TIRANA, Dec. 15 – Foreign direct investment and migrant remittances suffered a setback in the third quarter of the year while tourism revenue only slightly recovered, widening the gap in the in the current account, an important indicator about the economy’s health measuring the difference between a country’s savings and investments.
Data published by the country’s central bank shows foreign direct investment registered a slight decline in the third quarter of 2015 when it dropped by 10 percent to €232 million. Energy and oil and gas accounted for the overwhelming majority of 83 percent of total FDI inflows during the third quarter of the year followed by the banking and telecommunication sector with 10 percent.
However, FDI in the first three quarters of this year climbed to €721 million, up from €623 million during the same period last year after major energy projects were launched.
FDI prospects for 2016 seem more optimistic as the major Trans Adriatic Pipeline bringing Caspian gas to Europe has already launched its construction works in its Albania section and Norway’s Statkraft continues the construction of Devoll hydropower plant, the biggest investment in renewably energy in the past three decades in Albania.
TAP, which is expected to bring gas to Europe through Greece, Albania and Italy will generate one of that Albania’s largest FDI projects, with important benefits for a number of industries, including manufacturing, utilities and transport, experts say
Revised Bank of Albania data shows FDI dropped to €869 million in 2014, down from a historic high of €946 million in 2013.
Albania was the second largest recipient of foreign direct investment among EU aspirant regional countries for the fifth year in a row in 2014, but the FDI stock remains the lowest compared to four other regional competitors, according to a report by UNCTAD, the United Nations body responsible for international trade.
The telecommunication, manufacturing and extractive industries have attracted around half of the FDI stock in Albania during the country’s past two decades of transition into a market economy after the collapse of communist regime and its planned economy.
Greece, Canada, Switzerland, Austria, and Italy are the biggest foreign investors in Albania.
Tourism revenue
Tourism revenue registered only a modest recovery in the third quarter of the year at the peak of the tourist season. Travel revenue during this period increased by only 3.5 percent to €415 million due to a decline in tourists’ overnight stay despite the number of foreign tourists climbing by 12 percent, says the central bank. Albania was visited by almost 1.5 million foreign visitors during the first half of this year, according to state statistical institute, INSTAT.
In total, tourist revenue during the first three quarters of this year climbed to €1 billion, up from €946 million during the same period last year.
Spending on trips abroad dropped to €351 million in the third quarter of the year, down from €369 million in the third quarter of 2014. Albanians spent €825 mln in the first three quarters of this year, down from €924 million during the same period last year. The figure also reflects the high number of Albanian asylum seekers during this year with more than 50,000 reported only in Germany.
“Although the number of residents who travelled abroad rose by 4 percent, the transfer of spending from the group of travelers on business purposes to travelers on personal reasons, reduced the residents’ spending,” says the central bank in its analysis.
Tourism revenue registered a record high in 2014 when more than 3.6 million foreign tourists visited Albania, according to data published by the central bank and INSTAT.
Revised data shows tourism revenue rose to historic high of €1.28 billion in 2014, up from €1.1 billion in 2013.
Meanwhile, Albanians cut spending on trips abroad to €895 million in 2014, down from €1.1 billion in 2013.
Migrant remittances
Remittances during the third quarter of the year dropped by 18 percent to €136 million apparently affected by the escalation of the crisis in neighboring Greece and restrictions imposed on banking transactions. Remittances during the first three quarters of this year slightly climbed to €440 million, up from €422 mln during the same period last year.
The central bank has warned inflow of remittances from some 500,000 Albanian migrants in neighboring Greece could sharply reduce in the second half of the year because of the cash withdrawal limits in Greek banks.
Migrant remittances slightly recovered to €594 million in 2014, up from €548 million in 2013, but remained almost 40 percent below their peak level in 2007 just before the onset of the global financial crisis, according to revised data published by the country’s central bank.
The share of migrant remittances to Albania’s GDP sharply dropped during the past decade from around 15.8 percent of the GDP in 2005 to 9.8 percent in 2010 and 6.16 percent in 2013.
Transfer of profits
Foreign companies operating in Albania continued transferring large amounts of profits from Albania rather than reinvesting them.
Bank of Albania data shows foreign companies transferred some €153 million in profits in the first three quarters of this year, compared to €142 million during the same period last year.
Foreign companies operating in Albania increased their transfer of profits abroad to €214 million in 2014, up from only €78 million during 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 show the transfer of profits dropped to €78 million in 2013, down from €232 million in 2012 and 2011, €365 million in 2010 and a record €401 million in 2009 at the onset of the global financial crisis.
Current account deficit
Albania’s current account deficit rose by 10 percent to €326 million in the third quarter of 2015, negatively affected by the widening of the trade gap and migrant remittances. However, the current account gap in the first three quarters dropped to €737 million, down from €905 million during the same period last year.
Albania’s current account deficit rose to 13.1 percent of the GDP in 2014, up from 10.8 percent in 2013.
“The current account deficit is projected to remain high over the medium term, but it is largely driven by FDI-financed import-intensive infrastructure projects, such as the Trans Adriatic Pipeline and the Statkraft/Devoll hydropower projects. When completed, these projects will increase the country’s export capacity and reduce its dependence on imports,” says the IMF.
