TIRANA, June 19 – Albania’s exports are back to double digit growth rates this year thanks to the resumption of production by the country’s largest steel plant and a pickup in international oil and mineral prices.
Data published by state statistical institute, INSTAT, shows exports grew by an annual 16.7 percent to about 111 billion lek (€830 mln) in the first five months of this year fueled by a strong recovery in steel and oil exports and modest growth in garment and footwear sales, the country’s traditional top exporting industry.
The last time exports were growing at double digit rates was back in 2013 when oil prices were at their peak before the mid-2014 slump severely affected the country’s poorly diversified exports.
Back in the first five months of 2016, Kurum’s suspension of works and a sharp decline in commodity prices, extended the decline in Albania’s exports to 8 percent.
Turkish-run Kurum steel plant, which in early 2016 initiated bankruptcy proceedings, has resumed operations this year following a loan restructuring deal with its creditors. Kurum has been operating in Albania for about two decades mainly in steel production through its plant in Elbsan, central Albania, but also manages a container terminal concession in the country’s biggest port of Durres and owns four small and medium-sized hydropower plants which it purchased in 2013. Its debts to international and local creditors are estimated at more than Euro 200 million.
Meanwhile, oil exports have significantly picked up this year fuelled by a recovery in commodity prices, reactivating production and new drilling.
Crude Oil Brent prices currently stand at about $50 a barrel, up from a 12-year low of $30 a barrel in early 2016, but yet almost half of the peak level of more than $110 in mid-2014 just before the slump.
The INSTAT report shows the “construction material and metal” group had the key 5.5 percentage point contribution to the exports’ growth in the first five months of this year, followed by “minerals, fuel and electricity” with 5.1 percent and “garment and footwear” with 3.5 percentage points.
Due to a 10-year logging ban, “wood and paper” exports slightly contracted with a modest negative contribution to exports as the sixth largest group of exports. Exports of wood and wood products slightly dropped to 2.2 billion lek (€16.4 million) in 2016 when Albania introduced a 10-year logging ban, down from a record high of 2.5 billion lek (€18.7 mln) in 2015.
The garment and footwear industry, Albania’s traditional top exporting industry relying on cheap labour costs and whose overwhelming majority of products are destined for Italy, led the country’s exports in January-May 2017, accounting for 43 percent of total exports.
Second rank “mineral, fuel and electricity,” within which oil exports hold the lion’s share, with a 31 percent increase in the ‘first five months of this year, accounting for about a fifth of total exports.
Exports of “construction materials and metals” rose by a record 44 percent, to make up about 16 percent of the country’s total exports.
Albania’s exports registered modest growth of 0.1 percent in 2016 following a 5 percent decline in 2015 when they returned to negative growth rates after first contracting in 2009 soon after the onset of the global financial crisis.
The 2017 export prospects appear more optimistic as international oil prices are expected to slightly pick up with a positive impact on new drilling plans by oil companies.
Albania’s exports heavily rely on garment and footwear manufacturing as well as oil and base metals whose share in the country’s exports is estimated at two-thirds, making them vulnerable to international headwinds.
Imports, trade exchanges
Meanwhile, imports grew by 4.6 percent in the first five months of this year, slightly narrowing the country’s trade gap due to a more robust export growth and increasing the export to import coverage ratio to 46.6 percent.
Imports of “machinery, equipment and spare parts,” an indicator of domestic investment, grew by an annual 4.7 percent to about 50 billion lek (€372 million), mainly thanks to ongoing pipe imports for the major Trans Adriatic Pipeline project bringing Caspian gas to Europe, already in its peak construction stage in its Albania section. Imports of TAP pipes ended their contribution this month with the arrival of the last shipment.
Trade exchanges with top trading partners Italy, the destination of about half of Albania’s exports and 30 percent of imports, continued growing in the first five months of this year.
Exports also grew with traditional second trading partner, Greece, as the neighbouring country escapes its worst ever recession that saw its economy contract by about a quarter since the onset of the global financial crisis in 2008.
Trade exchanges with economic superpower China, which made some key acquisitions in Albania’s oil and air transport industries last year and emerged as the country’s second largest trading partner, also slightly grew. Chromium-dominated exports to China more than doubled in January-May 2017 while imports from China slightly fell.
Albania is net importer with exports covering only about 45 percent of imports.
Euro depreciation effect
The significant export growth comes at a time when the national currency has hit an 8-year high against Europe’s single currency with a negative impact on the country’s exports whose two-thirds are destined for Eurozone countries making them vulnerable to Euro fluctuations.
The euro dropped to as low as 133.18 lek this week in levels not recorded since August 2009, depreciating by about 5 percent compared to the average exchange rate of 140 lek for about five years until mid-2015. Europe’s single currency traded at about 138.3 lek in May 2016, depreciating by 3 percent year-on-year, significantly affecting the country’s exporters who incur a major part of costs in the national currency.
The sharp fluctuations have a huge impact on the local economy which faces high euroization rates, with the single European currency accounting for more than half of total credit and being the main currency in the real estate market.
In its latest monetary policy report, Albania’s central bank says the national currency’s appreciation against the Euro is a result of a pickup in exports, higher tourism income and foreign direct investment since the second half of 2016, increasing the supply of Europe’s single currency in the local market.
Some local experts have partly blamed the rising cannabis cultivation and the increased presence of Euro in Albania due to drugs sales abroad for the sharp depreciation of lek against the Euro.
