ECONOMY
Albania's economy has improved substantially over recent years and has outperformed many other countries in the region. However, it is still considered one of the poorest countries in Europe. According to the Bank of Albania, per capita income was $3,675 in 2008, expected to reach $4,000 in 2009. According to some preliminary data by the World Bank's Poverty Assessment Program, 12.4% of the population lived below the poverty line in 2008, marking a considerable improvement from 25.4% in 2002. The official unemployment rate is 12.7%. Almost 60% of all workers are employed in the agricultural sector, although the construction and service industries have been expanding recently. Tourism has been boosted significantly by ethnic Albanian tourists from throughout the Balkans. The GDP is comprised of services (50%), agriculture (19%), industry (12%), construction (14%), and transport and communication (6%). The Albanian economy has been partially sheltered from the global financial crisis and the economic downturn. In April 2009, the International Monetary Fund (IMF) predicted that Albania would be one of two countries in Europe to enjoy a positive growth rate for 2009, but lower remittances from Albanian workers abroad (approximately 9.6% of the GDP in 2008), mostly in Greece and Italy, and smaller exports will put a strain on economic activity.
The global financial crisis has reduced Albanian citizens' trust of commercial banks, even though the domestic banking sector has remained largely insulated from the crisis. Although bank deposits dropped by 10% since September 2008, withdrawals have diminished recently and deposits have stabilized during the second quarter of 2009. Lower liquidity has forced commercial banks to tighten lending procedures. In February 2009, the growth rate of loans dropped to 29% from 35% in 2008. In general, the banking sector remains viable and able to further finance the economy, as the ratio of loans to deposits, approximately 65%, is still low compared to western standards.
Albania was the last of the central and eastern European countries to embark upon democratic and free market reforms. Furthermore, Albania started from a comparatively disadvantaged position due to Hoxha's catastrophic economic policies. The transition from a centrally planned economy to a market-oriented system has been almost as difficult for Albania as the country's communist period.
The democratically
elected government that assumed office in April 1992 launched
an ambitious economic reform program meant to halt economic deterioration
and put the country on the path toward a market economy. Key elements
included price and exchange system liberalization, fiscal consolidation,
monetary restraint, and a firm income policy. These were complemented
by a comprehensive package of structural reforms, including privatization,
enterprise and financial sector reform, and creation of the legal
framework for a market economy and private sector activity.
Results
of Albania's efforts were initially encouraging. Led by the agricultural
sector, real GDP grew, and Albania's currency, the lek, stabilized.
The speed and vigor of private entrepreneurial response to Albania's
opening and liberalizing was better than expected. Beginning in
1995, however, progress stalled. The collapse of the infamous
pyramid schemes of the 1990s and the instability that followed
were a tremendous setback, from which Albania's economy continues
to recover.
In recent years the Albanian economy has improved, and infrastructure development and major reforms in areas such as tax collection, property laws, and business climate are proceeding well. During 2004-2008, Albania experienced an average 6% annual GDP growth. Fiscal and monetary discipline has kept inflation relatively low, averaging roughly 2.9% per year during 2006-2008. In 2008, inflation increased to 3.4%, still within the target range set by the Bank of Albania. Albania's public debt reached 55.9% of GDP in 2008, and the growing trade deficit was estimated at 26% of GDP in 2008. Economic reform has also been hampered by Albania's very large informal economy, which the IMF estimates at 50% of GDP.
Albania's trade imbalance is severe. Albania continues to be an import-oriented economy and the export base remains small, narrow, and undiversified, due mainly to a lack of price competitiveness, poor infrastructure, and a challenging business environment. In 2008, Albanian imports amounted to $5.25 billion and exports were $1.35 billion. The trade deficit continues to widen and, according to the estimates of the Ministry of Finance, reached 26% of GDP for 2008, up from 23.3% in 2006.
The Albanian Government signed a free trade agreement (FTA) with the European Union (EU) as part of its Stabilization and Association Agreement negotiations. The interim agreement entered into force in December 2006, with a duty-free regime for almost 90% of agricultural and industrial products. On the fiscal side it will also significantly reduce revenue collection.
Albania has FTAs with Macedonia, Croatia, Bulgaria, Romania, Bosnia, Turkey, and Moldova. Albania also previously established an FTA with the UN Interim Administration Mission in Kosovo (UNMIK), which was transferred to the Republic of Kosovo in 2009. In April 2006, these bilateral agreements were replaced by a multiregional agreement that entered into force in May 2007 based on the Central European Free Trade Agreement (CEFTA) model.
The EU remains, by far, Albania’s main trading partner, providing 60.7% of Albania’s imports and receiving 79.7% of exports for 2008. Trade with Italy and Greece represent the largest share of EU trade, with a combined 67.7% of imports and 88.6% of exports. The impact of CEFTA in Albania’s trade with member countries has been insignificant.
U.S. trade with Albania is very low. In 2008, U.S. exports to Albania totaled $67 million compared with $49 million in 2007, an increase of 36.7%. Part of this increase was due to the 8% depreciation of the dollar against the domestic currency. U.S. imports from Albania decreased 26% in 2008 ($5.1 million) from $6.9 million in 2007. However, there are some discrepancies between U.S. and Albanian trade figures. Major U.S. investment to date has been limited to large-scale infrastructure contracts with the government; Lockheed Martin and Bechtel are principal U.S. participants. In 2008, Refinery Associates of Texas became the first significant U.S. investor representing 20% of the consortium that privatized 85% of the shares of the state-owned oil refinery ARMO.
Albania is trying to attract foreign investment and promote domestic investment, but significant impediments exist. The Albanian Government faces the daunting task of standardizing and uniformly applying business laws, improving transparency in business procedures, resolving property ownership disputes, restructuring the tax systems (including tax collection), and reducing corruption.
Business growth has been hampered by Albania's inadequate energy and transportation infrastructure despite some significant investments in both sectors during the last few years. The capital, Tirana, and the main port of Durres generally receive electricity most of the day, but frequent power outages plague every other city, small town, and rural village. Although recent steps have been taken to improve the transportation infrastructure, Albania has a limited railway system and just one international airport. Because of the mountainous terrain and poor road conditions, overland goods transport is arduous and costly. However, the government has invested heavily in road construction over the last three years, and the country now sports a new, modern highway along its entire coastline, from Shkoder in the north to the southern resort city of Sarande. In addition, completion of the 170-kilometer Durres-Kukes highway in fall 2009 will provide a major transportation corridor connecting markets in the central Balkans through Kosovo to the port of Durres.
Economy
Real GDP growth: 6% (2007); 6% (2008 forecast).
Inflation rate (2008): 3.4%.
Unemployment rate: 12.7%.
Natural resources: Oil, gas, coal, iron, copper and chrome ores.
