The FDI angle:
- Albania hopes to use the ongoing recovery of its tourism sector to fuel economic development and attract foreign investment.
- The number of FDI projects reached its highest level in a decade in 2022.
- “Besides the developments in Tirana, renewable energy is one of the sectors with the greatest potential to attract more FDI,” says Ekaterina Solovova of the EBRD.
Once a closed and tightly controlled communist country, Albania now hopes to shed negative perceptions and use tourism to fuel its economic development.
This relatively small country of 2.8 million people – which is the only country in the Western Balkans not part of the former Yugoslavia – aims to use its unique history and diverse landscapes of coasts, mountains and forests to attract international visitors.
This strategy seems to be paying off, and foreign investors are now taking notice. In 2022, international arrivals in Albania reached 7.5 million, more than double the country’s population and an increase of 17.7% compared to 2019 levels, according to Instat, the national statistics authority.
“The post-Covid tourism recovery in Albania has been quite impressive and we believe there is still untapped potential for the tourism and hospitality sector,” says Majilind Lazimi, Managing Partner of Horwath HTL’s Albanian operations, a US-based consulting brand that has just opened an office in the capital, Tirana.
Early indications show this trend could continue, with foreign visitors to Albania in January 2023 up 94.2% compared to the same month in 2022. The government hopes to avoid the pitfalls of mass tourism. For example, its efforts to promote more sustainable tourism and protect the country’s natural assets are illustrated by the recent designation of the Vsoja, a 273 km river that flows freely through the country, as “Europe’s first wild river national park “.
Jetlir Izairi, co-founder of Invest in Albania, a non-governmental information service, says the increase in tourism has helped boost Albania’s popularity and visibility among international investors. It attracted seven new foreign direct investment (FDI) projects in 2022, the highest level since eight projects were tracked in 2012, according to fDi Market data.
Most of these projects were offices set up in Tirana by a mix of foreign technology and business services companies. These include US business outsourcing company Helpware, Italian technology company Kineton and German project development company Atene KOM.
“Besides the developments in Tirana, renewable energy is one of the sectors with the greatest potential to attract more FDI,” says Ekaterina Solovova, head of Albania at the European Bank for Reconstruction and Development (EBRD). ).
Demand for green energy from local companies has led several foreign renewable energy developers to pursue projects, including French electrical services company Voltalia. After winning a tender from the Ministry of Infrastructure and Energy in 2020, Voltalia built a 140 megawatt (MW) grid-connected solar power plant in Karavasta. The company plans to start supplying electricity from the project by the end of this year.
Constantin von Alvensleben, Voltalia’s country manager in Albania, says the government is “very willing” to support projects and that Albania has “set the tone” for similar projects in neighboring Western Balkan countries. “The government has done well to bring projects of this scale to the market and support their implementation,” he says. In the Dürres region, Voltalia has a 100 MW solar project called Spitalla, which is scheduled to be commissioned in 2024.
The desire to boost alternative renewable energy projects is part of plans to diversify Albania’s energy mix to move away from its near-total dependence on hydropower, which in 2020 produced almost all of its electricity. of the country, according to International Energy Agency. “Albania was on the path to diversifying its energy sources long before the current crisis caused by the war in Ukraine,” explains Ms. Solovova, who emphasizes that this is a key strategic objective of the EBRD for the country.
The data of Economic Complexity Observatory indicates that shoes accounted for the largest share (16.8%) of Albanian exports in 2021, followed by mineral fuels (13.2%) and knitted clothing accessories (9.68%). Italy was by far the largest destination market for products manufactured in Albania, accounting for over 40% of all exports in 2021, followed by Greece (12.7%), Spain (6.06%). and Germany (4.98%).
Discover other frontier countries in terms of FDI:
The challenges of crime and corruption
Although real estate development is one of the main drivers of Albania’s economic growth, there are many concerns about corruption, according to Mr. Izairi. A 2020 report by the non-governmental organization Global Initiative Against Transnational Organized Crime, noted that the Albanian construction sector had become a favored location for international criminal gangs to launder money.
Albania has made a high-level political commitment to improve its anti-money laundering and counter-terrorist financing regime, but it is still classified as a “high-risk jurisdiction” by the Financial Action Task Force, a intergovernmental body. The country also continues to battle criminal gangs, believed to have significant influence in different regions.
“Albanian nationals play an outsized role in international drug trafficking and organized crime networks,” according to a 2022 study. report by the US Department of State. “Relatively weak rule of law, corruption and high unemployment are the main causes of Albania’s drug control problem,” he adds.
Many foreign investors also complain about the lack of qualified personnel in the country, which limits their ability to execute planned projects. With the average Albanian salary around £450 per month (even lower in remote rural areas), many Albanians leave the country in search of better opportunities. Around a third – or 1.7 million – live elsewhere, in the Albanian diaspora, according to Instat figures. “Albania is not the only country in the (Balkans) region struggling with net emigration,” says Solovova.
Several sources also say fDi that there are often problems associated with land and real estate being offered to investors by individuals who do not have full ownership rights.
“Despite many efforts made over the past four years, the country still needs to improve its business environment by completing reforms in key areas, strengthening its institutions in general, the judicial system in particular, and continuing the fight against corruption,” said a 2021 report published by the Association of Foreign Investors of Albania.
The Albanian Investment Council, a business-government dialogue platform established by the EBRD, strives to improve the country’s investment climate. Long-awaited EU accession negotiations also began in July 2022, following a constitutional amendment in February 2022 allowing oversight of the judiciary. A key EU condition for Albania to join the trade bloc is the reform of the judicial system initiated in 2016.
This article first appeared in the April/May 2023 print edition of fDi Intelligence.