The Unknown of the Balkans: Albania and Foreign Investment

By Emmanual Steg

Albania has a two-headed eagle on its flag to symbolize a country that looks both towards the West and the East. However, since the end of the Second World War, Albania has been curled up and unable to open up to a dynamic Europe. During the Cold War it was the most reclusive country in Europe, finding an ally only in the distant People’s Republic of China, and even after the fall of communism, Albania remained an anomaly among its Balkan neighbors who were painfully taking back their place at the heart of Europe. Why would a country just off the coast of Italy and mere hours from Western European capital have so much trouble attracting foreign investors?

History has not been kind to the Albanian people. Barely half a decade after the fall of communism, the country teetered again on the brink of collapse when large pyramidal schemes failed to make payments. Those schemes represented up to half of Albanian GDP and offered annual interest rates as high as 100%. With their collapse, rule of law virtually disappeared: legend is that more than a million guns were looted from military reserves. Though Albania is now a politically stable country, those images still hurt its reputation abroad.

Even now, Albania is still fighting to shake the remnants of the communist era. And although there has been improvement in the last few years, Albania still consistently ranks in the bottom half of Transparency International’s Corruption Perceptions Index, lagging behind its neighbors. Foreigners in Albania remain reluctant to invest in a country where the judicial system is perceived as unreliable (a planned reform of the justice system has just been announced by the current government). From the outward signals, it is not hard to see why the rest of the world has been avoiding Albania.

However they would be mistaken to do so. The potential offered by Albania is almost dizzying. Out of all the possible industries, three are especially interesting.

Tourism - As of today, tourism represents less than 5% of Albanian GDP while it accounts for up to 10x that share for its direct neighbors. The Albanian coast is an untouched jewel, reminiscent of the French Riviera a hundred years ago. The region from Vlora to Saranda is especially magical: the coast is a succession of daunting cliffs and small sandy beaches, bordered by a pale blue sea. The backcountry is just as impressive; the tall mountains allow hikers to discover traditional villages, natural wells and UNESCO World Heritage ruins.

Energy - Albania has been blessed with many bountiful energy sources, from oil to hydropower. Although still a net importer of energy, recent years have seen considerable investments in this sector that will allow Albania to become a regional power in electricity. The planned creation of an energy market will allow the government to provide a clearer business environment for investors, who will be able to efficiently and transparently sell their production.

Manufacturing - Albania is not only located close to the big European economies; it also has a population that is young, well-educated (most speak Italian or English), hard-working and inexpensive (minimum wage is under 160 euro per month). This should allow the big manufacturing groups of Western Europe to position reliable factories at their very border for a fraction of the cost it would be at home.

Albania’s potential is slowly being discovered as it starts to open up to the rest of the world. The next ten years may well see dizzying growth coming from the center of Europe.

See also: Albania