Albania’s top two trade partners Italy and Greece are expected to register positive growth rates in 2014, escaping their recession period which is a positive signal for a further recovery in Albania’s exports.
By Ervin Lisaku
TIRANA, May 14 – Six years after the onset of the global financial crisis, exchanges with top trade partner Italy have remained unaffected but suffered a sharp shrink with neighbouring Greece which is expected to overcome its six-year recession only this year. The same has also happened with foreign direct investment from the two top trade partners with Italy strengthening its position and Greece losing its top investor position which it managed to hold until 2010.
Bank of Albania and INSTAT data show trade exchanges with Italy were affected only in 2009 when both exports and imports suffered a shrink. Meanwhile, trade exchanges with Greece have been on a constant decline since 2009 with the neighbouring country hardly managing to preserve its second top trade partner position in 2013 with only a slight advantage over China.
INSTAT data show 2013 was a tough year even for trade exchanges with Italy with exports rising by only 1.1 percent and imports up by around 5 percent.
Greece, which last year suffered its sixth consecutive year of recession, ranked the sixth most important destination of Albanian exports in 2013 after Spain, Kosovo, China and Germany and Turkey with only 3 percent of the total and the second most important destination only for imports with around 10 percent, according to INSTAT.
Bank of Albania data show top trade partners Italy and Greece ranked only the fourth and fifth largest investors in 2012 with Canada having taking over due to huge investments in oil and mining.
Greece, which has been the traditional top foreign investor in Albania has seen its FDI continuously drop since 2008. The FDI stock from Greek investors dropped to 451 million euros in 2012, down from 521 million euros in 2007 and a peak level of 601 million euros in 2010.
Italy which is Albania’s top trade partner with more than a third of total trade exchanges saw its FDI stock climb to 434 million euros in 2012 up from 427 million euros in 2011 and 348 million euros in 2009.
Trade exchanges with Greece, the second most important trade partner and the top foreign investor in Albania, have been declining in the past five years as the neighbouring country faces its worst recession ever. Bank of Albania data show both exports to Greece and imports have been on a downward trend after reaching their peak level in 2008 just before Greece plunged into recession.
In 2012, Albanian exports to Greece dropped to 67 million euros down from 71 million euros in 2011 and 80 million euros in 2008. Imports from Greece have also been on a constant downward trend dropping from a peak level of 524 million euros in 2008 to 359 million euros in 2012.
Italy strengthens top position
Trade exchanges with Italy, the traditional top trade partner for Albania have not been affected by the crisis there due to the recession being milder and the economy being one of the biggest in the Eurozone. In 2012, exports to Italy grew to 782 million euros, up from 747 million euros in 2011 and 567 million euros in 2008 just before the onset of the global crisis. Exports to Italy in 2012 accounted for 51 percent of the total compared to around 62 percent in 2008, according to central bank data.
Imports from Italy have also maintained their upward trend during the past five years. In 2012 imports from Italy reached 1.2 billion euros, up from 946 million euros in 2008.
Italy is Albania’s top trade partner with 50 percent of total exports and 30 percent of imports.
More than 80 percent of footwear and garment products manufactured in Albania, which are the country’s main exports, go to Italy. According to Italy’s Confindustria lobby group, some 300 Italian companies operate in Albania, mainly in the footwear and garment manufacturing.
ACIT: Greek crisis, a ‘Social Bomb’
A huge wave of migrants returning home, lower trade exchanges, investments and remittances are some of the most obvious impacts that the economic crisis in neighbouring Greece, the top investor and second most important trade partner, has had in Albania in the past five years, according to a study conducted by the Albanian Centre for Competitiveness and International Trade (ACIT). The study published in late 2012 found that around 180,000 Albanian migrants, or 18 to 22 percent of the total Albanian migrants in Greece, have returned home during the past five years. “Albania in the short term cannot increase its social security net or invest in its health system as it is significantly lowering public spending in order to handle its public debt. This pressure might create room for a ‘social bomb’ in terms of a high demand for service that is poorly funded,” says the report.
Spillover impacts affect growth
The ongoing recession in Italy and Greece, Albania’s top trade partners and the hosts of more than one million migrant workers sending the overwhelming majority of remittances home, has had a major impact on Albania’s economic slowdown as well.
Data published by the country’s state statistical institute, INSTAT, show the Albanian economy grew by only 0.44 percent in 2013, down from 1.3 percent in 2012, an average of 3.4 percent annually from 2009 to 2011 and a pre-crisis decade of an average 6 percent.
Prospects for 2014 appear slightly more optimistic with international financial institutions and government expecting growth to slightly accelerate to 2 percent as top trade partners Italy and Greece are forecast to escape recession.
The central bank has warned the Albanian economy will remain conditioned by the performance of top trade EU partners, the nature of fiscal policy and productivity.
The two neighbouring countries account for around 50 percent of Albania’s trade exchange, being the top investors in Albania and the overwhelming source of migrant remittances.
“Albania’s strong trade, investment and remittance ties to Greece and Italy, both of which face continued economic gloom, are likely to continue to constrain growth, and the high level of public debt will limit the room for fiscal manoeuvre,” London-based EBRD has earlier warned.
Italy is Albania’s top trade partner with 50 percent of total exports and 30 percent of imports. More than 80 percent of footwear and garment products manufactured in Albania, which are the country’s main exports, go to Italy. Once the second destination of Albanian exports, Greece now ranks only the sixth most important. However, Greek businesses are present in almost every sector of the Albanian economy, including strategic ones such as telecommunications, the banking system, energy, industry, construction, trade and tourism, significantly contributing to the country’s economic growth.
Remittances halve
Affected by crisis in Italy and Greece where around 1 million Albanian migrants live and work, migrant remittances have almost halved in the past seven years due to the crisis in these two host countries which are also Albania’s top trade partners.
Bank of Albania data show migrant remittances hit a record low of 497 million euros in 2013, down from 675 million euros in 2012 and a historic high of 952 million euros in 2007 just before the outbreak of the global financial crisis. At only 497 million euros, migrant remittances registered a record low for the past decade.
On a falling trend since the 2008, the sharp cut in migrant remittances has also influenced on the slowdown of the Albanian economy in the past five years. The cut in remittances has also influenced on the crisis in the still ailing construction sector.
Exposure to Greece, Italy
Sovereign debt crisis in Greece has shown little impact on the Albanian economy due to the limited role Greece plays in exports and imports and due to the recent flexibility shown by exporting firms to diversify geographically, says the Finance Ministry in its 2012-2014 economic and fiscal programme. Exposure to Greece is small. Foreign direct investment from Greece has been declining in recent years, although total foreign direct investment has increased. Foreign banks with Greek capital operating in Albania are well capitalized but the share of their assets to total banking assets has been declining in recent years. Their portfolio of loans has been reduced and other banks have increased their market share. From this aspect, the effect of the debt crisis in Greece in the real economy is expected to be limited, says the Finance Ministry.
However, the exposure of Albanian economy toward the Italian economy is greater. The share of Albanian exports to Italy is significant bigger at over 50 percent. Until now, financial problems in Italy have had little impact on trade, possibly due to the fact that this country is not always the ultimate destination of Albanian exports. However, a further deterioration in Italy would have a major impact on our economy. Remittances, which are used mainly to finance household consumption, are expected to fall significantly. Influence through foreign direct investment is expected to be smaller, as its of Albania’s GDP is relatively small.
Recession finally over
Albania’s top two trade partners Italy and Greece are expected to register positive growth rates in 2014, escaping their recession period, according to forecasts by Eurostat, the statistical office of the European Union, which is a positive signal for a further recovery in Albania’s exports.
Italy, Albania’s top trade partner which is the destination of more than 50 percent of Albania’s exports, is expected to register positive growth rate of 0.7 percent in 2014 after being in recession in 2012 and 2013.
Meanwhile, Greece which still remains Albania’s second top trade partner is also expected to register positive growth rate of 0.6 percent in 2014 overcoming six consecutive years of recession, which has also considerably affected trade exchanges with Albania.
The two neighbouring countries account for around 50 percent of Albania’s trade exchange, being the top investors in Albania and the overwhelming source of migrant remittances.
Eurostat data show Greece shrank by 3.9 percent in 2013 while the Italian economy was down by 1.9 percent.
Italy, the destination of more than 50 percent of Albanian exports, registered a 2.4 percent shrink in 2012, after modest positive growth rates in 2010 and 2011 and recession in 2008 and 2009.
Meanwhile, Greece, which currently remains Albania’ second most important trade partner only for imports has been in its worst ever recession since 2008.
