Construction sector turning into the country’s economic growth engine

The construction sector grew last year with the highest rates since 2008, following a nearly systematic decline by 2014. According to official data from INSTAT, the construction sector expanded by 10.4% in 2017. Growth rates tripled compared to 2016, approaching the trend after 2005. The peak of construction growth was noticed during 2000-2005, where the sector expanded by an average of 30 per cent annually, mainly due to the rapid expansion of the capital.

After the crisis of 2008, the opportunities to unleash free funds in the economy were limited. The lack of bank financing and the decline in consumption shifted the attention of businesses to investment after 2012 from construction to other sectors such as energy and agriculture. But the costs due to the lack of a supportive chain and the high fragmentation of agricultural land have quickly made these investments non-feasible by returning the free funds back to the economy to the construction sector.

On the other hand, Albania still has untapped natural resources and still untapped sectors that are opportunities. But the momentum accounts are not that they provide many profitable alternatives. Arben Dervishi from the Association of Builders says Albania is still a country with great infrastructure deficiencies, and the spaces within the construction sector are still great. As compared to the end of 2017, the construction loan for the capital’s businesses declined by 4.1% in the first six months of 2018. On the contrary, construction permits have continued to spark across the country, especially in the capital.

The construction sector is turning into the country’s economic growth engine after the almost desperate and unproductive experiments of Albanian businesses to diversify into production lines such as agriculture and industry. High taxes, rising costs due to the lack of economies of scale and depreciation of the euro in the domestic market have demotivated export-based investments over the last two years, making them noncompetitive with imports. The lack of investment alternatives and the growth of liquidity from tourism flows, remittances, but also the informal economy have once again stimulated investment in construction, especially housing. The number of construction permits in the first semester of 2018 underwent an annual increase of 61 percent as the loan stock fell by 4%. While the economic model has turned the wheel of construction, the economy experts and bank analysts report risks especially for the low productivity they have in the economy.

/Klara Ruci/

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