TIRANA, June 11 – While domestic consumption and exports, the key contributors to economic growth suffered a setback in the first quarter of this year, foreign direct investment, remittances and tourism revenues all improved compared to the first quarter of 2011. Latest Bank of Albania data published this week show foreign direct investment (FDI) registered 186 million euros in the first quarter of 2012, up from only 83 million during the first quarter of 2011 registering an increase of 124%. After peaking in 2010, foreign direct investment registered a turning point last year when they fell to Euro 742 million, down from a record 793 million euros back in 2010, which made Albania the second largest recipient in SEE after Serbia. Bank of Albania data show FDI in 2011 dropped by 6.5 percent coming on downward trend for the first time since 2005.
Detailed central bank data show Greece remains the key foreign investor in Albania despite being in recession since 2008. Greece’s total foreign investments at the end of 2010 were estimated at 724 million Euros, down from 771 million euros in 2007 before the neighbouring country plunged into recession. Second comes, Italy with 401 million Euros of FDI at the end of 2010. FDI inflows from Italy, the country’s top trade partner, and the destination of 50 percent of Albanian exports have been on a rising trend climbing from a total of Euro 213 million in 2007 to Euro 401 million in 2010. The Bank of Albania data rank Austrian companies as the third biggest foreign investors in Albania with Euro 362 million, mainly in the banking and energy sector, followed by Canada with 280 mln Euro, mainly in oil exploration and production investments. Data show that monetary and financial intermediation has attracted the largest FDI inflows with 651 mln Euros, followed by the processing industry with 417 mln Euros and post-telecommunication and the extractive industry with 363 and 331 million euros respectively.
Transfer of profits
Data show that although profit tax registered a sharp 21.8 percent shrink in the first quarter of 2012, foreign companies increased the transfer of profits to 61 million euros up from Euro 49 million during the first quarter of 2011.
Annual Bank of Albania data show foreign companies operating in Albania have considerably increased repatriation of profits since the outbreak of the global crisis in 2008. The transfer of profits from 2004 to 2008 varied from Euro 19 million to Euro 57 million. However, in 2008 transfers climbed to 266 million euros to reach the peak level of 401 million euros a year later. In 2011, the transfer of profits dropped to Euro 197 million down from Euro 365 million in 2010.
Albanians spend less on trips abroad
Tourism revenues also registered a slight increase of 5.7 percent in the first quarter of this year but Albanians significantly cut their spending on trips abroad. Data show travel revenues in Jan-March 2012 rose by 4 million euros to 161 million euros. However, in the first quarter of this year, Albanians considerably cut their travel expenditure on trips abroad by 17 percent compared to the first quarter of 2011 when the visa-free travel regime had just entered into force. Data show Albanians spend only 181 million euros in trips abroad in the first quarter of this year down from 218 million euros in 2011.
Despite government reporting a boom in tourists visiting Albania in the past couple of years, tourism revenues have not followed the same trend. Bank of Albania data show travel income dropped for the second year in a row after a record 1.3 billion euros in 2009. For 2011, the Bank of Albania reports around 1.17 billion euros in travel revenues, down 4.7 percent and 11.3 percent respectively compared to 2010 and 2009.
Official data published by the Tourism Ministry show some 4 million non-residents visited Albania in 2011, of whom 2.7 million foreign tourists and the remaining part Albanian migrants residents abroad.
Remittances slightly improve
Despite the difficulty more than one million Albanian migrants are facing in Greece and Italy, migrant remittances also slightly rose by 5.7 percent to 161 million euros in the first quarter of 2012.
On a falling trend since 2007, migrant remittances whose overwhelming majority comes from neighboring Greece and Italy, showed stability in 2011 when they dropped by only 0.3 percent compared to 2010 but were 28 percent down compared to their peak level back in 2007 just before the outbreak of the global crisis. Bank of Albania data show Albanians sent 688 million euros in remittances in 2011, down from 690 million in 2010 and 952 million in 2007, 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.
Govt revenue, exports underperform
The rather optimistic performance of FDI, remittances and tourism revenues in the first quarter of this year is expected to have minor contribution in Albania’s first quarter economic growth as consumption and exports failed to recover.
Finance Ministry data show total government revenues during the first three months of this year grew by only 1.2 percent to 78.4 billion lek year-on-year failing to meet government targets by 5 percent or 4 billion lek (Euro 28.5 million). Sluggish demand from crisis-hit EU countries makes Albania’s economic prospects for 2012 even grimmer. Exports, which in 2011 were the key driver of Albania’s moderate economic growth dropped by 12 percent to 325 million euros in the first quarter of this 2012 y-o-y.
The International Monetary Fund and the European Bank for Reconstruction and Development expect the Albanian economy to grow by 0.5 percent to 1.2 percent while the World Bank has recently downgraded its forecast to 1.6 percent. In its warned budget cut next July, government will also be forced to review downward its overoptimistic 4.3 percent growth rate.
