Flash News

Serious accident near TEG, a concrete mixer falls from the overpass onto the highway

Facebook, Instagram and Messenger out of service for many users!

Bad weather in Saranda, a fisherman is found dead at sea

Violation of Muçi Shaljani's employment procedures, 6 months in prison for two former AMP officials

She lost contact with her family, the Brazilian embassy asked for help/ The story of the woman involved in prostitution in Albania is revealed

OPINEWS

Did the reinvestment of profits influence the "Glorious Uprising" of the lek?

Politiko 2026-07-22 18:40:58

Did the reinvestment of profits influence the "Glorious Uprising" of

Irena Beqiraj
The best compliment I get and give to someone I disagree with is not "You're right", but "You made me think"!
Only reexamining knowledge helps you understand the complexity where everything seems simple.
So the debate about whether the reinvested profits of foreign companies have influenced the "Glorious Uprising" of the strengthening of the lek, made me think and reread again.
One of the most difficult differences for finance students to understand has always been the difference between net income and cash flow. In the not-so-simple Corporate Financial Analysis course, I always started explaining this difference with the famous expression that "Net profit is an opinion, net cash flow is a fact."
Net profit is an opinion because its value depends on the standards and methodologies followed in financial reporting, so the value of profit would change depending on them. While cash flow does not. That is why when evaluating a company, analysts pay more attention to cash flow and not net profit.
That said, when foreign companies reinvest profit, even though it is considered an increase in capital and is presented as such, the economic event is not accompanied by an additional monetary injection either in the company or in the economy. So it is simply a movement of amounts without monetary effect from the profit account to the capital account, without affecting the company's net cash flow and without creating an additional monetary base in the economy.
That said, the event of reinvesting profit is not accompanied by any new currency addition in the foreign exchange market, and as such creates neutrality in both the balance of payments and the exchange rate.
Since no cross-border money physically moves to ensure mathematical neutrality and a zero effect on the balance of payments, the Eurostat methodology stipulates that the 830 million euros of reinvested profits during 2025 are recorded in the balance of payments in two accounts as both an inflow and an outflow, thus zeroing out their effect on the balance of payments as well.
This theoretical explanation is also supported by empirical studies.
International empirical evidence does not show a strong direct link between retained earnings (reinvested profits) of foreign companies and the overvaluation of the domestic currency, precisely because retained earnings do not involve new flows or necessarily imply any foreign exchange transactions. Instead, the evidence shows only indirect effects and is conditional on whether reinvestment and FDI are generally associated with higher productivity and export expansion.
In Albania, the structure of foreign investment has little or no connection with productivity growth and exports. In fact, their low or no productive nature significantly limits their effect on the economy.
In short, theory and empirical studies converge on the same point: reinvested profits have little or no impact on the appreciation of the lek, because they do not affect the immediate demand for foreign currency or domestic currency. Any impact they have comes indirectly through increased productivity and export promotion!
The ultimate goal of this debate is not to produce consensus, much less dominance, but to push critical thinking, which is the main feature that distinguishes an ordinary economist from a good economist.
Because ordinary economists are like drivers who consider themselves good but can fall on the right road!