TIRANA, Sept. 26 – Albania needs to conduct economic reforms and diversify the products it produces and exports in order to become more competitive in the Western Balkans where a Central European Free Trade Agreement has been in force for a decade now.
The comments came this week at round table held by the Albanian Institute for International Studies, AIIS, one of the country top think tanks, as part of a German-funded project with the European Movement in Serbia (EMinS), AIIS’s Serbia partner for the Joint Center for Albania-Serbia Relations, an initiative that has been contributing to the normalization of relations between the two key regional players for stability and peace in the Western Balkans since late 2015.
Introducing the findings of the study focused on Albania’s trade exchanges with EU and CEFTA member countries following the 2006 signing of the Stabilization and Association Agreement with EU and the CEFTA regional free trade agreement, AIIS researchers said that Albania needs more economic reforms rather than free trade agreements.
“Albania faces structural problems. The local economy is unable to produce and export beyond basic products such as oil, minerals and garment and footwear products,” shows the AIIS study.
While Albania’s trade exchanges with CEFTA countries that now include six Western Balkan countries plus Moldova, have registered a strong boost during the past decade, they still account for a modest 12.4 percent of the country’s exports and 7.3 percent of imports, up from only 2.4 percent of the country’s trade exchanges before the liberalization process in 2007, according to state statistical institute, INSTAT.
AIIS researchers say that Albania’s close links with its main trading partners, Italy and Greece, and the structure of its poorly diversified exports relying on basic products such as garment and footwear, oil and minerals does not allow for a considerable boost in trade exchanges with regional countries.
“Albania is more economically linked to Italy and Greece, while Serbia, the region’s largest economy, to former Yugoslavia and Central European countries and such connections are not easy to change under free trade agreements,” the study shows.
In addition, non-tariff barriers, protectionist policies and political relations among CEFTA member countries often play a key role.
CEFTA and SAA did not change the structure of Albania’s trade with the country maintaining the same trading partners, Italy accounting for about half of trade exchanges and exports continuing to remain poorly diversified and focused on basic products, says the AIIS research.
Albania’s trade within the EU is focused on few countries such as Italy, Greece and Germany with the dependency on those few top trading problems often creating problems for the Albanian economy such as recessions in Italy and Greece.
AIIS researchers say CEFTA countries face political problems among them and it’s only the improvement of the political relations that can pave the way for economic relations.
“In the case of Albania-Serbia relations, the amelioration of political relations since 2014 has had a good influence in the economic relations between the two countries. Usually in the case of the Western Balkans, good political relations open the road to good economic relations and not vice versa,” says Ledion Krisafi, a senior AIIS researcher.
Albania faces huge trade gaps with CEFTA member countries, except for Kosovo where exports exceed imports by almost three times.
Meanwhile, foreign direct investment in Albania from CEFTA members countries remains quite modest given the developing regional economies and a small market of about 20 million consumers.
FDI in Albania which is dominated by EU and North-American countries is concentrated in few sectors such as energy, communication and the financial sector with specific sectors such as agriculture receiving little to nothing FDI.
Deputy Foreign Minister Artemis Malo, researchers and students attended the AIIS round table held this week.
Non-tariff barriers
A decade after joining the CEFTA regional trade agreement, non-tariff barriers continue to hamper trade exchanges among EU aspirant Western Balkan countries where intra-regional trade has failed to expand and continues to be concentrated on goods with low value added, a recent European Commission report has shown.
Examining untapped potential in the Western Balkans intra-regional trade, a European Commission paper says burdensome import and export procedures is one of the main reasons behind the relatively low trade among the six Western Balkan countries.
Poor connectivity within the region is described as a major obstacle to economic development, trade and investment, with EU experts noting that for some Western Balkan capitals it is actually faster to reach Vienna than another capital in the region.
Differently from EU-dominated garment and footwear exports, Albania’s exports to the region are dominated by base metals, minerals and vegetables which comprised nearly three quarters of its regional exports in 2016 and were close to 70 percent of them a decade ago in 2007.
Albania’s exports of goods and services as a share of the GDP stand at 29 percent, being one of the region’s lowest. The low levels of exports indicates the country’s poor diversification of exports, three quarters of which rely on low value added ‘garment and footwear,’ ‘minerals, fuels and electricity’ and ‘construction materials and metals,’ exposing the country’s economy to industry-specific shocks such as the mid-2014 slump in commodity prices significantly reducing the country’s key oil and mineral exports.
Back in mid-2017, Western Balkan leaders agreed to develop an EU-backed regional economic area of 20 million consumers where goods, services, investments and skilled workers can move without obstacles in a test before their apparent eventual European Union integration which the EU has indicated could see some candidate countries join by 2025.
An EU candidate since mid-2014, Albania is hoping to launch accession talks next year pending further progress on rule of law reforms following positive recommendation by the European Commission this year.
