From: Karl Kuçi
Construction, the Dirty Fuel of the Albanian Economy

In Paris, when construction goes forward, everything goes forward.

This is how assembly member Martin Nadaud, one of the most important Paris construction builders of his time expressed himself before the French assembly in 1850.

His words are quoted and remembered, sometimes mistakenly, by every European politician looking to approve some big construction project.

In reality, during those years, Paris was experiencing a growth and construction boom. Many Frenchmen would leave their villages in search of work in the capital and, since they didn’t posses any other skill set, they would only find jobs in construction.

This was precisely Nadaud’s idea: if the construction sector is attractive, then everything goes well, because then there will be no unemployed on the streets, no protests, and no political instability.

This recipe has worked well in many subsequent cases to attract “the unemployed,” as well as to fuel the engines of other economic sectors connected to construction, such as the cement factories, brick ovens, decorative stone workshops, steel factories, door and furniture carpenters, and so on.

But in order for “construction to work,” in addition to political will (by allowing building permits) there is at least one more factor necessary; the desire of users to buy the real estate, or at least to finance its construction. If no one buys the apartments, the capital of construction companies will stop circulating, cemented entirely into the bodies of unsold buildings, and seeing that they cannot restart their cycle, these companies are forced to stop operating and fire their employees in the process.

Bank loans cannot really help construction companies caught in that situation, because even if they manage to receive those loans from banks, and make more cement and concrete out of them, sooner or latter they are going to have to pay them back, together with the accumulated interest. From their side, it is not in the banks’ interest to suddenly become owners of buildings used as collateral, because banks, in order to gain interest, need to circulate that money in the form of loans to someone else. So as long as those buildings are not sold, the money are stuck. Therefore banks would hardly be likely to finance construction projects in such conditions without having the reasonable certainty of selling back those apartments at an appropriate price, in case their loan are not paid back.

A similar situation, which economists like to call in their jargon as “construction bubble,” burst in Albania in the previous years starting from 2009. It brought bankruptcy to many construction companies, unnecessary loans, and unemployment. Even today, the banking system is still trying to deal with the “bad loans” created back then. The level of non-performing loans hovers around 25% of the total amount of loans (this level is through accounting tricks “reduced” officially to 15%).

For some years, which coincided with Lulzim Basha’s term as Mayor of Tirana, the real estate market remained paralyzed—there were only few new constructions, while prices remained unchanged, if not fell, as a result of the lack of buyers. Or more clearly said, those who wanted to buy a house didn’t have the money for it.

Those few companies that still had money to spend often complained to the Municipality of Tirana about construction permits, but only the almost complete paralysis of construction work paved the way for gradual reselling of those unsold apartment blocks, avoiding therefore tougher consequences for the banking system — if new permits would have been granted, the builders and the bankers would have ended up worse.

The arrival of Erion Veliaj at the head of Municipality of Tirana — after his bold and useless promise that he would not allow anyone to build — coincided with a built-up pressure by construction companies that, fully in debt to banks and private loan-sharks, knew only one way to make a quick buck, namely by building apartment blocks in and around the center and the Lake Park, so that they could sell them at high prices to those who still have the money to spend.

The municipality was pleased to take its share. By doubling the taxes on construction permits, it increased its revenues, only later to be spent on high-visibility public projects (such as playgrounds, roundabouts, facades) but not for schools. Seeing that the mayor asked the same builders to construct schools using the financial method of a lease (labeled sneakily and favorably a public-private partnership), their costs will be double while the construction itself will be of lower quality.

Thus started a new race for construction permits at the best locations, the construction of tall buildings (bearing very expensive development and maintenance costs) as well as building apartment blocks and hotels which at least in principle should be aimed at developing the proper tourist infrastructure, in the center of Tirana or the best locations along the coastal line.

But yet again, calculations are made last. If there is no one to buy these buildings, this carousel is doomed to stop, leaving builders empty-handed and the territory of the country ruined by unfinished construction sites. The political speculation of the government (some call it a strategy) suggests that these prestigious buildings are to be used to attract foreign capital through tourist companies, which in turn will invest millions in infrastructure and give a boost to tourist activities.

The large liquidity created by the European Central Bank in order to stabilize the economies of big loan countries (Greece, France, Italy, and Portugal) has provided European investors with low-interest capital for such operations that would guarantee the restart of Albanian economy, full employment, and would create the proper touristic infrastructure allowing for steady and continuous progress.

This is nonsense, a bubble, because foreign capital doesn’t come to Albania.

It hasn’t arrived so far, and it will not come in the future neither. Because all the governments so far have shown that in Albania nothing is safe — the  market (where you can buy) is not safe, property is not safe (which continues to be subject to unpaid expropriations and judicial proceedings), justice is not safe (which continues for years to be blocked  by a speculative and illogical reform), the promises and guarantees given by governments are not safe (which are refuted by the successive government, if not the same government that gave them in the first place), and finally the rate of population growth is not safe (which from some years now has steadily taken the path of immigration and political asylum).

The real estate business requires a set of conditions to remain stable in long term, while the Albanian political elite’s strategy and above all the strategy of its current sultan doesn’t hold more than a few months.

Furthermore, rebuilding the lost trust, destroyed by continuous untrustworthy practices requires a lot of patience.

The only quick alternative left for foreign financing to push with relative success this real estate strategy forward, is the re-investment of revenues acquired through trade and narco-traffic production by Albanian criminal organizations. They are the only ones who believe that they have the proper “military” capacities to protect their investments in Albania from the inevitable and unending greed of the next generation of political elite.

But even this criminal financing must come from abroad, and, like the others, they are looking for rewards and safety in their investment, seeing that many owners were once deceived into financing, among other things, the unnecessary, empty and moldy “forest” of buildings in along Durrës–Kavaja seaside.

Are we sure that there are no better solutions to be found?