TIRANA, Jan. 25 – The contribution that the Trans Adriatic Pipeline and the Devoll Hydropower are expected to have on the Albanian economy will turn negative this year when the two major energy-related projects complete their investment stage, the International Monetary Fund says.
In a late 2017 country report, the IMF expects the effect that the two key projects will have on the Albanian economy in 2018 to be at a negative 0.5 percent of the GDP, some €60 million, as foreign direct investment by the TAP consortium and Norway’s Statkraft significantly drops.
The two major energy-related projects had a positive contribution of 0.3 to 0.5 percent of the GDP from 2014 to 2016 before it dropped to 0.1 percent in 2017, turning into key drivers of Albania’s economic growth of 1.8 to 3.9 percent in the past four years.
The Albanian government estimates the country’s GDP was at €11.6 billion; $13.1 billion in 2017.
The lower contribution is related to a sharp decline in imports and domestic expenditure as the two major energy related complete their investment stage this year before becoming fully operational by 2020.
Prospects are more pessimistic for the next couple of years when the two projects’ contribution to the GDP will continue to remain negative with FDI at only 0.8 percent of the GDP, some €100 million, in 2019 before dropping to zero in 2020.
FDI involving the construction of two hydropower plants by Norway’s Statkraft, one of which has already been made operational, and the Albanian section of the Trans Adriatic Pipeline bringing Caspian gas to Europe is estimated at a total of 14 percent of the GDP, about €1.5 billion in the 2014-2019 period.
The IMF’s calculation takes into account the GDP formula consisting of consumption, government spending, investments, and net exports.
The Washington-based lender of last resort expects the Albanian economy to slow down to 3.7 percent in 2018, down from an expected 3.9 percent in 2017 as the TAP and Devoll Hydropower project reduce their FDI contribution by an estimated €180 million in 2018 alone and by €360 million in 2019.
FDI related to TAP/Statkraft was at a peak level of 3.8 percent of the GDP in 2016-2017 but is expected to drop to 2.3 percent and 0.8 percent of the GDP in 2018 and 2019 respectively before becoming zero in 2020.
“Despite the slowdown of these FDI projects in 2018, GDP is expected to grow 3.7 percent due to a recovery in private credit, an expansion in public investment, and a boost in confidence from increased political stability,” says the IMF.
The Albanian government’s growth expectation for 2018 is at 4.2 percent, 0.5 percent higher than the IMF and 0.7 percent more optimistic compared to the World Bank’s forecast.
With TAP and the Devoll HPP completing their investment stage by 2018, Albanian authorities are already looking for new investment opportunities that would fill their huge gap of more than €200 million euros in annual FDI.
The two major energy-related projects have been the key drivers of FDI in the country in the past three years at a time when oil and mining investment almost paralyzed following a slump in commodity prices in mid-2014, with a negative impact also on the country’s poorly diversified exports.
With no major FDI projects in sight, the ruling Socialist Party government intends to fill the gap expected to be created starting 2019 with a package of incentives stripping luxury tourism investments of taxes for a 10-year period as well as a rather controversial €1 billion public-private partnership project to upgrade the country’s road, health and education infrastructure. The ambitious PPP project has already triggered concern over the benefits the country will have considering the troubled experience Albania has had with concessions, already costing taxpayers dozens of millions of euros in commitments the Albanian government has for specific services offered in key health sector as well as the customs scanning and waste management.
Experts say improving the business climate, fighting corruption, and reforming the highly perceived corrupt judiciary are key to making the Albanian economy more competitive in the Western Balkan region, which the World Bank estimates will need between three to six decades to catch up with the average EU income.
