Energy, low base effect wane euro free fall effect on Albania’s exports

Tirana Times
By Tirana Times July 18, 2018 10:04

Energy, low base effect wane euro free fall effect on Albania’s exports

Story Highlights

  • The low base effect also plays a key role as 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

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TIRANA, July 17 – Albania’s exports officially grew by double digits in the first half of this year, seemingly defying the negative effects from the sharp strengthening of Albanian’s national currency against Europe’s single currency which has significantly curbed profits for producers of two-thirds of Albania’s Eurozone destined exports.

However, data published by state-run statistical institute, INSTAT, shows more than half of exports growth is a result of the resumption of electricity exports and a sharp hike in crude oil exports following the late 2017 bankruptcy of a local refiner as well as recovering commodity prices giving a boost to the country’s oil, mining and steel industry.

The low base effect also plays a key role as 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.

The contribution of the key ‘garment and footwear’ sector to exports’ growth for the first six months of this year when exports grew by 18.3 percent was at a mere 4 percentage points at a time when Albania’s national currency, lek, gained 5.5 percent against the euro, the currency for more than 90 percent of Albania’s exports of this kind.

Employing about 100,000 people, the textile and shoe industry is one of the country’s top employers and strongly relies on cheap labor costs, being one of the hardest-hit from euro’s free fall in Albania during this year. Producers say they are losing about €500 for every €10,000 of value added exports during this year compared to late 2017.

The garment and footwear industry in Albania is mostly involved in cut-make-trim production and overwhelmingly imports raw materials, designs and patterns from Italy, the main destination of the locally processed products. Only few local garment and footwear products have upgraded to full cycle production and are marketed as Made in Albania brands.

Europe’s single currency traded at an average of 125.95 lek in June 2018, compared to 133.49 lek in December 2017 and 136.57 lek in January 2017, having lost 7.8 percent against the Albanian lek in the past one and a half years.

Albania’s central bank and the government claim the euro’s free fall in Albania is a result of recovering economy and higher euro inflows from FDI, tourism and migrant remittances.

However, the main opposition Democratic Party and some economy experts have linked the national currency’s constant strengthening to alleged illegal euro inflows resulting from the peak 2016 cannabis cultivation and ongoing drug trafficking in the country, considered a major cannabis producer and a key transit route for cocaine and heroin for European markets.

Monthly exports during this year have fluctuated between 24 billion lek (€189 mln) to 30 billion lek (€237 mln) a month, meeting about 51 percent of what the country imports compared to 45 percent during the first half of 2017.

While the June exports grew by about 17.8 percent year-on-year, they were down by about 12 percent compared to May 2018, reflecting new strengthening of the national currency despite an emergency intervention by Albania’s central bank to buy excess euros in the local currency exchange market.

Albanian exporters have warned the considerable strengthening of Albania’s national currency, lek, against Europe’s single currency in the first four months of this year will lead to losses of at least €100 million for the country’s economy for 2018 alone.

The euro’s free fall has primarily hit Eurozone-destined exports, local producers facing tougher competition from cheaper imports and half of the country’s savings in the euro.

On the positive side, it has made repayment of euro-denominated debt much cheaper for the Albanian government and half of total credit by Albanian households and businesses.

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

 

Tirana Times
By Tirana Times July 18, 2018 10:04