Albania

Published on: 20 May 2019

Capital Tirana
Population (million) (2017) 2.9
GDP (current USD billion) (2017) 13.0
GDP per capita (current USD) (2017) 4,544.0
Life expectancy (years) (2015) 78.2

History and Politics

Albania declared its independence from the Ottoman Empire in 1912, but was conquered by Italy in 1939 and occupied by Germany in 1943. Communist partisans took over the country in 1944. Albania allied itself first with the USSR (until 1960), and then with China (to 1978). In the early 1990s, Albania ended 46 years of isolated communist rule and established a multiparty democracy.

Albania joined NATO in April 2009 and in June 2014 became an EU candidate. Albania in April 2017 received a European Commission recommendation to open EU accession negotiations following the passage of historic EU-mandated justice reforms in 2016.

Macroeconomic Environment

The transition from a centrally planned to a market-oriented economy, together with abundant international aid and other strategic assistance over the past decades, has helped Albania to make economic progress. Due to strong growth performance, Albania grew from the poorest nation in Europe in the early 1990s to middle-income status in 2008, with poverty declining by half during that period.

However, close trade, remittance, and banking sector ties with Greece and Italy make Albania vulnerable to spillover effects of possible debt crises and weak growth in the euro zone. Remittances, a significant catalyst for economic growth, declined from 12-15% of GDP before the 2008 financial crisis to 5.8% of GDP in 2015, mostly from Albanians residing in Greece and Italy. The agricultural sector, which accounts for more than 40% of employment but less than one quarter of GDP, is limited primarily to small family operations and subsistence farming, because of a lack of modern equipment, unclear property rights, and the prevalence of small, inefficient plots of land.

Inward foreign direct investment 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 since 2015. 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. Albania’s three-year IMF program, an extended fund facility arrangement, was successfully concluded in February 2017. The Albanian Government has strengthened tax collection amid moderate public wage and pension increases in an effort to reduce its budget deficit. The country continues to face high public debt, exceeding its former statutory limit of 60% of GDP in 2013 and reaching 72% in 2016.

Labor Market

The country’s economic activity is based on service provision, agriculture, and industry. Albania is a country rich in natural resources, but the economy depends on agriculture, oil processing, mineral extraction, energy, tourism, and textile industry. The main sectors of the economy include the extractive industry, accommodation and food service, transportation, information and communi-cation, services, processing industry, energy, gas, water and waste treatment, construction, and trade.

According to CEIC, Albania’s Labour Force Participation Rate reached an all-time high to 59.1% in December 2017, compared to 58.7% in the previous quarter, and a record low of 50.8% in March 2014. Albania’s Population reached 2.9 million people in December 2017. Unemployment dropped to 13.4% in December 2017. The country’s monthly earnings stood at 543.0 USD in December 2017. Albania’s GDP PPP per Capita is forecasted to be 13,193.74 PPP Intl USD in December 2018 as reported by the International Monetary Fund’s “World Economic Outlook”.

Banking System

The banking sector is regulated by Law 9662, “On Banks in the Republic of Albania.” The law defines guidelines to ensure sound management and administrative procedures for domestic and foreign banks. The banking sector is fully private and includes 16 banks, most of which have majority foreign shareholders. The Turkish National Commercial Bank commands a 27% market share, trailed by Austria-based Raiffeisen Bank, local bank Credins, and Italy’s Intesa San Paolo Bank. Market share of Greek banks has decreased in recent years. The entry of the American Bank of Investments (ABI), owned by New York-based NCH Capital Group, is the only U.S. private capital firm in the Albanian banking sector.

Albania’s bank sector weathered the 2008 financial turmoil successfully, due largely to its limited sophistication, low rate of loans to total deposits, and the lack of a real estate bubble in Albania. The banking sector remains well capitalized, profitable, and liquid. In 2016, profits reached USD 75 million with 15.7 capital adequacy ratio, 0.7% return on assets, and 7.2% return on equities. As of March 2017, total assets of the banking sector amounted to USD 11.3 billion, consisting primarily of bank deposits.

As of March 2017, there were 506 banking outlets nationwide, 1.6% less than in 2015, but four times more than in 2005. After peaking at 25% in 2015, non-performing loans have decreased to 17.4% as of 2017, the result of regulatory changes by the Bank of Albania. Despite a high rate of non-performing loans, deposits continue to grow, albeit at a slower pace. The stock of outstanding loans, especially in the case of the private sector, has contracted slightly. However, capital adequacy at 15.7% remains far above Basel requirements, indicating that the sector has sufficient assets.

The regulatory framework aligns with international practice. The Bank of Albania (BOA) has tightened supervision rules over banks because of the global financial crisis and the risks of contagion posed by regional banks.

There are 27 non-banking financial institutions and four savings and loan associations in Albania. These institutions target medium-sized businesses that are not primarily served by the commercial banking sector. They offer loans from USD 1,000 to USD 500,000.

Healthcare

The healthcare system in Albania is mainly public. The private healthcare sector is still developing, and it covers most of the pharmaceutical and dental services as well as some clinics for specialized diagnoses, mainly being situated in Tirana. The Albanian law guarantees equal access to healthcare for all citizens. Public healthcare in Albania is the major provider of health services, health promotion, prevention, diagnosis and treatments for the population of Albania. Primarily, the Government of Albania funds the State healthcare system. State insurance does not cover medical costs incurred in the private sector, as a result, they are only accessible to people who can afford to pay for them.

Social Welfare

According to the “National Strategy for Social Protection 2015-2020”, the economic assistance scheme is the main instrument for “alleviating poverty” in the country. However, the payment currently has a limited impact on poverty reduction. There are currently about 80000 families who benefit from scheme payments. The Economic Assistance Scheme targets relatively well the poor families, as the poorest part of population (20% of the population in the country) benefits 56% of the scheme’s spending.

Sources

https://www.cia.gov/library/publications/the-world-factbook/geos/mk.html
http://www.worldbank.org/en/country/albania
https://files.returningfromgermany.de/files/CFS_2018_Albania_EN.pdf
https://www.paris-pact.net/upload/c33395b925ae8ab1eb3a5f07ddb3c85d.pdf
https://www.export.gov/article?id=Albania-Banking-Systems