TIRANA, June 13 – Albania poorly diversified and low value-added exports could face headwinds over the medium term due to oil price shocks and tougher competition in the key garment and footwear from new Asian frontier markets, warns the IMF in a recent country report.
While the key domestic oil industry has already been severely negatively affected by the slump in international oil prices since mid-2014, the garment and footwear sector, Albania’s top exporting industry could receive a blow from tougher competition and lower transport costs from Asian markets such as Bangladesh, Cambodia and Vietnam.
“Albania could be facing headwinds from the growth slowdown in Europe and the decline in transport costs, which places it in competition with countries that have large textile sectors with lower labor costs such as Bangladesh, Cambodia, and Vietnam,” says the IMF.
The country’s oil and mining industry have been facing tough times during the past couple of years, with some of the key operators changing hands due to losses from the sharp decline in commodity prices.
Canada-based Bankers Petroleum, the country’s main oil producer and exporter, has recently reached a deal with China’s Geo Jade to sell its Albania assets for C$575 million (€392 mln) following losses after more than a decade of operations in Albania and tax disputes with the authorities.
The IMF says that due to its geological specifics, Albania is a high-cost oil producer and oil price shocks have a bigger impact on Albania’s oil production compared to other regions.
The International Monetary Fund which is supporting Albania with a 3-year Euro 331 million loan, says Albania needs a more rapid transition to higher value added exports the same as regional competitors Macedonia and Serbia have done.
“In contrast with some of its regional peers such as Macedonia and Serbia, Albania has yet to diversify its export base into higher value-added products such as chemicals, plastics, or machinery,” says the IMF, suggesting that Albania needs to step up reforms to improve investment prospects given the challenges ahead in the oil sector and the significant headwinds in textiles.
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.
Exports were down by 6 percent in the first four months of this year affected by a sharp 42 percent contraction in oil and mineral exports as international commodity prices stand at a record low since mid-2014 with a negative effect on the country’s domestic production, employment and government revenue.
Albania is a net importer with exports covering only about half of imports.
In its latest report, the IMF says that while reforms in the energy sector and fiscal consolidation and public debt are on track, other reforms critical for improving the business environment—including those related to property rights, resolution of nonperforming loans, the judiciary, and governance—are lagging.
Albania’s key political forces have been struggling to reach consensus on a long-awaited reform on the judiciary, perceived as the country’s most corrupt sector, and rated as a key barrier to improve the country’s business climate and attract foreign investors.
“The judiciary system is unable to protect property rights and enforce contracts, and undermines the business environment fostering myopic business strategies and high profit margins to insure against legal risks,” says the IMF.
Persistently lower energy prices, weak growth in top trading partners and main sources of remittances Italy and Greece, a surge in U.S. dollar and the possible exit of a foreign bank from the market are rated as the key sources of risk for the Albanian economy by the IMF.
