The impacts were felt during the whole of 2011 as domestic consumption, the key driver of Albania’s economy, failed to recover, and the GDP grew by moderate 2 to 3 percent rates compared to an average of 6 percent annually until 2008
By Ervin Lisaku
TIRANA, April 2 – Foreign direct investment, remittances and tourism revenue registered a decrease in 2011, reflecting Albania’s exposure to the escalation of the crisis in Greece and Italy, the country’s top trade partners and investors, also hosts to more than 1 million Albanian migrants. The latest data published by Albania’s central bank show FDI, which until 2010 registered consecutive growth rates making Albania the second largest recipient in South-East Europe, were the hardest hit in annual terms suffering a 6.5 percent shrink. Tourism revenue and migrant remittances also dropped by 4.7 percent and 0.3 percent year-on-year respectively, but were far worse compared to their peak levels in 2009 and 2007.
The impacts were felt during the whole of 2011 as domestic consumption, the key driver of Albania’s economy, failed to recover, and the GDP grew by moderate 2 to 3 percent rates compared to an average of 6 percent annually until 2008.
While FDI might experience an increase this year mainly due to the privatization of some major wholly state-owned assets, such as oil company Albpetrol, expectations for migrant remittances and travel income remain grim. Albania’s 2012 prospects are further deteriorated by the public debt standing at the legal limit of 60 percent of the GDP, bad loans at 19 percent, and a lower contribution of exports which during the first two months of this year shrank by 20 percent. Government revenues are also underperforming as internal demand remains sluggish and both consumers and businesses remain pessimistic.
Albania’s economy grew by 2.7 percent during the first three quarters of 2011, according to latest INSTAT revised data. While government expects a 4.3 percent growth rate for 2012, international financial institutions such as the IMF and the EBRD says Albania’s economy will grow by 0.5 percent to 1.2 percent, citing spillover impacts from the Eurozone debt crisis and especially Greece and Italy, Albania’s top trade partners.
FDI, Greece biggest investor
After peaking in 2010, foreign direct investment registered a turning point last year when they fell to Euro 742 million, down from a record 793 million euros back in 2010, which made Albania the second largest recipient in SEE after Serbia.
Bank of Albania data show FDI in 2011 dropped by 6.5 percent coming on downward trend for the first time since 2005.
Detailed central bank data show Greece remains the key foreign investor in Albania despite being in recession since 2008. Greece’s total foreign investments at the end of 2010 were estimated at 724 million Euros, down from 771 million euros in 2007 before the neighbouring country plunged into recession. Greek businesses are present in almost every sector of the Albanian economy, including strategic ones such as telecommunications, the banking system, energy, industry, construction, trade and tourism, significantly contributing to the country’s economic growth.
Second comes, Italy with 401 million Euros of FDI at the end of 2010. FDI inflows from Italy the country’s top trade partner, and the destination of 50 percent of Albanian exports have been on a rising trend climbing from Euro 213 million in 2007 to Euro 401 million in 2010, according to BoA data. Italian businesses are also actively engaged in the country’s top sectors such as banking, industry, and the footwear and garment manufacturing which produces Albania’s top exports.
The Bank of Albania data rank Austrian companies as the third biggest foreign investors in Albania with Euro 362 million, mainly in the banking and energy sector, followed by Canada with 280 mln Euro, mainly in oil exploration and production investments. Turkey ranks fifth with a total of 279 mln Euros of FDI at the end of 2010, mainly in the telecommunication, banking and industry sectors.
Data show that monetary and financial intermediation has attracted the largest FDI inflows with 651 mln Euros, followed by the processing industry with 417 mln Euros and post-telecommunication and the extractive industry with 363 and 331 million euros respectively.
Experts say that apart from crisis impacts making foreign companies more cautious about new investments, the ongoing political crisis in 2011 and failure to approve important laws, such as the administrative courts bill, have also influenced.
A recent UN report shows FDI inflow in Albania grew by four times in a six-year period, rising from a mere 264 million dollars in 2005 to around 1.1 billion dollars in 2010. However, the quadruple of FDI has been unable to lower the unemployment. The official unemployment rate in 2005 was at 14.1 percent and dropped to 13.5 percent at the end of 2010.
Tourism revenues
Despite government reporting a boom in tourists visiting Albania in the past couple of years, tourism revenues have not followed the same trend. Bank of Albania data show travel income dropped for the second year in a row after a record 1.3 billion euros in 2009. For 2011, the Bank of Albania reports around 1.17 billion euros in travel revenues, down 4.7 percent and 11.3 percent respectively compared to 2010 and 2009.
Official data published by the Tourism Ministry show some 4 million non-residents visited Albania in 2011, of whom 2.7 million foreign tourists and the remaining 1.2 million Albanian migrants residents abroad.
Boosted by the visa-free travel regime in the Schengen area in force since mid-December 2010, Albanians spent more in trips abroad in 2011 but yet less than in 2009 when they were required visas to travel abroad. Bank of Albania data show travel expenditure in 2011 rose by 8.7 percent to 1.12 billion euros, but was down 12 million euros compared to 2009 when the global crisis started being felt in Albania.
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.
Remittances
On a falling trend since 2007, migrant remittances whose overwhelming majority comes from neighboring Greece and Italy, showed stability in 2011 when they dropped by only 0.3 percent compared to 2010 but were 28 percent down compared to their peak level back in 2007 just before the outbreak of the global crisis.
Bank of Albania data show Albanians sent 688 million euros in remittances in 2011, down from 690 million in 2010 and 952 million in 2007, registering their lowest level during the past seven years. An estimated more than one million Albanian migrants both in Greece and Italy have been facing severe crisis in their host countries during the past couple of years, leading a considerable number of them to return home either permanently or temporarily because of job cuts in the construction and industry sectors where they mostly 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.
