The FDI angle:

• Albania hopes to use the ongoing recovery of its tourism sector to fuel economic development and attract foreign investment. 
• FDI project numbers reached the highest level in a decade in 2022. 
• 'Aside from developments in Tirana, renewable energy is one of the sectors with the greatest potential to attract more FDI,' says EBRD's Ekaterina Solovova. 

Once a closed off and tightly controlled communist country, Albania now hopes to shake off negative perceptions and use tourism to fuel its economic development. 

The relatively small nation of 2.8 million people — which is the only Western Balkan country that was not part of the former Yugoslavia — aims to use its unique history and diverse landscape of coastline, mountains and forests to draw in international visitors.  

The strategy appears to be paying off, with foreign investors now taking notice. In 2022, international arrivals in Albania reached 7.5 million, more than double the country’s population and up by 17.7% on 2019 levels, according to Instat, the national statistical authority.  

“The post-Covid tourism recovery for 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 the Albanian operations of Horwath HTL, a US-based consultancy 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 by 94.2% on the same month of 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 epitomised by the recent designation of Vsoja, a 273km river that runs unimpeded through the country, as “Europe’s first wild river national park”. 

Diversification efforts 

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 profile among international investors. It attracted seven greenfield foreign direct investment (FDI) projects in 2022, the highest level since eight projects were tracked in 2012, according to fDi Markets data.

Most of these projects were offices set up in Tirana by a mix of foreign tech and business services companies. They include US-based business outsourcing firm Helpware, Italian tech scale-up Kineton and German project development company atene KOM. 

“Aside from 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 businesses has led several foreign renewables developers to pursue projects, including France-based electric service company Voltalia. After winning a competitive tender from the ministry of infrastructure and energy in 2020, Voltalia has been constructing a grid-connected 140 megawatt (MW) solar plant at Karavasta. The company plans to start providing electricity from the project by the end of this year.  

Constantin von Alvensleben, country manager for Voltalia in Albania, says there is “a great readiness” from the government to support projects, and that Albania has “set the pace” for similar projects in neighbouring western Balkan countries. “The government has done well to put such large projects to the market and to support their implementation,” he says. In the Dürres region, Voltalia has a 100MW solar project called Spitalla, which is due to be commissioned in 2024. 

The drive to boost alternative renewable energy projects is part of plans to diversify Albania’s energy mix from its near total dependence on hydropower, which in 2020 generated almost all the country’s electricity, according to the International Energy Agency. “Albania has been on a path of diversification of its energy sources well before the current crisis caused by the war in Ukraine,” says Ms Solovova, who notes that this is a key EBRD strategic objective for the country.

Data from the Observatory of Economic Complexity indicates that footwear made up the largest share (16.8%) of Albania’s 2021 exports, followed by mineral fuels (13.2%) and knitted clothing accessories (9.68%). Italy was by far the largest destination market for Albanian-made goods, accounting for more than 40% of all 2021 exports, followed by Greece (12.7%), Spain (6.06%) and Germany (4.98%).

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Crime and corruption challenges 

While a major driver of Albania’s economic growth is real estate development, there are many concerns over corruption, according to Mr Izairi. A 2020 report by the non-governmental organisation Global Initiative Against Transnational Organized Crime noted that the Albanian construction industry had become a popular place for international criminal gangs to launder money.

Albania has made a high-level political commitment to improve its anti-money laundering and countering financing of terrorism regime, but is still classified as a ‘high-risk jurisdiction’ by the Financial Action Task Force, an inter-governmental body. The country also continues to grapple with criminal gangs, which are purported to have significant influence in different regions. 

“Albanian nationals play an outsized role in international narcotics trafficking and organised crime networks,” according to a 2022 report by the US Department of State.  “Relatively weak rule of law, corruption and a high rate of unemployment are the primary drivers behind Albania’s drug control problem,” it adds.

Many foreign investors also complain about a lack of skilled staff in the country, which limits their ability to execute planned projects. With Albania’s average salary of about £450 per month (even lower in remote rural areas), many Albanians leave the country in search of better opportunities. About a third — or 1.7 million — live elsewhere, in the Albanian diaspora, according to Instat figures. “Albania is not unique in the [Balkans] region in its struggle with net emigration,” says Ms Solovova.

Several sources also tell fDi that there are often issues with land and property being offered to investors by individuals who do not have full ownership rights.   

“Despite a lot of efforts made during the past four years, the country needs to further improve its business environment by completing reforms in key areas, strengthening its institutions in general, the judicial system in particular, and continue the fight against corruption,” said a 2021 report published by the Foreign Investors Association of Albania. 

The Albania Investment Council, a platform for dialogue between business and the government set up by the EBRD, is working to make improvements to the country’s investment climate. Long-awaited EU accession negotiations also began in July 2022, in the wake of a constitutional amendment in February 2022 allowing the vetting of the judiciary. A key EU condition of Albania joining the trade bloc is the reform of the judiciary initiated in 2016.

This article first appeared in the April/May 2023 print edition of fDi Intelligence.