The Republic of Albania is home to 3 million citizens, a significant decline over the last 10 years. The Albanian lek has surprisingly performed very well on currency markets as the country is on the verge of a massive wealth bonanza by being blessed with rich energy resources but implementation challenges remain. Albania is considered one of Europe's poorest countries along with Moldova where upwards of 30 percent of Albania's population live below the poverty line. At present, Albania is playing catch up to neighboring countries like Greece where its GDP per capita is 5 times greater than Albania.
Since the collapse of the Soviet Union in 1990-91, Albania has endured a successful but painful transition from socialist command control economy to toward a free market open economy. Since 1995, Albania has experienced high economic growth rates with the implementation of IMF economic reforms, privatization and stabilization policies most notably with a large reduction in the public work force. However the economy is held hostage to political instability and regional risks. In 1997, Albania reached anarchy with social unrest and violence after a fraudulent pyramid investment scheme collapsed and zapped the wealth of many in the nation. Then, the world again heard about Albania with its generosity during the Kosovo conflict in 1999 by taking in thousands of Kosovar Albanian refugees. Below, is BankINTRO.com’s summary notes for Albania and how it may show valuation for the lek.
POLITICS: emerging democracy, next presidential election scheduled for 2012, capital city is Tirana. By year 1990, forty-four years of communist rule ended and a multiparty democracy began. Political risk includes the fear of Albanian nationalism in the future. For further details, please contact BankINTRO.com.
ECONOMY: developing market economy although a large black market economy still exists as the economy is transitioning from central planned model (1991) to free economy. The 1990’s was mired in transition and change phase from communist central plan thinking to free market policies. The collapse of financial pyramids schemes in 1997 which resulted in a 7 percent drop in real GDP growth in 1997 where one in seven Albanians were involved and losses totaled $1.5 billion USD equivalent. The Kosovo conflict in the late 1990’s resulted in an economic boom with an influx of foreign exchange monies where an estimated 460,000 ethnic Kosovar Albanians migrated into Albania although most did return back to Kosovo after the war.
Over the last 10 years, growth was buoyant and the authorities have managed the economy well during the most recent global recession 2008-2009. A major area of economic deficiency for Albania includes a weak infrastructure coupled with monies required for updating including an inadequate energy grid; outdated financial system; corruption and organized crime are prevalent. Severe energy shortages have hampered economic growth where many small businesses have gone bankrupt. This is a result due to inadequate energy grid rather than energy resources as Albania is self-sufficient in domestic energy from supplies in hydropower, coal and natural gas. There is a huge potential in chromium mining where capital is required to exploit large deep underground deposits. In addition, Albania's tourism industry is yet to be tapped with many wonderful camping areas, pristine lakes and coastline. The agricultural & farm industries require modern technology. Industries include textiles, lumber, mining, chemicals, oil & natural gas and hydropower/coal.
Economic Statistics
GDP as measured by purchasing power parity is at 23 billion USD (2009) equivalent to GDP/Capita at 6,400 USD. GDP market expenditure based in nominal USD is measured at 12.2 billion USD for 2009. GDP growth figures include: year 2009 at 4 percent, 2008 at 7.8 percent, 2004-08 at 6 percent, 2001 at 6.5 percent and year 2000 at 7.8 percent. Year 2010 projected to come in at 2.6 percent, year 2011 at 3.2 percent. Inflation is under control with year 2011 estimated at 2.9 percent, October 2010 at 3 percent, year 2009 running at 2.2 percent and 2008 confirmed at 3.4 percent. Historical inflation quotes include 2 percent in early 1999 from in excess of 40 percent during 1997; inflation for 1999 was negative 1 percent (deflation), 2000 at 0.4 percent. The fiscal deficit is significant at 860 million USD in 2009. Looking at the current account, it is large at 12.6 percent of GDP (2010) and persistently in deficit with the trade component realizing a shortfall of 3.2 billon USD in 2009. To help offset the current account deficit, economic aid is worth 300 million USD per year while remittances are valued at 15 percent of GDP. Overall public debt to GDP is measured at 63 percent and is declining. Agriculture accounts for 50 percent of employment and 20 percent of GDP. Official unemployment stands at 12.8 percent (2009). Major trade partners: Italy, Greece.
POSITIVES: high literacy rate, inflation is low & stable, NATO member April 2009, pro-WEST / U.S. relationship, pro-business government, Stabilization & Association Agreement between Albania and the European Union, low labor costs. CONCERN: transshipment center – drugs, emigration of economic Albanians seeking work elsewhere, energy blackouts, lack of business regulatory framework.
BANKING SYSTEM: regaining credibility with the implementation of deposit insurance. Year 2010 international reserves are healthy at 1.58 billion USD equivalent to 4.2 months of import coverage. Increase dollarization of the Albanian economy and foreign currency growth. The central bank Repo interest rate is at 5 percent. Albania's central bank, ‘Bank of Albania’ has an inflation target of 3 percent.
REGIONAL: Montenegro, Macedonia, Kosovo, Italy, Greece, Adriatic Sea
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KNOWLEDGE: Oil and Natural Gas Industry
Oil production peaked in 1975 before fizzling out with lack of foreign investment during the late rule of the communist period in the 1980’s.
Albania is a resource rich country that has huge potential both for onshore and offshore hydrocarbon potential. Good and fair production sharing agreements for business. The corporate tax rate is 10 percent, most businesses are exempt from the VAT.
Estimated oil reserves are in excess of 3 billion barrels plus in addition to 3 trillion cubic feet of natural gas reserves. Oil and electricity net importer in 2009, oil imports at 24,000 bpd (2009).
CURRENCY: ISO symbol 'ALL', Albanian lek, leks (plural), leke. At time of review on November 8, 2010, the Albanian lek had an exchange value of 99.65 ALL to the US-dollar ('USD') and/or equivalent to 138.9 ALL to 1 Euroland euro (EUR). Floating exchange rate regime is currently in place.
CURRENCY HISTORY: currency inception for the lek took place in year 1926. During 1999, the lek experienced a sharp appreciation to the USD primarily due to the influx of Alabanian Kosovar refugees and their money. Historical exchange valuations for the lek include year 2009 at 93.93 ALL to the USD, 2008 at 79.55, 2007 at 92.67, 2006 at 98.38, 2005 at 102.65, March 2003 at 139, year 2001 at 175.22, year 1999 at 137.7, January 1998 at 152.2, 1997 at 148.9, 1996 at 104.5, 1995 at 92.7, 1994 at 94.6 and year 1993 at 102.
CURRENCY FORECAST: surprisingly, the lek has performed quite well given its regional political instability, BankINTRO.com suggests the lek will remain steady in the 100 ALL trading range to the USD over the next 12 months as the United States dollar bounces back from a difficult year to date in the world currency markets. going forward include infrastructure development in areas of transportation (rail, roads, etc.) and combatting energy shortages. Medium to long term, Albania is a potential candidate for European Union accession and the euro, but will the euro itself make it?
