30 10 2007 Albanian Times: The impending economic crisis is knocking on the Albanians’ doors. Despite the right-wing coalition’s generous pledge of economic prosperity, which they made following their July 2005 victory, the present situation appears forlorn down to every last detail.
The first trimester of this year saw a drastic decrease in commercial sales, a decrease in the services sector and a halt in industrial production. Beyond these grim facts there have also been fewer mobile phone calls, an accepted collapse in the construction sector and a deepening of the energy crisis in 2007. As if this was not enough, immigrants are sending back fewer remittances; meanwhile, foreign direct investments are also on the decline.
The facts presented here are not a result of confidential media investigations; they have been declared both by the government and through official Institute of Statistics (INSTAT) reports. On the other hand, the unstoppable rise in bank credit is an additional element that compels Albanians to spend less and save more, which leads to a decrease in the circulation of capital.
Even the International Monetary Fund (IMF) itself, an institution that practices cautious discourse with government officials and that also maintains strong censorship standards for making information public, cannot guarantee economic growth by 6 percent in 2007 and points to the energy and political crises as the principle causes. In addition, the government appears to have frightened away businesses with its latest legal and punitive initiatives. According to the entrepreneurs themselves, these measures have directly effected a drop in internal investments. All of these elements combined will result in bleak days for the Albanian economy in the near future.
The Collapse of Sales
Albanians have spent less during the first part of this year by refraining from purchasing both luxury items, such as mobile phones, as well as everyday items. Statistics show that sales in almost all sectors have suffered a severe plunge. At least for the first trimester of this year the reports from INSTAT confirm this fact. According to INSTAT, the sales during this time period, compared with the previous trimester, have suffered a 25 percent drop. 45.3 percent of this fall can be attributed to the construction sector’s decline. This year the hospitality sector’s index of sales fell by 22.5 percent as compared to the previous trimester.
Landline calls have plummeted. INSTAT reveals that the telecommunications sector in general has suffered a 17.3 percent drop in sales compared to the last trimester of 2006. This fact is also confirmed by a drop in income per capita for the Vodafone and AMC mobile company users. According to Vodafone’s published statistics, each client’s average monthly spending during the first trimester of this year was 1868 lek, whereas in the last trimester of 2006 it had reached a monthly average of 2086 lek. Thus, during the last trimester, Albania’s telecommunications expenditures dropped by 10.5 percent. By referencing INSTAT’s figures it is clear that AMC is facing a similar situation.
Construction Capitulates
Now it is confirmed. The construction sector has collapsed. The constructors have surrendered and have declared the capitulation of this sector. Some time ago, during a speech mixed with pessimism and hope, the Governor of the Bank of Albania, Ardian Fullani, warned the public of the nation’s imminent economic crisis. Now the constructors themselves have declared drastic falls in sales during the first trimester of this year and they foresee an even drearier second trimester.
The INSTAT estimations show that during the first trimester of this year the construction business’s sales have suffered a fall of 57 percent compared to the last trimester of the previous year. The Bank of Albania has carried out a valid study regarding this sector and has concluded that it is undergoing rough times and that there are no signs of recovery in the near future. The construction sector’s problems are varied, but they are principally and inextricably linked to the suspension of construction permits, which results from a ‘cramping’ in the Council for the Regulation of Territory’s procedures. Such stagnation has arisen from the political struggles between the government and the municipality.
The Industrial Sector Rusts
The industrial sector adds to the pile of this year’s crippling statistics. INSTAT once again reveals distressing drops: the mining and drilling industry’s sales have dipped by 2.4 percent compared to the previous trimester. The oil refinery sector, which is one of the only sectors that is capable of connecting the manufacturer to the consumer because it is Albania’s largest exporting sector, has suffered a 16.7 percent drop as compared to the previous trimester. More specifically, the industries that have suffered the most dramatic falls, compared to the previous trimester, are the paper, carton and publishing industries, the sales of which have decreased by 53.2 percent. Also, the machinery production industry sales as well as those of machinery parts have dramatically dropped by 53.1 percent. Meanwhile, the food industry has suffered an 18.6 percent fall in sales.
Immigrants Pique the Fear
The unstoppable growth of the trade deficit has caused the Albanian state to depend upon the remittances that Albanian immigrants abroad send back home. The Governor of the Bank of Albania, Ardian Fullani, recently declared that one of the most imminent dangers facing the economy today is the growing of the trade deficit. “Although the external position of the country, which is actualized by indicators such as foreign debt, the level of cash reserves and the general situation of the payment balance, is not currently problematic, I believe that the increase in exports is not sufficient, especially because the Albanian economy is highly dependant upon immigrants’ remittances,” Fullani said. The fact that the current deficit stands at 7.6 percent of the GNP supports this argument. In addition, the fiscal deficit makes the economy more vulnerable and, hence, it is essential that Albania secures a more stable cash flow. According to the Governor, “this would mean an increased need for direct foreign investments, which would contribute to a more stable rise in exports.”
A Red Light for Investments
In addition to the radical decrease in investments from local businesses – something that the Albanian entrepreneurs have declared themselves – the foreign investments are also dropping. The 2006 Bank of Albania report states that the entire region is being affected by the same problem; however, the facts speak differently. The statistics produced by a study carried out by Monitor, an economics magazine, show that the neighboring countries such as Serbia, Macedonia, Croatia and even Montenegro have received large foreign direct investments.
According to Fullani, the degree of absorption of foreign investment in the region is relatively low and it mainly reflects the process of privatizing important public assets. In reference to the Albanian economy he reported that during the years 2000-2006, the amount of foreign direct investments total about $1.45 billion, approximately 3.5 percent of the GNP for this period.
The AEC Deepens the Crisis
The Albanian Electro-Energetic Corporation (AEC) continues to sign contracts of an average value of $700 thousand, thus drawing an average on the expenses of energy imports for the last part of 2006 and for the first trimester of this year. According to the IMF Chief of the Mission in Albania, Istvan Szekely, the flat tax is not a current concern. Rather, the main problem that needs to be resolved is AEC’s performance. The state budget can only subsidize up to $45 million at a time, but the nation currently needs over 200 million euros or $270 million for energy imports.
Today’s continuous drought and the unaffordable prices of imported energy will eventually exacerbate the energy crisis that the country is already experiencing. This will exert direct consequences upon economic growth; thus, the projected growth of 6 percent seems unfathomable. Meanwhile, the permanent representative of the IMF in Tirana, Ann Margarett Westin, has declared that the energy crisis and the political crisis in Albania will reduce the economic growth indicators for the year 2007.
Under these conditions, when almost all of the relevant indicators are on the decline and the combination of various factors furnish the economic dip with an even more dangerous spin, no one can confirm whether or not Albania will face an economic crisis this year. One thing, however, is quite certain: the footsteps of the crisis are close behind and they are dreadfully making their way forward in all possible directions. (dtt-net)
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