From: Carloalberto Rossi
The Reason Why Foreign Investments Won’t Come

Bank of Albania data show that during the second quarter of 2017, direct foreign investments have decreased over 25% compared to the same period last year. Meanwhile, emigrant departures have gone up by 2.7% compared to the same period last year.

These data suffices to show once more the propagandistic declarations of the government that continues to deny the economic crisis and the unattractive environment for investments in Albania.

What is apparent from the analysis of historical data is that, up until now, foreign investments have been directed in clearly defined sectors. While analyzing current data, it is clear that the future of investments is not promising, as long as the government will not substitute the propaganda with concrete political- economic actions, including the actual reform of the economic system of the country.

According to the Bank of Albania data, at the end of 2014 the inventory of the total foreign investments in Albania was approximately €4.5 billion, 42% of the inventory are investments in banks and mobile companies (approx €1.9 billion); approx 15 % (€660 million) are capital invested in extractive industries (exclusively in oil, given that the extraction of chrome and copper has not attracted foreign investments); 13% (€570 million) are investments in the production industry; approx 9 % (€400 million) in hydro power plants; while foreign investments in construction are rare at 2.3 % and in tourism at 1.3 % and investments in agro business are insignificant (almost at 0%).

To better grasp the situation demonstrated by this data, we must keep in mind that in the banking and financial sector in general around 90% of the total capital in the this sector is foreign, in the telecommunication sector over 95% of the capital is foreign, and in the oil extraction sector practically the total capital is foreign. Only in the production industry we can find significant presence of the local capital (the amount is rather hard to calculate)- home capital is significant in hydro energy production and is prevalent in construction, trade and tourism.

While is obvious is that foreign capital is concentrated in the sorted sectors, which are connected abroad and with a high capital intensity. In the sectors where there is an inner competition, including the hydroelectric and production, there is  where the Albanian capital co-habitates with the foreign one. In sectors that produce only for the local market, characterized of high competition and weak state regulations, like trade, food industry, hotels, tourism and agro business, the home capital prevails, while foreign capital remaining in the side.

It is clear that to establish a bank or a mobile company large capitals are needed, that are not easily found in the local market, therefore in this sectors foreign capital is predominant. While in sectors connected with the inner market, the lack of restriction to enter the market and state regulation have developed a severed system, through which foreign capital cannot penetrate, while favoring thus the home capital that is not afraid to jump into grey areas, where it has an advantage to foreign capital.

This partly explains why the government is facing hardships in creating job openings and facilities for foreign companies entering the market; excluding “fason” production sector, their relationship with Albania is limited only to finding available labour force and some public investments.

For the other sectors direct foreign investment perspectives, or, it must be said, government’s space to make them more attractive are few and far between: in the banking sector there are more operators than necessary and all posses an excellent capital capacity for the actual level of credit; in the telecommunication sector there are more operators than in the better developed countries; while in the sectors of oil extraction changes in cost and market prices are out of government’s influence, the only positive act initiated, the concession for building the railway Patos- Fier- Vlore to decrease the cost of oil transport to the port, has been left in the back burner, since Alb-Star concession is concentrated in the more attractive construction trade of the new stadium with a tower and shopping center.

In the energy sector and especially in the hydro electric sector, the constant government violations of agreements and long-term purchasing price contracts of energy from KESH have paralyzed foreign investment in this sector, and is not apparent how the government can reignite the investors’ trust.

In the tourism sector the government continues to give the best touristic areas to the local builders that are building residential complexes for the local market, evidence of this are the advertising banners in Tirana, while in the construction sector foreign companies are currently invited only to do the work, services and supplies because the contract market in infrastructure is totally overpowered by local oligarchs.

The only sectors where foreign investments can still find space are the ones where the market and local competition do not have an influence, like the export production companies. But, even there, the strict bureaucratic and fiscal local system and the poor infrastructure are detrimental known by investors. Even the government’s effort to develop the industrial area of Spitall- that could have been an important instrument to decrease the bureaucratic and fiscal difficulties for the new investors- ended up in a deceiving attempt to corrupt by the people close to the Prime Minister.

Given the above, it is logical to believe that in the future, at least the near future, Albania will not attract considerable foreign investments: the Albanian government doesn’t have any attractive feature, cannot inspire them to take root, while “offering” quite a lot in pushing away the ones who have come.