The country’s central bank reports a 25 percent drop in foreign direct investments, a 42 percent shrink in remittances and a slight 8 percent fall in tourism revenues for the first three quarters of 2011 y-o-y.
By Ervin Lisaku
TIRANA, Dec. 12 – Lower foreign direct investments, remittances and tourism revenues during the first three quarters of this year, in addition to other major wounds such as rising cost of public debt at it legal limit of 60 percent of the GDP, and retail sales on a falling trend for more than one year are the clearest indicators of the tough moments Albania is facing in these times of global crisis. The deterioration in these indicators is confirmed by data published by state institutions such as the Bank of Albania and INSTAT, often criticized even by international financial institutions such as the IMF for the reliability of statistics.
With only two weeks to go before 2011 closes, Albania’s state Institute of Statistics, which conducted a population and housing census last October and is now processing the data, has published the GDP growth for only the first quarter of this year at a time when EU-member countries have already made available economic growth progress even for the third quarter of 2011. INSTAT was supposed to publish the GDP growth for the second quarter of 2011, in Sept. 30, according to its calendar of publications.
Frequent budget cuts during the past couple years, at a frequency of twice a year occurring in mid and end of the year, because of overoptimistic projections will probably result overoptimistic even at the end of this year. Government has lowered its GDP projection for 2011 to 3.9 percent, the same to what INSTAT reported for 2010, but the downgrade comes from a 5.5 percent target at the beginning of this year with a budget cut already having been made last July and a new one scheduled for this month. Government’s 2012 GDP growth forecast is also almost twice higher compared to what international financial institutions such as the IMF, the World Bank and the EBRD predict for the Balkan country.
The escalation of the Eurozone debt crisis with Italy and Greece, Albania’s top trade partners in severe difficulty and currently run by caretaker governments, has already blocked Albania’s prospects of selling Euro-bonds in international financial markets for the next two years as yields stand at record highs.
With public debt standing at the legal ceiling of 60 percent of the GDP, bad loans at 18 percent of the total credit portfolio, and remittances on a falling trend since the 2008 global crisis, the ongoing drop in retail sales is another sign of the crisis impacts Albania is facing. In a publication delayed by more than two months, INSTAT reveals that retail sales continued dropping for the fifth quarter in a row, registering a 6.9 percent fall in the second quarter of this year. Employment in this sector shaped by mostly small independent shops and open markets of self-grown products dropped by 1.1 percent compared to the second quarter of 2010.
The latest data published by the Bank of Albania in its current and financial accounts quarterly reports make Albania’s economic outlook even grimmer with two important indicators of growth such as FDI and remittances registering sharp double-digit decreases. The country’s central bank reports a 25 percent drop in foreign direct investments, a 42 percent shrink in remittances and a slight 8 percent fall in tourism revenues for the first three quarters of 2011 y-o-y. Failure to have more revenues in the tourism industry this year might also be explained with Albanians spending more abroad following the liberalization of visas in mid-December 2010. BoA data show Albanians spent only 10 percent more in trips abroad during the first nine months of this year, mainly in tourist trips but also to meet their relatives in Greece and Italy where an estimated more than one million Albanians live and work.
FDI
After a boom in 2010, foreign direct investment during the first three quarters of this year shrank despite a mass privatization campaign government has launched. The escalation of the Eurozone crisis and the slowdown in the Albanian economy might have also influenced. Latest Bank of Albania data published this week show FDI dropped by 25 percent to 440 million euros in first nine months of this year, compared to 585 million euros during the same period last year. The FDI share to the GDP also dropped to 4.7 percent down from around an annual 10 percent in 2010.
FDI in the third quarter of 2011 dropped to 203 million Euros, down from 234 million euros in the previous quarter and 253 million Euros in the third quarter of 2010.
Foreign direct investment registered significant growth in the second quarter of 2011, climbing to 243 million Euros, up from 59 million Euros in the first quarter of 2011 and 170 million Euros in the second quarter of 2011. Bank of Albania data show FDI in the second quarter of 2011 grew by 43 percent year-on-year and was four times higher compared to the first quarter of this year. The ongoing political crisis and its escalation during an anti-government protest in January 21, also influenced the FDI retraction in early 2011.
Government has identified 1,280 public assets including strategic enterprises it intends to privatize by the end of this year. The privatization list includes remaining state owned shares in strategic oil, and phone companies, small hydropower plants, military facilities and small and medium-sized enterprises, except for big hydropower plants and dams, schools, hospitals and public buildings and offices which will remain under state ownership.Privatization in key sectors such as banking, telecommunications and energy has been the main source of FDI. So far the government has retained no special rights or ‘golden shares’ when privatizing strategic companies, though the existing legislation allows it to.A United Nations report has recently announced Albania as the second largest FDI recipient in Southeast Europe after Serbia.Foreign Direct Investment (FDI) flows in 2010 rose to more than USD 1 billion for the first time ever. Albania’s deputy Economy Minister Enno Bozdo said 44.5 percent of FDI has been used in industrial exploration and construction while the remaining 55 percent in services, transport, telecommunications, financial services and trade.The report shows FDI inflow has grown by four times during the past 6 years, rising from a mere 264 million dollars in 2005 to around 1.1 billion dollars in 2010. FDI inflows registered a slight drop only in the 2009 when the global crisis broke out registering 979 million dollars, from 988 million dollars in 2008. However, the quadruple of FDI has been unable to lower unemployment. The official unemployment rate in 2005 was at 14.1 percent and dropped to 13.5 percent at the end of 2010.
Remittances
Migrant remittances, one of the main sources of income for thousands of poor families continued their downward trend even in the third quarter of this year, registering their lowest quarterly level for the past seven years as Albanian migrants face crisis effects in their host countries. Official Bank of Albania data published this week in the current account show migrant remittances during the first three quarters of 2011 dropped by a record 42 percent to 475 million Euros, compared to 999 million Euros during the same period last year.
In the third quarter of 2011 remittances stood at almost the same levels y-o-y dropping by only 2 million Euros, but fell sharply compared to the second quarter of 2011 (second quarter remittances were at 189 million euros) despite the boom of migrants coming home to spend their holidays.
At 475 million euros during the first three quarters of this year, remittances currently stand at 5 percent of the GDP, compared to an annual 15 percent of the GDP a couple of years ago.
Migrant remittances in 2010 registered their lowest level of the past seven years. Central bank data show remittances dropped by 12 percent to 690 million Euros in 2010, down from 781 million Euros in 2009 and 774 million Euros in 2004 when the Bank of Albania first started reporting remittance data. Migrant remittances registered their highest level in 2007 at 952 million Euros, before declining ahead of the global crisis in 2008 and 2009, when they fell to 833 and 781 million Euros respectively. Another study carried out by the Bank of Albania has found that remittances, one of the main sources of income for thousands of families in Albania, are very sensitive to the economic activity in the Eurozone, where most Albanian immigrants live and work. Remittances also constitute a critical driver of Albania’s domestic demand. Estimates suggest that for the overall economy (excluding agriculture) a 10 percent decline in remittances would lead to a 3.6 percent reduction in domestic demand, as provided by the index of sales. The sectors affected the most by remittances are construction, services and food, which are also the key contributors to Albania’s GDP. It is believed that the sharp contraction in construction has partly been a result of declining inflows from workers abroad. Experts say remittances will continue to decline because most immigrants are creating their own families abroad and often even taking their parents with them.
Tourism revenue/expenditure
Differently from what was expected, the rise in number of tourists reported by the government during this year has not produce more revenues for the tourism sector in Albania. Official Bank of Albania data published this week show tourism revenues suffered another blow in the third quarter of this year, the peak of the tourist season when they dropped by 9 percent to 469 million Euros, compared to 534 million during the same period in 2010. The third quarter revenues for this promising sector of the Albanian economy are even lower to the same period in the crisis year of 2009 when tourism revenues yet managed to register a significant increase.
In total, tourism revenues during the three quarters of this year stand at 884 million Euros, 76 million Euros less or 9 percent down compared to the same period in 2010.
The Bank of Albania statistics come at a time when government has announced a considerable increase in the number of foreign tourists visiting Albania in early 2011, but has not published official statistics for the third quarter of this year yet. Latest official data published by the Tourism Ministry show the number of foreign tourists entering Albania during the first five months of this year grew by 40 percent to 567,835compared to 404,442 a year ago.
While the number of foreign tourists to Albania during the past five years has more than doubled, revenues from tourism, the most promising industry for Albania, have increased by only 50 percent. Tourism Ministry data show the number of foreign tourists visiting Albania from 2006 to 2010 increased by around 2.5 times reaching 2.3 million in 2010, up from 926,000 in 2006. Meanwhile, Bank of Albania data show revenues from tourism during this period have increased by only 52 percent, climbing to 1.2 billion Euros in 2010, up from 805 million Euros in 2006.
The disproportion between visitors and revenues has been more obvious in the past couple of years when the number of tourists to Albania increased by more than 20 percent per year while revenues rose by 11 percent in 2009 and shrank by 6 percent in 2010.
One of the reasons behind these statistics is that a considerable number of tourists, around half of them, come to Albania as transit visitors or spend only a single day. Experts say that Albania needs to further promote and develop mountain and cultural heritage tourism in order to keep tourism and its revenues growing.
Infrastructure, service quality and waste pollution in tourist sites are some other issues which need to further be addressed. Albania currently relies mostly on coastal tourism and has the majority of its foreign tourists during summer.
Travel expenditure
Travel expenditure during the third quarter of this year climbed to 386 million Euros, up from 260 million Euros in the second quarter of this year and 362 million Euros during the second quarter of 2010. The visa liberalization regime in force since mid-December 2010 has played a minor role since travel expenditure during the first three quarters of this years have risen by only 10 percent to 864 million euros, reflecting citizen’s saving trend to spend money for holidays abroad and even meet their relatives abroad.
