Albania’s current account gap widens in year’s first quarter despite FDI surge

Tirana Times
By Tirana Times June 12, 2018 12:37

Albania’s current account gap widens in year’s first quarter despite FDI surge

Story Highlights

  • Travel income and migrant remittances, the overwhelming majority of which flowing in Europe’s single currency, were negatively affected by the sharp depreciation of the euro against Albania’s national currency, lek, in the first quarter of this year

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TIRANA, June 12 – Albania’s foreign direct investment made a good start for 2018 fuelled by energy-related investment while travel and tourism income and migrant remittances also registered moderate hikes, but higher imports slightly extended the country’s current account gap, according to Albania’s central bank.

In its quarterly balance of payment report, the Bank of Albania says foreign direct investment rose to €284 million in the first quarter of this year, a sharp 62 percent increase compared to the same period last year. The hike is apparently a result of the intensification of construction works in the Albania section of the major Trans Adriatic Pipeline ahead of the completion of the project’s investment stage by the end of this year.

TAP recently completed the installation of its turbo compressors at the Fier compressor station, southwest Albania.

The Fier compressor station area, where 30 percent of works has already been completed, measures 162,970 m2, which equals approximately 25 football pitches. Construction works are due to be completed in March 2019 and the compressor station is expected to be ready for operation in the fourth quarter of 2019, says Switzerland-based TAP consortium.

The ongoing construction of the Moglice hydropower plant, the second and larger HPP as part of the Devoll Hydropower by Norway’s Statkraft, is also estimated to have had a positive impact.

In addition, recovering commodity prices following the mid-2014 slump are believed to have triggered investment in Albania’s key oil and mining industries. Brent crude oil prices have currently recovered to $76.7 a barrel, up from as low as $30 a barrel in early 2016, riving investment in Albania’s oil industry.

Despite the early 2018 surge in FDI, prospects remain uncertain as TAP and the Devoll HPP, the two key energy-related projects that drove FDI and economic growth in the past four years are set to complete their investment stage by the end of 2018 and leave a huge gap of €200 million in annual FDI starting next year as long as no other major project replaces them.

Foreign investors operating in Albania are estimated to have transferred €82 million in profits to their parent companies in the first quarter of this year, almost the same to a year ago, in an ongoing trend since the onset of the 2008 global financial crisis that sees foreign companies transfer more in profits rather than reinvest them in the country.

Albania’s emerging travel and tourism industry also made a good start with travel income hitting €331 million, a record high for the first quarter of a year considering Albania’s summer based tourism industry.

Gearing up for its peak season, Albania’s expectations for 2018 are optimistic following a 2017 season which state institutions say brought more than 5 million foreign tourists and generated a record high of €1.7 billion in annual income.

Albanians also spent a record €254 million in trips abroad in the first quarter of this year. Most Albanians travels to neighboring Italy and Greece, the hosts of about 1 million Albanian migrants.

Having embarked on an upward trend in the past three years, migrant remittances recovered to €147 million in the first quarter of this year.

Migrant remittances slightly increased in 2017 when they recovered to €636 million, up from €616 million in 2016, but yet stood at about a third below their peak level of €952 million in 2007 just before the onset of the global financial crisis, according to the country’s central bank.

Travel income and migrant remittances, the overwhelming majority of which flowing in Europe’s single currency, were negatively affected by the sharp depreciation of the euro against Albania’s national currency, lek, in the first quarter of this year. Europe’s single currency depreciated by an annual 6 percent in the first quarter of this year as the euro fell to as low as 129.05 lek in March 2018 compared to 137.24 in mid-January 2017.

However, a slight increase in imports of goods and services negatively affected the current account gap which extended to €165 million, up from €148 million in the first quarter of 2017.  The current account is a key indicator of a country’s economic health measuring the flow of goods, services and investment into and out of the country.

Albania is a net importer with exports covering only about half of what the country import.

 

FDI

FDI Q1 2018 = €284 mln

FDI Q1 2017 = €175 mln

 

Transfer of profits

Q1 2018 = €82 mln

Q1 2017 = €79 mln

 

Travel income

Q1 2018 = €331 mln

Q1 2017 = €301 mln

 

Travel spending

Q1 2018 = €254 mln

Q1 2017 = €226 mln

 

Migrant remittances

Q1 2018 = €147 mln

Q1 2017 = €135 mln

 

Current account gap

Q1 2018 = €165 mln

Q1 2017 = €148 mln

(Source: Bank of Albania)

Tirana Times
By Tirana Times June 12, 2018 12:37