Trade and the Economy of Albania

Introduction

Albania passed a difficult period of transition distinguished by the efforts to establish an economic system oriented to the free market. Despite the difficulties of the transition process the economic and social crisis of 1997 and Kosovo crisis in 1999 Albania made progress in the macro-economic stability and structural reforms.

On the demand side, exporters and strategic planners focusing on Albania’s international trade of goods face a number of questions: Which countries are supplying manufactured goods to Albania? How important is Albania compared to others in terms of the entire global and regional market? How much do the imports of manufactured goods vary from one country of origin to another in Albania? On the supply side, Albania also exports manufactured goods. Which countries receive the most exports from Albania? How are these exports concentrated across buyers? What is the value of these exports and which countries are the largest buyers?

Albania, a formerly closed, centrally-planned state, is making the difficult transition to a more modern open-market economy .It is currently pursuing a path of greater Euro-Atlantic integration. Albania’s primary long-term goals are to gain EU membership and to promote closer bilateral ties with its neighbors and with the U.S. Albania is a member of a number of international organizations, as well as multiple regional organizations and initiatives, including NATO, the Organization for Security and Cooperation in Europe (OSCE), the UN, the Stability Pact, the Adriatic Charter, and the World Trade Organization (WTO). The development in foreign trade flows could have large implications for small open economies countries like Albania therefore their trend are followed by markets and policy makers designing policies. A balance between exports and imports is important to maintain internal and external economic stability.

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Albania’s trade

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. 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. Albania trade deficit at the end of 2009, amounted to 327, 668 million ALL and increased only by 0.3% as compared to 2008.

Exports Imports

Export goods in general are goods destined to be send to a third country subject to customs regime or outside processing arrangements, or re-exported following inside processing. 

Albanian economy features an impeding trade deficit. During the course of 2009, exports volume have confirmed and deepened the negative trend of 2008. According to the 2009 statistics, Albanian Total exports in 2009, amounted to 103.438 million ALL and decreased by 8.1% as compared to 2008. Albania was the 143rd exporting country in the world. The most important decrease of exports was concentrated during the first half of 2009. The third quarter of the year represented a stop in the decrease trend and exports figures reached almost the same levels as in the same period of 2008. The slight recovery in October was followed by an improvement during the last two months of 2009,

where December represented the most successful month for all 2009 with an increase of 41%, as compared to the same month of 2008.

The countries that Albania most makes trade with are:

Export

Italy: 55.9%, Greece: 11.6%, China: 7.2%, other

The major exported commodities include: Textile, Footwear, Asphalt, Metals and metallic ores Crude oil, Vegetables, fruits, Tobacco

Import goods in general are goods coming from a third country and are directly unloaded or placed to a warehouse according to the customs procedures to accomplish free zones processing, active or customs processing. Imports flow dynamics have shown slowdown in comparison to previous years. This reflects mainly world prices development and some slight contraction in domestic demand. In a nutshell, the trade deficit still exists, although it is likely to decrease further in the years to come, assuming that the mentioned rate is followed.

Import

Italy: 32.1%, Greece: 13.1%, Turkey: 7.2%, Germany: 6.6%, China: 4.5%, Russia: 4.2%, other

Imported commodities include: Machinery and equipment, Foodstuffs, Textiles, Chemicals

Trade Balance 1993-2009

Chart, Trade Balance 1993-2009

Source INSTAT (93-97)

In the Period of 2008-2009 the Trade Balance = Export-Import is in dependence of the type of the product and only in Textile and Footwear the Trade Balance is positive and means that Albania in this two years has exported more than imported but with the other products this Trade Balance is negative which means Albania import more then export this products. In 2009 we see the Trade Balance figures for many products are bigger then in 2008, that’s why we can say that in 2009 these products are Exported more then Imported. But also are products that in 2009 are Exported less then in 2008.

Exports represent 19.4 percent of the total trade flows during 2008. This percentage

has decreased only by 1% from 2008. Total trade flows experienced a decrease of 3.1 percent as compared to 2008. This decrease was caused by the increase of both, exports and imports’ flows. Total exports reached 103,438 million ALL and experienced a decrease of 8.1% percent as valued in ALL. Total imports reached 431,107 million ALL and experienced a decrease of 1.8 percent. Imports structure is more dispersed than the structure of exports, which is a characteristic of import structure observed also in previous years. Compared to 2008, more sections have experienced a decrease in the value of imports such as mineral products, animal products and base metals.

2.3 Exchange Trade with EU during 2009

Exports to the EU were valued at 81,609 mln ALL having experienced a decrease of 8.9%. The decrease in absolute value is expressed by a higher percentage in the other important currencies for international trade: EURO and American dollar. Imports from EU-27 countries amounted to 291,130 mln ALL, having increased by only 4.3% as compared to 2008.

Imports dynamics in the other currencies is also negative. Imports to the EU-27, having increased in overall in ALL, account for an upward trend in contrary to the decline tendency of overall imports to the country. The share to total imports has increased therefore by 3.9 percentage points to 67.5%.

During 2009 the structure of the geography of trade showed no significant changes as compared to the previous year 2008. Apart from shifts in shares from account for the largest share of trade with Albania, like in the previous years. EU-27 countries account for 78.9% of total exports of Albania, having experienced the first decrease in absolute value after 1997 by 8.9%, accompanied by a very small decrease in their share by 0.7 percentage points as compared to the previous year.

Imports from EU-27 countries account for an upward trend still and for 67.5% of total imports, having increased in absolute value by 4.3% and in share by 3.9 percentage points. The countries of the region represent an important group of partners for the Albanian foreign trade, due to the geographic vicinity and the consistent amount of trade with these countries. Trade flows with these countries have undergone also shrinkage in both directions: exports and imports. This was manifested by decreases in their share to total

volumes and absolute values. The share of exports of the regional countries has decreased by than 1.4 percentage points, while the absolute value by 17.4%.

The share of imports from the regional countries has also decreased from 9.4% to 7.7%, while the absolute value by 19.2%. Other countries shares have also shifted in both directions depending on country specific trade dynamics.

Table: Trade Indicators (in million ALL and %)

Trade indicators

2008

2009

AL-EU trade volume

368,815.0

372,784.1

Share to total AL’s volume

66.9%

69.7%

Imports from EU

279,207.0

291,130.5

Share in total AL’s import

63.6%

67.5%

Exports to EU

89,607.9

81,609.6

Share to total AL exports

80.0%

78.9%

Trade balance

-189,599.1

-209,520.9

Source: Acit(2010)

Albania’s most important trade partners for 2009. Italy and Greece remain the most important

countries in terms of trade volumes. Exports to these countries, together, account for 69.9% of total exports of Albania. Exports to Italy are ranked first reaching at 62.6% of total exports. While they have decreased in absolute value by 6.9 percent, their share has increase by 0.8 percentage point, mainly due to the overall decrease of exports. Exports to Greece have experienced diminution both in share and absolute value by 1.4 percentage points and 23.7% respectively. Imports from Italy have diminished in absolute value by 3.5% while their share has slightly dropped to 27.9 percent from 28.4 percent. Imports from Greece have increased by 5.8% while their share to total has also slightly increased to 16.5% from 15.3% (2008). Trade flows between Albania and the EU-27 were valued at 372,740 mln ALL having increased by only 1 percent during 2009. The Albanian currency depreciation towards the European currency – Euro as well as the American Dollar, account for negative growth rates with this geographic area. The share of EU-27 countries trade flows has increased by 2.8 percentage points, to 69.7% mainly due to the increase of imports from this area. Exports to the EU-27 account for 78.9 percent of total exports of Albania. Even though exports have decreased in absolute value the percentage share has dropped only by 1.1 percentage points. Imports on the other hand have experienced an increase of 4.3 percent, accounting for 67.5 percent increase and a 3.9 percentage points, higher share to the total. This has contributed for an increased share to the country’s trade deficit, which was valued 63.9% of the total in 2009, as you can observe in table 5.2. The export/import coverage ratio has also decreased to 28 percent from 32 percent in 2008. Trade flows were mainly oriented towards Italy even this year, followed by Greece and then Germany, as you can observe in graph 5.3. Italy’s trade flows’ share to total trade volumes has shrunk further to 49.6 percent accompanied by a decrease in absolute value of total trade flows. Trade flows to Greece account for 21.1 percent of total trade and have shown stability as compared to 2008. Germany’s trade volumes account for 7.1 percent of the total. Despite the increase in both trade flows, imports and exports, Germany accounts for an unchanged share to total volumes, compared to 2008. Other countries, significant for the foreign trade are Bulgaria, Austria and Spain accounting for lower shares.

FTA (Free Trade Agreement)

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.

FTA with EU

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. 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

U.S. trade with Albania is very low. In 2008, U.S. exports to Albania totaled 7,590 million ALL compared with 5,390 million ALL in 2007, an increase of 36.7%. Part of this increase was due to the 8% depreciation of the dollar against the domestic currency. 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.

4. Low volume of exports

4.1 Why low volume of exports

The quantities of exports that are supplied and demanded are influenced by a variety of factors, the more goods and services will be produced for export the higher the real return on exporting, relative to returns from other uses for the resources used in exporting. The exchange rate influences both the supply of and demand for export volumes. Also, some firms may have the ability to charge ‘different’ prices to the norm. This is usually associated with the degree to which a product is differentiated from other products. In contrast, dairy products and most agricultural commodities are comparatively undifferentiated, and their prices are determined in world markets. http://findarticles.com/p/articles/mi_hb6059/is_1_67/ai_n29092623/

There are many factors affecting the low level of exports: One of the reasons why the Albanian economy has not exploited the domestic capabilities adequately was the energetic crisis which has had an important impact on all economic sectors profitability. The domination of very small agriculture unit with a very little production of market, the domination of small workshops mainly with old equipment with just regional importance and so cannot fulfill the conditions of the European market, the difficulties of small producers organizing to collect the adequate amounts of production, the lack infrastructure and weak marketing to improve the image for tourism development, lack of capital to invest on modern equipment, the production levels are lower than the aimed countries etc. http://www.bankofalbania.org/web/pub/Ceku_237_1.pdf

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. http://www.state.gov/r/pa/ei/bgn/3235.htm

Figure 1

Factors affecting export volumes

Export volumes

Supply influences Demand influences

Capacity Alternative uses Foreign demand Trade barriers Competitiveness

Inputs Domestic market Market size Tariffs Input costs

Productivity Foreign income Quotas Productivity

Weather Population Regulatory constraints Exchange rate

Stocks Preferences Transport costs

Expected profitability World export prices

World export rates Exchange rate

Exchange rate

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. 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 has a new, modern highway along its entire coastline and others different investments in infrastructure.

http://www.traveldocs.com/al/economy.htm

4.2 What should be done to increase exports?

There are many conditions to be fulfilled by all suppliers aiming to get the control of a part of these markets like hygienic standards, product presentations supply continuity etc. Despite that the fact that Albania could successfully export some products is an evidence showing that there does exists a general potential to export and that there could be constructed a basis on which it could be attempted to improve and enlarge the export basis. Based on the last years exports situation the growing rates, success on some economic segments agriculture and other sector equipment imports public investments and many reforms under implementing ,opening and enlargement of regional market especially to Macedonia and intensification of trade relationships to Kosovo there is a good prospective on the competitive ability development and improvement.

Beside the long term objectives, many governmental structures have to:

-Support the initiatives to use other energy sources especially the solar one based on the results of some other countries like Greece, France, Spain.

-Better management of water supply would have its effects on reducing goods category like dams, deposits, water pumps.

-Get continually analytical data for every product destined to export.

-Identify the producers wholesalers dealing with the exportation of different domestic production.

-Identify the products that are potentially exporting but have not still found the ways to enter in the foreign markets.

-Receive information and data on prices, demands, companies and rules of foreign markets.

4.3 Advantages To Exporter

There are many advantages for the exporter that’s why it is important to export more then import goods, this advantages influences in the economy and in the wellbeing of the Albanians.

Increase sales in foreign markets by offering competitive ‘open account’ terms of sale.

Obtains financing from the factor without recourse to the exporter.

Receives cash immediately upon delivery of the goods or services.

The factor bears the risks of buyer’s credit, currency and interest rate fluctuations.

Gains protection against credit losses from foreign sales.

Generates accelerated cash flow through faster international collections.

Obtains lower costs than the normal aggregate charges for L/C transactions.

Relieved of the process of collecting the money at maturity.

Avoids high cost of an international sales credit department.

Obtains on the appropriate terms and conditions to fit each export sale customer.

Check on the credit history and reputation of your overseas buyer.

Obtains advise on international trade documentation and shipping issues.

5. Conclusion

Albania is now faced with a new challenge to increase the competitive capabilities in the international market with the intention to join the European Union. The Albanian exports to the countries of memorandum of trade liberalization are at a low level although the tendency is growing up. All the data presented above show that the economy of our country is oriented towards import. The higher rising of imports compared to exports has brought about the further depression of trade deficit. The low level of the domestic exports show that economic potentials are not being used as they should. Albania with its geographical position, natural sources, climate and a relatively small domestic market, has all the possibilities to be a potential exporter to European markets. The further development of Albania toward exports will depend successful political, institutional, technical and managerial control and support.