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Bank of albania: Lack of new major projects, political deadlock negatively affected FDI in year’s first half

14. September 2017

Central bank data published this week in the quarterly balance of payments shows FDI dropped to €380 million in the first half of this year, down from €409 million during the same period last year, registering a modest 7 percent decline, but warning of headwinds as two major ongoing energy-related projects are completed in the next couple of years.

With no new major foreign investment in sight and a prolonged political deadlock ahead of the June 25 general elections, FDI suffered a blow in the first half of this year when it hit a three-year low amid poor investor confidence and uncertainties over election results and tax policies the new government would apply.

Central bank data published this week in the quarterly balance of payments shows FDI dropped to €380 million in the first half of this year, down from €409 million during the same period last year, registering a decline of 7%.

The FDI decline for the first half of this year comes after foreign direct investment registered an almost record high of €1 billion in 2016 triggered by the Albanian section of Trans Adriatic Pipeline entering its peak construction stage.

Albania’s central bank slightly revised downward the country’s FDI to 943 million for 2016, up from €890 million in 2015, and a record high of €945 million for 2013 when the country was still applying a 10 percent flat tax regime.

Both the country’s central bank and international financial institutions had warned the protracted political deadlock ahead of the June 25 elections when the opposition Democrats staged three months of protests over free and fair elections was going to have a negative impact on investor and consumer confidence. However, the overcome of the impasse by late May ahead of the tourist season and the smooth handling of the June 25 elections and new government now in place have unveiled the need for incentives on FDI, key for both employment and much-needed know-how for the developing Albanian economy.

Experts have blamed the slowdown in FDI on the sharp cut in commodity prices and Albania’s increase in the tax burden in the past few years, reducing its competitiveness compared to other regional countries applying flat tax regime of about 10 percent, despite the country’s favourable geographical location and investment opportunities, especially in the tourism industry.

The long-standing issue of clear property titles, lack of an efficient judiciary and highly perceived corruption are also considered barriers.

Tourism which brings about 4 million tourists and more than €1 billion in revenue, as well as agriculture, an underdeveloped sector that employs about half of the country but produces only about 20 percent of the GDP, are seen as two key industries that foreign direct investment can make more competitive by bringing know-how and boosting employment.

Albania has been the second largest FDI recipient among five EU aspirant SEE economies for the past six years lagging behind only Serbia which is a much bigger economy. Thanks to huge investment in energy-related projects such as oil and hydropower plants, Albania has managed to attract about $1 billion in FDI annually in the past few years.

The telecommunication, manufacturing and extractive industries have attracted around half of the FDI stock in Albania during the country’s past two decades of transition into a market economy after the collapse of communist regime and its planned economy.



Last modified
14. September 2017

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