Foreign direct investments reach historic level

Foreign Direct Investments (FDI) in Albania have reached historic levels for the first quarter of this year, signifying a vote of confidence from international investors. Data from the Bank of Albania indicate a flow of foreign investments amounting to 354 million euros, a 15.3% increase compared to the same period last year.

As reported by the Central Bank, real estate activities made the largest contribution to attracting foreign direct investments, followed by financial intermediation, hydrocarbons, and energy.

Why is this relevant

For countries like Albania, which had a centralized and state-driven economy until the early 1990s, foreign investments are one of the best ways to infuse foreign capital into the local economy and domestic industries, and fundamentally transform and diversify the country’s economic structure. The recent increase in foreign investments marks a significant turning point in Albania’s economic landscape, promising to drive growth, create jobs, and foster sustainable development. In addition to capital, foreign investments bring technology and expertise that can significantly enhance the productivity and competitiveness of local industries.

Context

Over the past two decades, the level of FDI in Albania has fluctuated, but there is an overall upward trend. This is due to the favorable business climate in Albania and policies that have favored foreign investors, resulting in generally positive effects such as increased value-added, employment, productivity, and economic development.

Generally, FDI flows in Albania have had positive effects. They originate from various countries, with the largest shares coming from Netherlands and Switzerland, as well as from neighboring EU countries, such as Greece and Italy. Recently, a significant portion of investments has come from Turkey, with flows increasing gradually each year. Meanwhile, the United States and Germany account for a very small percentage of the total.

According to the Bank of Albania, re-investments reached 209 million euros, accounting for 59% of the total FDI flow, noting an increase of 15% compared to the same period last year. Meanwhile, the nominal value derived from the injection of new capital amounted to 144 million euros, with an annual increase of only 1%.

In terms of sectoral distribution of FDI, the construction sector takes the top spot at 23%, followed by financial intermediation at 21% and manufacturing industry at 13%.

According to a report by the Albanian Investment Development Agency, there are ten reasons why an investor should choose Albania: strong economic performance, favorable geographical position, free market access, business-friendly legal framework, high investment potential, low taxes, a skilled workforce, increasing foreign investment flows, improving infrastructure, and quality of life.