TIRANA, Sept. 10 – Foreign direct investment, travel income and migrant remittances registered moderate hikes in the first half of this year, partly explaining the strengthening of Albania’s national currency against the euro whose slump in the first six months of 2018 forced Albania’s central bank to undertake emergency intervention.
Since early June 2018, Albania’s central bank has been conducting emergency euro purchases from the local currency exchange market in a bid to reduce the excess euro supply which has significantly strengthened Albania’s national currency with a series of negative effects for the country’s highly euroised economy.
Having stabilized at about 126 lek in the past three months following ongoing emergency intervention, Europe’s single currency continues to trade at about 6 percent below its late 2017 rate and is 10 percent below the mid-2015 level when its five-year reign of about 140 lek came to an end.
Euro’s free fall against the Albanian lek has had a series of negative effects for Albania’s highly euroised economy, mostly Eurozone-destined exports, local producers facing tougher competition from cheaper imports and sizeable Euro-denominated savings and remittances.
Albania’s central bank says the stronger national currency reflects a recovering economy, higher euro inflows from major energy-related projects, the tourism sector and market expectations, but the main opposition Democratic Party and some economy experts have linked the national currency’s constant strengthening to alleged illegal euro inflows resulting from the peak 2016 cannabis cultivation and ongoing drug trafficking in the country, considered a major cannabis producer and a key transit route for cocaine and heroin for European markets.
The main opposition Democratic Party says sluggish credit in the country does not justify the construction boom in the country which it links to money laundering from illegal euro inflows.
Euro inflows
Data published by Albania’s central bank shows of a moderate increase in euro inflows in the first half of this year when exports of goods also rose by double-digits fuelled by a hike in energy-related products due to the resumption of electricity exports and a hike in international oil and mineral prices.
Foreign direct investment, largely fuelled by the Trans Adriatic Pipeline and the Devoll Hydropower, the two major energy-related projects already in their final investment stage, slowed down to €212 million in the second quarter of 2018 after a record €282 million in the year’s first quarter.
However, FDI for the first half of this year was up by an annual 28 percent to €494 million, up €109 million compared to the same period last year.
An earlier Bank of Albania report has shown two-thirds of foreign direct investment that flowed into Albania in the first quarter of this year came from TAP and the Devoll Hydropower projects, the two major energy-related that drove growth and FDI growth in the past four year but which already in their final stage of investment, signaling of tough times ahead starting next year unless no new major investment replaces them.
Foreign companies operating in the country transferred €189 million in profits to their parent companies in January-June 2018, almost the same level compared to the first half of 2017 in an ongoing high transfer trend since the 2008-09 global financial crisis.
Travel income in the first half of this year when authorities say the country was visited by around 2 million foreign tourists also slightly rose to €785 million, up €63 million compared to the same period last year.
However, Albanians increased their spending on trips abroad by 10 percent to €624 million in January-June, limiting the contribution of the emerging travel and tourism sector on the country’s balance of payment to a mere €161 million in the first half of this year.
Slightly recovering following almost a decade of downward trend that almost halved them due to recession in Italy and Greece, the host of around 1 million Albanian migrants, remittances also climbed by 10 percent to €331 million in the first half of this year.
A key indicator of a country’s economic health, Albania’s current account measuring the flow of goods, services and investment into and out of the country significantly narrowed to a deficit of €338 million in the first half of this year, down 18 percent compared to the same period last year on a lower trade gap.
The hike in exports of goods, two third of which destined for Eurozone, mainly Italy, Albania’s main trading partner and the destination of half of Albania’s exports, was at about 24 billion lek (€190 mln) in the first half of this year, according to INSTAT, the state-run statistical office. However, the hike was mainly fuelled by electricity exports and higher exports of oil and minerals amid rising commodity prices and the suspension of work at a local refiner.
Garment and footwear producers, the country’s top exporters, have voiced concern over significant losses they are incurring from euro’s free fall against the Albanian lek at a time when the Eurozone is their prime destination.
FDI
Q2 2018 = €212 mln
Q2 2017 = €201 mln
H1 2018 = €494 mln
H1 2017 = €385 mln
Travel income
Q2 2018 = €454 mln
Q2 2017 = €421 mln
H1 2018 = €785 mln
H1 2017 = €722 mln
Travel spending
Q2 2018 = €370 mln
Q2 2017 = €341 mln
H1 2018 = €624 mln
H1 2017 = €567 mln
Migrant remittances
Q2 2018 = €182 mln
Q2 2017 = €163 mln
H1 2018 = €331 mln
H1 2017 = €299 mln
Transfer of profits
Q2 2018 = €107 mln
Q2 2017 = €99 mln
H1 2018 = €189 mln
H1 2017 = €187 mln
Current account gap
Q2 2018 = €173 mln
Q2 2017 = €256 mln
H1 2018 = €338 mln
H1 2017 = €413 mln
(Source: Bank of Albania)
