Economy of Albania
Encyclopedia
The economy of Albania has undergone a transition from its communist past into an open-market economy
in the early 1990s. Although the country is rich in natural resources, the economy is mainly bolstered by emigrant annual remittances
, the informal economy
, and the services and agricultural sector.
in Albania
came later and was more chaotic than in other Eastern Europe
an countries and was marked by a mass exodus of refugee
s to Italy
and Greece
in 1991 and 1992. The country attempted to transition to autarchy, but this eventually failed. Attempts at reform began in earnest in early 1992 after real GDP fell by more than 50% from its peak in 1989. Albania currently suffers from high organised crime and corruption rates, the highest in Europe.
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.
(GDP) of Albania in national currency (million leks) and in US dollars based on Purchasing Power Parity
(PPP) from estimates by the International Monetary Fund
.
For purchasing power parity comparisons, the US dollar is exchanged at 49 leks (2007 estimate). Mean wages were $3.83 per manhour in 2009.
Albania remains a poor country by Western European standards. According to Eurostat
, Albania's GDP per capita (expressed in PPS – Purchasing Power Standards
) stood at 25 percent of the EU average in 2008.
Results of Albania's efforts were initially encouraging. Led by the agricultural sector, real GDP
grew by an estimated 11% in 1993, 8% in 1994, and more than 8% in 1995, with most of this growth in the private sector. Annual inflation dropped from 25% in 1991 to single-digit numbers. The Albanian currency, the lek, stabilized. Albania became less dependent on food aid. The speed and vigour of private entrepreneurial response to Albania's opening and liberalizing was better than expected. Beginning in 1995, however, progress stalled, with negligible GDP growth in 1996 and a 9% contraction in 1997. A weakening of government resolve to maintain stabilization policies in the election year of 1996 contributed to renewal of inflationary pressures, spurred by the budget deficit which exceeded 12%. Inflation
approached 20% in 1996 and 50% in 1997. The collapse of financial pyramid scheme
s in early 1997 – which had attracted deposits from a substantial portion of Albania's population – triggered severe social unrest which led to more than 1,500 deaths, widespread destruction of property, and an 8% drop in GDP. The lek initially lost up to half of its value during the 1997 crisis, before rebounding to its January 1998 level of 143 to the dollar. The new government, installed in July 1997, has taken strong measures to restore public order and to revive economic activity and trade.
Albania is currently undergoing an intensive macroeconomic
restructuring regime with the International Monetary Fund
and the World Bank
. The need for reform is profound, encompassing all sectors of the economy. In 2004, the largest commercial bank in Albania—then the Savings Bank of Albania—was privatised and sold to Raiffeisen Bank of Austria
for US$ 124 million. Lagging behind its Balkan neighbors, Albania is making the difficult transition to a more modern open-market economy. Macroeconomic growth has averaged around 5% 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 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 San Marino and Liechtenstein, to have economic growth; Albanian GDP real growth was 3.7%. Year after year, the tourism sector has gained a growing share in the country's GDP.
However, reforms 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 20% of the labour force that works abroad, mostly in Greece
and Italy
. These remittances supplement GDP and help offset the large foreign trade deficit. Most agricultural land was privatized in 1992, substantially improving peasant incomes. In 1998, Albania recovered the 8% drop in GDP of 1997 and pushed ahead by 7% 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.
country comparison to the world: 116
GDP per capita: $8,000 (2010)
country comparison to the world: 123
GDP - real growth rate: 3.5% (2010)
country comparison to the world: 109
Inflation: 3.5% (2010)
country comparison to the world: 114
Unemployment
: 13.7% (2010 est)
country comparison to the world: 141
country comparison to the world: 113
, maize
, potato
es, vegetable
s, fruit
s, sugar beet
s, grape
s; meat
, dairy product
s
country comparison to the world: 142
Imports: $4.59 billion (2010 est.)
country comparison to the world: 120
Import partners: Italy
27.6%, Greece
14.8%, Turkey
7.4%, Germany
5.6%, Switzerland
5%, Russia
4.2% (2007)
Remittances: (from Italy
, Greece
and elsewhere) $800 million (2007 est.)
Current account balance: -$1.404 billion (2010 est.)
country comparison to the world: 152
Foreign exchange reserves
: $2.479 billion (2008)
country comparison to the world: 103
country comparison to the world: 113
Electricity – production by source:
Electricity
country comparison to the world: 102
Oil
country comparison to the world: 94
country comparison to the world: 107
Natural gas
country comparison to the world: 84
country comparison to the world: 108
country comparison to the world: 100
Economic system
An economic system is the combination of the various agencies, entities that provide the economic structure that defines the social community. These agencies are joined by lines of trade and exchange along which goods, money etc. are continuously flowing. An example of such a system for a closed...
in the early 1990s. Although the country is rich in natural resources, the economy is mainly bolstered by emigrant annual remittances
Remittances
A remittance is a transfer of money by a foreign worker to his or her home country. Note that in 19th century usage a remittance man was someone exiled overseas and sent an allowance on condition that he not return home....
, the informal economy
Informal economy
The informal sector or informal economy as defined by governments, scholars, banks, etc. is the part of an economy that is not taxed, monitored by any form of government, or included in any gross national product , unlike the formal economy....
, and the services and agricultural sector.
History
The collapse of communismCommunism
Communism is a social, political and economic ideology that aims at the establishment of a classless, moneyless, revolutionary and stateless socialist society structured upon common ownership of the means of production...
in Albania
Albania
Albania , officially known as the Republic of Albania , is a country in Southeastern Europe, in the Balkans region. It is bordered by Montenegro to the northwest, Kosovo to the northeast, the Republic of Macedonia to the east and Greece to the south and southeast. It has a coast on the Adriatic Sea...
came later and was more chaotic than in other Eastern Europe
Eastern Europe
Eastern Europe is the eastern part of Europe. The term has widely disparate geopolitical, geographical, cultural and socioeconomic readings, which makes it highly context-dependent and even volatile, and there are "almost as many definitions of Eastern Europe as there are scholars of the region"...
an countries and was marked by a mass exodus of refugee
Refugee
A refugee is a person who outside her country of origin or habitual residence because she has suffered persecution on account of race, religion, nationality, political opinion, or because she is a member of a persecuted 'social group'. Such a person may be referred to as an 'asylum seeker' until...
s to Italy
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...
and Greece
Greece
Greece , officially the Hellenic Republic , and historically Hellas or the Republic of Greece in English, is a country in southeastern Europe....
in 1991 and 1992. The country attempted to transition to autarchy, but this eventually failed. Attempts at reform began in earnest in early 1992 after real GDP fell by more than 50% from its peak in 1989. Albania currently suffers from high organised crime and corruption rates, the highest in Europe.
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
Liberalization
In general, liberalization refers to a relaxation of previous government restrictions, usually in areas of social or economic policy. In some contexts this process or concept is often, but not always, referred to as deregulation...
, 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
Agriculture
Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...
, 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.
Macro-economic trends
This is a chart of Gross Domestic ProductGross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
(GDP) of Albania in national currency (million leks) and in US dollars based on Purchasing Power Parity
Purchasing power parity
In economics, purchasing power parity is a condition between countries where an amount of money has the same purchasing power in different countries. The prices of the goods between the countries would only reflect the exchange rates...
(PPP) from estimates by the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
.
| Year | GDP, million leks |
GDP, million US$–PPP |
US$ exchange rate, leks/$ |
Inflation index (2000=100) |
|---|---|---|---|---|
| 1980 | 17,411 | 4,836 | 9.49 | 5.10 |
| 1985 | 18,896 | 6,891 | 8.58 | 5.10 |
| 1990 | 18,840 | 8,233 | 9.01 | 5.10 |
| 1995 | 251,843 | 8,108 | 92.79 | 55 |
| 2000 | 530,906 | 11,483 | 143.68 | 100 |
| 2005 | 836,833 | 16,944 | 100.19 | 121 |
| 2007 | 982,179 | 18,818 | 103.34 | 124 |
For purchasing power parity comparisons, the US dollar is exchanged at 49 leks (2007 estimate). Mean wages were $3.83 per manhour in 2009.
Albania remains a poor country by Western European standards. According to Eurostat
Eurostat
Eurostat is a Directorate-General of the European Commission located in Luxembourg. Its main responsibilities are to provide the European Union with statistical information at European level and to promote the integration of statistical methods across the Member States of the European Union,...
, Albania's GDP per capita (expressed in PPS – Purchasing Power Standards
Purchasing power parity
In economics, purchasing power parity is a condition between countries where an amount of money has the same purchasing power in different countries. The prices of the goods between the countries would only reflect the exchange rates...
) stood at 25 percent of the EU average in 2008.
Results of Albania's efforts were initially encouraging. Led by the agricultural sector, real GDP
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
grew by an estimated 11% in 1993, 8% in 1994, and more than 8% in 1995, with most of this growth in the private sector. Annual inflation dropped from 25% in 1991 to single-digit numbers. 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 9% 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 12%. Inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
approached 20% in 1996 and 50% in 1997. The collapse of financial pyramid scheme
Pyramid scheme
A pyramid scheme is a non-sustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public...
s 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 8% 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 143 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
Macroeconomics
Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes a national, regional, or global economy...
restructuring regime with the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
and the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
. The need for reform is profound, encompassing all sectors of the economy. In 2004, the largest commercial bank in Albania—then the Savings Bank of Albania—was privatised and sold to Raiffeisen Bank of Austria
Austria
Austria , officially the Republic of Austria , is a landlocked country of roughly 8.4 million people in Central Europe. It is bordered by the Czech Republic and Germany to the north, Slovakia and Hungary to the east, Slovenia and Italy to the south, and Switzerland and Liechtenstein to the...
for US$ 124 million. Lagging behind its Balkan neighbors, Albania is making the difficult transition to a more modern open-market economy. Macroeconomic growth has averaged around 5% 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 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 San Marino and Liechtenstein, to have economic growth; Albanian GDP real growth was 3.7%. Year after year, the tourism sector has gained a growing share in the country's GDP.
External trade
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
, price fluctuation, and other variables that negatively affect income. The economy continues to be bolstered by remittances of some 20% of the labour force that works abroad, mostly in Greece
Greece
Greece , officially the Hellenic Republic , and historically Hellas or the Republic of Greece in English, is a country in southeastern Europe....
and Italy
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...
. These remittances supplement GDP and help offset the large foreign trade deficit. Most agricultural land was privatized in 1992, substantially improving peasant incomes. In 1998, Albania recovered the 8% drop in GDP of 1997 and pushed ahead by 7% 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.
Oil and gas
In early 2008, vast and untouched deposits of oil and gas were discovered in northern Albania. The deposits are estimated at a total of up to 2987000000 barrels (474,895,050,165 l) of oil and 3.014 trillion cubic feet of natural gas. The announcement was made by the corporation Gustavson Associates LLC, engaged by Manas Petroleum Corporation, which has a contract with the government of Albania to explore the northern parts of the country for oil and gas deposits.Macroeconomic indicators
GDP (PPP): $23.86 billion (2010)country comparison to the world: 116
GDP per capita: $8,000 (2010)
country comparison to the world: 123
GDP - real growth rate: 3.5% (2010)
country comparison to the world: 109
Inflation: 3.5% (2010)
country comparison to the world: 114
Unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
: 13.7% (2010 est)
country comparison to the world: 141
Industry
Industrial production growth rate: 3% (2010 est.)country comparison to the world: 113
Agriculture
Products: wheatWheat
Wheat is a cereal grain, originally from the Levant region of the Near East, but now cultivated worldwide. In 2007 world production of wheat was 607 million tons, making it the third most-produced cereal after maize and rice...
, maize
Maize
Maize known in many English-speaking countries as corn or mielie/mealie, is a grain domesticated by indigenous peoples in Mesoamerica in prehistoric times. The leafy stalk produces ears which contain seeds called kernels. Though technically a grain, maize kernels are used in cooking as a vegetable...
, potato
Potato
The potato is a starchy, tuberous crop from the perennial Solanum tuberosum of the Solanaceae family . The word potato may refer to the plant itself as well as the edible tuber. In the region of the Andes, there are some other closely related cultivated potato species...
es, vegetable
Vegetable
The noun vegetable usually means an edible plant or part of a plant other than a sweet fruit or seed. This typically means the leaf, stem, or root of a plant....
s, fruit
Fruit
In broad terms, a fruit is a structure of a plant that contains its seeds.The term has different meanings dependent on context. In non-technical usage, such as food preparation, fruit normally means the fleshy seed-associated structures of certain plants that are sweet and edible in the raw state,...
s, sugar beet
Sugar beet
Sugar beet, a cultivated plant of Beta vulgaris, is a plant whose tuber contains a high concentration of sucrose. It is grown commercially for sugar production. Sugar beets and other B...
s, grape
Grape
A grape is a non-climacteric fruit, specifically a berry, that grows on the perennial and deciduous woody vines of the genus Vitis. Grapes can be eaten raw or they can be used for making jam, juice, jelly, vinegar, wine, grape seed extracts, raisins, molasses and grape seed oil. Grapes are also...
s; meat
Meat
Meat is animal flesh that is used as food. Most often, this means the skeletal muscle and associated fat and other tissues, but it may also describe other edible tissues such as organs and offal...
, dairy product
Dairy product
Dairy products are generally defined as foods produced from cow's or domestic buffalo's milk. They are usually high-energy-yielding food products. A production plant for such processing is called a dairy or a dairy factory. Raw milk for processing comes mainly from cows, and, to a lesser extent,...
s
Foreign trade
Exports: $1.548 billion (2010 est.)country comparison to the world: 142
Imports: $4.59 billion (2010 est.)
country comparison to the world: 120
Import partners: Italy
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...
27.6%, Greece
Greece
Greece , officially the Hellenic Republic , and historically Hellas or the Republic of Greece in English, is a country in southeastern Europe....
14.8%, Turkey
Turkey
Turkey , known officially as the Republic of Turkey , is a Eurasian country located in Western Asia and in East Thrace in Southeastern Europe...
7.4%, Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
5.6%, Switzerland
Switzerland
Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....
5%, Russia
Russia
Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...
4.2% (2007)
Remittances: (from Italy
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...
, Greece
Greece
Greece , officially the Hellenic Republic , and historically Hellas or the Republic of Greece in English, is a country in southeastern Europe....
and elsewhere) $800 million (2007 est.)
Current account balance: -$1.404 billion (2010 est.)
country comparison to the world: 152
Foreign exchange reserves
Foreign exchange reserves
Foreign-exchange reserves in a strict sense are 'only' the foreign currency deposits and bonds held by central banks and monetary authorities. However, the term in popular usage commonly includes foreign exchange and gold, Special Drawing Rights and International Monetary Fund reserve positions...
: $2.479 billion (2008)
country comparison to the world: 103
Energy
Electricity – production: 5.201 billion kWh (2009)country comparison to the world: 113
Electricity – production by source:
- fossil fuel: 2.9%
- hydro: 97.1%
- other: 0%
- nuclear: 0% (2007)
Electricity
- Consumption: 6.593 billion kWh (2009)
country comparison to the world: 102
- Exports: 0 kWh (2009)
- Imports: 1.884 billion kWh (2009 est.)
Oil
- production: 5400 oilbbl/d (2009)
country comparison to the world: 94
- consumption: 36000 oilbbl/d (2009)
country comparison to the world: 107
- exports: 748.9 oilbbl/d (2005 est.)
- imports: 24080 oilbbl/d (2007 est.)
- proved reserves: 199100000 barrels (31,654,370,434.5 l) (January 1 2008)
Natural gas
- production: 30 million m³ (2006 est.)
country comparison to the world: 84
- consumption: 30 million m³ (2006 est.)
country comparison to the world: 108
- exports: 0 cu m (2007 est.)
- imports: 0 cu m (2007 est.)
- proved reserves: 849.5 million m³ (January 1 2008 est.)
country comparison to the world: 100
Exchange rates
- Lekë per US dollar: 79.546 (2008), 92.668 (2007), 98.384 (2006), 102.649 (2005), 102.78 (2004), 121.863 (2003), 140.155 (2002), 143.485 (2001), 143.709 (2000), 137.691 (1999)