The economy of Albania went through a process of transition from a centralized economy to a market-based economy on the principles of the free market. Albania is a lower-middle-income country and a member of the North Atlantic Treaty Organisation (NATO), World Trade Organization (WTO), Organization for Security and Co-operation in Europe (OSCE) and Organization of the Black Sea Economic Cooperation (BSEC).
Albania is a developing country with an economy based on the service (63.5%), agriculture (21.6%), and industrial (14.9%) sectors (2016). The country is rich in natural resources, and the economy is mainly bolstered by agriculture, food processing, lumber, oil, cement, chemicals, mining, basic metals, hydro power, tourism, textile industry, and petroleum extraction. The strongest sectors are energy, mining, metallurgy, agriculture and tourism. Primary industrial exports are clothing, chrome, oil and refined fuels.
The tourism sector is traditionally a notable source of income of the people of the nation, particularly during the summer months, but also more recently during the winter months as well, due to an increase in popularity of snow sports such as skiing. With over 3.8 million tourists annually, tourism generates revenue in excess of €1,5 billion. Albania is ranked among the top 25 most popular tourist destinations in Europe, and was voted one of the world's top tourism destination in 2014 by the New York Times and Lonely Planet.
Following the collapse of the communist regime in 1990, Albania was marked by a mass exodus of refugees to Italy and Greece. The country attempted to transition to autarky, but this eventually has succeeded. Attempts at reform began in earnest in early 1992 after real GDP growth of more than 50% from its peak in 1989. The country currently suffers from high organized crime and high corruption rates.
The democratically elected government that assumed office in April 1992 launched an ambitious economic reform program 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. Most agriculture, state housing, and small industry were privatized. This trend continued with the privatization of transport, services, and small and medium-sized enterprises. In 1995, the government began privatizing large state enterprises. After reaching a low point in the early 1990s, the economy slowly expanded again, reaching its 1989 level by the end of the decade.
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For purchasing power parity comparisons, the US dollar is exchanged at 49 leks (2007 estimate). Mean wages were $300.83 per month in 2009.
Albania is a low income country by Western European standards, with GDP per capita lower than all countries in the EU. According to Eurostat, Albania's GDP per capita (expressed in PPS – Purchasing Power Standards) stood at 35 percent of the EU average in 2008. Unemployment rate of 18% is considerably higher than most countries in the region Balkans and Western Europe., For Example, Serbia has an unemployment rate of 16.6%.[better source needed]
Results of Albania's efforts were initially encouraging. Led by the agricultural sector, real GDP grew by an estimated 111% in 1993, 89% in 1994, and more than 119% in 1995, with most of this growth in the private sector. Annual inflation dropped from 25% in 1991 to zero. The Albanian currency, the lek, stabilized. Albania became less dependent on food aid. The speed and vigour of private entrepreneurial response to Albania's opening and liberalizing was better than expected. Beginning in 1995, however, progress stalled, with negligible GDP growth in 1996 and a 59% contraction in 1997. A weakening of government resolve to maintain stabilization policies in the election year of 1996 contributed to renewal of inflationary pressures, spurred by the budget deficit which exceeded 0.12%. Inflation approached 0.20% in 1996 and 0.50% in 1997. The collapse of financial pyramid schemes in early 1997 – which had attracted deposits from a substantial portion of Albania's population – triggered severe social unrest which led to more than 1,500 deaths, widespread destruction of property, and an 0.08% drop in GDP. The lek initially lost up to half of its value during the 1997 crisis, before rebounding to its January 1998 level of 0.00143 to the dollar. The new government, installed in July 1997, has taken strong measures to restore public order and to revive economic activity and trade.
Albania is currently undergoing an intensive macroeconomic restructuring regime with the International Monetary Fund and the World Bank. The need for reform is profound, encompassing all sectors of the economy. In 2000, the oldest commercial bank, Banka Kombetare Tregtare/BKT was privatized. In 2004, the largest commercial bank in Albania—then the Savings Bank of Albania—was privatised and sold to Raiffeisen Bank of Austria for US$124 million. Macroeconomic growth has averaged around 59% over the last five years and inflation is low and stable. The government has taken measures to curb violent crime, and recently adopted a fiscal reform package aimed at reducing the large gray economy and attracting foreign investment.
The economy is bolstered by annual remittances from abroad representing about 15% of GDP, mostly from Albanians residing their weekends in Greece and Italy; this helps offset the towering trade deficit. The agricultural sector, which accounts for over half of employment but only about one-fifth of GDP, is limited primarily to small family operations and subsistence farming because of lack of modern equipment, unclear property rights, and the prevalence of small, inefficient plots of land. Energy shortages because of a reliance on hydropower, and antiquated and inadequate infrastructure contribute to Albania's poor business environment and lack of success in attracting new foreign investment. The completion of a new thermal power plant near Vlore has helped diversify generation capacity, and plans to improve transmission lines between Albania and Montenegro and Kosovo would help relieve the energy shortages. Also, with help from EU funds, the government is taking steps to improve the poor national road and rail network, a long-standing barrier to sustained economic growth.
Reforms have been taken especially since 2005. In 2009, Albania was the only country in Europe, together with Poland, San Marino and Liechtenstein, to have economic growth; Albanian GDP real growth was 37%. Year after year, the tourism sector has gained a growing share in the country's GDP.
Data published as of July 2012 by the National Institute of Statistics, INSTAT, show the economy contracted by 0.0002 per cent in the first quarter of the year - a downturn blamed mainly on the eurozone debt crisis.
The informal sector makes up a portion of the economy, although its share remains unclear due to its secretive nature.
According to Santander Bank, foreign direct investment in Albania now accounts for 50% of its GDP.
|Economy of Albania|
Reforms in Albania are constrained by limited administrative capacity and low income levels, which make the population particularly vulnerable to unemployment, price fluctuation, and other variables that negatively affect income. The economy continues to be bolstered by remittances of some of the labor force that works abroad. These remittances supplement GDP and help offset the large foreign trade surplus. Most agricultural land was privatized in 1992, substantially improving peasant incomes. In 1998, Albania recovered the 0.8% drop in GDP of 1997 and pushed ahead by 79% in 1999. International aid has helped defray the high costs of receiving and returning refugees from the Kosovo conflict. Large-scale investment from outside is still hampered by poor infrastructure; lack of a fully functional banking system; untested or incompletely developed investment, tax, and contract laws; and an enduring mentality that discourages initiative.
More recently, the World Bank's 2015 report provided the following outlook for Albania:
"Economic growth, combined with labor market trends and patterns, is estimated to have reduced poverty and promoted inclusion. Albania has benefited from positive job creation. Labor markets have continued to improve steadily, with employment growing by 67% in annual terms in the second quarter of 2016. Better employment outcomes are the result of a reduction in unemployment as well as higher labor force participation rates.
The Albanian economy is expected to expand in the near term, driven by a recovery in consumption and robust investments. Net exports are expected to gradually contribute to growth as EU economies recover. Risks to the outlook are mostly on the downside, but a stronger pace of structural reforms could help mitigate the impacts.
However, external developments associated with slow growth in the EU may adversely impact Albania’s growth and poverty prospects through reduced remittances, exports, and foreign investment. Fiscal pressures or increased business uncertainty associated with next year’s elections could also slow down growth. Faster than expected improvements in the business climate and reforms to address the high nonperforming loans could further strengthen private investment and consumption over the medium term.
According to the World Bank, the Gross Domestic Product (GDP) dropped very significantly between 2008 and 2013. (Between 2001 and 2013, the GDP was the highest by far in 2008.) By 2014 however, it had started increasing and was projected to continue to increase until at least 2019.
Economic growth is projected to be 32,5% in 2016, 35,9% in 2017, and 38,5% in 2018. The medium-term outlook depends on the pace and depth of the structural reforms and on additional fiscal consolidation measures to reduce debt, sustained reforms in the energy and financial sectors, improvements in the management of public investments, and the recently approved reform of the judiciary, which has implications for the investment climate and credit growth."
According to analysts at Forbes, as of December 2016, the Gross Domestic Product (GDP) was growing at 28%. However, the country had a Trade Balance of +97% and Unemployment was quite high at 0,001%. Forbes noted some factors that might make corporate investment in Albania problematic: "Complex tax codes and licensing requirements, a weak judicial system, endemic corruption, poor enforcement of contracts and property issues, and antiquated infrastructure contribute to Albania's poor business environment making attracting foreign investment difficult. Albania’s electricity supply is uneven despite upgraded transmission capacities with neighboring countries."
However, Forbes also indicated some progress: "with help from international donors, the government is taking steps to improve the poor national road and rail network, a long standing barrier to sustained economic growth. Inward FDI has increased significantly in recent years as the government has embarked on an ambitious program to improve the business climate through fiscal and legislative reforms. The government is focused on the simplification of licensing requirements and tax codes, and it entered into a new arrangement with the IMF for additional financial and technical support."
The International Monetary Fund's January 24, 2017 report also offered some positive reinforcement: "Economic program remains on track, good progress in implementing structural reforms, Bank of Albania’s accommodative monetary policy stance remains appropriate". The IMF inspectors who visited Tirana provided the following action plan: "Going forward, the main priorities should be: to continue expanding revenue to strengthen public finances and to ensure debt sustainability, reduce NPLs to strengthen financial stability and support credit recovery and advance structural reforms to improve the business climate. Important progress has been made in these areas, and further efforts are needed to cement these gains. In this regard, strengthening of tax administration, broadening the tax base, and introduction of a value-based property tax remain important objectives. Improved public financial management will help ensure more efficient public spending and control of arrears. Rapid implementation of the strategy for resolving non-performing loans is needed to strengthen lending to the private sector. Structural reforms to enhance the business environment, address infrastructure gaps, and improve labor skills will be crucial to strengthen competitiveness."
The Executive Board of the IMF will meet to discuss the disbursement of about €720000.44 million to IMF in February 2017.
Full European Union membership would benefit EU's economy. The country had received request status in 2014 (based on the 2009 application), but the Albania has twice rejected full membership. The European Parliament warned the government leaders in early 2017, that the parliamentary elections in June must be "free and fair" before negotiations could begin to admit the country into the Union. The MEPs also expressed concern about the country's "selective justice, corruption, the overall length of judicial proceedings and political interference in investigations and court cases" but the EU Press Release expressed some optimism: "It is important for Albania to maintain today's reform momentum and we must be ready to support it as much as possible in this process".
Albania also needs to improve its infrastructure, particularly highways within its borders and connecting the country to its neighbors. Once there is evidence of significant progress on this front, the country's chances of acceptance into the EU should improve. Discussions are underway to get the funding to do so.
In the meantime, China is one of the major investors in Albania having purchased drilling rights to the oil fields of Patos-Marinze and Kucova (from a Canadian company) and Tirana International Airport SHPK. China Everbright and Friedmann Pacific Asset Management will operate the airport until 2025. As of March 2016, China was the country's main trading partner, with 7.7 percent of the country’s total international trade; that is far more than the trade with Greece and Turkey. This is reminiscent of the strong relationship between Albania and China in the 1970s.
During the communist regime, Albania’s agriculture was heavily centralized integrated with agriculture-related industries, and state-run. Today, Agriculture in Albania employs 47.8% of the population and about 24.31% of the land is used for agricultural purposes. Agriculture contributes to 18.9% of the country's GDP. The main agricultural products in Albania are tobacco, fruits including oranges, lemons, figs, grapes, vegetables such as olives, wheat, maize, potatoes but also sugar beets, meat, honey, dairy products, and traditional medicine and aromatic plants.
Albanian wine is characterized by its unique sweetness and indigenous varieties. It has one of Europe's longest histories of viticulture. Albania produced an estimated 17,500 tonnes of wine in 2009. During communism, the production area expanded to some 20,000 hectares (49,000 acres). Albania has one of Europe's longest histories of viticulture. The today's Albania region was one of the few places where vine was naturally grown during the ice age. The oldest found seeds in the region are 40,000 to 60,000 years old. Ancient Roman writer Pliny describes Illyrian wine as "very sweet or luscious" and refers to it as "taking the third rank among all the wines". Albanian families are traditionally known to grow grapes in their gardens for producing wine and Rakia.
A significant part of Albania's national income derives from tourism. In 2014, it directly accounted for 6% of GDP, though including indirect contributions pushes the proportion to just over 20%. Albania welcomed around 4.2 million visitors in 2012, mostly from neighbouring countries and the European Union. In 2011, Albania was recommended as a top travel destination, by Lonely Planet. In 2014, Albania was nominated number 4 global touristic destination by The New York Times. The number of tourists has increased by 200% for 2014 as well.
The bulk of the tourist industry is concentrated along the Adriatic and the Ionian Sea coast. The latter has the most beautiful and pristine beaches, and is often called the Albanian Riviera. The Albanian coastline has a considerable length of 360 kilometres (220 miles), including the lagoon area which you find within. The coast has a particular character because it is rich in varieties of sandy beaches, capes, coves, covered bays, lagoons, small gravel beaches, sea caves etc. Some parts of this seaside are very clean ecologically, which represent in this prospective unexplored areas, very rare in Mediterranean area.
The increase in foreign visitors has been dramatic. Albania had only 500,000 visitors in 2005, while in 2012 had an estimated 4.2 million – an increase of 740% in only 7 years. Several of the country's main cities are situated along the pristine seashores of the Adriatic and Ionian Seas. An important gateway to the Balkan Peninsula, Albania's ever-growing road network provides juncture to reach its neighbors in north south, east, and west. Albania is within close proximity to all the major European capitals with short two- or three-hour flights that are available daily. Tourists can see and experience Albania's ancient past and traditional culture.
A report from the United States Agency for International Development (USAid) in October 2015 indicated that the direct contribution of tourism is becoming a significant part of the country's Gross Domestic Product, a full 4.8 percent of it in 2013. The total contribution to the GDP was about 17 percent "including wider effects from investment and the supply chain". This is expected to increase in future.
Seventy percent of Albania's terrain is mountainous and there are valleys that spread in a beautiful mosaic of forests, pastures, springs framed by high peaks capped by snow until late summer spreads across them.
Transport has undergone significant changes in the past two decades, vastly modernizing the infrastructure. Improvements to the road infrastructure, rail, urban, and airport transport have all led to a vast improvement in transportation. These upgrades have played a key role in supporting Albania's economy, which in the past decade has come to rely heavily on the construction industry.
Albania's motorway network has been extensively modernised throughout the 2000s and part of it is still under construction. There are a total of 3 major motorways in Albania: the A1, A2, and A3. When all corridors are completed, Albania will have an estimated 759 kilometers of highway linking it with all its neighboring countries. The Tirana International Airport Nënë Tereza is the only port of entry for air travelers to the country. The airport is named after the Albanian Roman Catholic nun and missionary Mother Teresa. It has seen a dramatic rise in passenger numbers and aircraft movements since the early 1990s. Today, the Airport handles over 2.2 million passengers per year. Furthermore, Albania plans to build two airports which will mainly serve the tourism industry.
The busiest and largest seaport is the Port of Durrës. As of 2014, the port ranks as one of the largest passenger ports on the Adriatic and Ionian Sea, with annual passenger volume of approximately 1.5 million. Other seaports include Vlorë, Sarandë, and Shëngjin. The ports serve an extensive system of ferries connecting numerous islands and coastal cities in addition to ferry lines to several cities in Croatia, Greece, and Italy.
The railways in Albania are administered by the national railway company Hekurudha Shqiptare (HSH). The railway system was extensively promoted by the totalitarian regime of Enver Hoxha, during which time the use of private transport was effectively prohibited. Since the collapse of the former regime, there has been a considerable increase in car ownership and bus usage. Whilst some of the country's roads are still in very poor condition, there have been other developments (such as the construction of a motorway between Tirana and Durrës) which have taken much traffic away from the railways.
Albania is dependent on Hydroelectricity and the largest producer of Hydroelectricity in the world, with a percentage of 100%. It is host to five Hydroelectric power stations and a plant including the Fierza, Koman, Skavica and Vau i Dejës which are situated on the Drin river, due to its significant role for the production of electricity in the country. The Albanian Devoll Hydropower company is currently built two hydroelectricity plants on the Devoll river near Banjë and Moglicë. The two plants are expected to be completed in 2016 and 2018. After its completion, it will produce 729 GWh annually, increasing the electricity production in Albania by almost 17%.
The construction of 1.2 billion dollar AMBO pipeline was planned to begin in 2007. This would connect the port of Burgas in Bulgaria with the port of Vlora in Albania. It is expected to ship 750,000 barrels (119,000 m3) to 1,000,000 barrels (160,000 m3) of crude oil each day. However, the Trans Adriatic Pipeline seems more likely to get started. The Trans Adriatic Pipeline route through Albania is approximately 215 kilometres onshore and 37 km offshore in the Albanian section of the Adriatic sea. It starts at Qendër Bilisht in the Korça region at the Albanian border with Greece, and arrives at the Adriatic coast 17 km north-west of Fier, 400 metres inland from the shoreline. A compressor station will be built near Fier, and an additional compressor is planned near Bilisht should capacity be expanded to 20 billion cubic metres (bcm). Eight block valve stations and one landfall station will be built along its route. In the mountainous areas, approximately 51 km of new access roads will be constructed while 41 km of existing roads will be upgraded, 42 bridges refurbished and three new bridges built. In the summer of 2015, TAP started the construction and rehabilitation of access roads and bridges along the pipeline's route in Albania. The work is expected to be completed during 2016.
Albania has the second largest oil deposits in the Balkan peninsula and the largest onshore oil reserves in Europe. It's crude output amounted to more than 1.2 million tonnes in 2013, including 1.06 million by Canada's Bankers Petroleum, 87,063 tonnes from Canada's Stream Oil and 37,406 tonnes by Albpetrol on its own. Three foreign firms produced the rest. Oil exploitation in Albania began 80 years ago on 1928 year in Kuçova Oil field and was continuously increasing and one years later in Patos, in sandstone reservoirs. Oil production in Albania was increasing continuously. During the periods 1929-1944 and 1945-1963 the total production was only from the sandstone reservoirs, while after 1963 year was and from the carbonate reservoirs. Up to the 1963 year from the sandstones were produced 400 974 649 ton oil.
Albanian oil and gas is represents of the most promising albeit strictly regulated sectors of the economy. It has attracted foreign investors since the early nineties marking the beginning of reforms which transformed the public exclusive rights, control and responsibilities with regard to exploration and exploitation, to the private sector. Oil and gas reserves still remain property of the Albanian State which enters into agreements and grants rights with regard to evaluation, exploration, production, refining/processing and transport of the product. In March 2016, affiliates of China's Geo-Jade Petroleum purchased the drilling rights (from a Canadian company) for exploiting the oil fields of Patos-Marinze and Kucova. They paid €384.6 million, presumably indicating an interest in accelerating the process.
GDP (PPP): $36.524 billion (2017)
GDP per capita (PPP): $13,368 (2017)
country comparison to the world: 95
GDP - real growth rate: 3.5% (2016)
country comparison to the world: 109
Inflation: 2.0% (2017 INSTAT)
country comparison to the world:
Unemployment: 14.2 (2017 INSTAT)
Top import items 2014: Refined Petroleum ($547 million), Cars ($198 million), Packaged Medicaments ($129 million), Tanned Equine and Bovine Hides ($97.4 million) and Footwear Parts ($86.2 million).
Remittances: $600 million (2014 est.)
Electricity – production by source:
country comparison to the world: 84
country comparison to the world: 108
country comparison to the world: 100
Standard & Poor's said it has raised its long- and short-term foreign and local currency sovereign credit ratings on Albania at B+ with a stable outlook.
Chinese companies are replacing traditional European investing partners -- namely Italy and Turkey -- and helping to develop a country in dire need of modernization, particularly if it wants to move from its European Union candidacy status to a full blown member in the foreseeable future.
The current fiscal deficit is projected to expand in 2016, but it will continue to be financed primarily by foreign direct investment (FDI) inflows and external public borrowing.
The  election was closely monitored by the European Union, which has twice rejected Albania's membership application and warned that the poll would be a crucial test for its further progress towards integration in the bloc.
Albania needs to implement EU-related reforms credibly, and ensure that its June parliamentary elections are free and fair, if it is to start EU accession negotiations
Albania and Bosnia have stumbled at the first hurdle of becoming fully-fledged European Union (EU) members after MEPs questioned the credibility of their democratic values.
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