Albania’s current account gap narrows as tourism boom compensates slight FDI decline

TIRANA, Dec. 11 – Albania’s current account gap narrowed to €519 million in the first three quarters of this year, down 18 percent compared to the same period last year despite a slight contraction in foreign direct investment, according to data published by the country’s central bank.

A double-digit boost in exports and tourism revenue and a modest recovery in migrant remittances had a positive impact on Albania’s current account, a key indicator of a country’s economic health, measuring the flow of goods, services and investment into and out of the country.

The quarterly Bank of Albania balance of payments shows foreign direct investment, one of the country’s key drivers of growth in the past couple of years, slowed down this year as no new major projects are emerging to replace the key Trans Adriatic Pipeline and Devoll hydropower plant, already in their peak investment stage before completing by the end 2018.

FDI slightly dropped to €677 million in the first three quarters of this year, down by 4.25 percent or €30 million compared to the same period last year, in an expected slowdown for an election year that was preceded by a tense political situation ahead of the June 25 elections and uncertainties over the new government and its tax policy.

The Trans Adriatic Pipeline bringing Caspian gas to Europe and the Devoll Hydropower project by Norway’s Statkraft 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 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 services.

Another key indicator in the central bank’s balance of payments shows foreign companies operating in Albania increased the transfer of profits to their parent companies rather than reinvesting them in Albania.

Central bank data shows the transfer of profits climbed to €221 million in the first three quarters of this year, up from €150 million during the same period last year, registering a 47 percent hike.

The peak tourist season also proved positive for one of Albania’s most promising sectors bringing a record €1.3 billion in income for the first three quarters of this year when some 4.2 million tourists visited the country, according to central bank and INSTAT data.

Travel income rose by an annual 12.8 percent (€149 mln) in the first nine months of this year as the country’s patriotic dominated tourism lost some ground and more Central European tourists discovered the country, triggering a sharp hike in prices.

However, Albanians increased their spending in trips abroad to €974 million in the first three quarters of this year, up 12 percent compared to the same period last, limiting the contribution the travel and tourism industry had on the balance of payments to only €337 million.

Migrant remittances also slightly recovered to €464 million in the first three quarters of this year, up only €14 million compared to the same period last year, as the situation in neighboring Italy and Greece, the country’s main trading partners and hosts of about 1 million Albanian migrants slightly improved.

Still a key source of income for thousands of poor households, remittances slightly recovered for the third year in a row in 2016 when they climbed to €616 million, but remained about a third below their peak level of €952 million in 2007 just before the onset of the global financial crisis.

Albania’s exports also rose by 13 percent in the first three quarters of this year, fuelled by the resumption of steel exports, a moderate growth in the top garment and footwear exports and rising commodity prices increasing oil and mineral exports.

Source: Bank of Albania