Liberalization of the Albanian trade is not enough to affect its structure

In Albania there is an increase in value of trade and in FDIs but geographical and commodity structure of trade has not changed significantly despite the Stabilization and Association Agreement between Albania and the EU.

Albania signed the Stabilization and Association Agreement (SAA) with the European Union (EU) in 2006 (it entered into force three years later). The parties agreed to establish a free trade area within a period of maximum 10 years. Subsequently, the SAA efficiently abolished custom duties on imports into Albania and into the EU (with some exceptions). Except of liberating trade, the SAA aimed at approximation of legal framework and actual practice of Albanian agricultural and industrial sectors to the EU standards, bringing therefore the country closer to the Single European Market.

Even before signing the SAA, the share of the EU in Albanian trade was exceptionally high but it is continuously decreasing. In 2000, 93.2 per cent of Albania’s exports end up on the European market, while the Union’s share in Albanian imports amounted to over 80 per cent. In 2005, these shares were lower with 89.4 per cent and 67.2 per cent respectively. The respective figures for 2017 were 77.2 and 61.5 per cent

Between 2007 and 2017, despite the world crisis, Albanian export to the EU increased by almost 61 per cent from EUR1.8bn to almost EUR3bn. During similar period the imports raised by 238 per cent from EUR631m to EUR1.5bn. Therefore, trade deficit for Albania has remained high and increased from EUR1.2bn to EUR1.4bn in the given period.

Two out of the top three origins of imports into Albanian markets were the EU countries, while Germany was all the time (except for 2016) either the 4th or the 5th. Italy and Greece provide over 40 per cent of Albanian imports.

Regarding exports destination of Albanian goods, Italy and Greece played key roles, with exception of 2008 and 2009 when Nigeria briefly overtook the first position. This makes these two countries the most important trade partners of Albania. The SAA has not affected this order.

Overall, the value of trade has increased significantly since signing the SAA agreement, it is, however, Greece and Italy that remained the key trading partners of Albania. It indicates, as noted by Ledion Krisafi and Sidonja Manushi from the Albanian Institute of Foreign Affairs, that “the principle of free trade is not sufficient to increase the trade between two countries. Geography, historical ties, culture, etc., play an important role. Even without a comprehensive free trade agreement with the European Union, Italy and Greece, for geographical, historical and cultural reasons, remain Albania’s main trade partners in both exports and imports. Other trade partners like Germany, Spain, France, Austria, Czech Republic, etc., for several reasons, many of those not related to free trade agreements, cannot achieve the consistency of Italy and Greece.”

As mentioned above SAA has not affected significantly the structure of Albania’s trade with the EU. The changes concerned mostly imports. In 2005 and 2006, before the signing of SAA and 3-4 years before its entry into force, Albania’s imports of machinery, metals/construction materials and chemical products saw a considerable increase. In 2005, Albania imported chemical products worth EUR157m, while a year later the value was EUR193m. The same concerns import of minerals and energy — it increased from the level of EUR153m in 2005 to EUR223m in 2006. Year later, machinery became the number one imported product (increased to EUR451m from EUR140m in 2006). Similarly significant increase in import can be noted with regard to construction materials and metals, which became the second most imported product, and a year earlier remained outside of the top five.

Exports of agricultural products increased almost fourfold from EUR30.8m to EUR123m in 2016. However, imports of this type of products almost doubled from EUR231m to EUR426m in the respective years. Therefore, during this period the deficit deepen from EUR201m to EUR303m.

Foreign Direct Investments (FDI) in Albania have been constantly growing since beginning of 1990s. Statistics were improved the fact that during the communism FDIs were virtually non-existing in this country. Signing the SAA encouraged potential investors and the FDI reached its highest level of USD1.22bn in 2013, while in 2006 they amount only to USD250m. For 2016 the figure was EUR983m The main investors are Greece with EUR1.23bn worth stock investments in 2014 (mostly financial sector), followed by Italy and the Netherlands, Austria, Canada, Turkey and Czech Republic. Poland’s southern neighbor invested in energy sector but unsuccessfully, and this year decided to withdraw from the Albanian market. Overall, the most popular destination of investments were financial sector, transport, communication and, most recently, information and communication. Processing and extracting industries followed.

While the SAA coincide and most likely encouraged increasing trade between the EU and Albania, it did not neutralize the negative trends such as structure of trade or the significant trade deficit. On the list of positive effects we must place FDI which inflow to Albania. Fortunately for the country the IMF predicts 4 per cent increase of GDP this year. It is powered mostly by investments and internal consumption.

Jan Muś is a lecturer at the Vistula University.

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