January
New taxes enter into force
Starting January 2015, Albanians have been paying higher taxes on non-wage income, fuel and tobacco, which were expected to cost both households and businesses an extra €112 million in taxes. In addition, higher electricity prices have had a negative impact on the budget of both households and businesses.
While key taxes such as the personal and corporate income taxes remained unchanged at 15 percent in 2014, the fiscal burden further increased by raising the withholding tax on dividends and rents to 15 percent, increasing the circulation tax on fuel and imposing higher excise rates on tobacco.
Top youth employers
With youth unemployment at around 33 percent, the booming call center business and the traditional garment and footwear manufacturing are emerging as two of the key employers for Albanian young men and women aged from 15 to 29.
While the call center business dominated by Italian companies mainly attracts university students and newly graduates who are unable to find a job in the occupation they have graduated in, the faà§on industry, a traditional employer producing garment and footwear mainly for export, is attracting a considerable number of youngsters who have finished only the compulsory education or secondary education but failed to attend university.
February
Deflation risk wanes
Albania’s inflation slightly accelerated to 1.3 percent in January 2014, hitting a 12-year low for the first month of the year and remaining below the central bank’s lower target limit of 2 percent for the fifth month in a row, hinting sluggish demand and private investments.
The last time the inflation rate was at a similar rate for the first month of the year was in January 2006 at 1.4 percent and in January 2003 at -0.1 percent, according to INSTAT.
In December 2014, the consumer prices rate hit a three-year low of 0.7 percent, sparking deflation concerns considering the central bank’s inflation target of 3 percent which is estimated to positively contribute to economic growth.
No alleged oligopoly in fuel market
Albania’s competition watchdog said it failed to find evidence of an alleged oligopoly in the country’s fuel market, the overwhelming majority of which relies on imports carried out by only three to four companies.
“No evidence was found to prove banned deals or abuse of collective dominance among the probed companies,” said the Competition Authority after a thorough investigation into the fuel market for the January 2010 – April 2014 period.
The ”three firm” concentration ratio, known as CR3, rose to 86.7 percent in 2013 for the import of diesel and was at 98.7 percent for petrol.
Investment funds replace bank deposits
With deposits striving to remain at positive growth rates, the newly established investment funds are emerging as a more competitive alternative in investing savings due to due to higher interest rates compared to traditional bank deposits.
Data published by the Albanian Financial Supervisory Authority which supervises this market operational only for the past three years, shows the only two operators controlled by Raiffeisen Bank, the country’s biggest commercial bank, increased their net asset value by 27 percent to 63.7 billion lek (Euro 446 million) at the end of 2014 compared to 2013.
The slowdown in deposits is also a result of sharp cuts in interest rates and more favourable interest rates in the emerging investments funds.
March
Lending registers another tough year
Lending to the economy suffered another setback in 2014 as bad loans stood at around a quarter and the payment of accumulated unpaid bills to the business community had a minor impact on reinvigorating demand for new loans.
Latest Bank of Albania data shows credit slightly accelerated to 2.2 percent in 2014, up from a 1.25 percent decline in 2013 as the 16 overwhelmingly foreign-owned commercial banks operating in Albania continued applying tight lending standards and the consecutive cuts to the key interest rate had a small impact on reducing loan interest rates.
U.S. dollar hit 12-year high against lek, euro
The U.S. dollar hit a new 12-year high against the Albanian lek but remained unchanged to the European single currency, making several key imports in Albania much more expensive as the Albanian national currency has lost around 27 percent against the dollar since its continuous upward trend mid-2014.
With international oil prices having more than halved since their peak level in mid-2014, the U.S. dollar rose to 130.46 lek, up from an average of 123.46 lek last February and an average of 131.66 lek back in January 2003.
The situation was the same for Europe’s single currency which plunged to a 12-year low against the U.S. dollar.
Tirana Stock Exchange closes down
More than a decade after its opening, the Tirana Stock Exchange was closed down because of failing to fulfill its establishment mission of creating a capital market and meeting its own financial needs.
The decision was made by the Finance Ministry which was the sole shareholder of the TSE, established in 2002 in the form of a joint stock company with the target of becoming the only organized securities market in Albania. Twelve years after its establishment, the Tirana stock exchange was completely inactive due to the small number of listed companies counted on the fingers of one hand and lack of interest because of the high informality of Albanian businesses.
FDI, remittances drop
Lack of privatization revenue and the increase of the corporate income tax by 5 percent to 15 percent are estimated to have had a negative impact on foreign direct investment which suffered a slight decline in 2014.
FDI dropped to 878 million euros in 2014, down from a historic high of 945 million euros in 2013 registering a 7 percent decrease, according to revised data published by the country’s central bank in its balance of payments for the final quarter of the 2014.
Migrant remittances slightly recovered to 592 million euros in 2014, up from 545 million euros in 2013, but remained almost 40 percent below their peak level in 2007 just before the onset of the global financial crisis, according to data published by the country’s central bank.
Meanwhile, tourism revenue registered a record high of €1.2 bln in 2014 when more than 3.6 million foreign tourists visited Albania, according to data published by the central bank and INSTAT.
April
GDP grew by 1.9% in 2014
The Albanian economy slightly accelerated to 1.9 percent in 2014 after quarterly GDP growth rates were revised upward but yet failed to meet the 2.1 percent target set by both government and the IMF due to a slowdown in the final quarter of the year.
INSTAT data shows the Albanian economy grew by 1.89 percent in 2014, up from an average of 1.2 percent in the previous two years, an average of 3.5 percent annually in the 2009-2011 period and a pre-crisis decade of 6 percent.
The long-ailing construction sector, once a key driver of the economy, has seen its GDP share drop from 18 percent in 2008 to 12 percent in 2014.
Albania borrows €250 mln from Deutsche Bank
Deutsche Bank, Germany’s biggest bank, will lend the Albanian government Euro 250 million in a 10-year loan to support public investments and cover its budget deficit, according to the Finance Ministry. The ministry says it will pay Deutsche Bank an interest rate of 1.3 percent above the benchmark rate currently at 0.5 percent.
Under the deal, the Albanian government will also pay a 1.25 percent commitment fee for the 10-year loan with an average life of 8.6 years.
The loan is guaranteed by the IBRD, the World Bank’s lending arm for middle income and credit-worthy poor countries, which is guarantor for Euro 200 million, or 80 percent of the total loan.
May
Albanians work longest hours
Albanians work the longest hours and are among the poorest paid in Europe, a survey published by the country’s state statistical institute, INSTAT, has found.
Albanians work an average of 2,102 hours a year and cost employers only Euro 2.2 per hour, ranking Albania the cheapest country in Europe in terms of labour costs for employers, but the worst in terms of income for employees.
In Albania, the average hourly labour cost, two-thirds of which includes wages and bonuses, is at least twice lower to regional EU aspirants such as Macedonia, Serbia, Bosnia and Herzegovina and Montenegro where labour costs range from Euro 3.5 to 5.8 an hour, according to INSTAT.
Tourism competitiveness loses ground
Albania’s tourism competitiveness lost considerable ground in the past couple of years on deteriorating travel and tourism policy and enabling conditions, a biennial report published by the World Economic Forum has shown.
The Adriatic country ranked 106th out of 141 countries in the 2015 Travel & Competitiveness Index, losing 29 places compared to the 2013 report. Albania registered its best performance in the Index in 2011 when it ranked 71st, from 90th in 2009. The travel and tourism industry, which employs around 41,000 people in Albania, is estimated to have contributed by $639 million or around 4.8 percent of the GDP in 2014, says the report.
Italian, Greek businesses increase presence
Facing prolonged crisis impacts in their home countries, Italian and Greek businesses have considerably increased their presence in Albania where both neighboring countries are Albania’s top trade partners.
Data published by INSTAT and the central bank shows Italian businesses lead in terms of numbers, followed by Greek and Turkish ones, but lag behind in terms of foreign direct investment.
The number of Italian businesses and Italian-Albanian joint ventures rose to 2,267, up from 1,903 in 2013 and 1,460 in 2012, accounting for 43 percent of total foreign enterprises and joint ventures operating in Albania.
The number of Greek companies operating in Albania also rose to 640 in 2014, up from 616 in 2013 and 578 in 2012, according to INSTAT.
June
GDP per capita, consumption the lowest in Europe
Albania’s GDP per capita, a measure of economic activity and the actual individual consumption, an indicator of the material welfare of households, ranks among the poorest in Europe and in the region at almost a third of the EU 28, according to data published by Eurostat, the statistical office of the European Union.
Albania’s GDP per capita expressed in purchasing power standard (PPS), an artificial currency unit that eliminates price level differences between countries, slightly climbed to 29 percent of the EU 28 average in 2014, up from 27 percent in 2013 ranking better only compared to Bosnia and Herzegovina’s 28 percent in a 37-country list.
However, Albania’s price levels for consumer goods and services are among Europe’s lowest although the country’s GDP per capita and consumption stand far below the EU and regional average, according to Eurostat.
Region’s second largest FDI recipient
Albania was the second largest recipient of foreign direct investment among EU aspirant regional countries for the fifth year in a row in 2015, but the FDI stock remains the lowest compared to four other regional competitors, according to a report by UNCTAD, the United Nations body responsible for international trade. Data shows Albania’s FDI inflows dropped to $1.093 billion in 2014, down from a historic high of $1.266 in 2013 remaining the second largest FDI recipient in the region for the fifth consecutive year after Serbia. However, when it comes to FDI stock Albania lags behind regional competitors with an FDI stock of $4.46 billion at the end of 2014, compared to Serbia’s $29.5 billion, Bosnia’s $7.4 billion, Macedonia’s $5.1 billion and Montenegro’s $5 billion.
July
TAP’s Albania section kicks off
Two years after it was announced the winning project to bring Caspian gas to Europe, the Trans Adriatic Pipeline has officially launched its works in the Albanian section with the construction of access roads and bridges. Albania’s Prime Minister Edi Rama described TAP as a milestone project which will turn Albania into an energy hub in the region. TAP which is expected to bring gas to Europe through Greece, Albania and Italy will generate one of that Albania’s largest FDI projects, with important benefits for a number of industries, including manufacturing, utilities and transport, experts say.
August
Mid-year budget cut of €114 mln
The poor performance in the first half of this electoral year has forced the Albanian government to revise downward its overoptimistic 2015 budget while the International Monetary Fund has postponed its new loan tranche as part of a three-year Euro 331 million loan.
The government approved 16.2 billion lek (€114.6 million) in spending cuts following failure to meet its revenue target, a decision which was made transparent only after being published on the Official Gazette.
The government had earlier warned the poor performance of public finances could force it to revise its overoptimistic budget downward later this year on lower royalty collected from oil production, lower imports of fuel and tobacco and a rising number of VAT-free imports of machinery and equipment.
Greek crisis to affect growth by 0.25% of GDP
The escalating crisis in neighboring Greece will affect Albania’s growth by at least 0.25 percentage points, Albania’s central bank says in its latest analysis.
While the neighboring country reached a new €85 bln three-year bailout deal with its creditors, the escalation of the crisis in recent months in Greece is expected to have a real impact on the Albanian economy in the second half of this year as the country’s second top trading partner, main foreign investor, and the host of some 500,000 migrants who have been the key source of remittances.
The exposure of the Albanian economy toward Greece has considerably been reduced since the onset of the global financial crisis in 2008 and six consecutive years of recession which contracted the Greek economy by around a quarter and took unemployment rate to 25 percent.
September
Campaign against informality
Some 600 groups of tax inspectors backed by police officers started carrying out field inspections in a bid to give an end to widespread informality, estimated at around 30 percent of the country’s GDP. The move caused concern among businesses, which face heavy fines and seizure of goods, should they be found in breach of regulations.
“The fight against informality will be the topic of this third 300-day period in power,” said Prime Minister Edi Rama.
Long queues were reported with regional national registration centres with business owners registering or de-registering their businesses.
Business representatives have hailed government’s initiative to curb informality, estimated at around 30 percent of the GDP, but say the nationwide campaign should be led without creating panic and using extreme measures.
Albanians cut consumption in past five crisis years
Albanian households considerably cut spending on food, drinks and restaurants in the past five crisis years, according to a survey carried out by the country’s state statistical institute, INSTAT.
The survey measuring the budgets of some 7,800 households nationwide showed that spending on food and non-alcoholic beverages, the key item in the consumer basket, dropped by 5.3 percent from 2009 to 2014. An average family of four in Albania spent 69,000 lek (€485) a month in 2014, up 5.6 percent compared to 2009. However, the real inflation adjusted spending has in fact decreased considering that the cumulative price increase between November 2008 to December 2014 is estimated at 15.5 percent
New law increases fines by 50-fold
With a nationwide campaign to curb informality already underway, the ruling Socialist Party-led majority has approved in parliament some changes to the tax procedures law, which increase penalties on tax evasion up to 50-fold, sparking strong debate with the opposition describing them as repressive and punitive and with members of the governing coalition also expressing concern. The business community has also expressed concern over the high level of fines.
The new changes approved in accelerated procedures envisage fines of up to 10 million lek (€71,000) on big businesses operating in the wholesale trade for not issuing tax receipts, compared to 200,000 lek (€1,411) currently. Fines on small businesses are also envisaged to increase 10-fold from 50,000 lek (€353) to 500,000 lek (€3,529).
Lending turns to negative growth rates
Lending to the economy suffered a blow in August 2015 when it returned to negative growth rates after registering sluggish growth rates of 1 to 3 percent in the past year.
Bank of Albania data shows lending slightly contracted by 1.2 percent year-on-year in August 2015 hinting sluggish demand for new loans by both businesses and households as standards remain tight due to non-performing loans at around 20 percent.
The decline is sharper compared to the end of 2014 when total lending to the economy was at a record 600 billion lek (€4.2 bln). Since December 2014, lending has contracted by almost 9 billion lek (€63.4 million), unveiling poor interest for new investments as the economy continues struggling with growth rates of 2 to 3 percent.
October
Economy grew by 2.5% in Q2 2015
The Albanian economy registered an annual growth rate of 2.53 percent in the second quarter of 2015 fuelled a recovery in the long-ailing construction sector and a boost in the domestic hydro-dependant electricity generation, according to a report issued by INSTAT, the state statistical institute. However, household final consumption expenditure measuring consumer spending was down by 3.16 percent year-on-year in the second quarter of 2014, declining for the second quarter in a row.
The long-ailing construction sector, which has been in crisis since the onset of the global financial crisis in 2008, surprisingly had the major 1.96 percentage point contribution in the second quarter of 2015 when Albania held local elections.
Albania loses 35 places in doing business
Albania’s business climate suffered a major setback in the past year, losing 35 places in the World Bank Doing Business report on a sharp deterioration in dealing with construction permits.
Albania ranked 97th out of 189 countries in the 2016 Doing Business report, from a revised 62nd last year when it achieved its best ever ranking, lagging behind all regional countries.
Among regional EU aspirant competitors, Macedonia ranked 12th, Montenegro 46th, Turkey 55th, Serbia 59th, Kosovo 66th and Bosnia and Herzegovina 79th.
Albania’s sharp deterioration was affected by the dealing with construction permits where it lost 67 places to rank the bottom 189th in the report. “Albania made dealing with construction permits more difficult by suspending the issuance of building permits.”
Protecting minority investors and trading across borders are mentioned as reforms in the report.
November
Key rate cut to new historic low of 1.75%
Albania’s central bank announced it has cut the key interest rate by another 0.25 percentage points, taking it to a new historic low of 1.75 percent in an effort to give a new boost to sluggish consumption and lending which are holding back economic recovery.
The cut is the second for this year and the fourteenth consecutive slash since August 2011, when the key rate was at 5.25 percent.
The central bank’s move comes at a time when lending has plunged to moderate negative growth rates due to poor demand by both businesses and households and tight lending standards as non-performing loans stand at 20 percent and inflation rate remains below its 3 percent target, hinting sluggish consumption.
Public debt hits historic high of 73.7% of GDP
Albania’s public debt rose to a historic high of 73.7 percent of the GDP at the end of the third quarter of this year, calling into question whether the government will achieve its year-end target of 72.2 percent, according to finance ministry data.
Latest data shows the public debt stock at the end of Sept. 2015 rose to more than 1 trillion lek (€7.5 billion), up 10 percent compared to the same period last year, despite its servicing cost remaining almost unchanged due to lower interest rates.
The spending in interest rates remains a huge burden for Albania’s public finances which have been struggling to recover this year despite tax hikes, affecting the much-needed public investments.
€450 mln borrowed in new 5-year Eurobond
Albania managed to secure €450 million in a new five-year Eurobond at a coupon rate of 5.75 percent, down from 7.5 percent in its inaugural €300 million Eurobond. The issue of the new Eurobond came on Nov. 5, one day after Albania’s five-year €300 mln matured, allowing Albania to replace its debt in much more favorable terms. Back in 2010 when Albania issued its inaugural Eurobond, the key interest rate for the euro area was at 1 percent compared to a current historic low of 0.05 percent. The issue of the new Eurobond was delayed affected by spillover effects from the crisis in neighboring Greece which struggled to reach a new bailout deal over its debt crisis in mid-2015, causing a rise in bond yields.
