TIRANA, April 3 – The Albanian economy hit a 9-year high of 3.84 percent in 2017, but household consumption was about 1 percentage point lower compared to the annual GDP growth rate, hinting the construction-led growth failed to produce enough welfare for the average Albanian.
Growth in annual household consumption ranged from 0.13 percent in 2012 to 2.86 percent in 2017 at a time when the country’s GDP growth recovered from 1.4 to 3.8 percent during the same period, considerably below the average 6 percent GDP growth estimated to bring tangible welfare to Albanian households, according to data published by state statistical institute, INSTAT.
Translating economic growth into employment and inclusive welfare is one of the main challenges facing the Albanian economy which has been growing by 1 to 3.8 percent in the past nine years compared to a pre-crisis decade of 6 percent annually, economy experts say.
“Unfortunately, despite the undeniable positive results, there are many times when Albania has been classified among countries with ‘an impoverishing economic growth’ which means countries which despite having positive economic growth, still produce social and territorial inequalities, strong external and internal migration. In this context economic policies must target two main elements, the increase in production and employment and the transformation of economic growth into development and welfare,” economy expert Ardian Civici has earlier noted.
GDP per capita, which nationwide is at about a third of EU average, remains significantly lower in some northern Albanian regions in an ongoing development gap that dates back to communism, despite the past 25 years of transition to democracy and market economy having somehow bridged the gap.
The high number of asylum seekers in the past four years, the ongoing legal migration and a sharp decline in birth rates have sparked concerns over a rapidly shrinking population with negative impacts for the country’s developing economy of 2.8 million residents, already suffering one of the world’s highest per capita migration with 1.5 million Albanians living and working abroad.
Data published by state-run statistical institute, INSTAT, shows some 40,000 Albanians left Albania in 2017 and 25,000 permanently moved to the country, leading to a gap of about 15,000 people.
The number of first-time Albanian asylum seekers to EU member countries fell to 22,000 in 2017, down from a record high of about 66,000 in 2015, but Albanians continued remaining on the top 10 list of asylum applicants by country of citizenship for the third year in a row in a ranking dominated by war-torn Asian and African countries.
Construction-led growth
The construction sector was once again the key driver of Albania’s economic growth for the third year in a row with an annual growth of 11.26, fuelled by two major energy-related investment and a new apartment block and tourism facility boom. The sector’s recovery comes following years of recession in the aftermath of the 2008 global financial crisis when its share by main sectors of the Albanian economy dropped to 11 percent at the end of 2014 compared to 18 percent in the pre-crisis boom.
The construction sector during the past four years has been mainly led by the Trans Adriatic Pipeline and the Devoll Hydropower plant, triggering investment of more than €1billion, as well as other private investment in apartment blocks and tourism investment and a lower contribution of public investment due to a rather tight spending policy intended to bring down public debt, currently at 70 percent of the GDP, down from a record high of 73 percent in 2015.
The main opposition Democratic Party leader has earlier linked the current construction boom in Tirana to alleged drug proceeds from the massive 2016 cannabis cultivation and ongoing cocaine and heroin trafficking money being laundered in apartment blocks, business towers and PPP projects, but the ruling Socialists have dismissed the allegations as politically motivated.
Financial and insurance activities also registered a sharp 11.3 percent expansion led by record high profits posted by commercial banks operating in the country as credit slightly recovered amid declining non-performing loans and the compulsory write-off of bad loans.
Manufacturing also registered double-digit growth rates of 12.7 percent in 2017 led by garment and footwear products, Albania’s traditional top exports which had a major contribution to the total exports’ 12 percent growth for 2017. However, the industry sector’s total growth was at a mere 3.5 percent negatively affected by a prolonged drought paralyzing Albania’s domestic hydro-dependent electricity generation and slowly recovering commodity prices hitting Albania’s key oil and mineral exports since the mid-2014 slump.
Trade and tourism also grew by an annual 4 percent fuelled by a boom in the travel and tourism industry that generated about €1.7 billion in income for 2017.
Administrative and support services, a group that also includes the key call sector industry grew by a mere 1.7 percent, reflecting Italian legal changes making the supply of services for Italy-based companies from non-EU countries such as Albania much tighter starting April 2017.
The sector employs about 25,000 Albanians, mostly young men and women, and had been strongly growing for about a decade until 2016 before dozens of calls centers closed down.
The key agriculture sector employing about half of the country’s population but producing only about a fifth of the GDP, grew by a mere 0.65 percent year-on-year in 2017, reflecting the sector’s poor productivity, hampered by fragmentation of agricultural land, low credit and government support.
Services account for about 54 percent of Albanian economy, followed by industry with 24 percent and agriculture with 22 percent.
The 2017 growth rate is almost in line with the government’s 3.9 percent expectations, but international financial institutions predict the Albanian economy will slow down in 2018 as TAP and the Devoll HPP, the two major projects that have driven FDI for the past four years, complete their investment stage.
The Albanian government expects the economy to grow by 4.2 percent this year, but the World Bank and the IMF predict the economy will slow down to 3.5 to 3.7 percent as major energy related complete their investment, curbing the FDI contribution.
Bank of Albania data shows FDI dropped to €908 million in 2017, down from €943 million in 2016 and a historic high of €945 million in 2013, hinting of headwinds ahead at a time when oil and mineral prices slowly recover from the mid-2014 slump in commodity prices and an ambitious but rather controversial €1 billion PPP program and tax incentives for investment in the tourism sector are the only opportunities to fill an annual gap of more than €200 million left by TAP and the Devoll HPP.
