| Albania is a South Eastern Balkan country situated on | | | | nations. FDI in Albania contributes to positive |
| the eastern Adriatic Coast in Europe. The country | | | | economic growth, and professionals are a source of |
| borders the former Yugoslav provinces of | | | | capital for developing countries such as Albania. |
| Montenegro, FYR-Macedonia, Serbia and Greece to | | | | Reversing the brain drain has had positive effects on |
| the South. The capital is Tirana. (The World Bank | | | | education, income distribution and economic welfare. |
| Group, 2009). | | | | (Centre for Social and Economic Studies, 2006) |
| Personal foreign direct investment (FDI) interest in | | | | A country's balance of Payments accounts calculates |
| Albania is derived from closely monitoring Albania's | | | | its payments to and receipts from other countries. |
| transition into a NATO country and prospective | | | | If the FDI in Albania is a substitute for goods and |
| European Union (EU) member. The process of | | | | services, the effect can positively improve the |
| accession of Albania to the EU started in January | | | | current account of the host countries balance of |
| 2003. Albania's admission to the EU depends on the | | | | payments. (Hill CW, 2009). According to a UN report, |
| countries future economic and political stability. Albania | | | | inward FDI by foreign multinationals has been a major |
| has been engaged with EU institutions and joined | | | | driver of export led economic growth, which can be |
| NATO (North Atlantic Treaty Organization) April 1, | | | | utilised by Albania. |
| 2009. (Wikipedia Contributors cited 2009). Albania | | | | Adverse effects of foreign investment in Albania |
| formally applied for EU membership 28 April 2009. | | | | mean that enhanced competition as well as being a |
| Ranked as one of the poorest European countries, | | | | positive aspect could drive indigenous companies out |
| numerous Albanian ex-patriots reside and work | | | | of business. Additionally, foreign multinationals could |
| throughout the EU and Switzerland. A contributing | | | | raise prices, causing inflationary pressure within the |
| high birth rate, the country has vast foreign direct | | | | Albanian economy. Key decisions affecting the host |
| investment potential considering its prospective EU | | | | country's (Albania) economy may be made by a |
| status, geographical and geopolitical location. Albania is | | | | foreign investment company that does not have |
| a distinctive classification of an emerging market and | | | | total commitment to the Albanian economy. (Hill, CW, |
| future currency change from the Lek to the Euro | | | | 2009) |
| (improving the countries purchasing power and | | | | Considering there are minimal well established |
| wealth), reveals there is a vast monetary opportunity | | | | incumbent enterprises in Albania, a Greenfield |
| for multinational Australian business to invest in a | | | | investment may be an option, even though there |
| venture with a controlling interest. | | | | may be benefits in acquiring an existing firms skill's, |
| FDI occurs when a firm invests resources in business | | | | embedded competencies and culture through |
| activities in countries outside its home base (Hill 2009, | | | | purchasing an established organisation. (Hill 2009, |
| p11), such as Albania. The main foreign direct | | | | p506). However, the process of setting up a new |
| investment areas that Australian Multinationals should | | | | Greenfield hierarchy may be the only viable mode in |
| be considering are Construction (highways, | | | | certain instances in Albania within engineering and |
| infrastructure), Property, Renewable Energy, Finance | | | | construction due to lack of infrastructure and |
| and Tourism. The types of companies that may be | | | | expertise in an ex-communist nation. |
| interested in this type of investment are the likes of | | | | Appropriate entry modes of investment into Albania |
| Origin Energy, McMahon holdings, Raine and Horne. | | | | include investing with the Overseas Private |
| Historically, most FDI has been directed at developed | | | | Investment Corporation (OPIC) which is a US |
| nations. FDI into developing or emerging nations has | | | | government agency that sells investment services |
| traditionally increased substantially (Refer to Graph 1, | | | | into emerging markets. The most important fund for |
| Appendix 1) since 1990 (Hill 2009, p243-244). | | | | the region is the $US 150 million Southeast Europe |
| Therefore Albania is an excellent FDI opportunity that | | | | Equity Fund (SEEF), managed by Soros Private Funds |
| may provide substantial profitability for Australian | | | | Management. (Macro-Accessibility 2007). |
| firms. Most recent inflows have been targeted at the | | | | The Trade and Development Agency is also a US |
| emerging economies of South East Asia, hence there | | | | government agency which promotes private sector |
| is an unexplored potential for Australian firms to | | | | participation in developing countries. In Albania, TDA |
| invest in Albania. | | | | has recently financed projects to implement roads, |
| Real GDP in Albania has averaged 6% in previous | | | | ports, the energy sector as well as various private |
| years due to a surge in public investment. Consumer | | | | sector projects. (Macro-Accessibility 2007). |
| price inflation is under the 4 per cent upper limit of | | | | The International Finance Corporation (IFC) is a |
| the central bank's informal target. (Refer to Graph 1, | | | | member of the World Bank Group that offers a full |
| Appendix 2). The Albanian LEK will continue to be | | | | array of financial products to companies in developing |
| supported in 2009 by large foreign-currency | | | | member countries such as Albania. The European |
| remittances from Albanians living abroad as well as | | | | Bank for Reconstruction and Development (EBRD) |
| relatively high interest rates. Exports should grow | | | | promotes competition, privatisation and |
| relatively strongly in 2009 and forecasted current | | | | entrepreneurship taking into account different stages |
| account deficits averaging around 11% of GDP. | | | | of transition of developing countries. The EBRD has |
| (Business Eastern Europe, 2008). (Refer to Table 2, | | | | equity positions with the Albanian National Commercial |
| Appendix 2). | | | | Bank, and the Albanian Reconstruction Equity Fund |
| The feasibility of the client company to enter the | | | | and the Italian-Albanian bank. (Macro-Accessibility |
| Albanian market is positive. The democratic Albanian | | | | 2007). In addition to acquiring an existing company, |
| government encourages foreign investment, thus in | | | | obtaining finance from these corporations is a feasible |
| an ongoing effort to privatize public enterprises, the | | | | entry point for an Australian firm entering a |
| government is seeking qualified foreign investors in | | | | Greenfield project in Albania. |
| key sectors, including telecommunications, energy, oil | | | | Poor transport, telecommunications and other |
| and gas, finance, and construction. (Foreign | | | | infrastructure are considered to be the main |
| Investment Climate, 2008) | | | | obstacles and barriers to investment. Albania was |
| Albania's infrastructure is currently inadequate, and | | | | Europe's poorest country, but levels of per capita |
| there is little budgetary money for improvements. | | | | income have more than doubled over the past 10 |
| The government inherited a poor highway system | | | | years. Despite this, the economy remains vulnerable |
| from the Communist period. Major road building | | | | on several fronts due to a culture of tax evasion, |
| projects are currently underway, and an estimated | | | | significant amounts of long term domestic debt and |
| 6000 kilometres of roadway will be implemented by | | | | weak anti-money laundering laws. (Euromonitor |
| 2013. (Euromonitor International, 2009). Therefore | | | | International, 2009). |
| there is an immense opportunity for Australian based | | | | Corruption issues within the government and a weak |
| Civil Engineering/construction firms to tender for a | | | | judiciary system pose problems in Albania's efforts to |
| substantial sector of work, and scope for profitable | | | | achieve greater cooperation with the EU. The EU's |
| investment. | | | | members are concerned about the countries |
| Feasibility of the client company entering the Albanian | | | | commitment to improving the rule of law and crime. |
| markets in a Greenfield capacity is varied. Currently, | | | | (The World Bank Group, 2009). Multinational |
| Albania ranks 89th out of 183 countries in the | | | | businesses may consider the lack of law as an |
| benchmark of Ease of doing business. Starting a | | | | impediment to a foreign direct investment. |
| business, Albania rank's 68th in 2009 and set to | | | | (Euromonitor International, 2009). |
| move to 46th in 2010. (Refer to Table 1 in Appendix | | | | A major barrier to investment may be the issue of |
| 3). The average time in days for Starting a business | | | | developing free trade zones to attract foreign |
| is 5 days as compared to 13 days for the overall | | | | investment. Existing law provides the authority to |
| OECD Average. This demonstrates that the Albanian | | | | establish free trade zones and a special zone |
| government is moving in a positive direction to | | | | commission has been established by the Albanian |
| attract foreign investment. (The World Bank Group, | | | | government to identify potential free zone sites. |
| 2009). However, the cost of starting a business Cost | | | | However, no free trade zones have yet been |
| (% of income per capita) is substantially higher than | | | | established. (Macro-Accessibility 2007). |
| the OECD Average (Refer to Table 1 in Appendix 4). | | | | Apart from the monetary opportunities and profit |
| "Foreign firms obtaining credit" and "protecting | | | | yields that Australian firms and the home countries |
| investors" demonstrates that Albania is advanced in | | | | establishing FDI's receive, there are opportunities for |
| certain business investment areas – projected | | | | the host country (Albania) of such foreign |
| ranking 15th out of 183 country's in both these | | | | investments. Albania's young, literate populace |
| facets in 2010, placing Albania in the top 10%. On the | | | | represents a surplus of labour, reflected in the |
| contrary, dealing with construction Permits (173rd in | | | | unemployment rate of 14 percent. While some |
| year 2010) and Employing workers (105th in year | | | | members of the labour force are highly skilled, many |
| 2010) demonstrates that the foreign direct | | | | work in inefficient industries with outdated |
| investment firms specialising in renewable energy and | | | | technology. Via foreign firms investing in Albania, the |
| civil construction will need to take these important | | | | skill sets and technological capabilities of the Albania's |
| factors into consideration when investing and starting | | | | young work force is enhanced. (Macro-Accessibility |
| a Greenfield project. (The World Bank Group, 2009). | | | | 2007). Albania's are rapidly learning market economic |
| The types of business ventures that are attractive | | | | practices and often display impressive |
| for FDI are centred on construction infrastructure | | | | entrepreneurship. (Macro-Accessibility 2007). There |
| and energy. Albania's energy crisis has been caused | | | | are definitely significant opportunities for the host |
| by the annual growth rate in the demand for power. | | | | country Albania through FDI. |
| The rate has been in excess of 8% and generation | | | | |
| has struggled to keep pace. In a recent EU report it | | | | References |
| is acknowledged that Albania had undertaken some | | | | |
| bold steps to restructure and liberalise the energy | | | | |
| sector. The European Bank for Reconstruction and | | | | Austin RC 2006, ‘Albania's new investment |
| Development (EBRD) indicates that it will provide | | | | strategies', SETimes.com, viewed 22 October 2009, |
| immense financing for new power generation. | | | | |
| Therefore, renewable energy is also an extremely | | | | Business Eastern Europe, 2008, ‘Business outlook |
| attractive foreign investment option. (GMB Publishing | | | | – Albania', 10 Oct 2008, Vol. 37 Issue 377, p3-3. |
| 2009). | | | | |
| Hydroelectricity generation has historically provided | | | | Centre for Social and Economic Studies, 2006, |
| the majority of Albania's energy capacity and | | | | ‘From Brain Drain to Brain Gain: Mobilising Albania's |
| continues to represent its main generation source. | | | | Skilled Diaspora', Development Research Centre on |
| Through a lack of investment funds, only 35 per cent | | | | Migration, Globalisation and Poverty, University of |
| of potential capacity for development is currently | | | | Sussex, UK |
| being exploited. (GMB Publishing 2009). Australian | | | | |
| based hydroelectric energy firms have a substantial | | | | Economy Watch, 2009, ‘Benefits of Foreign |
| advantage in expertise in exploiting the Albanian | | | | Direct Investment', viewed 23 October 2009, < |
| market. Studies show that Albania has a good solar | | | | |
| energy potential. There are no large scale PV | | | | Euromonitor International, 3 Jul 2009, ‘Albania: |
| projects currently in operation; however the | | | | Country profile' viewed 21 October 2009, |
| installation of major solar energy projects in planned | | | | |
| by the Albanian government in 2015. (GMB Publishing | | | | Forbes, S 2008, ‘Muslim Success Story', Business |
| 2009). Australian solar firms have the opportunity to | | | | Source Complete, 4 Jul 2008, Vol. 181 Issue 7, p15-16 |
| explore Greenfield solar energy projects. | | | | |
| Various US Asset Management firms are launching | | | | Foreign Investment Climate, 2008, ‘Albanian |
| into the fledgling Albanian property market to take | | | | Investment Overview' Albania Review 2008, viewed |
| advantage of the growing mortgage market. Albania | | | | 21 October 2009. |
| is set to benefit from its planned accession to the | | | | |
| EU, which it expects to be completed by 2014 and | | | | GM Publishing, 2009, ‘Renewable Energy in SEE |
| has already received €100m in funding. A 2007 | | | | – Albania, viewed 21 October 2009. |
| World Bank report highlighted Albania's high GDP | | | | |
| growth and a dramatic decrease in poverty. Albania | | | | Hill, CWL, 2009, International Business – |
| has received significant investment from international | | | | Competing in the Global Marketplace, 7th edn, |
| bodies such as International Bank for Reconstruction | | | | McGraw-Hill Internation Edition, Washington USA. |
| and Development. (Hirst, T, 2008). Commercial and | | | | |
| residential property is an area of foreign direct | | | | Hirst, T, 2008, ‘Fund Launch', Fund Strategy, |
| investment that is attractive with the high power of | | | | viewed 20 October 2009. |
| the $A as compared to the Albanian LEK currency. | | | | |
| Currently $1A = 85.01 ALL (Albanian LEK) and 1ALL = | | | | Macro-Accessibility 2007, ‘ICON Group |
| 0.1177 $A. (Quick Cross Rates, 2009). When Albania | | | | International, Inc', viewed 23 October 2009, |
| enters the EU zone, their currency will become | | | | |
| stronger and inline with Euro zone parity. | | | | Market Access, 2008, ‘Albania: Building a Stock |
| Albania's capital markets remain amongst the most | | | | Market' viewed 20 October 2009, |
| embryonic within the whole of the central and | | | | |
| Eastern Europe region. There are encouraging steps | | | | NEWEUROPE 2009, ‘Albania has the world's best |
| taken to put in place the legal and regulatory | | | | growth in tourism investment', neurope.eu, viewed 23 |
| framework to build a functioning stock exchange. | | | | October 2009, |
| This makes convergence with the EU easier and | | | | |
| provides financial and banking opportunities through a | | | | Quick Cross Rates, 2009, exchange rates', viewed 25 |
| foreign investment framework to operate within. | | | | October 2009, |
| (Market Access 2008). | | | | |
| Albania recently witnessed an impressive growth in | | | | The Heritage Foundation, 2009, ‘Index of |
| tourism in 2009. The government of Albania | | | | Economic Freedom – Albania', viewed 22 Oct |
| announced that there was a 42 percent increase in | | | | 2009, |
| the number of tourists visiting the country, AENews | | | | |
| reported. Albanian government is claiming its coasts | | | | The World Bank Group, 2009, ‘Doing Business in |
| are more beautiful than those of the Riviera. (Forbes | | | | Albania' viewed 18 October 2009, < |
| S, 2008). With new hotels, resorts, and restaurants, | | | | |
| the Albanian private sector in tourism has been | | | | Wikipedia Contributors, 2009 September 30, |
| growing an average of 30 percent for five years. | | | | ‘Accession of Albania to the European Union'. |
| The Albanian economy had the best growth in | | | | [Internet]. Wikipedia The Free Encyclopaedia, viewed |
| Europe; foreign investments in Albania have increased | | | | 21 October 2009, |
| 59 percent this year. Australian firms can invest in the | | | | |
| infant tourism industry by providing expertise, with | | | | |
| huge profit potential. (New Europe 2009). | | | | |
| The Albanian government has induced an affirmative | | | | |
| attitude towards foreign investment; its strategy to | | | | |
| strengthen the business environment was | | | | Appendix 1 |
| incorporated by the removal of administrative barriers | | | | |
| to investment. The privatisation agenda is gaining | | | | |
| momentum and the government is encouraging | | | | |
| foreign investment. Almost one-third of the country's | | | | Graph 1 – Foreign Direct Investment Inflows by |
| population works outside the country. The | | | | Region ($US Billions). (Hill 2009, p244). |
| remittances they provide help alleviate poverty and | | | | |
| drive a boom in housing construction as well as | | | | |
| infrastructure (Euromonitor International, 2009). | | | | |
| Albania's Albania's Democratic Party government | | | | |
| knows full well that a battle for foreign investment | | | | |
| looms and that Albania has some catching up to do. | | | | Appendix 2 |
| The previous low level of foreign interest is largely | | | | |
| due to the fact that Albania's international image is | | | | |
| poor, but wrongly so. Albania's service sector, | | | | Graph 1 – ALBANIA. GDP and Consumer Prices |
| especially its restaurants and hotels, are exceptional. | | | | % Change, Year. (Business Eastern Europe, 2008). |
| The hospitality is great and Albanians are an | | | | |
| outward-looking people. They are ready for an influx | | | | |
| of tourists. Albania is also rich in natural resources, | | | | |
| such as oil, gas, copper, chrome and hydroelectric | | | | |
| potential. (Austin RC 2006) | | | | |
| The Albanian government under Prime Minister | | | | Table 2. Albania - Data and Forecasts. (Business |
| Berisha has created an excellent environment to | | | | Eastern Europe, 2008). |
| attract investors to Albania. Special emphasis was | | | | |
| paid improving infrastructure. The efforts on | | | | Category |
| improving the legal system to protect investors also | | | | 2008 Rank |
| proved significant. It was also reported that many | | | | 2009 Rank |
| Western European companies have chosen to | | | | 2009 Rank |
| escape the high taxes in Europe by investing in | | | | Population, mn |
| Albania as the latter offers the best tax system in | | | | 3.10 |
| Europe with a 10 percent flat tax. (NEWEUROPE | | | | 3.11 |
| 2009). | | | | 3.12 |
| The Albanian government has worked to make it | | | | Exchange rate ALL/EUR |
| easier to invest and do business in Albania, instituting | | | | 120.25 |
| a one-stop shop for registering a new business. | | | | 119.40 |
| Education is also emphasized, particularly by the | | | | 119.45 |
| private sector. Since the fall of communism, Albania | | | | Imports, US$bn |
| has been an ally of the US, supplying troops. Its | | | | 4.50 |
| positive foreign policy attitude, economic and | | | | 4.90 |
| anticorruption successes are models for other Muslim | | | | 5.30 |
| nations. (Forbes S, 2008). | | | | Exports, US$bn |
| Foreign firms experience various investment | | | | 1.30 |
| restrictions in Albania. Despite some recent | | | | 1.50 |
| improvement, Albania's business freedom remains | | | | 1.70 |
| constrained by a burdensome regulatory environment. | | | | Trade Balance, US$bn |
| Even though starting a business is relatively quick, | | | | -3.20 |
| obtaining a business license requires 24 additional | | | | -3.40 |
| procedures and almost 100 more days than the world | | | | -3.60 |
| average of 225 days. (The Heritage Foundation, | | | | Current account, % of GDP |
| 2009). | | | | -6.90 |
| Foreign and domestic firms are treated equally under | | | | -5.50 |
| the law, and nearly all sectors are open to foreign | | | | -4.20 |
| investment. Agricultural land may not be purchased | | | | Forex reserves (gold) US$bn |
| by foreign investors but may be leased for up to 99 | | | | 2.50 |
| years. The Albanian state can expropriate an | | | | 2.95 |
| investment or asset for the purpose of public | | | | 3.43 |
| interest, but there are no legal provisions for | | | | Foreign debt, % of GDP |
| compensation. This can be a deterrent or restriction | | | | 18.2 |
| for an Australian firm specialising in niche Albanian | | | | 17.5 |
| markets. Non-transparent regulations, inefficient | | | | 16.3 |
| bureaucracy, and corruption also restrict and | | | | |
| discourage foreign investment in Albania. (The | | | | |
| Heritage Foundation, 2009). | | | | Appendix 3 |
| The financial system is relatively underdeveloped by | | | | |
| western standards, even though progress has been | | | | |
| made. Even though many banks have expanded their | | | | Table 1. This table shows summary Albania Doing |
| services, the use of cheques and credit cards is still | | | | Business 2010/2009 data for the selected economy |
| not widespread. Although short-term credit is | | | | (out of 183 countries), and the rankings by each |
| available, it is extremely expensive and difficult to | | | | topic. (The World Bank Group, 2009) |
| obtain without large collateral security. This can | | | | |
| restrict foreign investment for an Australian firm. In | | | | |
| addition customer service is relatively poor compared | | | | Ease of……. |
| to western standards. (Macro-Accessibility 2007). | | | | Doing Business 2010 Rank |
| The government has separated the Tirana Stock | | | | Doing Business 2010 Rank |
| Exchange from the central bank, but the stock | | | | Change in rank |
| market remains inactive, and no shares are listed yet. | | | | Doing Business |
| Australian financial investment firms are currently | | | | 82 |
| restricted considering the Stock exchange is at an | | | | 89 |
| infant stage. Albania's judicial system enforces the | | | | +7 |
| law weakly and is one of the country's most tainted | | | | Starting a Business |
| institutions. Judges are often appointed strictly for | | | | 46 |
| political reasons and can be corrupt. Protection of | | | | 68 |
| intellectual property rights is weak, and violations of | | | | +22 |
| copyrights and trademarks are common, therefore | | | | Getting Credit |
| Australian and foreign firms with patented | | | | 15 |
| investments are subject to infringements without | | | | 12 |
| legal protection. (The Heritage Foundation, 2009). | | | | +3 |
| Land rights are not well defined, especially in coastal | | | | Protecting Investors |
| areas, and 70 percent of all civil court cases involve | | | | 15 |
| property disputes. This could have adverse effects | | | | 14 |
| for civil engineering organisations. (The Heritage | | | | -1 |
| Foundation, 2009). | | | | Employing Workers |
| Corruption in Albania is perceived as widespread. | | | | 105 |
| Albania ranks 105th out of 179 countries in | | | | 105 |
| Transparency International's Corruption Perceptions | | | | 0 |
| Index for 2007, a very slight improvement from | | | | Dealing with Construction permits |
| previous years. Corruption pervades all sectors and | | | | 173 |
| levels of government. Albania is a major transit | | | | 170 |
| country for the traffic in arms, narcotics, contraband, | | | | -3 |
| and humans. (The Heritage Foundation, 2009). | | | | |
| There a vast advantages and gains of FDI into | | | | |
| Albania. It stimulates economic development and has | | | | |
| helped developing countries such as Albania when | | | | Appendix 4 |
| faced with economic hardship previously. (Economy | | | | |
| Watch 2009). Multi-billion dollar projects are underway | | | | |
| in the energy sector to produce energy from wind, | | | | Table 2. This table shows the challenges of launching |
| and solar sources, in addition to road and | | | | a business in Albania. Included are the steps |
| infrastructure construction. With FDI in the tourism | | | | entrepreneurs can expect, the time it takes on |
| industry, construction jobs in hotels and resorts are | | | | average, and the cost and minimum capital required |
| underway, also generating employment in the | | | | as a % of GNI capital. (The World Bank Group, |
| Albanian services sector. (New Europe 2009). | | | | 2009). |
| FDI into Albania permits the transfer of technologies | | | | |
| and assists in competition between producers within | | | | |
| the local market. Gains in the economy include the | | | | Indicator |
| development of skills, and human capital resources by | | | | Albania |
| Albanian employees of Energy, Construction and | | | | Eastern Europe & Central Asia |
| Engineering firms receiving training on the operations | | | | OECD Average |
| of a business. The creation of new jobs, and | | | | Procedures (number) |
| increases the salaries of workers leads to lifestyle | | | | 5 |
| enhancement. (Economy Watch 2009). | | | | 6.7 |
| The profits that are generated by FDIs that are | | | | 5.7 |
| made in Albania can be used for the purpose of | | | | Time (days) |
| making contributions to the revenues of corporate | | | | 5 |
| taxes. FDI allows for the development of the | | | | 17.4 |
| manufacturing sector. (Economy Watch 2009). | | | | 13.0 |
| The Albanian economy has been on the rise, with an | | | | Cost (% of income per capita) |
| average annual GDP growth higher than anywhere | | | | 17.0 |
| else in the region. Such impressive growth has been | | | | 8.3 |
| largely due to controlling inflation in addition to | | | | 4.7 |
| investment. Previously, Albanian professionals would | | | | Min. capital (% of income per capita) |
| immigrate to other nations. "Brain drain" is used to | | | | 0.0 |
| describe the phenomenon of emigration of highly | | | | 21.5 |
| qualified professionals from Albania to other EU | | | | 15. |