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Albania: Ringing in the New Year with Freer Trade

21 12 2006 Along with other companies, Albania’s brewers will face tougher competition from Europe from January 1 onward, as customs tariffs vanish overnight.

By Ornela Liperi in Tirana (Balkan Insight, 21 Dec 06)

“Gezuar Festat (Happy Holidays)!” croons a jazzy television advertisement for Birra Tirana, Albania's most popular beer.

With fizzy sounds in the background and fireworks crackling away in a starry sky, the ad shows the Kulla e Sahatit, Tirana’s old clock tower, filling up at midnight with yellowy lager and fluffy white foam.

New Year’s Eve should be a time of celebration for Enea Janku, Birra Tirana’s chief executive. He and other brewers have been making headway through 2006 in the fight for Albania’s alcoholic beverage market, persuading a growing number of drinkers to stop sipping their traditional raki, an aniseed-flavoured aperitif, and gulp beer instead.

Yet Janku appears circumspect in advance of the holiday. The stroke of midnight is likely to boost sales for one night only.

It is guaranteed to cause headaches in the long term, for at that moment Albania’s brewers will see their protected market disappear, when customs tariffs for beers imported from the European Union drop from ten per cent to zero.

“The custom tariffs reduction may lead to closures for a lot of smaller breweries, and it is likely to cause a lot of problems for big companies, too,” said Janku.

But there is no stopping it. The customs change is among the first foreseen by an interim agreement reached by Albania and the EU, as the Balkan country of 3.1 million people strengthens its links with Europe’s political and trading bloc.

The agreement is a centrepiece of Albania’s foreign policy, seen by advocates of European integration as a vital step toward eventual EU membership. Enacted in December following the June signing of a Stabilisation and Association Agreement, SAA, between Albania and the EU, the interim deal introduces SAA trading reforms in advance of its ratification by all EU member states.

“Implementation of the interim agreement represents the biggest challenge, regarding trade policy in our country,” said Selami Xhepa, economic adviser to Sali Berisha, the prime minister.

Among Albania’s brewers, a new wave of internal investment is spiffing up business operations, as producers seek to bolster their position in the market in the face of strengthened foreign competitition.

Birra Tirana is a prime example. Built as a state-owned complex in 1960, with Soviet technology, the brewery was privatised seven years ago. It has since benefited from ten million euro in new investments, according to company reports.

These investments doubled the brewery’s production capacity, diversified its line of products and backed it with marketing campaigns linking the beer with Albanian patriotism.

Birra Tirana clings to a 20 per cent market share of overall beer sales in Albania, which reached 40 million euro last year. Collectively, local producers have a 60 per cent market share.

But strengthened performance by imported beers could tip the balance the other way. With the elimination of import tariffs, local brewers expect to lose one of their key competitive advantages, lower prices.

While on the books, import tariffs have kept most of Europe’s beer giants at bay. Heineken, the Dutch brewer, has made strong inroads, capturing an estimated 30 per cent market share, shared between two of its brands, Heineken and Amstel.

Other foreign beers account for just ten per cent of overall sales, with local brewers still controlling the lion’s share of the market.

As consumer spending increases, a key to winning market share will be encouraging consumers to give beer a try. Albanian drinkers have not yet embraced it wholeheartedly.

Figures from Ministry of Agriculture indicate they slurped just 16 litres of beer per capita last year, whereas a figure of 100 litres per capita is characteristic of a beer-loving country. Champion drinkers such as the Czechs are said to exceed 150.

But while they risk losing market share at home, some Albanian brewers also see positive sides to the abolition of trade tariffs.

Birra Tirana’s recent investments, for instance, aim to give the company footholds in new export markets, where the company has begun advertising its product as “the quality beer from Albania”.

Albanian companies have strong reasons to go abroad, especially by exporting to the million-strong Albanian diaspora - a third of all Albanians worldwide - in key markets such as Kosovo, the United Kingdom, Greece, Macedonia and Italy.

Birra Norga and Birra Stela, Janku’s top local competitors, are also investing to improve quality with the intention of boosting exports. Both breweries have already received the ISO certification required of exporters to the EU.

“The elimination of custom tariffs will help our industry to develop positively and reach markets outside Albania,” said Agron Haxhiraj, chief executive at Birra Norga.

Experts say those without ISO certification will be forced to scramble to get it. “In order to survive, Albanian business will need to increase quality,” said Arben Nati, head of Albania’s standards agency, the General Directorate for Standardisation.

While some industry chiefs fret about their impending loss of protection under the customs regime, public officials insist the change will benefit industry in the long run.

Xhepa advocates free trade as a generator of healthy competition. “The pressure of a competitive environment is going to improve the economy, boosting market efficiency and pushing down prices for imported goods,” he said.

The impact will undoubtedly be big. With tariffs still in place, the EU is already Albania’s biggest trade partner, accounting for 61 per cent of overall trade through the first eight months of 2006. Albanian-Italian trade, the largest share, accounted for 37 per cent.

The primary concern of Janku and his fellow brewers, as the hour of reckoning approaches, is that the trade is not just one-way.

Ornela Liperi is editor-in-chief of weekly business and economy magazine Monitor. Balkan Insight is BIRN's online publication.