With only 1 million Euro until 2007, Canada has emerged as the top foreign investor in Albania mainly due to huge investments in the oil extraction industry and mining by several companies, taking over even traditional partners such as neighbouring Greece and Italy
By Ervin Lisaku
TIRANA, April 2 – Foreign direct investment, migrant remittances and tourism revenue had a smaller impact on Albania’s growth in 2012 when the country registered a 1.6 percent growth, the lowest since the collapse of the notorious pyramid schemes back in 1997.
Bank of Albania data show FDI inflows remained at exactly the same 2011 levels in 2012 affected by sluggish investments from the crisis-hit Eurozone partners. Migrant remittances slightly recovered compared to 2011, but yet registered a sharp decline compared to their peak levels in 2007, just before the onset of the global crisis. Meanwhile, tourism revenue continued dropping despite the boom in tourists reported by government authorities.
With an average growth rate of 1.6 percent in 2012, the Albanian economy is reflecting clear signs of crisis from the Euro area partners and developments at home where domestic consumption and exports remain sluggish, and public debt now beyond the previous legal ceiling of 60 percent of the GDP poses a real threat to the country’s macroeconomic stability.
Facing a sharp drop in revenues, the Albanian government has been forced to revise downward its overoptimistic GDP growth rates and increase debt levels several times. The latest review was made last January in the 2013-2015 economic and fiscal programme where the GDP growth forecast for 2012 was cut to 1.5 percent down from an overoptimistic 4.3 percent targeted in the initial 2012 budget. Meanwhile, public debt, whose 60 percent of the GDP ceiling was lifted in late 2012, is expected to rise from 61.9 percent in 2012 to 63.8 percent at the end of 2013.
The Albanian government expects growth to accelerate from 3.1 percent in 2013 to 4.1 percent in 2015, twice higher compared to what international financial institutions have forecast.
FDI stagnates
Foreign direct investment, one of the key sources of Albania’s growth in the past few years, stagnated in 2012 when it registered Euro 745 million, exactly the same level compared to 2011 but lower compared to the peak inflow of Euro 793 million in 2010, which made Albania one of the largest FDI recipients in South East Europe.
Central bank data total FDI stock has doubled in the past five years climbing from Euro 1.8 billion in 2007 to Euro 3 billion in 2011.
Data show that monetary and financial intermediation has attracted the largest FDI inflows with a total stock of 701 mln Euros in 2011, up from 588 million in 2007, accounting for 23 percent of FDI inflows. Second comes the extractive industry with 630 million Euros, almost double compared to 2010 when it stood at only 326 million euros, and a mere Euro 10 million in 2007. The manufacturing industry ranks the third most important sector for attraction of FDI with a total of Euro 473 million until 2011, up from 415 million in 2010 and 227 million in 2007.
FDI stock in the post-telecommunication sector dropped to Euro 351 million in 2011, down from 361 million in 2010 and 555 million in 2007. FDI in the generation and distribution of electricity and gas climbed to Euro 200 million in 2011, up from Euro 118 million in 2010 and 10 million in 2007.
The construction sector which has been in crisis since 2007 saw its FDI stock drop to Euro 186 million in 2011, down from 227 million in 2010.
The agriculture sector which accounts for 19 percent of the GDP and employs almost half of the country’s population is one of the least attractive sectors for foreign investments with total FDI in 2011 at only Euro 4 million, down from 7 million in 2010.
FDI in hotels and restaurants dropped to Euro 70 million in 2011 down from Euro 76 million in 2010 and Euro 94 million in 2007.
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 was 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.
Canada takes over as top foreign investor
With only 1 million Euro in 2007, Canada has emerged as the top foreign investor in Albania mainly due to huge investments in the oil extraction and mining by several companies, taking over even traditional partners such as neighbouring Greece and Italy.
Bank of Albania data show Canadian FDI in 2011 climbed to Euro 566 million, up from Euro 294 million in 2010 and Euro 102 million in 2009. Already present and successfully operating in the oil and mining industry, Canadian-based companies are showing increased interest in boosting their investments in Albania.
While Canadian companies such as Bankers Petroleum, Petromanas and Stream Oil invest heavily in oil and gas development in Albania, Tirex Resources and Empire are involved in mining. Canada is officially represented in Albania through its embassy in Italy.
Crisis-hit Greece, the second most important trade partner and top foreign investor until 2010, dropped to the second most important FDI partner with Euro 525 million in 2011, down from Euro 620 million in 2010, and Euro 521 million in 2007 just before it plunged into its worst ever 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.
Austria ranks the third most important partner for FDI inflows with a total of Euro 472 million in 2011, up from Euro 375 million in 2010 and Euro 147 million in 2007 with top investments in the banking, insurance and hydropower plants.
Fourth comes top trade partner Italy with 372 million euros in 2011, the same as in 2010 but higher compared to 220 million euros in 2007. 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.
Turkey and the Netherlands rank fifth and sixth with Euro 282 million and Euro 249 million respectively with investments in banking and energy projects.
Migrant remittances
On a falling trend since the onset of the global financial crisis in 2008, migrant remittances slightly increased to 675 million euros in 2012, up Euro 10 million compared to 2011, but were significantly lower compared to their peak rate of Euro 952 million in 2007.
On a constant falling trend, migrant remittances whose overwhelming majority comes from neighboring Greece and Italy being a vital source for thousands of families in Albania, have dropped by 30 percent from 2007 to 2012.
Bank of Albania data show Albanians sent 665 million euros in remittances in 2011, down from 690 million in 2010 and 781 million in 2009, 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 impacts in their host countries during the past three 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.
Back in 2007, just before the outbreak of the global crisis remittances accounted for 12.5 percent of the GDP, compared to 7.4 percent of the GDP in 2011.
Remittances 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. 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.
Tourism revenue
Tourism revenue declined for the third year in a row in 2012 despite government reporting a significant boom in the number of tourists visiting Albania. Central bank data show tourism revenue in 2012 slightly dropped to 1.145 billion Euros, down Euro 24 million or 2 percent compared to 2011.
Affected by crisis, tourism revenue have been on a downward trend since 2009 when it registered its peak rate of Euro 1.3 billion. Albanians’ spending in tourist trips abroad has also considerably shrank in the past three years despite the visa free travel regime in force since December 2010.
Central bank data show Albanians spent 1 billion euros in trips abroad in 2012, down from Euro 1.169 billion in 2011 and Euro 1.227 billion in 2010.
Albanian continues having a disproportion between the number of tourists visiting it and revenues generated from it. Tourism Ministry data show Albania was again visited by more tourists in 2012 but Bank of Albania statistics reveal tourism revenues continued their downward trend for the third year in a row. The ongoing disproportion implies either the Albanian government is intentionally increasing the number of arrivals or tourists to Albania affected by the crisis in their host countries are spending less.
For 2012, the Tourism Ministry reports a record 3.4 million foreign tourists, up 26 percent compared to 2011, visiting Albania which is 21 percent more than the 2.8 million resident Albanians identified by the latest population census in 2011.
In its annual report, the Tourism Ministry says 4.7 million people visited Albania in 2012 of whom 3.4 million were foreigners and 1.3 million migrants, who are described as non-residents holding Albanian citizenship. Data show some 65 percent of foreign tourists come from Kosovo, Macedonia and Montenegro where ethnic Albanians are the majority or second largest communities with local experts often referring to this sector of the market as ‘patriotic tourism.’
The Greeks account for 7 percent, followed by Italians with 4 percent and the Germans with 2 percent.
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.
