The Albanian economy made further progress towards becoming a functioning market economy.
Albania fast economic growth of 6% was accompanied by a widening trade gap, which is weakening country’s external financing position. Albania was successful in containing inflation averaging 3% in 2008, within the set targets by Bank of Albania. Interest remained unchanged at 6.25%
The current account deficit of Albania reached 840 million euros (1.066 billion U.S. dollars), an increase of 60 percent compared to 2007. Sharp increase in commodities prices and a steep decrease in remittances from Albanians abroad were the main reasons of the widening of the country’s current account deficit
Albania’s parliament passed last month the country’s 2009 budget, cutting its budget deficit from 5.2 percent to 4.2 percent instead of 3.5 percent recommended by the International Monetary Fund (IMF). Revenue in the 2009 budget is expected to reach 2.7 billion euros (3.4 billion US dollars), while its expenditure is expected to reach 3.11 billion euros (3.95 billion US dollars) in 2009.
The fiscal policy was loosened as the country started to invest more in infrastructure. This was accompanied by progress in privatization and in improvements in business environment. Restructuring and privatization in the energy sector have yet to be accomplished and insecure energy supply continues to significantly hamper the economic development. Further considerable reforms need to be pursued in order to enable the economy to cope with competitive pressures and market forces with the union over the long term.
GDP growth is expected to remain at 6% in 2009, according to the Albanian Government, however, IMF expects a slow down in economic growth due to the international economic crisis, setting a more cautious GDP growth at 3.5-4% for 2009
Exports/Imports
Albania’s trade deficit increased by 29% in 2008. Imports run up to 2.9 billion euro for the ten months ending on Oct. 30, up from 2.48 billion euro of Jan-Oct 2007. Exports increased by 738 million euro, an 18 per cent increase from 2007.
The countries trade deficit was valued at 2.1 billion euro, fuelled by high imports in oil and electricity as well by the increase in imports of food.
The increased trade deficit and also increased exports derive from this year crisis in the international commodity markets.
Economic Data 2008
Inflation has averaged 3% through out 2008, kept within the 3.5-4% target set by the Bank of Albania. The estimated target for 2009 is set between 2.5-3%.
A week ago, INSTAT, claimed an annual growth of 9.9% of GDP, however, other sources insist on a real growth of 6 %. The Albanian Government has set
Foreign Direct Investments
Net foreign investments in Albania reached EUR 380, during first 3 quarters according to data from Bank of Albania data. Net foreign investments increased by 2.6 per cent compared to the same period 2007. The major part of foreign investments inflows, almost 64 percent, derived from the investments in the financial sector, mainly with the commercial banks. Banks invested EUR 210 million, almost double compared to the previous year. Investments in petroleum research and development attracted EUR 60 million of direct foreign investments in the country. Investment in telecommunication has been fallen over the 9 month period due to the profit allocation of companies operating in this sector, as dividends
This year saw the introduction of Albania’s third mobile operator, Eagle Mobile, and 2 global real estate franchises, Century 21 and RE/Max entered the Albanian market
Property rights
The issue of land property remains an impeding factor in attracting Foreign Direct Investments as well as domestic investments. Although there have been significant improvements made in the procedures of dealing with land property and their transparency nonetheless the problem remains complex and requires many more years of efforts for a stronger judicial system and an improved legislation, in order to reach a final solution for this problem.
Business regulation
The latest World Bank and IFC report “Doing Business 2009” ranked Albania second among countries which undertook reforms during 2007-08 to make doing business easier. In four of the 10 areas assessed by the report between June 2007 and June 2008, Albania saw key reforms that have simplified and eased regulations in three areas: starting a business, protecting investors, and getting credit. Its overall rank on the ease of doing business index climbed to 86 from 135, putting Albania on par with other countries in the sub-region.
However, the improvements that underpin Albania’s performance in the Doing Business ranking were based mainly on “stroke of the pen” reforms, passage of laws, while the remaining areas of reform are heavily dependent on implementation. Corruption, where Albania continued to rank in the top places of the global list provided by Transparency International Corruption Report, and a weak judiciary system continue to undermine the effectiveness of the reforms taken so far.
Privatizations
Major deals involving large scale public assets belonging to strategic sectors were concluded in 2008
In September, the state-run ARMO oil company sold 85% of its shares, worth 130 million Euros to a consortium comprising Texas-based Refinery Associates of Texas, and Geneva, Switzerland-based Mercuria Energy Group Ltd., and Anika Enterprises & Amra Oil Company. The buyers have promised 240 million euro in investments starting from January 2009.
Also in September, CEZ won the tender to privatize a 76% stake, worth 102 million Euros (US$143.7 million), in OSSH (Distribution System Operator), the distribution arm of state-owned power utility KESH. CEZ is expected to invest 425 million euro in OSSH, including the 102 million euro for the 76% stake, with the Czech utility slated to pay OSSH’s outstanding debt of 15.6 billion leks (US$178 million) as well as invest at least 200 million euro in the distribution network in the first five years of operation after the sale. The Czech utility has much scope for improving Albania’s distribution network, as line losses on the system are estimated at 35-40%, while payment collection is only about 83% of the total power billed to Albanian consumers.
The Albanian Insurance Company, INSIG, the only public Albanian insurance company, was finally privatized by the American company of Texas, American Reserve Life Insurance. The American company won the bid by offering the highest price of 25 million Euros, buying 61 percent shares of INSIG.
In October, the Albanian government drew a list of minority stakes that it hold in different privatized companies, and expressed intention to sell them in the next few months.
Government owns important stakes in Mobile Operator AMC, telecommunication giant Albtelecom, Power Distribution Utility OSSH and other, stakes that range from 12.5% to 24%. Such shares have not yielded important dividends in the past, because Albania lacked legal protection for minority shareholders. Prime Minister Sali Berisha declared that wants to sell all minority stakes, because of his belief on open market economy.
Energy Sector and concessions
While the privatization of OSSH is intended to ensure that power generated by KESH actually gets to consumers, the Albanian government also made some progress towards ensuring that enough power is actually generated to meet the needs of the domestic market. The government clinched in September a 160-million-euro deal with Verbund to build a new hydropower plant (HPP) on the Drin River in northern Albania, the fourth HPP on the river but the first in 30 years.
Austria’s EVN and Noway’s Statkraft signed in December a euro 950 million euro deal with Albanian government for the construction of power storage and a chain of three hydro power plants in Devoll River in Albania with the capacity of 339 MW and a projected annual production of 939 GWh. currently the biggest Hydro Power Project in Europe and it is expected to increase GDP with 2% while also opening 7500 new jobs.
The bid for another important HPP, Skavica, was opened on Wednesday and the winner is expected to be announced early in January 2009.
Overall, Albania has signed more than 100 concessionary agreements for small hydro power plants
A new deal was signed between Italy and Albania early this month involving two major energy contracts worth 2 billion Euros ($2.5 billion). The deals, the deals נfor a wind farm and a gas-powered electricity plant נwill help ease the country’s acute energy problems and provide power for the international market.
The power factory, coupled with a plant to regassify liquid natural gas, would be built at a cost of euro800 million ($1.02 billion) near Fieri, 62 miles (100 kilometers) south of the capital Tirana, by Italy’s Falcione group.
The euro1.2 billion ($1.52 billion) wind farm will be built by Italy’s Moncada Energy Group Srl in the Karaburun peninsula, 93 miles (150 kilometers) southwest of Tirana.
The deals will involve the building of a power cable running under the Adriatic Sea to connect the two countries’ electricity networks.
