Will legal shake-up bring investment and tourism rewards for Albania?

Albania has the potential to become a key European tourism destinations, but before it can do so, onlookers believe that it must improve its rule of law.

In 2017, tourism made up about 7% of the country’s $14bn economy but the government would like to raise that percentage to 12% by 2020. Albania – which has only 2.9 million inhabitants – received 5.1 million foreign visitors in 2017, up from 4.7 million in 2016 and 3.2 million in 2013. Last year, 3.8 million people visited from southern Europe but only 316,000 came from western Europe.

Ripe for development

The country’s coastline spans 476 kilometres. The Albanian Riviera in the country’s south-west includes the cities of Sarandë and Ksamil but it does not have any well-developed resorts. There are not enough big hotels to host large parties of tourists and two-thirds of the coastline is untouched, which is why many travel agents label the country as ‘Europe’s last secret’.

“The development of tourism is a top priority for Albania,” says Blendi Klosi, the country’s minister for tourism. “It could benefit the economy greatly and help to improve social welfare. Our coastline is one of the last undiscovered parts of the Adriatic and Mediterranean. We have 300 days of sunshine and incredible nature.”

Albania was part of the Ottoman Empire until 1912 and was ruled by a rigid Communist dictator, Enver Hoxha, for four decades until 1985, who isolated it from the rest of the world. When one-party rule ended in 1990, Albania was one of the least developed countries in Europe with only 5000 vehicles on its streets.

Since then, the country has struggled to become a free-market, liberal democracy. The collapse of pyramid or Ponzi schemes in the 1990s precipitated a massacre and the overthrow of a government – and also dented the reputation of capitalism within its borders. 

Crisis setback

Albania also suffered badly during the international financial crisis. Its banks lent large sums to 30-odd corporations that were heavily involved in property development but on the basis of inflated valuations of collateral. When the crisis hit, the companies defaulted on their debt and at their height in 2013, non-performing loans made up 23.5% of bank’s gross loans (this figure is now down to 13.2%). 

“It has not always been easy for banks to foreclose on the collateral or property backing up these loans,” says Spiro Brumbulli, secretary-general of the Albanian Association of Banks. “There has been a problem with the judicial system in Albania; people have managed to pay judges off so that they have not enforced foreclosure.”

The crisis undermined foreign confidence in the country’s rule of law even further. One of the biggest obstacles to foreign investment in Albania has been the lack of credibility surrounding the country’s land registry. During the Communist era, all private property was collectivised, but since its fall, the original owners of land or property have tried to claim it back. In many cases, the people who won their court cases were those who paid the judges the biggest bribes.

Albania has now embarked on reforms to clean up the judiciary. The most important of these is the setting up of official bodies to carry out a robust vetting of up to 800 existing justice officials, overseen by an international mission composed of EU and US legal experts. Albania wants to become an EU member state but the European Commission is insisting that it cleans up its act before it is admitted to the club. Negotiations with the EU could start as early as 2018. 

“Albania needs to prepare to profit from access to the European market by strengthening democracy and the rule of law as the basis for good economic governance,” says ambassador Romana Vlahutin, head of the EU delegation to Albania. “It needs to improve law enforcement, predictability, transparency and clarity on property ownership, as well as continue its efforts in fighting informality and corruption in order to build a sound business environment.”

Transparency issues

The Albanian economy is expected to expand by 3.7% in 2018 and by the same amount in 2019 and is characterised by macroeconomic stability, with a low inflation rate of 2.8%. It has a positive, stable B1/B+ rating from Moody’s and Standard & Poor’s, respectively. However, it is ranked in 91st place (out of 180 countries) in the 2017 Corruption Perceptions Index of Transparency International.

During 2016, Albania attracted $1.16bn of FDI compared with $1.09bn the previous year. In 2016, it had a total stock of FDI of $6.9bn, with Greece, the Netherlands and Italy historically the biggest investors. 

As well as tourism, Albania has great potential for foreign investment in the infrastructure, energy and agribusiness sectors. Total oil reserves are believed to be in excess of 500 million barrels and the Patos-Marinëz-Kolonjë oil area is the largest oil field in continental Europe. Royal Dutch Shell has invested more than $270m to develop the Shpiragu-2 oilfield.

The 878-kilometre Trans Adriatic Pipeline has been the biggest investment in the country of the past few years. It will connect with the Trans Anatolian Pipeline (Tanap) at the Turkish-Greek border at Kipoi, cross Greece and Albania and the Adriatic Sea, before coming ashore in southern Italy, where it will connect with the Italian gas distribution network. Work on the pipeline started in 2016 and is expected to finish by 2020. Tanap involves an overall investment of $5.5bn, with one-third destined to Albania. Its investors include BP, the State Oil Company of the Azerbaijan Republic, and Snam, the Italian natural gas infrastructure company.

The other major Albanian project expected to be financed mostly from EU money is the Ionian Adriatic Pipeline, which will provide gas for Montenegro, Bosnia and Croatia as well Albania. Marinela Jazoj, executive director of the Foreign Investors’ Association of Albania, says: “Albania offers incredible investment opportunities but it is vital that foreign investors find the right local people and have a lot of patience. Judicial and other reforms are now speeding up and I think the country will secure a lot more FDI in the future.”