INSTAT data show the garment and footwear industry, Albania’s top exporter for the past few years, lost its lead position after the shrink widened to 4.3 percent
TIRANA, May 28 – While Albania’s exports performance considerably recovered in Jan-April 2012, imports slightly shrank confirming the sluggish domestic demand, which is the key driver of the Albanian economy. Latest data published by the country’s Institute of Statistics, INSTAT, show exports for the first four months of this year continued registering negative growth rates, but considerably narrowed the gap compared to the first quarter of 2012. In Jan-April 2012 exports reached around 63.4 billion lek (Euro 446 million, USD 561 mln), down 3.8 percent compared to the same period last year. During the first quarter of 2012, exports shrank by 12 percent year-on-year due to sluggish demand from EU countries, the destination of 80 percent of Albanian exports. Lack of electricity exports and the huge imports to meet the country’s needs during Jan-April 2012 considerably deteriorated the situation. In early 2011, Albania exported 9.2 million euros of electricity, according to a report by the Energy Regulatory Entity.
The improvement of hydro situation in hydropower plants, which account for 100 percent of domestically-generated power, and the resumption of electricity exports in late May 2012 are expected to further improve Albania’s trade balance in the coming months.
INSTAT data show the garment and footwear industry, Albania’s top exporter for the past few years, lost its lead position after the shrink widened to 4.3 percent. At 20.7 billion lek for Jan-April 2012, garment and footwear exports, 88 percent of which have Italy as their destination, now rank the second most important after “minerals, fuel, electricity” which now top the export list with 21.8 billion lek and no electricity exports during this period.
Albania’s third top exports, “construction materials and metals” shrank by 30 percent to 10.2 billion lek in Jan-April 2012.
Exports to top trade partner Italy, the destination of more than half of Albanian exports, have been only slightly affected by the crisis there. Exports to Italy in Jan-April 2012 rose by 13 percent y-o-y to 36.5 billion lek, accounting for 57 percent of the total exports. Meanwhile, exports to Greece, the country’s second most important trade partner rose by 10 percent to 3.4 billion lek, accounting for only a 5 percent share. Greece is the second most important partner for imports with trade exchanges accounting for 12.5 percent of the total.
Spain surprisingly ranks the second most important destination of exports followed by Kosovo accounting for 9 percent and 6 percent respectively.Exports to Turkey and China halved in the first four months of this year.
Meanwhile, imports registered a negative growth rate of 2 percent for the first time this year despite huge electricity imports. “Food, beverage and tobacco” imports stood at identical levels of 29 billion lek in Jan-April 2012, reconfirming the freeze in domestic consumption in a country which is a net importer. “Mineral, fuel and electricity” imports during this period jumped by 36 percent to 35 billion lek, ranking first in the import list.
The performance of imports also reveals the difficult situation businesses are facing with investments. INSTAT data show imports of “machinery, equipment and spare parts” dropped by 7.3 percent to 30 billion lek in Jan-April 2012 compared to the same period in 2011.
Prospects
The poor performance of the Albanian economy in early 2012 and rising pessimism by both businesses and consumers is also confirmed by latest government data.
Latest Finance Ministry data show profit tax shrank by 18 percent to 6.3 billion lek in Jan- April. VAT and excise taxes, two indicators measuring domestic consumption, have also shown slow progress in early 2012. VAT collection in Jan-April 2012 rose by only 1.46 percent to 35.3 billion lek while excise taxes rose by only 0.4 percent to 10.3 billion lek. Both these taxes account for almost half of total government revenues.
A recent report by London-based EBRD has shown Albania’s strong trade, investment and remittance ties to Greece and Italy are likely to continue to hold back growth in the coming year, while public debt close to the statutory limit of 60 per cent of GDP limits the room for fiscal manoeuvre.
The Albanian government’s projection of the 2012 growth being stimulated by domestic private consumption and investments, on a falling trend since 2011 remains an overoptimistic scenario little likely to achieve the target for 4.3 percent economic growth rate at a time when the IMF says Albania will hardly manage to escape recession.
“In 2012, economic growth is expected to arise mainly from domestic private consumption and investment, while foreign demand is projected to have a lower contribution. Moderation in the pace of government spending will also lower its contribution to GDP,” says the Finance Ministry in its latest review of the 2012 economic and fiscal program. The projections run even counter to findings of state institutions such as INSTAT and the Bank of Albania which show that retail sales and business and consumer confidence remain pessimistic.
Exposure to Greece, Italy
Sovereign debt crisis in Greece has shown little impact on the Albanian economy due to the limited role Greece plays in exports and imports and due to the recent flexibility shown by exporting firms to diversify geographically, says the Finance Ministry in its 2012-2014 economic and fiscal programme. Exposure to Greece is small. Foreign direct investment from Greece has been declining in recent years, although total foreign direct investment has increased. Foreign banks with Greek capital operating in Albania are well capitalized but the share of their assets to total banking assets has been declining in recent years. Their portfolio of loans has been reduced and other banks have increased their market share. From this aspect, the effect of the debt crisis in Greece in the real economy is expected to be limited, says the Finance Ministry.
However, the exposure of Albanian economy toward the Italian economy is greater. The share of Albanian exports to Italy is significant bigger at over 50 percent. Until now, financial problems in Italy have had little impact on trade, possibly due to the fact that this country is not always the ultimate destination of Albanian exports. Further deterioration in Italy would have a major impact on our economy. Remittances, which are used mainly to finance household consumption, are expected to fall significantly (in combination with those from Greece). Influence through foreign direct investment is expected to be smaller, as FDI from Italy decreased and their share of Albania’s GDP is relatively small.
