TIRANA, Feb. 2 – The poor diversification of Albania’s exports heavily relying on oil and base metals whose prices are currently at a record low is expected to have another negative impact on the country’s exports which dropped by 5 percent in 2015, returning to negative growth rates after a contraction in 2009 soon after the onset of the global financial crisis.
Albania’s exports heavily rely on garment and footwear manufacturing as well as oil and base metals whose share in the country’s exports dropped to 63 percent in 2015, down from 67 percent in 2014 when oil prices embarked on a downward trend.
While garment and footwear products maintained positive growth rates of 5 percent in 2015, exports of minerals, fuel and electricity dropped by a sharp 25 percent affected by a sharp drop in international oil and base metal prices.
Albania’s exports suffered a setback in 2014 when they grew by only 3.75 percent registering their lowest level since the onset of the global crisis in 2009 affected by poor electricity and oil sales. Exports grew by 15.6 percent in 2013, registering growth rates for the fourth consecutive year after a shrink in onset of the global crisis in 2009.
Oil prices standing at 12-year low have also curbed investment and production plans among the country’s operators, also affecting employment and government revenue.
In a recent working paper, the IMF warns emerging countries should diversify their production and exports base in order to have more alternative sources of revenues, allowing them to deal with the volatility of commodity exports related revenues.
Most commodities prices, especially oil, have declined by about 50 percent between mid-2014 and mid-2015, leading to significant losses in export earnings. “For a commodity exporter negative price shocks affect the financial sector through lower economic activity (low growth rate and high unemployment), worse fiscal performance (low government revenue), saving withdrawals and increasing debt in foreign currency,” says the IMF report.
The IMF advises developing countries should promote sound economic policies and good governance that will ensure the effective use of natural resource windfalls and build fiscal buffers, including through sovereign wealth funds or similar arrangement.
“Lack of diversification may increase exposure to adverse external shocks and vulnerability to macroeconomic instability, while a diversified export base may allow countries to better handle declines in commodity related revenues with alternative sources,” says the IMF.
In its latest Commodity Market Outlook report, the World Bank warns all main commodity price indices are projected to decline in 2016 relative to last year due to persistently elevated supplies and, in the case of industrial commodities, weak growth prospects in emerging market economies. Energy prices are expected to fall 25 percent from 2015, with oil prices projected to average $37/bbl in 2016.
Metals prices are projected to decline 10 percent, following last year’s 21 percent drop, due to weaker demand prospects in emerging market economies and new capacity. The largest decline is expected for iron ore (-25 percent). Downside price risks include a further growth slowdown in China and larger than-expected production associated with cost reductions and exchange rate depreciation in producing countries, says the World Bank.
For 2015 as a whole, energy prices plunged by 45 percent from the previous year, while non-energy commodity prices declined by 15 percent.
