Years 2018-2023/ Mortar and brick economy, investments in machinery and equipment with decline

Of the total investments made in the economy, the share of machinery and equipment has decreased in recent years.

The Gross Fixed Capital Formation indicator, which measures expenditures on new capital or expenditures that expand production capacity, showed that investments in machinery and equipment are declining between 2018 and 2023, while the weight of investments in new housing and buildings has increased.

According to official INSTAT data, investments in machinery and equipment accounted for 27.7% of Gross Fixed Capital Formation, while in 2023 they accounted for 24.4 or 3.2 percentage points less.

The decline in investments in machinery and equipment and the orientation towards bricks and mortar indicate weak investment dynamics that do not generate future productivity. Imports and investments in machinery and equipment are an early indicator of production performance.

In recent years, a large portion of the profits generated by the economy have gone as investments in construction.

According to official data from Gross Fixed Capital Formation, the share of investments in the construction sector expanded by 5.7 percentage points between 2018-2023. In 2018, the share of construction in domestic investments was 67.7%, while in 2023 it is 73.5%.

Albania emerged from transition with a young population, full of natural resources. If investments were channeled into people and increasing the value of resources, Albania would have reached EU standards.

For example, Estonia, which was under Russian occupation until 1991, has spent the past 30 years developing an education system and investing in human resources, making it one of the fastest growing economies in Europe based on technology and innovation. Estonia has built one of the best education systems globally and is the most digitalized in Europe.

Given the permits granted for high-rise towers earlier this year and the government's capital investment projects, the construction sector will once again be dominant in attracting domestic investment.

 

Experts claim that in the short term, investment in construction can increase cash flow and create new jobs, but in the long term it does not add value to the economy, while it does not increase productivity and competitiveness. While channeling about 70 percent of profits into construction in the last three decades, our country has remained the country with the lowest per capita income in the region and in Europe.

In Europe and the region, the profits generated by the economy go to innovation and technology, as these sectors generate sustainable returns in the long term and with high value.

The economy's dependence on the construction sector in Albania was the highest in Europe in 2023, according to data updated by Eurostat. Nominal construction spending in relation to Gross Domestic Product (GDP) in 2023 in Albania was 19.1%, up from 18.8% the previous year./ MONITOR