline in mobile operators’ income.

An annual report by the country’s electronic communications authority, AKEP, shows the country’s four mobile operators saw their revenue drop by an annual 12 percent to 29.7 billion lek (€236 mln) in 2017, the lowest level since 2003 when only two mobile operators were offering their services in Albania.

Albania’s electronic communications watchdog has recently voiced concern that the downward trend in income generated by mobile and other electronic communications operators in Albania will negatively affect the level of investment and the quality of service in the country.

Back at the end of 2017, Plus Communication, the sole Albanian-owned operator, ceased its operations after selling its shares to rivals Telekom Albania and Vodafone Albania, reducing the market to three operators, including Turkish-owned Albtelecom.

 
                    [post_title] => Bulgarian tycoon buys Telekom Albania for €50 mln
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                    [post_date] => 2019-01-15 12:19:43
                    [post_date_gmt] => 2019-01-15 11:19:43
                    [post_content] => TIRANA, Jan. 15 – Lower domestic production and orientation toward much more profitable foreign markets has led to a considerable increase in vegetable prices in Albania, a country where interest in fresh and dried vegetable cultivation has been on the rise in the past few years and much of the local production has been destined for exports.

Potato, onion, leek prices have registered sharp double-digit hikes in the past month, with traders blaming lower production from traditional areas such as Korça, southeast Albania, and more local products in the region of Fier, the breadbasket of Albania’s agriculture southwest of the country, destined for more profitable exports.

Potato and onion prices have soared to around 100 lek to 120 lek/kg (€1) during the first two weeks of January, almost double compared to a year ago, in prices that are considered too high for more than a quarter of Albania’s population relying on $5 a day.

Vegetable and potato prices have increased by a total of 25 percent in the past couple of years in the country, according to INSTAT, the state-run statistical institute.

Farmers’ decision to cultivate less potato and onion for 2018 was affected by the 2017 overproduction that led to considerable part of production being sold too cheap or go rotten lacking warehousing facilities.

In addition, much of the vegetable production in the Fier region is being destined for exports, with rising demand by regional and EU markets pushing local prices up.

However, poor orientation over market needs also plays a major role.

Albania had an overproduction in apples in 2018 with top quality fruit trading as low as 30 lek (€0.23), in prices not justifying huge production costs.

In addition, a considerable number of farmers in the southern Albanian regions of Fier and Berat have switched to new products such as berries and mushrooms, working under contract with foreign market operators even for traditional fresh vegetables.

Agriculture is a key sector of the Albanian economy that employs about half of the country’s population but which due to its poor productivity provides only about a fifth of the national output.

Experts say unclear property titles for around half of the country’s agricultural land is a key barrier for the development of larger farms and access to local and EU subsidies that could make Albania’s products much more competitive.

In addition to land fragmentation, poor financing, lack of subsidies and key infrastructure such as irrigation as well as a high tax burden are a serious problem for Albania’s agriculture sector, with high costs often making local products uncompetitive.

Due to the high tax burden applied on oil, at €1.4/liter, Albania has one of Europe’s highest fuel prices, and lack of subsidies sharply increase local product costs.
                    [post_title] => Vegetable prices soar on lower domestic production, export orientation 
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                    [post_content] => TIRANA, Jan. 14 – Albania spends one of the region’s lowest amounts on research and development in a key barrier for the country’s emerging economy and its ability to innovate on products and services.

A recent report by the UNESCO Institute for Statistics shows Albania’s spending on R&D has remained almost unchanged at 0.2 percent of the GDP during the past decade, the lowest among regional EU aspirant countries, of which Serbia has the highest spending of around 0.8 percent of the GDP.

At 0.2 percent of the GDP in 2017, Albania spent around $250 million on research and development, but when measured in purchasing power parity dollars (PPP$), a unit that eliminates price differences, Albania’s spending on R&D is estimated at only $37.4 million, higher only compared to tinier Montenegro among regional competitors, according to the UN's cultural and scientific agency.

Almost half of the amount, some $18 million in PPP$ is spent by universities, that involves some 38 higher education institutions, of which 24 privately-run ones. The rest is spent by government-funded agencies.

The UN agency estimates Albania has some 450 scientific researchers at a rate of 156 per million inhabitants.

A decade ago, back in 2008, Albania devoted only 0.15 percent of its GDP to R&D, just 3.3 percent of which came from the business enterprise sector.

Albania targets increasing its spending on science, research and innovation to 1 percent of the GDP by 2022 through public and alternative funds, according to a national strategy.

Back in 2018, a study on three of Albania’s main public universities found that Albania’s public universities spend more on luxury reconstruction and purchases rather than research and scholarships.

Albania climbed 10 places to rank 83rd among 126 economies in the 2018 Global Innovation Index, but yet lagging behind some of its key regional competitors.

The report shows Albania’s ranking is hampered by poor knowledge and technology outputs, a low level of business sophistication, low spending on human capital and research as well as insufficient creative outputs which rank the country 86th to 110th.

In its latest country report on Albania, the European Commission says the capacity for technological absorption, research, development and innovation in Albania remains low.

In a bid to stimulate private investment and employment on the information technology sector, the Albanian government has cut the corporate income tax on the IT sector to 5 percent starting this year, down from a previous standard 15 percent. The tax cut applies to software design, development and maintenance.

 
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                    [post_content] => [caption id="attachment_140070" align="alignright" width="300"]wb albania Maryam Salim, the World Bank country manager for Albania[/caption]

TIRANA, Jan. 14 – The World Bank says Albania has to continue doing business reforms and be careful with its ambitious public-private partnership program in order to maintain its growth pace for the next couple of years.

The warning comes by Maryam Salim, the World Bank country manager for Albania, after the Washington-based financial institution recently upgraded Albania’s 2018 economic outlook to 4 percent, but expects the country to slow down to around 3.5 percent over 2019-21, in forecasts that are up to 1 percent lower compared to the Albanian government’s baseline scenario of growth picking up to 4.5 percent by 2021 when Albania heads to new general elections.

Speaking in an interview with local Monitor business magazine, the World Bank’s Albania representative says the Balkan country has to focus on long-term solutions to the land reform, the improvement of the business climate, setting a predictable and enforceable tax legislation and applying careful fiscal policies.

A long-standing unclear property titles issue and a higher tax burden compared to regional EU aspirant Balkan countries are among the top concerns for local and foreign investors operating in the country, in addition to highly perceived corruption and an inefficient judiciary which Albania is trying to settle through a judiciary reform that has already ousted dozens of judges and prosecutors for failing to justify their financial assets.

“Albania should accelerate doing business reforms and create equal conditions for foreign entrepreneurs to invest and make use of the country's untapped potential. The country's labor force should be appropriately qualified to integrate better into the global value chain,” Salim is quoted as saying in the Albanian version of the interview.

The World Bank appeal comes at a time when TAP and the Devoll Hydropower, the two major energy-related projects that drove FDI in the past four years, are set to complete their investment stage by the end of this year, leaving a huge trade gap that will be difficult to fill unless other key projects replace them.

“Investment in health and education should be priorities on the government agenda,” she adds.

Albania currently spends only around 3 percent of its GDP on health and education, two sectors that play a major role in residents’ willingness to leave the country, in addition to poor income.

 

PPP risk 

Commenting on the much-rumored PPPs, which the World Bank has earlier called for greater transparency and the cancellation of controversial bonuses for unsolicited proposals, the World Bank’s Salim says high spending on taxpayer-supported PPP projects and accumulation of new unpaid bills to private companies could pose fiscal risks.

“While it's too early to judge on the impact of those investments, we always require strong assessment of short and long-term implications for PPPs… which are a legal instrument but their use requires a strong environment with a strong public administration, control mechanisms and full transparency,” the World Bank official is quoted as saying.

According to Salim, Albania’s high debt levels of around 70 percent of the GDP, makes the strengthening of fiscal transparency a must to boost market confidence and reduce refinancing risks in internal and external markets.

The government should also actively manage fiscal risks from PPPs and state-run enterprises and engage in more efficient public spending, she adds.

Taxpayer support to some controversial public private partnerships is expected to increase by around 50 percent to €100 million for 2019 as the government starts paying on three news public private partnerships, taking PPP spending to 3 percent of the previous year’s fiscal revenue, compared to 5 percent threshold that the government has set.

 

Risks to growth outlook

The World Bank country manager says higher and more qualitative growth is the only way forward for Albania to catch up with EU member countries.

A late 2017 World Bank report showed that 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.

“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.

Risks to the 3.5 percent 2019-20 growth outlook that the World Bank predicts for Albania include a possible tightening of refinancing conditions for emerging markets and developments in the EU where Albania awaits a decision on the long-awaited launch of accession talks by next June soon after the upcoming late May 2019 European elections that could change enlargement balances at the European Parliament through a possible increase in populist representation.

Internally, it's essential to achieve progress in fiscal consolidation and the expansion of the taxpayer base so that macro-economic stability is preserved as a pre-condition of growth, says the World Bank official.

Supporting all-inclusive growth requires commitment to treat structural challenges related to the business environment, energy security and human capital, she adds.

Experts estimate the Albanian economy has to grow by 6 percent annually, a growth rate it enjoyed for around a decade ahead of the 2008-09 global financial crisis in order to produce sustainable growth.
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            [post_date] => 2019-01-22 11:50:55
            [post_date_gmt] => 2019-01-22 10:50:55
            [post_content] => TIRANA, Jan. 22 - Albania is planning to scrap the use of controversial unsolicited proposals for public private partnerships in the road sector but continue allowing it for a series of other sectors it considers strategic.

Legal changes already approved by the government and submitted to Parliament for further review envisage the unsolicited proposal procedure will be scrapped for national road projects of key importance starting July 2019 and remain in use only for PPPs and concessions for the provision of works and services in ports and airports, electricity generation and distribution as well as natural gas distribution, the latter expected to receive a major boost due to expected 2020 Caspian gas flows from the under construction TAP project.

The proposed legal changes only partially meet recommendations by international financial institutions such as the World Bank and the International Monetary Fund that had demanded the full removal of such procedure, often criticized for leading to pre-determined winners in tenders with little competition due to bonuses awarded to companies initiating and conducting preliminary studies on the projects they propose in return for government financial support or operating them for a period of up to 35 years.

The practice of awarding bonuses of up to 10 percentage points for companies submitting unsolicited proposals, putting them at an advantage when tender procedures are held, will be replaced by financial compensation of up to 1 percent of the investment value in case the company initiating the project through a feasibility study fails to win a tender.

The government says the proposed financial compensation mechanism puts an end to giving an unfair advantage to companies that submit unsolicited proposals by placing bidders at equal competition.

Legal changes also envisage the establishment of a Committee for the Selection of Concession/PPP Projects, a collegial body chaired by the economy minister, that will also provide expertise in preparing feasibility studies and eliminate the need to rely on the private sector for such costly services.

With the use of PPPs to provide public services having considerably increased, the IMF and World Bank have often recommended in the past couple of years eliminating the practice of unsolicited proposals as a procedure that places bidders at unequal position and leads to controversial PPPs with no thorough cost-benefit analysis that could create new arrears undermining the public debt reduction agenda.

The winners of several major PPP road projects in the past couple of years have emerged through unsolicited proposals placing them at an advantage in tenders that later proved unattractive for potential competitors.

Public procurement has traditionally been one of the key concerns for local and foreign investors complaining of corruption and tailor-made criteria favoring specific companies with alleged links to ruling majorities.

In the latest Balkan Barometer survey, some Albanian companies cited tailor-made criteria for certain participants and deals before the tender is even published for not participating in public tenders.

An earlier survey by London-based European Bank for Reconstruction and Development has shown about 40 percent of Albanian households and businesses believe political connections are the key to factor behind success.

Last year, a report by the European Court of Auditors, the EU’s independent external auditor, showed about a third of all public procurement in Albania is carried out using the little transparent and limited competition negotiated procedure, making Albania the top Western Balkan country that overuses this procedure.
            [post_title] => Albania to limit use of unsolicited proposals, scrap bonuses for PPPs
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            [post_modified] => 2019-01-22 11:51:32
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