ALBANIA – Foreign Investment in an emerging market

a business. The creation of new jobs, and increases the salaries of workers leads to lifestyle enhancement. (Economy Watch 2009).

The profits that are generated by FDIs that are made in Albania can be used for the purpose of making contributions to the revenues of corporate taxes. FDI allows for the development of the manufacturing sector. (Economy Watch 2009).

The Albanian economy has been on the rise, with an average annual GDP growth higher than anywhere else in the region. Such impressive growth has been largely due to controlling inflation in addition to investment. Previously, Albanian professionals would immigrate to other nations. “Brain drain” is used to describe the phenomenon of emigration of highly qualified professionals from Albania to other EU nations. FDI in Albania contributes to positive economic growth, and professionals are a source of capital for developing countries such as Albania. Reversing the brain drain has had positive effects on education, income distribution and economic welfare. (Centre for Social and Economic Studies, 2006)

A country’s balance of Payments accounts calculates its payments to and receipts from other countries.  If the FDI in Albania is a substitute for goods and services, the effect can positively improve the current account of the host countries balance of payments. (Hill CW, 2009). According to a UN report, inward FDI by foreign multinationals has been a major driver of export led economic growth, which can be utilised by Albania.

Adverse effects of foreign investment in Albania mean that enhanced competition as well as being a positive aspect could drive indigenous companies out of business. Additionally, foreign multinationals could raise prices, causing inflationary pressure within the Albanian economy. Key decisions affecting the host country’s (Albania) economy may be made by a foreign investment company that does not have total commitment to the Albanian economy. (Hill, CW, 2009)

Considering there are minimal well established incumbent enterprises in Albania, a Greenfield investment may be an option, even though there may be benefits in acquiring an existing firms skill’s, embedded competencies and culture through purchasing an established organisation. (Hill 2009, p506). However, the process of setting up a new Greenfield hierarchy may be the only viable mode in certain instances in Albania within engineering and construction due to lack of infrastructure and expertise in an ex-communist nation.

Appropriate entry modes of investment into Albania include investing with the Overseas Private Investment Corporation (OPIC) which is a US government agency that sells investment services into emerging markets. The most important fund for the region is the $US 150 million Southeast Europe Equity Fund (SEEF), managed by Soros Private Funds Management. (Macro-Accessibility 2007).

The Trade and Development Agency is also a US government agency which promotes private sector participation in developing countries. In Albania, TDA has recently financed projects to implement roads, ports, the energy sector as well as various private sector projects. (Macro-Accessibility 2007).

The International Finance Corporation (IFC) is a member of the World Bank Group that offers a full array of financial products to companies in developing member countries such as Albania. The European Bank for Reconstruction and Development (EBRD) promotes competition, privatisation and entrepreneurship taking into account different stages of transition of developing countries. The EBRD has equity positions with the Albanian National Commercial Bank, and the Albanian Reconstruction Equity Fund and the Italian-Albanian bank. (Macro-Accessibility 2007). In addition to acquiring an existing company, obtaining finance from these corporations is a feasible entry point for an Australian firm entering a Greenfield project in Albania.

 Poor transport, telecommunications and other infrastructure are considered to be the main obstacles and barriers to investment. Albania was Europe’s poorest country, but levels of per capita income have more than doubled over the past 10 years. Despite this, the economy remains vulnerable on several fronts due to a culture of tax evasion, significant amounts of long term domestic debt and weak anti-money laundering laws. (Euromonitor International, 2009).

Corruption issues within the government and a weak judiciary system pose problems in Albania’s efforts to achieve greater cooperation with the EU. The EU’s members are concerned about the countries commitment to improving the rule of law and crime. (The World Bank Group, 2009). Multinational businesses may consider the lack of law as an impediment to a foreign direct investment.  (Euromonitor International, 2009).

 A major barrier to investment may be the issue of developing free trade zones to attract foreign investment. Existing law provides the authority to establish free trade zones and a special zone commission has been established by the Albanian government to identify potential free zone sites. However, no free trade zones have yet been established. (Macro-Accessibility 2007).

Apart from the monetary opportunities and profit yields that Australian firms and the home countries establishing FDI’s receive, there are opportunities for the host country (Albania) of such foreign investments. Albania’s young, literate populace represents a surplus of labour, reflected in the unemployment rate of 14 percent. While some members of the labour force are highly skilled, many work in inefficient industries with outdated technology. Via foreign firms investing in Albania, the skill sets and technological capabilities of the Albania’s young work force is enhanced. (Macro-Accessibility 2007). Albania’s are rapidly learning market economic practices and often display impressive entrepreneurship. (Macro-Accessibility 2007). There are definitely significant opportunities for the host country Albania through FDI.

 

References

 

 

Austin RC 2006, ‘Albania’s new investment strategies’, SETimes.com, viewed 22 October 2009,

 

Business Eastern Europe, 2008, ‘Business outlook – Albania’, 10 Oct 2008, Vol. 37 Issue 377, p3-3.

 

Centre for Social and Economic Studies, 2006, ‘From Brain Drain to Brain Gain: Mobilising Albania’s Skilled Diaspora’, Development Research Centre on Migration, Globalisation and Poverty, University of Sussex, UK

 

Economy Watch, 2009, ‘Benefits of Foreign Direct Investment’, viewed 23 October 2009, < http://www.economywatch.com/foreign-direct-investment/benefits.html>

 

Euromonitor International, 3 Jul 2009, ‘Albania: Country profile’ viewed 21 October 2009,

 

Forbes, S 2008, ‘Muslim Success Story’, Business Source Complete, 4 Jul 2008, Vol. 181 Issue 7, p15-16

 

Foreign Investment Climate, 2008, ‘Albanian Investment Overview’ Albania Review 2008, viewed 21 October 2009.

 

GM Publishing, 2009, ‘Renewable Energy in SEE – Albania, viewed 21 October 2009.

 

Hill, CWL, 2009, International Business – Competing in the Global Marketplace, 7th edn, McGraw-Hill Internation Edition, Washington USA.

 

Hirst, T, 2008, ‘Fund Launch’, Fund Strategy, viewed 20 October 2009.

 

Macro-Accessibility 2007, ‘ICON Group International, Inc’, viewed 23 October 2009,

 

Market Access, 2008, ‘Albania: Building a Stock Market’ viewed 20 October 2009,

 

NEWEUROPE 2009, ‘Albania has the world’s best growth in tourism investment’, neurope.eu, viewed 23 October 2009,

 

Quick Cross Rates, 2009, ‘XE.COM exchange rates’, viewed 25 October 2009,

 

The Heritage Foundation, 2009, ‘Index of Economic Freedom – Albania’, viewed 22 Oct 2009,

 

The World Bank Group, 2009, ‘Doing Business in Albania’ viewed 18 October 2009, <http://www.doingbusiness.org/ExploreEconomies/?economyid=3>

 

Wikipedia Contributors, 2009 September 30, ‘Accession of Albania to the European Union’. [Internet]. Wikipedia The Free Encyclopaedia, viewed 21 October 2009, http://en.wikipedia.org/w/index.php?title=Accession_of_Albania_to_the_European_Union&oldid=305088136

 

 

 

 

 

Appendix 1

 

 

 

Graph 1 – Foreign Direct Investment Inflows by Region ($US Billions). (Hill 2009, p244).

 

 

 

 

 

Appendix 2

 

 

Graph 1 – ALBANIA. GDP and Consumer Prices % Change, Year. (Business Eastern Europe, 2008).

 

 

 

 

 

Table 2. Albania – Data and Forecasts. (Business Eastern Europe, 2008).

 

Category

2008 Rank

2009 Rank

2009 Rank

Population, mn

3.10

3.11

3.12

Exchange rate ALL/EUR

120.25

119.40

119.45

Imports, US$bn

4.50

4.90

5.30

Exports, US$bn

1.30

1.50

1.70

Trade Balance, US$bn

-3.20

-3.40

-3.60

Current account, % of GDP

-6.90

-5.50

-4.20

Forex reserves (gold) US$bn

2.50

2.95

3.43

Foreign debt, % of