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| Skanderbeg Square in Tirana, December, 2023 |
The economic growth of Albania in 2023 surpassed expectations, demonstrating the country's significant potential, particularly in the tourism sector. Initially, forecasts did not anticipate such a robust performance, but the actual results have been a pleasant surprise, showcasing Albania's extraordinary capabilities, with the tourism industry playing a particularly impressive role.
Despite the encouraging economic figures, Emanuel Salinas, the World Bank's Country Manager for Albania, warns that the growth is primarily driven by construction and consumption. He argues that these sectors should not be the long-term focus for Albania's growth trajectory. Salinas emphasizes that these industries do not necessarily create high-quality jobs that people aspire to have.
Salinas highlights the critical importance of investing in human capital. He points out that losing human capital is a significant risk for Albania and urges a concerted effort to strengthen human capital and ensure its effective utilization. He recommends that Albania urgently redirect investments toward human capital as the most crucial priority.
The performance of Albania's economy in 2023 was unexpectedly strong, according to Ekaterina Solovova, the head of the European Bank for Reconstruction and Development (EBRD) for Albania. The tourism sector, in particular, made a remarkable contribution to the economy.
Despite a challenging external environment and reduced consumption due to high inflation, economic growth is expected to accelerate in 2024. The EBRD forecasts a 3.3% growth rate for the Albanian economy in 2024, aligning with an anticipated improvement in the global economic outlook.
Solovova notes that the demographic crisis, characterized by the migration of young people and an aging population, is deepening. She asserts that curbing emigration should be a key objective of economic and social policies, achieved by attracting more foreign direct investment into productive sectors offering better-paying jobs.
The economic growth in 2023 continued from the previous year, albeit at a more moderate pace. The tourism sector experienced a record season, contributing significantly to the economy. The first half of the year saw a contraction in merchandise exports, affected by slow growth among Albania's main trading partners and a strong domestic currency, the lek, bolstered by high levels of tourist arrivals and remittances.
The services sector, particularly real estate, construction, ICT, and retail trade, saw the fastest growth in the economy. Tourism once again demonstrated strong performance, with a 31% annual increase in tourist arrivals during the first 11 months of the year.
For 2024, economic growth is expected to slow in the short term due to unfavorable external conditions. However, the ongoing strength of the hospitality sector is likely to have a positive impact. Economic growth is projected to pick up to 3.3% in 2024, nearing the economy's medium-term potential rate.
Albania faces external risks such as weak growth and demand from its main trading partner, Italy, which could negatively impact merchandise exports. Domestic risks stem from a relatively undiversified economy that is increasingly reliant on a "sun and beach" tourism model. The country is also vulnerable to even small increases in wage levels or exchange rates due to the dominance of low-value-added economic activities.
Diversifying the energy sector is crucial as Albania heavily depends on hydrological conditions due to its reliance on hydropower. Fortunately, the country is making progress in generating energy from renewable sources like solar and wind, which is supported by the EBRD through technical assistance and financing for both private and public sector projects.
The high emigration rate poses a severe challenge for Albania's economy and businesses, as it leads to a labor shortage, particularly of skilled workers. This phenomenon is reflected in surveys conducted by investment councils and business associations, which consistently report a lack of qualified local staff as a major obstacle to growth.
To address the workforce emigration issue, it is essential for the government and other stakeholders to focus on creating more productive jobs with better wages by attracting more foreign direct investment into the manufacturing and services sectors. It is also important to improve the quality of education to ensure that the skills taught match the labor market's demands, thereby reducing migration rates and increasing the productivity potential of young people. The EBRD promotes and implements continuous skills development in cooperation with its private sector clients and through policy initiatives at the national level, such as the establishment of sector skills councils (SSCs).