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Albania - Economy (Notes)

Albania remains one of the poorest countries in Europe. According to the Bank of Albania, per capita income was U.S. $2,883 in 2006. The official unemployment rate is 13.8%, and 18.5% of the population lives below the poverty line according to the World Bank's 2005 Poverty Assessment. Almost 60% of all workers are employed in the agricultural sector, although the construction and service industries have been expanding recently, the latter boosted significantly by ethnic Albanian tourists from throughout the Balkans. The GDP is comprised of agriculture (approximately 24%), industry (approximately 13%), service sector (approximately 39%), transport and communication (12%), construction (11%), and remittances from Albanian workers abroad--mostly in Greece and Italy (approximately 12.8%).

Albania was the last of the central and eastern European countries to embark upon democratic and free market reforms. Further, Albania started from a comparatively disadvantaged position, due to Hoxha's catastrophic economic policies. Transition from a centrally planned economy to a market-orientated system has been almost as difficult for Albania as the country's communist period.

The democratically elected government that assumed office in April 1992 launched an ambitious economic reform program meant 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.

Results of Albania's efforts were initially encouraging. Led by the agricultural sector, real GDP grew, and Albania's currency, the lek, stabilized. The speed and vigor of private entrepreneurial response to Albania's opening and liberalizing was better than expected. Beginning in 1995, however, progress stalled. The collapse of the infamous pyramid schemes of the 1990s and the instability that followed were a tremendous setback, from which Albania's economy continues to recover.

In recent years the Albanian economy has improved, although infrastructure development and major reforms in areas such as tax collection, property laws, and for improving the business climate in general are proceeding slowly. Between 2003-2006, Albania experienced an average 5.5% annual growth in GDP. Fiscal and monetary discipline has kept inflation relatively low, averaging roughly 2.5% per year between 2004-2006. Albania's public debt reached 57.5% of GDP in 2006, and the growing trade deficit was estimated at 25% of GDP in 2006. Economic reform has also been hampered by Albania's very large informal economy, which the International Monetary Fund (IMF) estimates equals 50% of GDP.

Albania's trade imbalance is severe. In 2006, Albanian trade had U.S. $3.1 billion in imports, and U.S. $790 million in exports. Albania has concluded Free Trade Agreements (FTAs) with Macedonia, Croatia, UNMIK (Kosovo), Bulgaria, Romania, Bosnia, and Moldova. In April 2006, these bilateral agreements were replaced by a multiregional agreement that entered into force in May 2007 and that is based on the Central European Free Trade Agreement (CEFTA) model. However, combined trade with all these countries constitutes a small percentage of Albania's trade, while trade with EU member states (mainly Greece and Italy) accounts for nearly 68%. U.S. two-way trade with Albania is very low. In 2006, U.S. exports to Albania totaled $46.6 million. U.S. imports, during the same time period, totaled $3.44 million, making the U.S. the 17th overall trade partner of Albania. However, there are some discrepancies between U.S. and Albanian trade figures. Major U.S. investment to date has been limited to large-scale infrastructure contracts with the government; Lockheed Martin and Bechtel are principal U.S. participants. The Albanian Government signed a FTA with the EU as part of its Stabilization and Association Agreement negotiations. The interim agreement entered into force in December 2006, and it foresees a duty-free regime for almost 90% of agricultural and industrial products. On the fiscal side it will also significantly reduce revenue collection.

Albania is trying to attract foreign investment and promote domestic investment, but significant impediments exist. The Albanian Government faces the daunting task of rationalizing and uniformly applying business laws, improving transparency in business procedures, restructuring the tax systems (including tax collection), reducing corruption in the bureaucracy, and resolving property ownership disputes.

Business growth is further hampered by Albania's inadequate energy and transportation infrastructure. The capital, Tirana, and the main port of Durres, generally receive electricity most of the day, but constant power outages plague every other major city, small town, and rural village. Although recent steps have been taken to improve the transportation infrastructure, Albania has a limited railway system and just one international airport. Because of the mountainous terrain and poor road condition, overland goods transport is arduous and costly.

Facts at a Glance: Geography - People - Government - Economy - Communications - Transportation - Military - Climate - Current Time - Ranking Positions
Notes and Commentary: People - Economy - Government and Political Conditions - Foreign Relations - Relations with U.S.

Facts at a Glance
Current Time
Ranking Positions

Notes and Commentary
Government and Political Conditions
Foreign Relations
Relations with U.S.

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