Migrant remittances hit a record low in the second quarter of 2013 when at 105 million euros they registered the lowest quarterly level since 2004
TIRANA, Sept. 10 – Albania registered higher foreign direct investment in the first half of this electoral year, but migrant remittances and tourism revenue continued their downward trend, according to data published this week by the country’s central bank. The rising FDI in the first half of this year is good news for the Albanian economy which has been ranked as one of the top FDI recipients in the South East region.
However, the declining remittances reconfirm the ongoing spillover impacts from the Eurozone crisis and especially top trade partners Italy and Greece where around 1 million migrants live and work. The ongoing decline in tourism revenue since 2009 also reflects the crisis impacts and Albania’s deteriorating ranking in the Global Travel and Tourism Competitiveness Index.
Albania is expected to register higher growth in the second quarter of 2013 after growing by 1.7 percent in the first quarter of 2013 year-on-year. Experts say the first quarter performance indicates the Albanian economy will continue registering growth rates at around the same levels of 2012 when at 1.6 percent, the GDP recorded the worst annual rate since the collapse of the notorious pyramid schemes in 1997 when the economy shrank by 11 percent and almost half of the average 3 percent annual growth from 2009 to 2011.
In the first half of 2013, a 17 percent increase in exports and a 12 percent rise in government spending were the key drivers of growth at a time when domestic consumption, which is the traditional driver of Albania’s growth, suffered a slowdown as indirectly unveiled by the value added tax which dropped by 7.4 percent in the first half of the year.
Fuelled by a sharp rise in pre-electoral spending, Albania’s public finances are facing their worst ever situation since the notorious 1997 turmoil triggered by the collapse of the so-called pyramid investment schemes. Latest official data published by the Finance Ministry have reconfirmed the critical situation with the budget deficit which has more than doubled in the first half of this year, posing a new threat to the country’s high public debt already at 62 percent of the GDP.
Albania’s central bank expects the country’s economic growth to be only slightly higher compared to 2012. The forecast made by Albania’s central bank is in line with international financial institutions which expect the Albanian economy to grow between 1.5 to 1.8 percent compared to government’s projection of a 3.1 percent growth for 2013.
FDI grows by 12.3%
FDI, which in 2012 ranked Albania as the second largest recipient in South-East Europe, continued positively performing in the first half of this year. During the first half of this year, FDI rose to 446 million euros, up from 397 million euros in the first half of last year, registering a 12.3 percent increase. This is the best performance since the first half of 2009, when FDI registered a record 465 million euros. Foreign direct investment climbed to 249 million euros in the second quarter of 2013, up from 197 million euros in the first quarter of the year and 191 million euros in the second quarter of 2012. A UN report shows Albania attracted USD 957 million in foreign direct investment in 2012, down 7.6 percent compared to 2011, but remained the second largest FDI recipient among six transition economies of the South-East Europe after Croatia.
FDI 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 for the first time made Albania one of the largest FDI recipients in South East Europe.
Central bank data total FDI stock almost doubled in the past few years climbing from Euro 1.8 billion in 2007 to Euro 3 billion in 2011.
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.
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. 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.
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.
Migrant remittances at lowest levels since 2004
As crisis impacts in Italy and Greece escalate, Albanian migrants there striving to make ends meet, continue sending less money to their households in Albania. Migrant remittances hit a record low in the second quarter of 2013 when at 105 million euros they registered the lowest quarterly level since 2004. In the first half of 2013, migrant remittances dropped to 228 million euros, down from 341 million euros in the first half of 2012, registering the poorest first half performance since the first half of 2004 when latest Bank of Albania data are available. 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.
Migrant remittances whose overwhelming majority comes from neighboring Greece and Italy being a vital source for thousands of families in Albania, 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 euros 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.
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Italy and Greece, where more than 1 million Albanian migrants live and work, account for around 84 percent of remittances to Albania, Open Data Albania research centre says in a report referring to World Bank data
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 drop, spending on trips abroad increases
Albania continued earning less from the tourism sector despite the tourism authorities reporting around 1 million foreign tourists visiting Albania in the first half of this year, up 15 percent compared to the same period last year.
Tourism revenue in the second quarter of this year dropped to 227 million euros, down from 246 million euros in the second quarter of 2012 but was significantly better compared to the 171 million euros for the first quarter of 2013, according to Bank of Albania data.
During the first half of 2013, tourism revenue registered 398 million euros, down from 431 million euros in the first half of 2012, registering a 7.7 percent decline, in a performance similar to that of the first half of 2007 just before the onset of the global financial crisis.
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 revenues have been on a downward trend since 2009 when it registered its peak rate of Euro 1.3 billion.
Ethnic Albanians from Kosovo, Macedonia, Montenegro account for three-fifths of foreign tourists visiting Albania, according to a report published by the Tourism Ministry. Data show some 632,000 tourists from Kosovo, Macedonia and Montenegro visited Albania in the first half of this year, accounting for 60 percent of total foreign tourists.
Albanians’ spending in tourist trips abroad has also considerably shrunk in the past three years despite the visa free travel regime in force since December 2010.
Albanians increased their spending on trips abroad by 10 percent in the first half of this year,
Spending on trips abroad during the first half of this year rose to 465 million euros, up from 421 million euros during the same period in 2012, but travel expenditure in the first half of 2013 was lower even compared to the same period in 2009 when Albanians still needed visas to travel abroad.
In the second quarter of 2013, spending on trips abroad rose to 259 million euros, up from 206 million euros in the first quarter of the year and 240 million euros in the second quarter of 2012, 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.
Albania lost six places in the 2013 Travel and Tourism Competitiveness Index, ranking worse to its regional competitors mainly due to poor business environment and infrastructure. The report published by the World Economic Forum surveying 140 global economies ranked Albania 77th, compared to 71st a couple of years ago, with a total score of 3.97 on a 1-to-7 scale, sandwiched between Ukraine and Armenia, leaving behind only landlocked Serbia, Bosnia and Herzegovina and Moldova among European countries.
Transfer of profits
The transfer of profits during the first half of this year dropped to 107 million euros, down from 146 million euros in the first half of 2012. In the second quarter of 2013, foreign companies operating in Albania transferred home Euro 61 million to their parent companies, down from Euro 64 million in the second quarter of 2012 and Euro 46 million in the first quarter of 2013.Since the onset of the global financial crisis, foreign companies operating in Albania have considerably increased the transfer of profits to their parent companies. Bank of Albania data published in the current account balance sheet show some 264 million euros flowed out of Albania in transfer of profits by foreign companies operating in Albania in 2012, up 41 percent compared to last year.
In 2011, foreign companies transferred 187 million euros, down from 365 million euros in 2010 and 401 million euros in 2009, which is the peak rate of transfer of profits.
“Under these conditions the increase in transfer of profits implies that foreign companies are reinvesting their profits in Albania less and sending back more in cash profits to their parent companies affected by the debt crisis,” experts say.
The transfer of profits from 2004 to 2009 ranged from Euro 23 million to euro 64 million annually.
