Will we keep export as the most valuable asset of the economy, or…?

According to the World Bank’s latest analysis of the shortcomings and achievements of the economies of the Western Balkans, they seem to be learning from the fact that “they are subject to increasing pressures on their external sectors in a challenging external environment. In most of the region, both exports and imports of goods are expected to show a downward trend this year (2024) in terms of GDP.”

The weakening of exports, together with the rising cost of production and living, as well as the reduction of supply from the labor market, although it has been minimized by the flood of financing towards infrastructure works and residential construction to a large extent together with remittances and inflows of money from the export of services and capital inflows in real estate and services, however, could not stop the deterioration of the 6-month current account for the last 5 years.

Although the year 2024 in Albania statistically presents a strong increase in the net inflows of the export of services (visitors who have entered Albania), seen as a positive trend since 2021, we must responsibly emphasize that this trend for the year the future and the following represent uncertainty and in the long term it is expected to end in all Mediterranean countries. Even more so in the conditions when the military conflicts in the eastern Mediterranean, but also the uncertainties of the powerful European economies do not seem to stimulate an increase in the movements of people, who above all value safety and cheap costs.

Likewise, remittances are also expected to stagnate during 2024, in terms of GDP, even though they may show high values, which in fact have denaturalized the meaning of remittances in the function of supplementing family budgets for consumption, since their additional part appears to be increased offer for real estate. In this case, it seems that remittances fail to serve as a basis for savings and savings account deposits, as they go mainly for consumption of daily goods and services, movable assets (equipment and motor vehicles), as well as trends in increase for real assets (building area and land).

In the analysis of economic growth in recent years and in the first 6 months of 2024, it is observed that consumption and investments are playing a more important role in supporting growth, serving as a basis for the coming years as well. Meanwhile, the trend for exports has a strong decline, finding a very high increase in imports that has deepened the trade deficit, a trend that can be seen from the official foreign trade statistics (Table below).

In the indicators we analyze, it is seen that exports in the last 4 post-pandemic years have decreased by up to 22% (486.79 billion ALL in 2021 – 285.81 billion ALL for the 9th month). Imports for the same 4-year period are up to 12% (800.72 billion ALL in 2021 – 665.64 billion ALL for the 9th month).

If we look at a horizontal comparison (year by year) of exports, a decrease is observed from 2022, while imports are increasing except for 2023, in which imports are lower than 2022.

However, in the vertical comparison (trade balance) it can be seen that the deficit (imports minus exports) is on average at the level of 445 billion ALL. This means that every year about 4.5 billion Euros go to strengthen the economies of the countries from which the businesses and the Albanian government receive the goods. The biggest beneficiaries are Italian, Chinese, Turkish, Greek, German and other European and international businesses.

But the biggest loss is that if the manufacturing economy were more competitive (that is, with goods of better quality and at a lower cost than similar imported goods), only half of this trade deficit amount would serve to power the economy and its growth. Such an increase would translate into the reactivation of sources of economic growth, as well as an increase in the supply of employment and an increase in income for every citizen from the level it is today.

Private sector salaries would follow the same upward trend, as well as the increase in consumption in the economy.

Similarly, the tax revenues of the budget would also mark a double-digit increase only from the impact of the increase in the circulation of products and consumption within the economy and for export (VAT and excise), as well as from the increase in wages (tax on wages and contributions of insurance), as well as the increase in the demand for more purchasing power, strengthening the growth of Albania’s economic influence in the international position as well.

Meanwhile, all this did not happen due to the wrong orientation of the economy by the governments of at least the last three decades. In all the last decades, the politicians have not yet shown a mentality in line with the free market in terms of carrying out effective privatizations, the effectiveness of natural resources and the strengthening of social capital with the expected effect on the development of the country and the increase of economic power. Such an approach that coincides with responsibility and political maturity would help to curb the negative phenomena that the citizens, families, and Albanian manufacturing businesses are suffering today.

This approach seems to be evident in the fact that Albania’s trade deficit is compared to other countries in the region. From what can be seen in the Table, Albania is among the countries that have created dependence on the import of goods and with a negative balance to the detriment of exports, which have decreased together with the decrease in the annual value of imports.

In another comparative projection related between the trade deficit of goods and the economic growth of Albania in front of other countries in the region, it is observed that the economic growth in these countries is related to the consumption of goods, but also influenced by services.

The strong impact of growth from services and mainly from the export of services is clearly visible when we refer to the net value of exports for Albania, Montenegro and Kosovo.

While Albania and Montenegro predominantly export services belonging to the tourism industry, Kosovo exports information technology services and with the rates seen in the table below, they seem to have a great impact on economic growth, which is significantly higher than the other three Balkan countries.

In this panorama of exports, we think that the high value of imports should also be accompanied by a high value of exports, to give a dynamism to the economy and increase well-being mainly through production. This seems to lie in these reports in countries like Serbia and partially North Macedonia as well as Bosnia-Herzegovina, which have a high activation of exports,

In the meantime, these three countries also have high incomes from tatami on salaries and contributions, due to the increase in the value of human capital.
Meanwhile, Albania, Montenegro and Kosovo have a dependence on imports and a high trade deficit, due to the fact that they export few domestic products and have more exports of specific services (tourism and IT services).

This structure of the economy based on trade and services instead of production and export is quite likely to remain anemic in the times we live in and those to come.

An economy that depends on imports, mainly to consume and less to use at low cost for production, as we have pointed out, will face much faster the consequences of global crises and rising costs for production and families. The reason lies in the fact that the foreign demand for exports (goods and services) weakens, the costs of energy and the labor market become more expensive, affecting the inflows of investments, which consequently leads to a deterioration in the cost of living and with a decreasing impact on consumption and budget income and so on other secondary effects.

This scenario happened for Albania, Montenegro and Kosovo much more severe than in the other three countries. In the meantime, let’s not forget that each country, of course, does not feel the effects in the same way, since the deterioration also depends on the level of informality, corruption and overall budgetary resources.

In the case of Albania, we do not think that the incoming flows of tourists and diaspora trips returning home are long-term drivers of the development of the economy, since after the peak tourism begins to turn into a problem due to the failure to meet expectations that contain unrealistic elements within them. . Although the diversification of services for export is also being aimed, especially in Information Technology services, the visible effect on the economy will require time since they are first coming late and the competitiveness in the foreign market is quite high.

At the end of our analysis, we suggest that a renewed will is needed, based on political consensus with an influx of political capacities with new mindsets for a change in the drivers of growth. This union of new energies, mindsets and currents should reorient resources towards investments for production and exports of goods and services with stability in the market, based on high and long-term value to generate a more significant contribution to economic growth and increasing power economy of Albania.