Albania: Opportunities in The Last Hidden Treasure of The Mediterranean

In the heart of the Mediterranean, on the Adriatic and Ionian Seas, Albania is nestled in between Greece, Macedonia, Kosovo and Montenegro. The Adriatic separates it from Italy via the Strait of Otranto. Albania is a small country with a landmass of 28.748 km2 and it is situated in the western part of the Balkan Peninsula in the southeastern part of Europe. Albania has a favorable geographic position, as it lies at the crossroads of commercial routes passing through the western Mediterranean to the Balkans and into the Middle East, controlling the transition of merchandise through the Otranto Channel.

Much of Albania’s surface is mountainous and most of the population lives in the south-central lowlands and on the coastal plain.
Albania has nearly 450 km of seacoast, with the Adriatic running from the Montenegrin border south to the Bay of Vlore, where the Ionian Sea begins.

The largest city and the capital of Albania is Tirana and other major cities are Durres and Vlore.

HISTORY

Albanians are the direct successors of the Illyrians. The Illyrian tribes stretched along the Western part of the Balkans and were conquered by Roman Empire in the year 30 B.C. With the division of the Roman Empire (395 A.D.), Illyrian territory became part of the Byzantine Empire and by the end of the 14th century Albania was occupied by the Ottoman Empire. The subsequent efforts and insurrections for independence eventually brought about the proclamation of the independence of Albania on November 28, 1912. After 1912 till the end of the First World War, the country was attacked by neighboring countries and was first occupied by Italy and then by Hitler’s forces in 1943. The Communist party took power in November 1944 when the foreign armies were expelled. Shortly thereafter, a totalitarian regime was established under the communist leader Enver Hoxha. For about 50 years, the regime applied a policy of self-isolation, leaving the country economically impoverished when it finally emerged from isolation in 1991. From 1991 until 1997 the Democratic Party led the country. This transition period has proven challenging as successive governments have had to deal with high unemployment, widespread corruption, a dilapidated physical infrastructure, powerful organized crime networks, and combative political opponents. In the 2005 general elections, the Democratic Party and its allies won a decisive victory on pledges to reduce crime and corruption, promote economic growth, and decrease the size of government.

ECONOMY

Even if Albanian economy is considered as Trade Economy in Transition, the macroeconomic performance of the country has been impressive since 1998. Over the last years the economy has enjoyed virtually uninterrupted rapid growth in a low inflation environment. In fact, economic growth over this period took place in a climate of growing macroeconomic equilibrium, evidenced by stable monetary indicators, low and stable inflation rates and the reduction of the budget deficit and public debt.
The government has recently adopted a fiscal reform package aimed at reducing the large gray economy and attracting foreign investment. In this way it has managed to eliminate all the previous bureaucratic hurdles related to investment possibilities and doing business in Albania is now easier, cheaper and faster.
The reduction of the corporate tax rate from 20 percent to 10 percent as of January 2008, new laws on concessions and public procurement, the streamlining of business registration procedures, simplification of licensing procedures, tax administration reform, and a very ambitious agenda with large capital investments in infrastructure (mainly for roads) are examples of the Government’s commitment to pursue reforms and improve the business climate.

In order to promote investments in priority sectors for the economic development of the country, the Government of Albania may offer concessions to local or international investors for the symbolic price of one Euro, applying the so called “Albania 1 Euro” initiative.

Albania possesses considerable natural resources, including oil, gas, coal, iron, copper, chrome, water and hydroelectric potential. The privatization process employed during the last 17 years is coming to an end with the last privatization opportunities presented in several strategic sectors: energy, insurance, oil and gas, and telecommunications.

In recent years the Albanian economy has improved, and infrastructure development and major reforms in areas such as tax collection, property laws, and business climate are proceeding well. From 2004-2008, Albania experienced an average 6% annual GDP growth. Fiscal and monetary discipline has kept inflation relatively low, within the target range set by the Bank of Albania.

Albania's trade imbalance is severe. Albania continues to be an import-oriented economy and the export base remains small, narrow and undiversified, due mainly to a lack of price competitiveness, poor infrastructure, and a challenging business environment
The EU remains, by far, Albania’s main trading partner.

Albania is trying to attract foreign investment and promote domestic investment, but significant impediments exist. The Albanian Government faces the daunting task of standardizing and uniformly applying business laws, improving transparency in business procedures, resolving property ownership disputes, restructuring the tax systems (including tax collection), and reducing corruption.
Business growth has been hampered by Albania's inadequate energy and transportation infrastructure despite some significant investments in both sectors during the last few years.

MAIN SECTORS AND INVESTMENT OPPORTUNITIES

ENERGY

The country has significant renewable energy resource potential from hydro, wind and solar energy. The country currently relies on hydropower for almost all its electricity, which creates difficulties when the water flows are low. Albania has been slower in developing its long-term energy policies and strategies for energy security and efficiency and in creating the appropriate institutions to implement sustainable reforms of energy markets than most countries in Central Europe and the Baltic region. It still needs to develop robust energy strategies and reliable data systems in order to reach market fundamentals.
In October 2005, the EU and nine countries of South-East Europe, including Albania, signed the Energy Community Treaty, which aims at creating the legal framework for an integrated European market for electricity and gas. The Energy Community Treaty calls on the South-East European countries to create a regional energy market designed to fit into the framework of the EU’s Internal Energy Market. This will enhance market openings, investment guarantees and firm regulatory control of the energy sectors. The treaty will create a policy framework for international donors to support infrastructure investments. It will also provide the framework for the expansion of the natural gas system to create an intermediate gas market between the Caspian Sea and the EU. The expected short-term results of the initiative would be new investments in the mining and metallurgy sectors. In the longer term, the stabilization of the energy sector will assist the macro-economic revival of the region, contributing to lower emigration rates, economic growth and peace.

OIL AND GAS

Albania has petroleum resources both on and offshore, and shares geologic trends with the neighboring Balkan states of Croatia, Serbia and Montenegro, Macedonia and Greece.
Albania has a long history of oil and gas operations. However the civil unrest that followed the collapse of communism in the early 90s resulted in delays to previously planned restoration and enhancement of production.
The country harbors one of the largest onshore oil fields in Europe, Patos-Marinza, discovered in 1928. Albania's oil production peaked in 1975 and then declined until 1982, when a more rapid decline set in, due to lack of funding for field development and technical expertise.

Still, until 1989, Albania was a net exporter of petroleum products, but by 2001, the country was importing 73% of what it consumed. Albania made efforts in the 1990s to attract foreign capital and technology after the communist economic system broke down. Petroleum was the first industry to attract direct foreign investments in Albania when the government successfully negotiated with foreign drilling and exploration firms for onshore and offshore prospecting. In the last 15 years, the country has licensed drilling to American, Austrian, Canadian, Croatian, Greek, and Swedish companies.
Driven by high oil prices, the need for energy security in Europe, and a strategically desirable location close to all European markets, Albania is an active oil marketplace with several companies negotiating or seeking to negotiate for acreage.
Now with restored economic stability, high level government support for oil and gas enhancement projects, a skilled and low-cost work force, availability of basic oil field services, supplies and material, and proximity to refining capacity and established markets, the government has a clear policy to attract foreign investment in its natural resource sector.

MINING

For a small country, Albania has considerable extractable mineral resources including chromium, copper, nickel and coal. The quality and quantity of chromium is particularly high: prior to 1990 Albania was the world's third-largest producer and is today the only European country with significant reserves of this vital mineral. The minerals extracted are exported directly with only limited processing so there are opportunities for downstream processing.
Albania's coal and nickel mines have been privatized.
Albania has significant unexploited deposits of bauxite and phosphates. According to experts, these are low grade deposits. One bauxite mine is currently operating to provide input to the country’s cement industry while no phosphate rock is being mined at the present time. Albania has significant marble and stone reserves which have the potential to be used in the construction industry. However ministry experts claim that the marble is of poor quality since it is mixed with limestone. Limestone is probably the only remaining mineral with interesting potential for exploitation since the country has unrestricted reserves and it can be mined under government license.

CONSTRUCTION AND INFRASTRUCTURE

Albania has inadequate infrastructure despite some significant investments in this sector during the last few years.
Although recent steps have been taken to improve the transportation infrastructure, Albania has a limited railway system and just one international airport. Because of the mountainous terrain and poor road conditions, overland goods transport is arduous and costly. However, the government has invested heavily in road construction over the last three years, and the country now sports a new, modern highway along its entire coastline, from Shkoder in the north to the southern resort city of Sarande. In addition, completion of the 170-kilometer Durres-Kukes highway in fall 2009 will provide a major transportation corridor connecting markets in the central Balkans through Kosovo to the port of Durres.

TOURISM

Albania is considered one of Europe's last secrets, a tourist destination that offers unspoiled scenery of mountains, ancient villages, castles and 450 km coastline.
During the two last years, tourism has experienced a significant growth and the tourist infrastructure has been remarkably improved. Both the number of accommodation units and service standards has been increased. Due attention was paid to investments in road infrastructure, particularly in tourist areas.

AGRICULTURE

The main challenge for the agricultural sector is the transformation of agriculture from a consumption-oriented production into a modern and competitive sector, parallel to the creation of opportunities for alternative incomes for the rural population. The agricultural policy reform should be undertaken in the context of current and prospective demands of the EU, including harmonization with European legislation and standards and improvement of competition through an increase in production and quality.
The exports of agriculture and the agro-industry have been growing during the period 2006-2007. A more rapid growth was observed in such agro-industrial products as processed vegetables, medicinal plants, and mineral water. However, the weight of exports of agricultural and agro-processing products in recent years continues to remain at low levels.

FOREIGN RELATIONS

Albania is currently pursuing a path of greater Euro-Atlantic integration. Its primary long-term goals are to gain EU membership and to promote closer bilateral ties with its neighbors and with the U.S. Albania is a member of a number of international organizations, as well as multiple regional organizations and initiatives, including NATO, the Organization for Security and Cooperation in Europe (OSCE), the UN, the Stability Pact, the Adriatic Charter, and the World Trade Organization (WTO). In June 2006, Albania and the EU signed a Stabilization and Association Agreement, the first step to EU membership, which will focus on implementing essential rule of law reforms and curbing corruption and organized crime. Albania filed its application for EU candidacy on April 28, 2009.

U.S.-ALBANIAN RELATIONS

Albania enjoys friendly and cooperative bilateral relations with the United States. Pro-U.S. sentiment is widespread among the population. Even while the U.S., which had closed its mission to Albania in 1946, was being vilified by communist propaganda during the Hoxha regime, ordinary Albanians remembered that Woodrow Wilson had supported Albanian independence in 1919. Albanians credit the NATO bombing of Serbia in 1999 with saving thousands of Kosovo Albanians, and they greatly appreciate the U.S. Government's continued support for a stable, free, and democratic Kosovo.

In 2003, Albania and the U.S. signed and ratified a number of agreements, including a treaty on the Prevention of Proliferation of Weapons of Mass Destruction and the Promotion of Defense and Military Relations; the Adriatic Charter; and an agreement regarding the non-surrender of persons to the International Criminal Court. The U.S. strongly supports Albania's EU membership goal, as it did Albania’s pursuit of NATO membership. Working towards NATO membership, the U.S. and Albania signed a Supplementary Agreement to the Partnership for Peace Status of Forces Agreement, an important step in strengthening bilateral cooperation and enhancing security, peace, and stability in the region. The U.S. Senate unanimously ratified Albania’s Protocols of Accession to NATO on September 25, 2008, and President Bush signed the Accession Protocols on October 24, 2008.

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