FDI, remittances and tourism were considerably lower compared to the first quarter of 2012 when the Albanian economy shrank by 0.2 percent facing severe weather conditions and escalating spillover impacts from crisis-hit EU partners
By Ervin Lisaku
TIRANA, June 13 – Foreign direct investment, migrant remittances and tourism revenue all registered negative growth rates in the first quarter of this year, unveiling a gloomy picture of the Albanian economy in early 2013 when a double digit increase in exports was the only positive indicator. Data published by the country’s central bank show FDI, remittances and tourism were considerably lower compared to the first quarter of 2012 when the Albanian economy shrank by 0.2 percent facing severe weather conditions and escalating spillover impacts from crisis-hit EU partners.
While the country’s Institute of Statistics (INSTAT) is scheduled to published the GDP performance for the first quarter of 2013 early next July, indirect data on consumption, private investments and government spending as well as exports and imports hint of sluggish performance.
In addition, bad loans having reached a record 24 percent and public debt standing at around 62 percent of GDP, lending striving to remain at positive growth rates, business and consumer confidence remaining poor and top trade partners Italy and Greece continuing facing severe crisis impacts make things harder.
At a time when domestic consumption, the key driver of Albania’s growth remains sluggish and lending has dropped to a historic low of 2 percent, exports which in the first quarter of this year grew by double digits remain the only positive indicator of the Albanian economy. Private investments and government spending, two other components of the GDP, also remain at low levels, hinting the Albanian economy will grow at around the same levels of 2012, when at 1.6 percent it registered one of the lowest GDP growth rates in the past two decades and half of the average annual growth rate during the 2009-2011 global crisis years.
Driven by a sharp increase in “minerals, fuels and electricity” and a recovery in “garment and footwear,” Albania’s exports showed stability in early 2013, despite sluggish trade with traditional top trade partners Italy and Greece.
INSTAT data show Albanian exports grew by 17 percent to 53 billion lek (Euro 372 million) in the first quarter of the year, with crisis-hit EU partners accounting for the overwhelming majority of 80 percent of total exports.
Meanwhile, imports continue remaining sluggish reconfirming the ongoing poor consumption in a net import country such as Albania. Imports in the first quarter of 2013 dropped to 105 billion lek, down 11 percent compared to the same period in 2011 when Albania suffered severe weather conditions and a slight shrink in its quarterly GDP.
The value added tax, an indicator indirectly measuring consumption, shrank by a sharp 9.7 percent in the first three months of 2013, unveiling the consumers’ poor consumption and saving trend also shown by a moderate increase in deposits fearing harsher times ahead.
Finance Ministry data show total government revenue in the first quarter of 2013 reached 75.5 billion lek (Euro 527.7 million), down 3.6 percent compared to the same period in 2012 and 5.2 percent compared to the target for the first three months of the year, registering the first quarterly shrink since the collapse of the notorious collapse of pyramid schemes in 1997, but yet remaining higher compared to the first quarter of 2009 just as the international crisis impacts affected Albania’s growth. Meanwhile, government spending rose by only 1.4 percent.
The Albanian government expects the economy to grow by 3 percent in 2013, twice higher compared to what international financial institutions have forecast. Poor performance in the first quarter of this year indicates government will make budget cuts and revise its GDP growth forecast downward for the fourth year in a row.
FDI
Foreign direct investment, one of the key sources of Albania’s growth in the past few years, registered Euro 197 million in the first quarter of 2013, up from Euro 184 million in the final quarter of 2012 but down from Euro 206 million in the first quarter of 2012. Year-on-year, FDI declined by 4.4 percent in the first quarter of 2013, according to central bank data.
FDI stagnated in 2012 when it registered Euro 745 million, exactly the same level compared to 2011 but lower compared to the peak inflow of Euro 793 million in 2010, which made Albania one of the largest FDI recipients in South East Europe.
Central bank data total FDI stock almost doubled in the past few years climbing from Euro 1.8 billion in 2007 to Euro 3 billion in 2011.
With only 1 million Euro in 2007, Canada has emerged as the top foreign investor in Albania mainly due to huge investments in the oil extraction and mining by several companies, taking over even traditional partners such as neighbouring Greece and Italy.
Bank of Albania data show Canadian FDI in 2011 climbed to Euro 566 million, up from Euro 294 million in 2010 and Euro 102 million in 2009. Crisis-hit Greece, the second most important trade partner and top foreign investor until 2010, dropped to the second most important FDI partner with Euro 525 million in 2011, down from Euro 620 million in 2010, and Euro 521 million in 2007 just before it plunged into its worst ever recession. Austria ranks the third most important partner for FDI inflows with a total of Euro 472 million in 2011, up from Euro 375 million in 2010 and Euro 147 million in 2007 with top investments in the banking, insurance and hydropower plants.
Fourth comes top trade partner Italy with 372 million euros in 2011, the same as in 2010 but higher compared to 220 million euros in 2007.
Data show that monetary and financial intermediation has attracted the largest FDI inflows with a total stock of 701 mln Euros in 2011, up from 588 million in 2007, accounting for 23 percent of FDI inflows. Second comes the extractive industry with 630 million Euros, almost double compared to 2010 when it stood at only 326 million euros, and a mere Euro 10 million in 2007.
Migrant remittances drop by 40%
As crisis impacts in Italy and Greece escalate, Albanian migrants there striving to make ends meet, continue sending less money to their households in Albania. Bank of Albania data show migrant remittances dropped by a sharp 40 percent to Euro 117 million in the first quarter of this year, down from Euro 197 million in the final quarter of 2012 and Euro 168 million in the first quarter of 2012.
On a falling trend since the onset of the global financial crisis in 2008, migrant remittances slightly increased to 675 million euros in 2012, up Euro 10 million compared to 2011, but were significantly lower compared to their peak rate of Euro 952 million in 2007.
Migrant remittances whose overwhelming majority comes from neighboring Greece and Italy being a vital source for thousands of families in Albania, dropped by 30 percent from 2007 to 2012.
Bank of Albania data show Albanians sent 665 million euros in remittances in 2011, down from 690 million euros in 2010 and 781 million in 2009, 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.
Back in 2007, just before the outbreak of the global crisis remittances accounted for 12.5 percent of the GDP, compared to 7.4 percent of the GDP in 2011.
Italy and Greece, where more than 1 million Albanian migrants live and work, account for around 84 percent of remittances to Albania, Open Data Albania research centre says in a report referring to World Bank data
Remittances constitute a critical driver of Albania’s domestic demand. Estimates suggest that for the overall economy, excluding agriculture, a 10 percent decline in remittances would lead to a 3.6 percent reduction in domestic demand. The sectors affected the most by remittances are construction, services and food, which are also the key contributors to Albania’s GDP. It is believed that the sharp contraction in construction has partly been a result of declining inflows from workers abroad, experts say.
Tourism revenue/expenditure
The escalating crisis has also affected tourism revenue and spending by Albanians abroad. For the first quarter of this year, travel revenues dropped to 171 million euros, down from 268 million in the final quarter of 2012 and 185 million euros in the first quarter of 2012, declining by 7.5 percent year-on-year. Travel expenditure in the first quarter of 2013 registered 206 million euros down from 256 million euros in the final quarter of 2012, but higher compared to 185 million euros in the first quarter of 2012. However, travel expenditure in the first quarter of 2013 was lower even compared to the first quarter of 2009 when Albanians still needed visas to travel abroad.
The balance in the travel sector registered a deficit of 35 million euros compared to a surplus of 4 million euros in the first quarter of 2012.
Tourism revenue declined for the third year in a row in 2012 despite government reporting a significant boom in the number of tourists visiting Albania. Central bank data show tourism revenue in 2012 slightly dropped to 1.145 billion Euros, down Euro 24 million or 2 percent compared to 2011.
Affected by crisis, tourism revenue have been on a downward trend since 2009 when it registered its peak rate of Euro 1.3 billion. Albanians’ spending in tourist trips abroad has also considerably shrunk in the past three years despite the visa free travel regime in force since December 2010.
Central bank data show Albanians spent 1 billion euros in trips abroad in 2012, down from Euro 1.169 billion in 2011 and Euro 1.227 billion in 2010.
For 2012, the Tourism Ministry reported a record 3.4 million foreign tourists, up 26 percent compared to 2011, which is 21 percent more than the 2.8 million resident Albanians identified by the latest population census in 2011. Data show some 65 percent of foreign tourists come from Kosovo, Macedonia and Montenegro where ethnic Albanians are the majority or second largest communities with local experts often referring to this sector of the market as ‘patriotic tourism.’
Transfer of profits
Data show foreign companies operating in Albania transferred Euro 46 million in profits in the first quarter of 2013 compared to euro 82 million in the first quarter of 2012.
Since the onset of the global financial crisis, foreign companies operating in Albania have considerably increased the transfer of profits to their parent companies. Bank of Albania data published in the current account balance sheet show some 264 million euros flowed out of Albania in transfer of profits by foreign companies operating in Albania in 2012, up 41 percent compared to last year.
In 2011, foreign companies transferred 187 million euros, down from 365 million euros in 2010 and 401 million euros in 2009, which is the peak rate of transfer of profits.
“Under these conditions the increase in transfer of profits implies that foreign companies are reinvesting their profits in Albania less and sending back more in cash profits to their parent companies affected by the debt crisis,” experts say.
The transfer of profits from 2004 to 2009 ranged from Euro 23 million to euro 64 million annually.
