the o cial publication of the uk albania investment …...bankers petroleum, birra korca and several...

The o!cial publication of the UK Albania Investment Forum, London 2008

Raiffeisen Bank

Birra Korca the Albanian-American Enterprise Fund (AAEF)

Chamber of Commerce and Industry of Tirana

British Airways

Strabag AG

Bankers Petroleum Ltd

Supported by

Dear reader,

It gives me great pleasure to present to you the UK-Albania Investment Report for 2008 – a guide to Albania and its investmentclimate and a follow-up to the highly successful First UK-Albania Investment Forum, which was held in London in May of this year.

The forum proved to be an excellent platform for us to speak to the FDI community about the growing business opportunities that existin our country and to forge sound and productive relationships for the future. We were able to give a thorough briefing about Albaniatoday, about the transformations that have taken place and the vision and prospects for the future of the country and how we caninclude the British and international business communities, including the Albanian Diaspora, into that vision.

This report includes a synopsis of the forum, transcripts of some of the key speeches that were delivered there as well as providingsnapshots of some our fastest growing industry sectors and a detailed economic overview of the country in 2008. I believe it to be aworthwhile addition to the forum and am confident that the reader will find it as engrossing as I have.

This year, we have sought tell people that Albania is today a very attractive destination, that opportunities do exist there, that theconditions are right and that Albania; its institutions, its business community, and its people in general, are prepared and ready to workwith the rest of the world. I feel that the First-UK Albanian Investment Forum was an important step in that direction.

It is still the case, however, that many people have little or no knowledge of what Albania is today. Some will have an outdated perceptionof our country based on our history and the previous struggles of the region as a whole. As Albanians, it is our job to turn theseattitudes around so that there is a greater and more widespread understanding of what we in Albania have achieved and what we wantto achieve in the future.

In the meantime, I am glad that there is an increasing appreciation – in particular from international organisations such as the InternationalMonetary Fund (IMF), the World Bank, the European Union (EU), the United Nations (UN), the European Bank for Reconstruction andDevelopment (EBRD) and a number of business leaders who are active in the country – about our general efforts and progress inmoving ahead with reforms and change. In addition to this, in this year’s World Bank Doing Business Report Albania was one of the world’stop 10 reformers during 2007-2008.

The UK and London, as a major hub of global investments, are extremely important for us. The undoubted success of the first forummay lead to the organisation of similar forums all over the world for the same purpose. Already, discussions are underway towardsdelivering the second UK-Albania Investment Forum in 2009, with the aim being to build upon the success of this year’s event and lookat fur ther prospects and opportunities in the years ahead.

Lastly, I would like to express my sincere gratitude to all those who helped make the forum and this report possible. In particular, I offermy thanks to Raiffeisen Bank, the Albanian American Investment Fund, Strabag AG, the Chamber of Commerce and Industry of Tirana,Bankers Petroleum, Birra Korca and several other companies from Albania, for their support of the event, coverage of which can be foundat www.dmassocs.com, the company website of the forum coorganisers, Developing Markets Associates.

I hope hope then, that you will take the opprtunity to read this timely report on our country and look forward to speaking to you againin 2009.

HE Mr Zef Mazi, Ambassador of Albania to the UK

2008 INVESTING IN ALBANIA 1

introduction

Introductionby HE Mr Zef Mazi, Ambassador of Albania to the United Kingdom

INVESTING IN ALBANIA 20082

Map of Albania

Map of Albania


Contents

Economic overview: The road to a successful regional integration 4

Political history: Albania, the last one hundred years 10

Sectors

Energy 14

Infrastructure 15

Property development 16

Tourism 17

Business and banking overview 18

The First UK Albania Investment Forum

Conference overview 20

Speeches 22

Key contacts 48

ContentsKruje, Albania

DMA acknowledge the assistance of all the individuals and organisations who have contributed to his publication. The views expressed hereinare the opinions of the authors, and do not necessarily represent the Embassy of Albania or DMA. All rights reserved. No part of thispublication may be reproduced or transmitted in any form without the written permission of the publisher.

Picture credits: istockphoto.com, Laura Morrison, Mark Orfila, Erjon Kalaja, Steven Koster.

© Developing Markets Associates Ltd

Published by Developing Markets Associates Ltd (DMA) for the Embassy of Albania in London.

Correspondence

Developing Markets Associates | 39-41 North Road | London N7 9DP | United Kingdom

Tel: +44 (0) 207 700 1990 | Fax: +44 (0) 207 700 1902 email: [email protected] | web: www.dmassocs.com | www.moneymove.org

Editor Chris GerrardContributors HE Zef Mazi, Skender Minxhozi, Moin SiddiqiManaging Director Atam SandhuCEO Leon Isaacs

Albania has come a long way since the demise oftotalitarian rule enshrined in a centrally plannedeconomy in 1991. Europe’s fledgling democracy is heading

in the right direction, but many challenges lie ahead for ensuringlong-term sustainable development.

Decades of misrule and isolation under the Communist era havetaken a toll on the real economy in terms of critical infrastructuraldeficiencies, depleted productive capacities (reflecting lowtechnology-intensity), social deprivation, the narrowly basedexports and substantial regional disparities, among other factors.Taking a lead from many former Eastern Bloc countries, successiveAlbanian governments have sought to strengthen market-orientedreforms and modernise financial markets with the ultimate aim ofachieving membership of the European Union (EU) sooner ratherthan later.

Multilateral organisations are impressed by the AlbanianGovernment’s commitment to sound macroeconomic and well-anchored structural reforms. The International Monetary Fund(IMF) says: “Thanks to generally prudent policies, Albania’s economylargely passed a demanding test in 2007, despite challenges from adifficult external environment. Growth improved and inflationexpectations remained low, notwithstanding a drought and rising

food and energy prices. Prudent fiscal and monetary policies werekey in this regard, while ongoing structural reform is reapingrewards from improved competitiveness.” Whilst the World Bankcommented: “Albania’s record since it embarked on its transition inthe early 1990s has been impressive. The country has successfullybuilt the foundations of a market-based economy, createddemocratic institutions and gradually built capacity in publicadministration to cope with political and economic transformation.These efforts have resulted in a track record of macroeconomicstability, as well as the achievement of the fastest rates of GDPgrowth in South Eastern Europe.”

This year’s World Bank Doing Business Report ranked Albania as oneof the world’s top 10 reformers. It is clear that a remarkabletransition within the Albanian economy has taken place over thelast decade. The economic balance has shifted from traditionalindustries such as agriculture to the construction and servicesindustries, which are now the main engines of economic growth,fuelled by large inflows of remittances. An estimated one millionAlbanians currently live abroad and according to the Bank ofAlbania (BoA) inward money transfers totalled €1bn in 2007 alone.Remittances and official aid comfor tably cover chronic externalcurrent-account deficit (see Tables 3 & 4). Remittances haveaccounted for 14% of the country’s GDP in recent years. Service


Economic overview

Above: Tirana at dusk – the Albanian capital is starting to find its heartbeat. Insert: The European Trade Centre (ETC), Tirana

The road to a successful regionalintegration Moin Siddiqi, Economist

industries led by banking, transport and retail trade provide thelargest contributor to GDP, well ahead of industry and agriculture(see pie-char t). The Private sector accounts for 85% of totaleconomic activity and 75% of employment in Albania.

Positive trends

Real GDP growth has been sustained at around 6% since 2000.This has translated into large increases in per capita GDP in USdollar terms. By contrast, the economy grew at a paltry pace of1.1% per annum over 1989-1998 according to IMF figures. TheGovernment predicts continuous growth over the next few years,rising from a projected 6.5% in 2009 to 7% in 2010-11,underpinned by buoyant tourism and construction activity, as wellas productivity gains in manufacturing. Exports too, should increasethanks to trade in new products such as chromium and oil and theimproving performance of traditional exports such as textiles andfootwear. Structural reforms have enhanced productivity in thetradable sector.

Social indicators have also improved markedly. The poverty ratefell from 25.4% in 2002 to 18.5% in 2005, lifting about one-quarterof the poor in 2002 out of social deprivation while the extremepoverty rate dropped from about 5% to 3.5%. The infant mortalityrate for 2005 was reported at 16 [per thousand bir ths]. While lifeexpectancy rose to 77.4 years in 2006, which compares favourablywith other developing countries. Albania has now achieved ‘middle-income’ status, and therefore, it is not eligible to draw concessionalfunds from the International Development Association (IDA), thesoft lending arm the World Bank. The country remains on track tomeet the Millennium Development Goals (MDGs) by 2015.

The BoA’s inflation targeting regime has proven effective in cappingretail prices within a 3+1% target band. Inflation averaged just 2.6%annually during 2003-07 – among the lowest rates in CentralEastern Europe. A de facto ‘Euro-Lek peg’ has mitigated the impactof soaring world food and energy prices. The IMF commented,“Existing monetary policy framework, based on an independentcentral bank and a floating exchange rate, has served the economywell and remains appropriate.” Sustained low inflation bolstersconfidence in the national currency and leads to higher capitalinflows (especially remittances).

The fiscal consolidation since the mid-1990s brought the centralgovernment deficit down from 13.2% of GDP in 1997 to 3.8% in2007. That, in turn, played a vital role in curbing inflation to single-

digit levels. Meanwhile, the total public debt-to-GDP ratio fell from67% at end-2001 to 54% by 2007 – within the 60% of GDPbenchmark set down in the Maastricht criteria. Robust outputexpansion, steady Lek appreciation, declining interest rates and theuse of privatisation receipts to retire national debt has led to adecline in debt ratios.

In July 2007, Albania secured a B1 sovereign rating (with a stableoutlook) for foreign-currency bonds, from Moody’s InvestorsService, marking a significant step towards its integration into globalfinancial markets. Moody’s explained that the rating was givenbecause of “ the pro-business political elite, the consensus on pro-EU and pro-NATO reforms and stable debt-to-GDP levels goingforward” The United Nations Development Programme (UNDP)funded the credit rating. Key constraints, however, included weakgovernance and institutions. Albania plans to issue its first Eurobond(worth €300mn) in 2008. This could provide a benchmark for localcorporates to tap world credit markets when overall conditionsimprove.

Albania boasts a liberal Foreign Direct Investment (FDI) regime.All sectors are fully accessible and 100% foreign ownership ispermitted in local companies. The total amount of FDI over 2000-06 was repor ted atUS$1,649mn – vastly higher than US$294mn in 1995-99.Meanwhile, inward FDI stock has surged from US$568mn in 2000to US$1,284mn in 2006, according to the United NationsConference on Trade and Development (UNCTAD) statistics. TheUS State Department estimates that privatisation provides about60% of total FDI inflows into Albania. There are 1,000 foreigncompanies mainly from Italy, Greece, Germany, the UK, Turkey,Bulgaria and the US operating in Albania. The Albania One Euroinitiative (launched in 2006) is designed to attract increased FDIthrough the construction of industrial zones and the sale of landand other state property at competitive prices.

The banking system (predominantly in private hands) remainssolvent, liquid and profitable. There are 18 commercial banks (14foreign-owned), which offer corporate, retail and trade financeservices on a par with other Eastern European markets. Majorforeign banks are Austria’s Raiffeisen Zentralbank, which in 2004acquired the Savings Bank of Albania (now called Raiffeisen Bank),Italy’s San Paolo IMI and Intesa Sanpaolo, France’s Societe Generaleas well as a number of Greek banks such as Alpha Bank andNational Bank of Greece.


Economic overview

2004 2005 2006 2007

Regulatory capital as (%) of risk-weighted assets 21.6 18.6 18.1 17.1

Shareholders’ equity as (%) of total assets 6.1 6.6 6.8 7.6

Returns on equity (ROE) % 21.1 22.2 20.2 20.7

Returns on assets (ROA) % 1.3 1.4 1.4 1.6

Non-performing loans gross (%) of total loans 4.2 2.3 3.1 3.4

Non-performing loans net of provisions as (%) of capital 4.8 4.4 7.2 12.0

Figure 1: Financial Soundness Indicators (end-year)

Source: Bank of Albania

Comprehensive reforms

The Albanian aim remains one of efficient, small governanceproviding suppor t for private sector led growth. The structuralagenda has advanced – especially in privatisation, the fiscal area,trade liberalisation, micro business reforms, energy and financialsectors. These reforms should in the coming years foster robustexpansion through higher FDI inflows, expor ts and industrialefficiency. According to the World Bank: “Continued economicstability and concerted efforts to enhance the investment climateare critical for raising foreign and domestic investment levels.”

Albania has made considerable progress in recent years onstructural reforms:

• Business environment: The National Registration Centre, aone stop-shop for business registration was formed in September2007. The legal timescale for business registration was shortenedfrom eight days to one day and the cost of registering a companywas fixed at a nominal fee Lek 100. Other administrativerequirements were also streamlined to ease market entrybarriers. Laws on public procurement and on concessions werepassed in late 2006 to raise standards towards European levels.The provisions include an increase in the duration of concessioncontracts from 20 to 35 years. This will encourage greater ‘Public-Private Partnerships’ and FDI because the legislation guaranteestransparency of deals, accountability of officials and a ‘level playingfield’ for local and foreign investors. Ridvan Bode, the FinanceMinister, said: “We expect foreign investment to increase againthis year, considering the measures taken to improve theinvestment climate and attract investors.”

The Government are taking concrete steps to improve thecommercial cour t system and land registration, in order toenhance contract enforcement and property rights. A major fiscalreform was adopting a uniform 10% corporate income tax rate(effective January 1, 2008). Recent positive changes in regulatoryclimate, taxation and competition should boost Albania’s rankingin the ‘ease of doing business’ index for World Bank’s Doing

Business 2009 repor t. In a 2007 survey, Albania was, however,ranked 136 out of 175 economies.

• Strategic privatisation: The Programme – which has alreadyattracted few major foreign investors – offers opportunities inmining, utilities, petroleum, telecoms and finance. AlbTelekom (thefixed-line operator) was sold in July 2007 to Turkish firms CalikEnerji and Turk Telekom for €120mn. The Government still retainsa 24% stake in AlbTelekom. Albkrom and Albbaker (engaged inthe mining of chromium and copper) were privatised throughconcession contracts with foreign miners. Austria’s RaiffeisenZentralbank acquired the Savings Bank of Albania in 2004.

The Ministry of Public Economy & Privatisation is now at theadvanced stages of finding buyers for other strategic assets,notably Armo, an oil refinery; Albpetrol-One, the state-ownedcompany involved in upstream oil exploration; INSIG, Albania’ssecond-largest insurance firm; and the distributional arm of powerutility, KESH. The government also intends to divest remaining

minority stakes including in Albanian Mobile Communicationsover 2008 and 2009.

• Trade: In line with obligations arising from the World TradeOrganisation’s (WTO) membership and regional commitments,Albania reduced duties on a range of products (includingagricultural) in January 2008. The Central Europe Free TradeAgreement (CEFTA) was effective from July 2007 for fivemember-states (Bulgaria, Croatia, Macedonia, Moldova andRomania). A free trade accord with Turkey was ratified by theAlbanian Parliament and is currently being finalised. Theauthorities levy customs duties based on five categories rangingfrom 0% to 15% – with maximum duty applied on textiles, agro-products and jewellery. Albania has pledged to gradually reduceexternal tariffs.

• Financial markets: The Central Bank has upgradedsupervisory capacities to keep pace with a rapidly maturingbanking industry. It has enforced the Basle Committee’s standardsfor capitalisation and corporate governance. A new lawintroduced in June 2007 will help the country align its bankingsystem with EU legislation on areas of surveillance, licensing,foreign branch regulations, as well as risk and prudentialmanagement. The IMF explained, ‘A high degree of foreignownership puts a premium on close and effective collaborationwith home-country supervisors. Similarly, the untested quality ofmany recently extended credit demands enhanced riskmanagement in banks, as well as better targeting in supervisoryactivity.’

Concurrently, the BoA’s exper tise in stress testing and off-sitebank supervision has improved – it now conducts annually a fullinspection of every bank, while supplementing these with partial,more focused risk-based periodic inspections as required.Moreover, requirements for those banks with higher repor tednon-performing loans (i.e. bad debts) or excessive credit growthwere also tightened.

In 2007, a new structure for the Financial Supervisory Authoritywas approved, but its implementation capacity must bestrengthened.

• The electricity sector: Albania has star ted developingadditional sources of power supply to help cope with robust 6%annual demand.

Construction of a thermal power plant, using funding from theWorld Bank, European Bank for Reconstruction andDevelopment (EBRD) and the European Investment Bank (EIB),is now underway – the plant will expand power supply by 700gigawatts hour per annum upon completion in 2009. EVN AG(Austrian Utility) won a tender to build three hydroelectric powerstations with total capacity of 400 megawatts and costing about€900mn. An oil-fired plant is presently being built in Vlora (100kmsouth of Tirana) with a capacity of 97 megawatts costing €110mn.A consor tium of European and US investors has proposed toconstruct a huge US$1.9bn re-gasification terminal, plus thermalelectric power station in the southern district of Fier.


Economic overview


Economic overview

The new plants will seek to assure a reliable electricity supply overthe medium-term in a country where 90% of energy is currentlyproduced by ageing hydroelectric plants, thus vulnerable toregional droughts and low output. The World Bank said:“Inadequate and unreliable electricity supply continues, due to thepoor stock of electricity infrastructure (generation, transmissionand distribution), over-reliance on hydropower and poor costrecovery for electricity supply.” Industry experts reckon that theAlbanian grid network needs capital investment of US$1.6bn toprevent recurrent blackouts like in 2007.

European accession

The prospect of EU membership offers much promise forincreased FDI and intra-regional trade, as well as safeguardingdemocratic institutions. Albania is now engaged in a Stabilisationand Association Process (SAP) with the EU, which was signed inJune 2006 and is undergoing ratification in EU member parliaments– most EU parliaments, including the UK, have already ratified it. Meanwhile, the Interim Agreement on Trade and Trade-relatedMatters – effective since December 1, 2006 – allows practicallyunlimited duty-free access to the EU market.

In 2007, the European Commission provided €200mn for a three-year programme to help Albania pursue fur ther political andeconomic reforms required for convergence. Key elements of SAPinclude the strengthening of the judicial system and publicadministration; combating corruption and organisedcrime/trafficking; ensuring the smooth functioning of democratic

processes and preserving political stability, as well as upholdinghuman and minority rights; developing a more attractive businessenvironment; fiscal sustainability through more effective customsand tax administration; and greater regional cooperation andreduced barriers to trade and FDI. This is in keeping with theAlbanian Government’s own agenda and focus.

The Government has adopted a new National Strategy forDevelopment and Integration (NSDI) for 2007-13, after extensiveconsultation with Parliament, development par tners and civilsociety. The NSDI sets goals of rapid regional integration, NATOmembership (recently achieved), stronger rule of law, improvinggovernance structures and the democratisation of society andequitable and sustainable socio-economic development. In April2008, Albania after having met political and other criteria wasinvited to join NATO and is expected to sign the membershipprotocol in July 2008.

The country has made real strides towards its ultimate goal of fullEuropean integration by laying the groundwork for long-termgrowth and competitiveness.

On current trends, Albania – one of the fastest growing economiesin South Eastern Europe – could achieve EU membership over themedium-term.

Like any other emerging or new frontier markets, potentialinvestors in Albania face some hurdles but long-term rewardsshould outweigh short-term risks. ❙

Sources: Institution of Statistics, (INSTAT), Ministry of Finance, Bank of Albania(BoA), World Bank, European Bank for Reconstruction & Development (EBRD),International Monetary Fund, Business Monitor International, EconomistIntelligence Unit.

Surface area: 28,748 sq km. Population: 3.6mn (2006). GDP per capita:US$3,367 (2006).Natural resources: Crude oil, natural gas, copper, coal, iron and chrome.Exchange rate: Lek 78.08 = US$1; Lek 121.51 = EURO €. [August 1, 2008].Foreign currency Sovereign credit-rating: Moody's Investors Service (B1).

Projections

2001 2003 2005 2007 2008 2009

Nominal Gross Domestic Product (GDP) (in billions of Lek) 590 694 820 983 1,078 1,172

Total GDP (US$ mn) 4,111 5,698 8,216 10,874 12,772 12,697

Nominal GDP growth * 7.1 11.4 9.2 9.3 9.7 8.7

Retail price inflation * 3.1 2.3 2.4 2.9 4.0 3.1

Real GDP growth * 7.0 5.8 5.5 6.0 6.0 6.1

Gross domestic investment (%) of GDP 27.5 25.4 28.9 29.2 30.2 28.5

Of which: Private-sector investment - 20. 9 24.2 23.3 22.9 22.5

Gross domestic savings (%) of GDP 4.4 -1.7 1.4 4.4 5.7 6.5

Budget balance (%) of GDP, including grants -8.5 -4.5 -3.7 -3.8 -5.2 -3.7

Central government debt (%) of GDP 66.6 60.7 57.8 54.0 54.4 53.4

Broad money growth * (M2, end-year) 15.4 8.7 13.9 13.7 14.6 14.3

The'repo rate' of the BoA (end-year) 7.0 6.5 5.0 6.2 - -

Unemployment (end-year) % of workforce 14.5 16.0 14.2 13.2 - -

Leks per US$ dollar (period average) 143.5 121.8 99.8 90.4 84.4 92.3

*Annual percent change

Table 1: Key macroeconomic indicators


Economic overview

Estimates Forecast

2004 2005 2006 2007 2008

Agriculture and forestry 4.0 1.0 3.0 -1.9 2.5

Industry and mining 14.5 3.0 7.8 14.0 10.0

Construction 7.9 11.9 10.3 8.0 8.0

Trade, hotels and restaurants 3.7 8.6 5.0 9.0 7.5

Transport 9.6 3.1 5.0 8.0 8.0

Post and communication 6.3 10.0 2.1 5.0 4.0

Other services 2.5 5.0 2.5 5.0 4.0

Sources: Albanian authorities and IMF

Table 2: Real output growth by sub-sectors (in percent)

(%) chg Projections (%) chg

2001 2003 2005 2007 2001-07 2008 2009 2007-09

Exports, f.o.b. 304 447 656 1,068 251.3 1,356 1,474 38.0

Exports (%) of GDP 7.4 7.8 8.0 9.8 10.6 11.6 - -

Imports, f.o.b. 1,331 1,783 2,477 3,891 192.3 4,533 4,665 20.0

Imports (%) of GDP 32.4 31.3 30.1 35.8 - 35.5 36.7 -

Merchandise trade balance -1,027 -1,336 -1,821 -2,823 172.8 -3,177 -3,191 13.8

Trade deficit (%) of GDP -25.0 -23.4 -22.1 -25.9 -24.8 -25.1

Current-account balance -217 -407 -571 -1,140 425.3 -1,248 -1,153 1.1

As (%) of GDP, (after external grants) -5.2 -7.1 -6.9 -10.5 - - -9.8 9.1

Private transfers (%) of GDP 14.0 14.6 13.9 - - 14.0 14.0

Foreign direct investment, net 207 178 299 656 217.0 434 487 8.2

Official forex reserves 740 1,009 1,404 2,198 197.0 2,200 2,600 18.3

Import-coverage * 5.0 3.9 4.0 3.8 3.7 3.7 - -

BoA # foreign assets 731 913 1,499 1,990 172.2 - - -

Total external debt 1,095 1,484 1,839 2,109 92.6 2,707 2,615 11.3

Debt stock (%) of GDP 26.6 26.0 22.4 19.4 21.2 20.6 - -

Total external debt (%) of

exports of goods & services 70.9 56.2 46.7 47.4 44.9 43.6 - -

Debt service ratio (%) // 2.3 5.0 3.9 4.0 4.5 5.4 - -

Concessional debt (%) of Total ~ 54.8 71.6 64.6 57.2 55.1 52.9 - -

* Forex reserves in months of imports of goods and services; # The Bank ofAlbania; // Interest and amortisation payments as percent of total exportearnings; ~ Most of the external debt is owed to multilateral creditors, mainlythe World Bank, the IMF and the European Investment Bank.

Main exports: Textiles, footwear, metals/metallic ores, asphalt and tobacco.Principal trading partners (share of total trade to world 2007)EXPORTS: Italy (68.1%); Greece (8.3%); China (2.5%); and Germany (2.4%).IMPORTS: Italy (27.1%); Greece (14.6%); Turkey (7.3%); and China (6.7%).

Sources: IMF, World Bank, European Bank for Reconstruction & Development,Economist Intelligence Unit, Business Monitor International and Bank of Albania.

Table 3: Balance of payments and External debt (in US$mn, unless otherwise indicated)


Economic overview

2004 2005 2006 2007 2008 2009

Financing requirement 684.1 679.2 953.1 923.5 1,023.6 1,148.8

Current-account deficit 406.4 602.0 668.9 647.8 645.7 713.3

Long-term amortisations 40.6 64.0 89.0 106.0 144.0 163.0

Reserves changes of Monetary Authority 239.9 16.0 183.9 155.7 219.6 258.5

IMF credit (net) -2.9 -2.8 11.3 14.0 14.3 14.0

Financing sources 684.1 679.2 953.1 923.5 1,023.6 1,148.8

Official capital grants 127.0 122.0 126.0 129.0 130.0 134.0

Foreign direct investment (net) 344.0 299.0 344.0 389.0 434.0 487.0

Long-term disbursements 123.1 143.0 201.2 204.5 199.9 217.3

Change in arrears (increase = +) -14.3 -29.2 -66.7 -8.9 0.0 0.0

Other capital flows 104.4 144.4 348.5 209.9 259.7 310.5

Sources: World Bank and IMF databases

Agriculture 22%

Industry 10%

Construction 17%

Transport 17%

Services 43%

Source: Economist Intelligence Unit

Table 4: Albania's external financing requirements, (US$mn)

Aggregate sectoral flow

2004 2005 2006 2004-06

Telecoms 100 40 140 280

Services 151 40 47 238

Industry 35 70 130 235

Transport 40 55 30 125

Others 15 40 53 108

Total 341 245 400 986

Table 5: Foreign direct investment by sectors, 2004-06 (US$mn)

Source: Ministry of Economy, Trade and Energy

Figure 2: Composition of GDP in 2006, % of Total

As Europe entered the twentieth century, the Albanianpeople were approaching the conclusion of a centuries-old struggle with the ruling Ottoman Empire for

independence and sovereignty.

Independence

The rise of nationalism in the proceeding century had led to theformation of the Albanian League of Priizen in 1878 whose twofoldaim was to reawaken Albanians to their cultural heritage and createa self-governing Albanian nation. This ambition was realised inNovember, 1912 where following the collapse of Ottoman rule inthe Balkans, the Vlor’ Proclamation officially declared the country’sindependence. It came at a price, however, with Europe’s ‘GreatPowers’ (Britain, Germany, Russia, Austro-Hungary, France and Italy)ceding the ethnically Albanian territory of Kosovo to Serbia andAlbania’s southern most lands to Greece. In effect, the new nationof Albania was born with half her people and half her historicalterritories beyond her borders.

Still, in 1912, a newly nationalised Albanian would have anticipatedthe young century with pride and expectation, little knowing howthe ravages of two world wars and the marches of first fascism andthen communism would shape the country’s future so radicallyover the course of it.

The First World War broke out in 1914, plunging Albania intochaos. Even prior to the outbreak of hostilities, the young nationhad suffered from a lack of governance and direction, underpinnedby the fact that the Great Powers saw its independence as nothingmore than a token offering aimed at appeasing the nationalisticfervor that had sprung up amongst the Albanian people. Duringfour long years of war Albania was invaded by no fewer than sixoccupying armies and were it not for the intervention of the thenAmerican President, Woodrow Wilson, at the Treaty of Versaillesfollowing the German surrender, it would have lost its nationhoodaltogether with Britain and France planning to partition it amongstits Balkan neighbours.

In 1920, at Britain’s behest, Albania was admitted into the Leagueof Nations, acquiring international recognition of its sovereignty forthe first time and a new sense of hope and purpose in peace-timeEurope. However, the 1920’s saw the country’s politics polarisedby two dominant figures – the modernising liberal, Fan S Noli andthe conservative feudalist, Ahmed Bey Zogu (King Zog) – whoserespective followers vied with one and other for politicalsupremacy. Noli established a left-of-centre government in 1924,but with no funds in the treasury to carry out vital reforms andinternational indifference towards his regime, the country struggledto move forward and he was usurped by Zogu through militaryintervention only a year later, in a climate of disillusionment and


Political history

A lonely monument to the communist ideology that dominated Albania for the latter half of the Twentieth century

Albania, the last one hundred years

instability. Zogu – first as President and then as King – went on torule Albania until Mussolini’s Italy invaded in 1939.

During his reign, despite his ties to tribalism and the days of theOttoman Empire, Zogu had begun to take some steps towardsmodernisation – particularly with his reforms in education – but hisreliance on Italy for financial relief had paved the way for invasionand The Great Depression of the 1930’s, over which he presided,created famine amongst the already impoverished rural classes, ledto thousands joining the widespread Albanian Diaspora andfostered a climate of revolt in which the country’s first communistparties were formed.

Communism and isolation

As had been the case in the First Great War, Albania was primarilyused as an occupation zone during World War II (1939-45), first byItaly and then by Nazi Germany. The spirit of revolt, however,remained – indeed flourished – in the beleaguered country duringthe war years. The newly established Albanian Communist Party(formed in 1941 from the various groups that had sprung upduring the last years of Zogu’s regime) acted as a resistance frontagainst the Fascist invaders and fierce protection was given to thecountry’s Jewish population. In fact, Albania was the only countryoccupied by the Nazis to come out of World War II with a largerJewish population than beforehand. It provided refuge not only forits own Jews – by refusing to comply with Nazi witch-hunts andproviding fake identities and hiding places – but also those fleeingfrom other occupied countries.

In 1944, with the by now depleted German army withdrawing itsforces from the region, Albania fell under the dictatorship of theAlbanian Communist Party whose Secretary-General, Enver Hoxha,became the country’s leader.

The communists had seized control of a country riddled withpover ty, illiteracy, tribal feuding and disease. In the tradition ofStalin’s extreme reforms in the Soviet Union in the 1930’s andthose that Chairman Mao would employ in China, the newGovernment embarked on a programme of radical modernisationand industrialisation, and in 1946, when what Winston Churchillpenned ‘the iron cur tain’ came down between east and west inpost-war Europe, Albania’s new leadership officially established acommunist constitution, renaming the country The People’sRepublic of Albania.

Like most of Eastern and South-Eastern Europe, Albania wouldhave such a constitution until the era following the collapse of theBerlin Wall in 1989. Hoxa himself would rule the country with aniron grip until his death in 1985.

Hoxha’s totalitarian regime has been much maligned by history andin truth he left behind a country that had become arguably thepoorest and most isolated in Europe; a country where foreigntravel was banned to all but those on diplomatic business, wherereligion had effectively been shut down and where periodic purges(which could result in incarceration or even execution) of anyperceived or ‘manufactured’ Government dissent amongst the long-

suffering population had created a climate of fear and suspicion.In the first twenty years of the regime, however, there were somesuccesses. Where previously, women had been treated vir tually asan underclass, Hoxha’s communist constitution gave them thesame legal rights as men; Agrarian reform brought the muchneeded redistribution of land amongst the starving peasant classes– who prospered briefly until collectivisation was completed in1967 and their land was taken away from them; programmes wereput into place to modernise education, industry and healthcare –primarily through funding from more powerful allies in thecommunist world.

Albania’s first post-war alliance was with neighbouring Yugoslaviabut when Tito fell foul of Moscow in 1948, Hoxha turned to hishero, Stalin, for support. The alliance with the Soviet Union lasteduntil the early sixties when Hoxha aborted the friendship, believingStalin’s successor, Kruschev to have abandoned Marxism-Leninismfor an increasingly pro-western stance. He moved on to theworld’s other communist giant, China, but following the collapse ofthe Mao Government, the alliance ended in 1978, with Hoxha onceagain citing ideological differences for the split.

Hoxha’s devotion to Stalinism proved very damaging for theAlbanian economy, which had, over the years, come to rely heavilyon the backing of the communist behemoths, and it was thisfanaticism that created the isolationism (even from the communistworld) for which Albania became notorious in the latter half of thetwentieth century.

Hoxha’s handpicked replacement, Ramiz Alia, who assumed powerin 1985, was, in communist terms – a man of his time. His attemptsto revive an ailing economy while preserving the constitution ledto the legalisation of some foreign investment and the tentativebuilding of diplomatic bridges with the west. In December 1990,with communism collapsing throughout Eastern Europe, and underintense pressure from the long-repressed Albanian people –particularly its students and intellectuals, Alia effectively ended over


Political history

In 2007, George W Bush became the first sitting US President in history to

visit Albania

for ty years of post-war Dictatorship by endorsing the creation ofindependent political parties.

New beginnings

In March 1992, Albania held its first democratic elections since the1920s, with the Democratic Par ty sweeping to power and SaliBerisha succeeding Alia as President.

After decades of isolationism, fiercely centralised government andheavily nationalised industry, the new, democratic Albania was facedwith the enormous challenge of creating a future for itself in post-communist Europe. A continent where the countries of the oldEastern Bloc were now, one by one, embracing the capitalisteconomic philosophies of the West, spurred on – and financiallyassisted – by the G7, the IMF (International Monetary Fund) andthe World Bank. As many of these countries would find, however,the transition from years of communist rule to a western stylemarket economy would not be an easy process. Despite thenewfound freedoms, in financial terms, things would get worsebefore they got better.

In Albania, at one point in the early nineties inflation was at adebilitating 226% and GDP was at just 60% of its 1989 level.Significantly, Albanians – now free to travel – were moving abroadin search of better opportunities at the staggering rate of one insix. Gradually, though, over the course of the decade, theliberalisation of prices, exchange rates, workers payments andimport duties on foreign trade helped the economy to grow.While, at the same time, the Albania Diaspora – whose numberhad grown dramatically through the mass emigration of the earlynineties – were remitting increasingly large volumes of money back

from countries with far stronger currencies. This crucial inflow ofmoney into the Albanian economy helped to underpin themeasures that were already in progress.

In January 1997, the country’s optimism ground to a shudderinghalt with the collapse of the disastrous, Government-backedpyramid financial schemes. Millions of pounds worth of savings andinvestments were lost by people who could ill afford it. The resultwas vir tual anarchy, with the Government losing control of muchof the country amidst vast demonstrations and rioting. Tragically, inthe chaos, almost 2,000 people lost their lives. It took two years,more reform and the election of a socialist Prime Minister – PandeliMajko – for any sense of order and upward mobility to be restored;but by the end of the twentieth century, a stable Albania wasreceiving praise from the international community as she openedher borders to half a million refugees from the 1999 Kosovo crisis.

The new century has seen Albania finally begin to flourish. Povertyreduction levels are impressive, with the ‘absolute pover ty’ ratedecreasing from nearly 30% to around 18% over the last decade.An annual GDP growth rate of around 5-6% makes it the bestperforming economy in the region and in June 2006, Albania signedthe EU Stabalisation and Association Agreement, bringing her evernearer to EU membership and full European integration, a goal thatshould be achieved by 2012, the centenary of her declaration ofindependence.

Rather like their forbearers in 1912, the Albanian people wouldsurely view the century that lies ahead with a sense of unity andoptimism, and they would most certainly hope and indeed expectthe next hundred years to bring less turmoil and oppression totheir nation than the last. ❙


Political history

Albania’s different eras are encapsulated in its architecture.


Political history

1992 – Democratic Par ty wins elections. Par ty leader SaliBerisha becomes first elected president.

1993 – Ex-communist leaders, including Fatos Nano and RamizAlia, convicted and jailed for corruption.

1994 – National referendum rejects new constitution claiming itallowed president too much power.

1995 – Alia released from prison following appeal-court ruling.

1997 – Leka, son of late King Zog, returns from exile in bid totake throne. Referendum on restoration of monarchy fails. Heis accused of trying to stir up an armed insurrection and returnsto exile.

1997 – Pyramid investment schemes collapse, costing thousandsof Albanians their savings and causing anti-government protests.

1997 – Government resigns and Socialist-led coalition sweeps topower. Fatos Nano, now released from prison, returns as primeminister.

1997 – Sali Berisha resigns as president and is succeeded bySocialist leader Rexhep Mejdani.

1998 – Escalating unrest in Kosovo sends refugees across borderinto Albania.

1998 – Anti-government street protests after oppositionDemocratic Par ty politician, Azem Hajdari, shot dead byunidentified gunmen.

1998 – PM Fatos Nano quits. Pandeli Majko, named as newprime minister.

1999 – In Kosovo thousands flee attacks by Serbian forcesleading to a mass refugee exodus into Albania.

1999 – Majko resigns as prime minister in October 1999, afterlosing Socialist Par ty leadership vote. 30-year-old Iler Metabecomes Europe's youngest prime minister.

2001 – Albania and Yugoslavia re-establish diplomatic relationsbroken off during the Kosovo crisis in 1999.

2001 – PM Meta Iler Meta heads a new coalition governmentfrom September naming European integration as a top priority.

2002 – Meta resigns as prime minister after party infighting.

2002 – Ex-king's son returns to Albania

2002 – Pandeli Majko becomes premier and forms newgovernment.

2002 – Parliament elects Alfred Moisiu president.

2002 – Fatos Nano becomes prime minister. It is his fourth timeas premier.

2003 – Albania and EU begin Stabilisation and AssociationAgreement talks, seen as possible first step in long road to EUmembership.

2004 – Opposition stages demonstration in Tirana to demandMr Nano's resignation over government failure to improve livingstandards.

2005 – After two months of political wrangling, former presidentSali Berisha wins the general election.

2006 – Parliament imposes ban on speedboats in coastal watersin bid to crackdown on people and drug smuggling.

2006 – Stabilisation and Association agreement signed with EU.

2007 – President George W Bush becomes the first USpresident to visit Albania.

2007 – Parliament elects ruling par ty chairman Bamir Topipresident, after three failed rounds of voting made a snapelection look possible.

2008 – Albania invited to join NATO. Final status expected in2009.

Timeline – 1992-2008

The Albanian energy sector is on the brink of undergoingmajor redevelopment, with significant restructuring andinvestment plans having been put into place over the last

few years.

Investments are needed within this sector. A considerable fall inhydro power generation – by 48% in 2007 – has had a majorimpact on the country’s total energy production. Power sources in2007 dropped by nearly 14% of their level in 2006, while the totalpower generated in 2007 was 2,947 GWh, 47% down on its 2006level of 5,881 GWh. The largest contributer by far was hydropower generation which accounted for 96% of total powergeneration and 48% of the country’s total power resourcescompared with 80% in 2006. Thermal power generation droppedby 22% of its figure in 2006. Power generated from thermal powerplants and private plants given on concession also fell, while thermalpower and concessionary power generated from private plantsaccounted for 2.5 % and 2% of the total power production in thecountry respectively, thus leaving room for considerable investmentin this vital sector.

The fall in the country’s power generation coupled with a growingeconomy and a more consumptive society saw import levels risedramatically in 2007. Power impor ts (including periodicalexchanges) increased by a massive 132% to 2,934 GWh from their2006 level of 1,242 GWh and accounted for 50% of the totalamount from all resources in 2007, up starkly from 18.3 % in 2006.

To address this situation, major investments have been planned bythe Albanian Government. A World Bank suppor ted projectinvolves the building of a new power plant with a generationcapacity of 97 MW on the bay of Vlora, on the southern tip of theAdriatic Sea while a 130 MW power plant is under construction inPorto Romano, on the Adriatic coast. The Austrian company EVN

won a concession to build a series of power plants on the DevollRiver at a cost of almost EUR 1 billion.

Two other plants are currently in the process of beingrestructured. The Fier Thermal power plant, the concession forwhich has been won by the Greek consortium Atermon SA Roderand Blackwell Consulting through Albania’s ‘One Euro Initiative’. Itshould be completed by the end of 2008 with a generationcapacity of 200 MW. Meanwhile, Swiss-Albanian group ASGPower is planning to build a huge re-gasification and power plantat a cost of over EUR 1 billion and is now in the discussion processwith other potential investors before moving to the developmentphase of the project.

Fossil fuel production is relatively minor in Albania in terms of thecountry’s overall energy production. The highest prevalence ofsites is in southern Albania, mainly in the Fier (Patos-Marinza)region while new fields are beginning production in Kucova, Ballashand Delivna. Most oil production is owned and managed byBankers Petroleum while Albpetrol, the state owned oil and gasproduction company, has only a minor supervisory role. Anotherstate owned company ARMO, which deals with fossil fuelprocessing, is due to be privatised by the end of 2008. Its mainasset is its refinery in Ballsh, southern Albania.

Whilst Albania has primarily relied on importing fossil fuels –especially oil – in the past, there are strong prospects that it willincrease its fossil fuel production in the future, especially asexploration and FDI levels grow in this area. In 2007, the Canadiancompany Manas Petroleum discovered oil reserves of around 3billion barrels (1.4 reachable barrels at a depth of 5,000 metres), ahugely significant discovery that could have long term benefits forAlbania in a sector that has suffered from neglect and underinvestment in the past. ❙


Sectors

Energy


Any visitor to Albania today could not fail to notice themassive levels of construction underway in one ofEurope’s most rapidly modernising countries. One of the

main areas where huge improvements are taking place is in roadinfrastructure development.

The newly democratic nation of the 1990’s inherited a cripplinglybackward road network from decades of abandonment from theoutgoing communist regime – epitomised by the fact that the countrydid not even have a motorway at the time. Increasingly, over the lasttwo decades great efforts have been made to modernise thecountry’s road systems, with the Government’s aim being to meetEU standards as the country heads towards European integration.

Albania has approximately 18,000 km of roads of which around3,500 km are deemed ‘national roads’. In recent years, theGovernment has invested in motorway construction projectsspanning the length and breadth of the country. One such project,currently underway, is the construction of a highway which runsfrom Durres, Albania’s largest sea port through the town of Kukesto Morina on the north eastern border with Serbia. This project,which includes a 7 km long tunnel, is being backed by the US-Turkish consor tium Bechtel-Enka at a cost of almost EUR 700million. Once it is completed the new Durres highway will be 170km long and will more than half the length of the current roadjourney from Durres to Morina.

Another road infrastructure project in the construction phase isthe European Bank for Reconstruction and Development (EBRD)

financed scheme – which is also backed by the EuropeanInvestment Bank (EIB) and the Italian Development Cooperation –the building of a 24 km road section from Levan to Vlore. The roadwill improve access between Tirana and the port of Vlore which,significantly, will be one of the entry points to the Trans-EuropeanCorridor VIII, which will form part of the new ‘European road andrail network’.

Corridor VIII is one of 10 ‘trans European Corridors’ – instigated bythe European Commission (EC) – which aim to revolutionise travel,trade and communication between the Balkan states, central Asia,the established EU countries to the west and eastern Europe’sfledgling democracies. Access to oil reserves an energy supplies inthe region will be greatly improved and from an Albanianperspective the project will bring investment, employment andstability through the economic regeneration the Corridor will bringon both national and sub-national levels.

The construction of Corridor VIII is already well underway. Whenit is finished it will stretch from the Italian ports of Bari and Brindisithrough Durres and Tirana in Albania before reaching itsdestination on Bulgaria’s Black Sea coast. In Albania, three sectionsof the Corridor are currently under construction: Librazhd-QafaThana, Lushnje-Fier and Levan Vlora. Corridor VIII will mark – inboth physical and economic terms – another stride towardsintegration for Albania, a country that was, during the communistera, the most isolated, both politically and economically, in thewhole of Europe ❙

Sectors

Infrastructure – Road development


Sectors

The Property sector has long been an issue in Albania.Since the collapse of communism and the gradual creationof a housing market, there has been much debate over

ownership rights and real property values in a growing marketeconomy.

Since 1992 – known to Albanians as ‘the transition period’,successive governments have carried out major reforms in theproperty sector, including the privatisation of land and housing, therestitution of land confiscated during the early years of thecommunist era and the establishment of a ‘Central Registry Systemfor Immovable Proper ty’ to suppor t regulation and sustainablegrowth in the market. Efforts have also been made to decentraliseproperty rights legislation with mixed results.

The transformation of the proper ty sector from a completelynationalised industry to a largely privatised one has inevitablybrought challenges, especially the issue of successfully implementingthe laws on the post-communist restitution of property or wherethis has not been possible the awarding of compensation instead.This, in itself, has often proved to be a problematic process asfrequently, fur ther litigious complications have arisen through thevalue of compensation awards in relation to the property’s actualworth. Issues also still persist over ownership in regard to the pre-1945 (pre-communism) period and the communist era itself wheresome residents have lived in properties for over half a century andmay have ‘improved’ their property considerably over that time. Alegacy of Albania’s communist regime, the restitution issue is bothhighly emotive for those involved and incredibly complicated toput into a legislatory framework, especially because there are somany grey areas. It is a problem that may never be fully resolvedbut reaching solutions in this area remains a Government priority.

Work is currently under way to finalise the first completeregistration of immovable property, especially in areas where theseproperties have a high value of return such as in cities or popular

coastal areas. Unfortunately, complicated bureaucratic procedureshave generally discouraged homeowners from utilising the systemwhere it is already in place. As a result, there has been a numberof uncer tified purchases and construction of proper ty withoutupdating the property registry.

Domestic migration meanwhile is creating the need and theopportunity for property development on the outskirts of Albania’smajor cities, and in many areas construction is already underway.As Albanians flock to the cities and the economy continues to grow,this is a blossoming area for potential investment.

As a result of urban migration, legislation is being introduced to legalise,urbanise and integrate these new ‘outskirts’ into more widespreadurban infrastructure development plans which will in turn lead tofurther investment in the future. The legislation of currently uncertifiedproperty across the country is now a major government aim, asbringing regulation and infrastructure to a currently chaotic housingmarket will, in the long term encourage investment and growth in apotentially prosperous market.

The growth and regulation of the property sector will also pavethe way for foreign investors and overseas buyers to expand themarket. With low tax rates and the prospect of EU membership,Albania offers an exciting economic alternative in this area andwith its warm climate and stunning coastline it is well placed totake advantage of the booming holiday home market amongstmany of the old communist countries of Eastern and SouthEastern Europe.

The sector’s prospects are summed up well by Regional Directorof Colliers International, Philip Bay, who states – ‘we are veryconfident that Albania has a bright future and can look forward tosustainable growth. The country is at an early state of real estatedevelopment and will become an attractive market in three to five years’. ❙

Property development


Sectors

Tourism is Albania’s fastest growing industry. In 2007, therevenues from tourism accounted for 5% of the country’sGDP and amounted to around EUR700 million. Estimates

suggest the figure will almost double by 2015, with overseasvisitors to the country increasing by 15% per year. During thefirst three quarters of 2007 Albania was visited by over 100,000tourists – predominantly from Europe but also with significantnumbers arriving from Asia and the USA.

The sector is benefiting from major boosts to Albania’sinternational profile in recent years such as the first visit from anincumbent US president and its invitation to join NATO. It isattracting the well-educated, well-traveled tourist who is drawn tothe country’s historical sites (two of which are listed as UNESCOWorld Heritage Sites – Butrint and Gjirokaster) and her scenicbeauty. As well as this, holidaymakers from countries in the regionsuch as Macedonia have been flocking to Albania’s beach resorts intheir hundred’s of thousands.

The hotel industry in particular is star ting to boom with Club-Medhaving invested in a luxury complex at Kokome Bay andinternational hotel chains establishing a presence in Tirana andcoastal resorts such as Sarande. However, the industry is still in itsinfancy in terms of reaching world class standards. According toWorld Economic Forum’s Travel and Competitiveness Report 2007

only 35 hotels nationwide reached ‘international standards’

There is in fact massive room for improvement and investmentwithin the tourism sector as whole, with the World EconomicForum ranking Albania only 90 out of 124 countries for the qualityand competitiveness of its tourism industry.

While its promotion agencies dub Albania ‘Europe’s last secret’,the Government is well aware of the challenges that need to bemet in order to realise the huge potential in the tourism sectorand many of them stem from necessary infrastructuredevelopment and reform.

A visitor to Albania in 2008 may well be hampered by power cuts(although due to modernisation in the energy sector these arebecoming less frequent), a limited rail service and road network.However, with a Government who have an agenda for rapiddevelopment of the country’s infrastructure – through its owninitiatives, inward investment and suppor t from internationalorganisations such as the European Bank for Reconstruction andDevelopment (EBRD), the United Nations DevelopmentProgramme (UNDP) and the World Bank as well as loans fromcountries such as Austria and Japan, these issues are now being addressed.

Projects currently underway include the UNDP-Albania eco-Tourism Programme, Japanese backed upgrades to the por t ofDurres and the World Bank sponsored Coastal Zone ManagementProgramme.

Albania has a great deal to offer the tourist. From its mountainouslandscape in the north of the country to its Adriatic and Ioniancoastlines, there is something for everyone. Considering that,under Communism, the first western visitors were not evenallowed into the country until the 1980’s, Albania has made hugestrides forward in terms of opening itself up to the world. Nowthat measures are being put in place to improve its infrastructureand accessibility Albania is well on its way to becoming one of themost popular tourist destinations in South East Europe. ❙

Tourism

Confidence in doing business with Albania is growingsteadily as a result of relative macro-economic stabilityand the progress the country is making in fulfilling its

targets towards achieving EU integration. The Government isalso making significant headway in lifting institutional barriers,within both the regulatory business environment and fiscalsystems, which will encourage foreign direct investment (FDI)and the development of key economic sectors.

The increase in FDI by 82% or EUR170 million during 2007 asagainst 2006 is clear evidence of the growing incentives for foreigncompanies to invest – through the Government’s implementationof sound macro-economic policies and an increased confidence inthe Albanian economy. Positive developments in the local businessenvironment, especially in industry and services, have led toincreasing employment and higher income levels. This increase inaffluence, supported by the continued inflow of remittances andincreased credit lending has created higher spending levels andnew potential for fur ther economic growth.

For foreign investors, doing business in Albania is becoming evermore efficient and profitable. Government initiatives, including theprivatisation of previously state-owned companies arestrengthening the business climate and galvanising the FDIcommunity. Two such schemes are the Albania One Euro and OneStop Shop Initiatives.

Albania One Euro Initiative

This Government initiative was set up to give added incentives toinvestors in Albania. It is comprised of a ‘packet’ of assets andservices that the Albanian state offers foreign investors for asymbolic price of one Euro.

The assets offered in the package include employee training,technological assistance and help with business registration.

One Stop Shop Initiative

The ‘One Stop Shop Initiative’ was launched to help foreigninvestors avoid the complicated bureaucratic procedures that hadhampered business registration in Albania in the past. Specificmeasures have been taken to unify the registration procedures

required at the tax office, law cour ts, social security, healthinsurance and labour offices, inspectorates and for licenseapplication and cer tificates, therefore drastically reducing theprocedural, time and cost elements of the registration process.

Facilitation policies in the tax sector

Between 2005-2006, a series of measures in the tax sector weretaken to ease the business tax burden:

• Reduction of the profit tax from 23% to 20%;• Reduction of simplified profit tax for small business from 3%

to 1.5%;• Lowering of the fiscal burden on taxes for social security for

employers by 9%; • Lowering of the electricity price for businesses by 30%;• Clarity and transparency of ar ticles of appeal;• Clarity for ar ticles on VAT reimbursement; shortening deadlines

for reimbursement; facilitation of reimbursement procedures forexpert companies; determination to pay interest on the part ofthe state administration in case of delays beyond the deadlinesset by law for reimbursement.

The regulatory reforms undertaken by the Albanian Governmentfrom October 2005 were aimed at easing the practices andprocedures for a business to enter the market by rendering theregulatory environment more transparent, simpler and fairer forboth foreign and local businesses.

Registered companies

In 2006 there were around 55,000 registered, active companies inAlbania, employing a total of approximately 200,000 people, 45%of whom worked in 1,102 enterprises with 20 or more workers.These enterprises accounted for nearly 50% of the country’s wholebusiness turnover in that year and 85% of its investments.Enterprises with over 20 workers predominantly operate in theindustry and construction sector while small enterprises with 1-4employees are dominant in the services industry.

In the same year, nearly 50% of Albania’s active businesses wereoperating in the agricultural sector. The turnover from this sectoraccounted for 47% of total business turnover. The production of


Business and banking

Business and banking overview

goods accounted for around 35% of market turnover. State-ownedenterprises, meanwhile, employed only 18% of the total numberof the country’s workforce and accounted for 10% of its annualturnover. Most state owned companies operate in infrastructureindustries.

Small and Medium Enterprises (SMEs)

With the introduction and cementation of privatisation in Albania,the Small and Medium Enterprises (SMEs) sector has grownconsiderably over the last few years. According to the AlbaniaInstitute for Statistics (INSTAT), the number of active SMEs in thecountry in 2006 was 77,814, about 20% more than in 2005. In termsof the the structure of SMEs, those with 1-80 workers account for99% of active enterprises in Albania. There are 348 companies withover 80 workers and 89 companies with over 250 workers.

Improving SME financing

Although there has been an increase in the level of financing forSMEs, it is still considered insufficient in encouraging rapiddevelopment in the sector. In order to improve the climate of SMEfinancing, several measures have been taken in recent years,including introducing schemes to guarantee credits for SMEs.

Funds for micro-credits have also increased. Financial non-bankinstitutions, with the support of donors, are contributing to fulfillingthe needs for smack credits in both urban and rural areas. To thisend, the Government of Albania has signed bilateral agreementswith the German and Spanish Governments.

Introduction of the Leasing Law

The Introduction of the Leasing Law will benefit SMEs in a numberof ways which both help the development of the business andincrease employment levels. The law will potentially affordcompanies a greater cash flow, better access to new technology,protection of credit, greater flexibility in the market and betteraccess to finance. In 2007 there were only four leasing companiesoperating in Albania – Tirana Leasing, Raiffeisen Leasing, LandesleaseSh.A and Bileasing Sh.A. This number is set to increase as thesector develops.

The banking system and remittances

Albania’s banking system is undergoing rapid development.According to the register of commercial banks licensed by the Bankof Albania (the country’s central bank), there are 16 banks, withforeign and/or domestic capital, that operate in Albania. All bankservices are provided in the country’s major cities.

Estimations from the Bank of Albania’s research depar tmentsuggest that some 30% of the country’s ‘money’ is circulatingoutside the banking system in a ‘cash economy’ compared to 20%in other countries in the region and an average of 7% in the EUcountries of the West. It is also estimated that around 76% of theremittances entering the country from the Albanian Diasporacomes into the country through informal channels – (ie, not

through banks and registered money transfer agencies) and 75% ofcustoms clearances are paid in cash.

In recent years, remittances have been one of the main sources offinancing Albania’s trade deficit, which is around EUR 950 million. In2007, the revenue from remittances contributed around 44% tothe total finances used to ease the deficit. In all, foreign paymenttransfers, including remittances, registered a total net transfer ofaround EUR1 billion through formal channels last year.

Growth and inflation

The average annual inflation rate for 2007 was 2.9%, very close tothe Bank of Albania’s objective of 3%. The inflation target was moreor less achieved then, in average terms, irrespective of pronouncedfluctuations during the fiscal year – generally due to hits fromunpredictable, external economic forces. For instance, theworldwide energy crisis, increased imported oil and cereal pricesand contributed to higher than average inflation rates duringAugust and September last year.

Inevitably, economic growth has brought its own pitfalls, especiallyin a turbulent global economic climate. Sectoral growth has led toa higher demand for imports such as electricity, oil and heavy goodsequipment. A high prevalence of infrastructure projects – such asroad construction – has created an increasing consumption of andtherefore demand for fuel whose import prices has been reachingrecord levels. Meanwhile, low interest rates have led to an increasein credit lending which, as is currently being witnessed in the UnitedStates and Western Europe (on a far larger scale) can create itsown problems at both macro and micro economic levels.

Establishment of the Agency ‘Albinvest’

Albinvest (www.albinvest.gov.al) was established as a tool to promotethe Government of Albania’s business programmes and initiatives andthe country itself as an FDI destination. Its objective is to marketAlbania to the international community as well as supporting andstrengthening the capacities of local businesses in order to ensurethat the Albanian business community is competitive within theregion. A key goal is narrowing the gap between the perception andreality of Albania as a business destination. One important initiativeAlbinvest has launched is the ‘Grant Scheme for Exports’ which,through a 50-50% contribution scheme promotes the marketing andoperational functions of Albanian companies across all industrysectors.

Hugely impor tant in terms of promoting and enhancing thecountry’s business profile, is Albania’s diplomatic activity. In May2008, The First UK Albania Investment Forum was held in London.The success of the Forum, initiated and organised by the AlbanianEmbassy in London in association with Developing MarketsAssociates and attended by over 230 delegates, including ministersof the Government of Albania, industry leaders from acrossEurope, UK Government officials and the media, was a clearindication of the need for more such events in the future in orderto ensure that the gap between the perception and reality aboutAlbania is gradually narrowed and eliminated. ❙


Business and banking

On 7th May, 2008 over 180 delegates attended the FirstUK Albania Investment Forum at One Whitehall Placein central London. The Albanian Government,

represented by its Minister of Economy and Energy, further keyministers, Central Bank Governor, investment agency and severalmajor businesses came to the UK for the purpose of engagingwith the investment community from the UK, Ireland andmainland Europe.

A number of specific investment projects and opportunities werediscussed in detail with key note presentations also made by Britishparliamentarians and representatives from the internationalbusiness community.

A very successful forum was followed by an evening GalaReception at the House of Commons, and a subsequent GalaDinner for key participants of the forum.

The Programme

The Forum was opened by HE Mr Zef Mazi, Albanian Ambassadorto the United Kingdom and the Republic of Ireland, after which theprograame of the day was split into four sessions:

• Session 1 – ‘Albania’s rapidly improving economy’• Session 2 – ‘Infrastructure development’• Session 3 – ‘Economy and Energy’ • Session 4 – ‘Investing in Tourism and Business Services’.

Speakers on the day included Hon Mr Ridvan Bode, Minister ofFinance and Mr Genc Ruli, Minister of Economy and Energy fromthe Government of Albania; Mr Varel Freeman, First Vice Presidentof the European Bank for Reconstruction and Development(EBRD); Mr Ardian Fullani, Governor of the Bank of Albania; MrOliver J Whittle, CEO, Raiffeisen Bank Albania; and Mr John GroganMP of the All Party British-Albanian Parliamentary Group.

Summary

The First UK Albania Investment Forum, organised by the Embassyof Albania and Developing Markets Associates, was a highlysuccessful event from the point of view of raising Albania’s profile,highlighting business oppor tunities and allowing for productivenetworking with a view to investment. The attendance and level ofattendees was well matched to an engaging programme withrelevant topics.

The day’s activities portrayed Albania in a highly favourable light interms of a destination point for FDI and greatly enhanced Albania’sprofile to the business community in the UK.

The forum was supported by Raifeissen Bank Albania, the Albanian-Amercian Enterprise Fund (AAEF), Bankers Petroleum, Strabag, theAlbanian Chambers of Commerce, Birra Korca and British Airways.

The following pages include some key speeches that were given at the

First UK-Albania Investment Forum. ❙


Investment forum

The First UK Albania Investment Forum

Above: The location – One Whitehall Place, London

London, 7th May 2008


Investment forum

Top left and centre: Delegates mingle at the conference

Top right: Hon Mr Ylli Pango, Minister of Culture, Tourism Youth and Sports

Bottom left: HE Mr Zef Mazi, Albanian Ambassador to the United

Kingdom and the Republic of Ireland

Bottom right: Hon Mr Sokol Olldashi, Minister of Transport and

Communications


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Let me first say how delighted I am to host and to open the First UK Albania Investment Forum here in London, the hub of globalinvestment, a city vibrating with the dynamism of finance and business, a city that reflects a wonderful cosmopolitanism,multiculturalism, diversity and a fine combination of Englishness and Europeanism, that reflects a rich history and culture and a greattradition of an extremely successful people, country, Empire and world democracy. I am privileged to work here.

It is not infrequent to meet people who have little or no knowledge of Albania and what Albania looks like today. I wouldn’t be surprisedif they may have an outdated perception of the situation and of the things we in Albania have achieved and want to achieve in the future.

I am particularly delighted to see so much interest in attending this forum. I most sincerely thank you for attending the forum, the mainpurpose of which is to try to promote inward investment to Albania. It is becoming more and more visible in the media that Albania istoday a very interesting and attractive destination. What we are trying to do is to say that opportunities do exist there and conditionsare right to seriously consider moving in with investment. Albania, its institutions, its business community, and the Albanian people areprepared and ready to work with you and with the rest of the world. The UK and London are extremely important for us in that regard.

I therefore see this forum as an excellent opportunity to show that Albania has come a long way and to give a serious briefing aboutthe country, as it is now, the transformations that have taken place, the vision and prospects for its future, and how we can include theBritish and international business, and the Albanian diaspora, into that vision. It is for that reason that four main pillars of economicdevelopment of the country have been chosen as topics for this first Forum: a) situation in finance and the banking system, b) theeconomy, energy and mining, c) transport and communications and, c) tourism and business services. I wish to thank the distinguishedministers from Albania and their high ranking collaborators, as well as the Governor of the Bank of Albania, for their high profile presencehere. It would be a very good opportunity, I think, for potential investors from the United Kingdom and elsewhere to hear what is takingplace and what is being opened for investment in these vital sectors in Albania.

We are glad to note that there is an ever greater appreciation from international organisations and many countries, including the hostcountry – the UK, and a number of business representatives active in Albania, about our general efforts, progress and our commitmentin moving ahead with reforms, change and development in the country.

Indeed multilateral organisations are impressed at the Albanian authorities’ commitment to sound macroeconomic and well-anchoredstructural reforms. To illustrate, let me quote what the International Monetary Fund (IMF) said: “Thanks to generally prudent policies,Albania’s economy largely passed a demanding test in 2007, despite challenges from a difficult external environment. Growth improvedand inflation expectations remained low, notwithstanding a drought and rising food and energy prices. Prudent fiscal and monetarypolicies were key in this regard, while ongoing structural reform is reaping rewards from improved competitiveness.” Whilst the WorldBank Group commented: “Albania’s record since it embarked on its transition in the early 1990’s has been impressive. The country hassuccessfully built the foundations of a market-based economy, created democratic institutions and gradually built capacity in the publicadministration to cope with political and economic transformation. These efforts have resulted in a track record of macroeconomicstability, as well as achieving the fastest rates of GDP growth in South Eastern Europe.”

Our objectives are clear, our plans are clear, our determination is there. In this Forum, we are not asking for any commitment. We areactually sharing our commitment to the targets we have set and to this respectable audience of our resolve. Utmost ingenuity will bedisplayed and imagination evoked from a large number of competent people, diligent companies and very business-minded individuals,a number of whom are here today, to ensure that we will make it. We are aware also that international cooperation, in particular fromdeveloped countries, strong economies and international financial institutions, will be required. We are hopeful that, given Albania’shighly improved and secure environment, this cooperation will not be missing. Foreign investors will be rewarded by coming to investin Albania.

I thank you for your attention. ❙

Opening addressBy HE Mr Zef Mazi, Ambassador of Albania to the United Kingdom


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It is my pleasure and honour to welcome you to this opening session of the First UK Albanian Investment Forum.

This forum comes at a most opportune time, with Albania showing great promise as a place to invest and to do business.

The recent invitation for NATO membership is an important step for regional stability. Continued progress is being made towards EUaccession and Albania’s future is clearly that of a healthy European nation. Albania maintains good relations with all of its neighboursand plays a constructive role in regional cooperation, including CEFTA.

Government reforms are moving the country in the right direction:

• Macro economic stability despite serious infrastructure bottlenecks and external challenges – relatively low inflation, strong growth• Increasing FDI from low base• Improvements in infrastructure beginning to have an impact – airport, roads• Positive measures to improve business environment and complete privatisations• Profitable and growing banking sector and strengthened banking supervision• A degree of budgetary and borrowing authority has been decentralised to local governments.

To sum up, Albania is politically stable, is integrating well in the international community, and is poised to follow the success of transitionas seen in other former communist countries.

In the course of the conference we will learn of opportunities for investment in several areas, including:

• Energy and electricity• Property and Tourism• Infrastructure – including municipal and transport• Construction materials• Manufacturing• Telecoms• Banks and non-bank financial institutions.

I expect that we will see today strong interest from British and Albanian investors to develop these opportunities, and that we will hearexamples of recent successful investments in Albania.The EBRD remains an active investor in Albania.

Since 1993, we have invested EUR 400 million and mobilised a fur ther EUR 900 million from other sources. The majority of investmentsare in key sectors including power and energy, telecommunications, financial institutions and transportation infrastructure.

The Bank expects to double the number of transactions it finances in 2008 compared to 2007. Most of this business will be with localand foreign private companies. In the first three months of the year, EBRD signed three important deals; these were with the privatemanagers of Tirana Airport, the new owners of AlbanianTelecom and a locally-owned bank, Union Bank.

I was in Albania recently, and agreed with the Government several priorities for EBRD engagement:

Privatisations

• The Bank has made clear its willingness to support upcoming privatisations – KESH, Armo (refinery), INSIG (insurance). Transparent,

WelcomeBy Mr Varel Freeman, First Vice President, European Bank for Reconstruction and

Development (EBRD)

competitive processes can bring strong operators, greater efficiency, and better service to the public.

The energy sector which is in significant need of upgrades and investment

• Energy is the single most important potential limit to growth for the future of the Albanian economy. Albania needs to ensure reliableenergy for its industries, tourism and to attract fur ther FDI;

• Opportunities include rehabilitation of hydro capacity, new thermal power plants, renovation of distribution networks, andimplementation of regional transmission interconnections, such as the Macedonia-Albania transmission line, which would make electricityproduced in Bulgaria available to the Albanian national system;

• Energy efficiency is also a big opportunity for Albania. The Bank is in the process of launching a EUR120 mm energy efficiency fundfor the Western Balkans and we expect that a significant portion of this can be utilised in Albania for energy efficiency measures withboth households and small enterprises.

Infrastructure remains in need of EBRD finance

• The EBRD is working with the Government to establish priorities in the infrastructure sector and ensure that it gets the most out ofits limited borrowing space. EBRD provides not just money, but also helps to ensure better implementation and management. Inparticular we focus on PPP structures (such as the concession at the Airport and or private infrastructure (in power or ports), orfinancing structures that may be done without sovereign guarantee, such as the ring road for Tirana.

Private sector/SMEs needs more access to finance

• The EBRD will continue to work with the financial sector to develop a wider range of products and to increase financing for small andmedium-sized enterprises in order to strengthen the private sector ;

• The Bank will continue to provide direct finance to medium and large enterprises through its Western Balkans Local Enterprise Facility.

But regardless of the sector, EBRD is committed to be a strong partner with the private sector, and to work with the Albanian authoritiesto improve the business environment in the country.

We are a long-term partner, prepared to take risks, and prepared to engage to support the transition process underway in Albania. ❙


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Keynote speechBy Mr Ardian Fullani, Governor of the Bank of Albania

Dear Ladies and Gentleman,

Let me please begin by giving my thanks to the Albanian Embassy here in London for organising this event. It is a pleasure to presentto you the trends and latest economic developments in the Albanian market. Even more so, because they portray solid macroeconomicand financial stability. Occasions of this kind are important events to match the opportunities offered by an emerging economy withthe desire for higher returns from the leading developed countries.

It is generally recognised today that the Albanians are one of the most ancient people in South-Eastern Europe.

Whoever discovered Albania, including renowned British people such as Lord Byron, Edward Lear and Edith Durham marvelled at itsbeauty and the spirit of its inhabitants. World figures were usually so moved that the name of Albania became eternal in theirmasterpieces of ar t.

The great eighteenth-century British historian, Edward Gibbon, speaking of Albania, said that it is "a country within sight of Italy, which isless known than the interior of America."

Shakespeare set his comedy Twelfth Night in Illyria – the name by which Albania was known in ancient times. Lord Byron, who visitedsouthern Albania in 1810, wrote some stirring lines about her landscape in his poem ‘Childe Harold’.

‘Morn dawns: and with it stern Albania's hills...

Robed half in mist, bedewed with snowy rills.’

I was trying to bring a bit flavour of my country across centuries. Being a crossroad, the main gate from east to west, today Albaniarepresents an important actor whose sole role is to provide peace and stability in the region.

Our macroeconomic progress during recent years, the sound banking system and our commitment to increase its efficiency are thestrengths we bring you today. The sound economic and stable financial situation is achieved via a modern, forward looking approach tomonetary management and a responsible fiscal policy.

The macroeconomic success shows the ability of Albanian authorities to identify priorities in a timely manner and chose to implementsound economic and social reforms. Just to confirm my claims I would mention two important facts: firstly, in an independent evaluationof the sovereign risk profile of the country last year, Moody’s sovereign rating assigned Albania B+; and secondly, at the end of 2007Albanian public debt denominated in national currency was for the first time traded in international financial markets.

The Albanian authorities, business and the general public, have come to recognise the importance of Foreign Direct Investments andtheir positive impact in the country’s economic and social life. Therefore, the country is fully engaged in completing all the necessaryreforms and consolidating its strengths to this end.

In the meantime I would like to remind you that the opportunities of investing in the Albanian market extent beyond the boundaries ofpolitical borders to a potential market of more than 20 million.

Albania has been experiencing satisfactory macroeconomic and financial stability during recent years. Most importantly, it is committedto consolidating it fur ther in the future. In general, the country has managed to keep prices under control without sacrificing its growthor its financial stability. The annual economic growth during recent years has been around 6%. All our forecasts indicate that this trendwill be persistent in the coming years. Economic activity has increased sufficiently to meet rapidly growing demand. This has helped tokeep price developments under control and inflation expectations are well anchored at the Bank of Albania’s inflation objective. Ourtarget for headline inflation specified as 3% ± 1 has been achieved successfully.

Inflation, at the end of 2007, was recorded at 3.1%, only. Inflation pressures have increased only recently due to the increase in the world’scommodity markets and administrative increases in the price of electricity. However, price pressures have not been as strong as in theother transition economies of the region. During the last year we have intervened by increasing the base rate three times to properlycontain expectations. Estimations of our forecast models indicate that inflation will return within the target most probably during thenext 12 months.

In addition, fiscal consolidation during recent years has been very successful. The deficit has decreased from 9% of GDP in 2000 to adeficit of only 3.2% of GDP in 2007.

We appreciate that the additional fiscal stimulus is going towards investments in infrastructure projects, and supporting improvementsin the public debt management and to extend the duration of public debt. Government public debt is slightly above 50% of GDP, arelatively fine figure by Maastricht criteria’s.

The exchange rate of domestic currency is decided freely in the foreign exchange market. The Bank of Albania is committed to keepthe free floating regime as an important element of its monetary control philosophy. The Lek has been stable, and has exhibited a slightbut persistent trend of appreciation. The volatility of the exchange rate has decreased continuously since 1998. Recent trends of currentaccount developments reflect a faster increase in investments of public infrastructure projects and private foreign direct investment asoppose to a surge in consumption. Last year, positive developments were recorded in the capital account.

Balance of payments data confirms increased confidence in the Albanian economy, mainly reflected in the boom of Foreign DirectInvestments which reached 6% of GDP.

The current monetary policy framework can be considered as an implicit inflation targeting setup and is managed by indirect instrumentsof monetary policy. Monetary policy signals are transmitted via the decisions of Supervisory Council of the Bank of Albania for the baserate for the weekly repurchase agreements and continuous communication. The language of our communication, the tools of monetarycontrol, the philosophy of our monetary management are the same as the one you are used to seeing in your own market by the Bankof England. In this respect, I am confident that you will find a natural partner in the Bank of Albania that speaks your own language andsends the signals that you understand.

Our natural resources and cheap but qualified labour force continue to be attractive for all European entrepreneurs who want toexplore the benefits of globalisation. The base of exports ranges from agricultural products to minerals. Albania offers investmentoppor tunities in mining, agriculture, energy, infrastructure and tourism. At the same time, the food processing industry is alreadyexperiencing a satisfactory development and provides plenty of room for increased activity. Opportunities in the energy sector rangefrom building new sources to improving the distribution network. Meanwhile, Albania’s strategic focus towards the improvement of itstransportation infrastructure, calls for an increased public-private participation in building new roads and ports. Of course, as I mentionedabove, Albania offers outstanding opportunities for investing in coastal, alpine, historical and cultural tourism due to its Mediterraneanlocation, rich ethnographic heritage as well as its variable climate and geology.

The business culture is very adaptive. English is a widely spoken language among the young generation. Albanians like to invest in theireducation. There is a fresh supply of bright qualified young professionals educated in UK and other European universities. They are fullof charisma and eager to come back and work in Albania whenever opportunities become available. I had a chance to meet and talkwith them here in London and in Milan during my public lectures at these universities. They have developed western style working habitsthrough their education, and are viable factors in your quest to expand in the Balkan region.

It is my belief that Foreign Direct Investments represents a regional rather than an individual challenge for South East Europe. Countriesin the region must coordinate their efforts toward creating a regional market.

The region, on its account, does provide several important advantages: labour markets are positioned right in the middle between Asiancountries and new EU members; sufficient investment opportunities in real estate and infrastructure as well as high return on capital; itcounts more than 20 million people and represents a fantastic tourist attraction as a product of an interesting combination of differentclimates with diversified geographical features and multi ethnic and cultural traditions

I mentioned the region on purpose. Albania is not any more the lonely isolated island of ridiculous economic experiments. During thelast two decades it has transformed itself in a flexible and competitive free market, open to the modern developments of globalisation.It has learned to position itself accordingly, and benefit from international developments in the region. Albania is geographically locatedin a key east-west intersection.

It has signed the Association and Stabilisation Agreement with the European Union. Less than a month ago, Albania received a formal


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invitation to join NATO. Recently, Albanians have become dominant economic, political, and stability factors in the region. Defined bythese geo-political considerations we are the linking bridge to the south East Europe. Foreign capital can benefit greatly not only by thisgeopolitical position, but also from an almost unanimous support for this Euro-Atlantic orientation which has the consent of more than96% of the population. This is a figure unmatched by any other countries in the region. The country is continuously becoming a moreintegrated market with other regional economies and the EU due to free trade agreements, improved transportation infrastructure, andthe harmonisation of laws. The Bank of Albania is and will continue to be an active force in this process.

Speaking of financial system, our goal is to achieve the same efficiency that your financial market boasts. We know that the efficiency ofour monetary policy depends on the efficiency of the financial market. Therefore the Bank of Albania has engaged in an intensivecampaign to provide all the necessary incentives that will improve efficiency in financial markets.

During recent years, the credit extended by the banks to the private sector and individuals has increased substantially. This, of course,has been a factor supporting the economic growth and investments in the country.

Currently we do not see immediate threats to financial stability. Our concerns reflect the nature of our pre-emptive approach tosupervision. The banking sector in Albania is developing soundly and in compliance with the BASEL principles. It is well-capitalised,profitable and is cautiously expanding in terms of geographical and service coverage.

The banking sector stands at the forefront of the Foreign Direct Investment and integration process. It represents one of the mostsuccessful investments opportunities in Albania and has greatly benefited from the presence of some of the biggest financial groups inEurope. My reference to integration does not refer only to the presence of some foreign capital, but also to the capacity of the bankingsystem to intermediate and complement European initiatives and investments in the Albanian economy. These banks have the necessaryreputation, ability and infrastructure to serve as partners for foreign investors.

Quite importantly, the banking sector is increasingly able to play its crucial role in to allocating resources towards profitable and safeinvestments. Yet, the banking system alone is necessary but not a sufficient condition to promote economic prosperity and distributeresources to the best possible uses.

The distribution of financial market as you know it is skewed toward universal commercial banks. The likes of mutual funds, hedge funds,pension funds, and investment banks, are non-existent.

The Bank of Albania and other financial market authorities are pushing to create the right incentives to promote investments in theseareas. We believe that our financial system market has not yet exceeded all opportunities.

Taking advantage of this event, I would like to invite British companies to include Albania in their investment map.

Concluding, I encourage European entrepreneurs to consider all these facts, to further explore the strength and investment opportunitiesof Albania and exploit them for the sake of mutual benefits.

And finally, I would like to express my gratitude to our, His Excellency, Ambassador Mazi for his significant contribution in the establishmentof such a promoting platform on the future of Albania.

Thank you for your attention. I will be happy to take questions. ❙


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Ministers, Ambassador, Your Excellencies, my Lords, Ladies and Gentlemen, it gives me great pleasure to give the opening remarksin what is the First UK-Albania Investment Forum.

Introduction

Today will be about new business and investment opportunities.

It will provide opportunities to meet new and existing business contacts.

To hear about Albania’s rapid transition from authoritarian state to a thriving Parliamentary democracy.

A country that has adopted new laws allowing freedom of the press – and freedom of expression.

Laws to protect minority and human rights.

This conference will set out the context into which a new era of investment in Albania is not only continuing but affording a growth ratelast year – exceeding 5%.

But most of all – I hope today will be about making new friendships – and bonds that will go beyond business – and span over manygenerations – and years to come.

So I say welcome!

On the issue of friends, I would, in particular, like to recognise His Excellency, Ambassador Zef Mazi, Ambassador of the Republic of Albania,who since arriving in London in September has done an excellent job in representing the Government of Albania – and championingthe political, cultural, historical, and economic achievements of Albania and its fine, brave, and proud people.

Ministers – he is a credit to your country and your diplomatic corps.

The Economic story

So let me take you on a short three hour aeroplane journey

A journey to a land that only a decade ago was writing its new Constitution. A key and pivotal moment in its modern history.

Let us go to Albania.

Not the Albania of the post-war years – up until the late 1980’s – where repression and suppression reigned – and innovation andentrepneurship were curbed.

But the Albania of today.

A place – where companies can – and are increasingly doing business.

A country that is on the threshold of NATO membership – and future EU membership – 21st Century Albania!


Keynote speechBy Mr Mark Pritchard MP, All-Party British-Albanian Parliamentary Group

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And if you examine many of they key performance indicators – the news is good news:

• Inflation at only 2.4% in 2006.• GDP – up• Investment in education – up• Investment in transport infrastructure and roads – up• A country rich in mineral resources – iron, nickel, copper and oil and gas reserves.

Challenges and Opportunities remain.

Energy security and security of supply remain a key challenge.

Privatisation reforms need to continue – and perhaps speed up.

European future

Of course any country is only as strong as its people – and the Albanian people have proved themselves resilient – from the World WarII partisans, who fought heroically alongside British Special Operation Executive personnel, many buried in Tirana, – to the students andworkers who stood for modern day democracy.

That is why it is pleasing that the overwhelming majority of Albania’s population want to be members of the EU.

And as Albania continues to undertake reforms as set out by its European Partnership Agreement and in the Stabilisation and Association.

Agreement – I have no doubt that time will come.

Just as NATO membership is coming – very soon!

Military cooperation

I would like to pay a particular tribute to Albania’s military in Afghanistan and Iraq.

They play an important role in operations where unity and cooperation is very much valued.

Conclusion

As I mentioned when I met with His Excellency, President Topi in Tirana some months ago:

Albania goes from strength to strength.

It is a country of real opportunity and investment growth potential.

A country where the people and Government and Parliament want to do business with the United Kingdom – and Europe.

Where an increasingly stable political climate allows international companies to go about their business with minimal interference fromgovernment – perhaps something the UK could learn!

No longer, in the words, of Aleks Drenova, is Albania left to “remain in sad poverty”.

Again, in the words of Drenova – Albania is today more “Like a wondrous flower”. (Oh How Much I love Albania)

For – Ladies and gentlemen – I am delighted to report to you all today – that Albania is open for business! ❙

Introduction

I am very happy to be here with you and to participate in such an important event that will foster the business partnership betweenAlbania and the United Kingdom. During my presentation I would like to brief you regarding the development and structure of privatesector as the driving force of the Albanian economy.

I will also introduce the Chamber of Commerce and Industry as an important institution, providing indispensable services to Albanian and foreignbusinesses as well.

Additionally, I will analyse the current trade volume among the two countries. I am confident that we can do much better in identifyingopportunities, establishing new partnerships and creating new businesses.

Private business in Albania

Nowadays in Albania there are about 80,000 active businesses. We notice that 99.5% of these companies are established with private capital.Only a fraction of these companies are state owned ones. These private businesses contribute about 85% of the GDP and employ about 75%of the total workforce and they give their valuable contribution to the diversification of the Albanian economy. According to the structure ofthe GDP of Albania, the service sector (which includes: trade, transport, communication and other services) contributes around 55% of theGDP. Agriculture contributes about 21%, followed by construction – 14% and manufacturing – 10 %.

Presentation of CCI

The Chamber of Commerce and Industry of Tirana was founded in 1920 as an independent institution. It was closed down in 1947 by thecommunist regime and reopened in 1958 as a state institution. Finally, the Chamber of Commerce and Industry was re-founded in 1992 as anindependent institution of the business community, after the regime change.

Nowadays CCI represents the biggest business institutions in Albania. In this institution are combined the old national traditions with themodern experience of the European Chambers. The Chamber is a juridical subject of public right, independent and non-for profit entity.Membership of the CCI is voluntarily. There are currently more than 2,000 businesses who are members of our Chamber. They represent avery important cross-section of private businesses in Albania.

If we have a look at the membership of our Chamber, according to the economic groups, we notice that most of the businesses come fromthe trade sector with 57%, construction 17%, manufacturing 15%, services 8% and transport 3%.

The principal functions of the Chamber of Commerce and Industry is to:

• represent the business community in regional, national and international level• provide much needed services to the members• set forth proposals promoting trade and industry based on studies and projects• conduct market research and studies to help businesses understand better the market in Albania.

We represent the business community by working closely with the Government. Our Chamber is a member of various councils, committees,commissions and boards. As an integral part of these structures we play an important role in the discussions of the economic developmentstrategies, policies and laws. Our Chamber is also one of the main contributers to the discussions of the fiscal package and other laws concerningbusiness community.

The Chamber maintains close relations with international and regional economic organisations. Our Chamber also works closely with regionalor other countries’ business organisations, such as: chambers of commerce and business promotion agencies. CCI is a member of Eurochambers,ICC, ASCAME, BSEC Business Council, AIC etccetera.


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The role of CCI in supporting the partnershipbetween Albanian and foreign businessesBy Prof Gjoke Uldedaj, Chairman of Chamber of Commerce and Industry

CCI also has cooperation agreements with 27 chambers & business promotion agencies from 24 countries from Europe, Asia and Africa andeight national, regional and international organisations of foreign trade.

CCI main services are:

• Business Information• Consulting, Business Promoting and International Relations• Fairs & Exhibitions• Executive Services• Trainings and Industrial Property Protection.

The information that we deliver to the business community includes: Contact addresses, Business opportunities, Events, Legislation, etc. Thisinformation is given through our official website: www.cci.al, E-databases, E-bulletins and Publications. Our Chamber also produces informationregarding economic and fiscal legislation, free trade agreements and other legislation that directly concerns the business community.

Our chamber delivers the following publications:

• ‘The Business Guide’• ‘Directory of Exporters’• ‘Calendar of Fairs and Exhibitions’• ‘CCI Profile’• The weekly newspaper ‘Pro-Business’• And the monthly magazine ‘Pro-Business’.

The Chamber of Commerce and Industry has always tried to serve as a bridge between Albanian and the foreign business community. In orderto achieve this, our Chamber organises activities regarding the promotion of Albanian businesses, such as:

• business missions to other countries• hosting of business missions to Albania of other countries• assisting our members to participate in Fairs & Exhibitions abroad.

For example, during last year more than 30 business missions and forums were organised in partnership with other important organisationssuch as Albinvest, GTZ, ICE and in cooperation with the Embassies of Germany, Italy, Greece, Austria, Croatia, Israel, Hungary amongst others.

Other important services that our chamber provides are the Executive Services, which include:

• issuing of the non-preferential certificates of origin for the Albanian export goods• issuing of verbal notes to the members for visa purposes• issuing of membership certificates• the annual International Fair ‘Tirana Trade’• registration of Patents, Trademarks and Industrial Designs.

An important part of our services are trainings on:

• E-procurement (electronic)• Tax & Custom legislation, etc.

CCI is also an important local player in studies and projects. In order to achieve this, our Chamber has a special department devoted todevelopment projects and a significant project portfolio including eight projects partly financed by EU. These projects aim at:

• enhancing the Chamber capacities in providing better services for the businesses• improving the business climate in Albania• Intensifying the cooperation between the different countries.

Trade structure and foreign investments

The Albanian economy has experienced positive growth over the past few years. The growth of the overall trade volume of Albania hasincreased. Compared to 2006 the trade volume saw an increase.


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Analysing the structure of Albania’s trade, we find that the main trading partners are Italy, Greece, Turkey and China. the UK, currently, is to befound in only thirteenth place with less than 2% of the volume.

Even though Albania continues to have an import oriented economy, exports have increased and will continue to increase. For example,exports during 2007 reached the value of 785 million euros and this marks an increase of some 25% compared to 2006.

The indicators for 2008 are very promising and we are confident that exports will continue to increase.

Business opportunities

In Albania, British businesses can find reliable partners to overcome the difficulties of the internal market and the hostilities of the internationalmarket. I strongly believe that due to cultural links, opening opportunities and our business climate we can enhance the British businesspresence in the region. From the business perspective, in a regional market context, British and Albanian businesses will find common groundsto boost some of your main fields of business expertise such as mining, oil and other fuels, tourism, business and finance services and Maritimeindustries.

Albania also has one of the most attractive tax systems in the region. Corporate tax and income tax at only 10% make Albania the place toinvest. Also the favorable geographical position of Albania – a gateway between east and west, increases the chances of successful investmentsin the country.

Even though the economy has seen some improvement, there is an urgent need for much needed foreign investments. Nowadays the Albanianeconomy has the potential to receive more foreign investments. Currently the level of FDI in relation to the GDP is among the lowest in theregion. Foreign investors need to know that in Albania now there is a new and improved business climate.

The Chamber of Commerce and Industry of Tirana, based on its own market researches considers as very important sectors for FDI – tourism,energy, infrastructure, investments in oil and gas, business services and agriculture. we also believe that the banking sector has much room forexpansion and improvement.

At this point allow me to present some of the business representatives that may assist and lend you support in investing in Albania.

• Agna group, Birra Korca• GKAM, ABC business centre• Sigma and Sigal – leaders in Insurance Sector • Ferra and CO, ABA Business Center, Delia – in construction• Kastrati representing the Oil Industry• KALO, Boga, – in Business Services

Ladies and Gentlemen,Concluding, I am confident that the Chamber of Commerce and Industry is ready to provide the support for creating partnerships betweenBritish and Albanian businesses. I hope that you now have formed a clearer image about private business in Albania. The Chamber of Commerceand Industry welcomes foreign investors in Albania.

Our message is clear : Invest in Albania. Now it’s the right time. ❙


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Raiffeisen International entered Albania in April 2004 by acquiring the former State Savings Bank, a deposit taking organisation onlythat had not lent any funds for the previous seven years. The State Savings Bank was at that time the largest bank in Albania with83 locations across the country, and 57% market share in deposits.

RI became the largest foreign investor in Albania with this purchase for 126 million dollars. The banking sector was quite sleepy withonly 500 million Euros in commercial loans or the equivalent 9% of GDP.

Raiffeisen has been in Albania for nearly four years and in that time we have seen tremendously positive change and development inthe country.

The Savings Bank was converted into a universal bank and Raiffeisen has developed PI, SME and Corporate banking services and products.

In the past four years we have totally restructured the Bank, implementing new computer systems, introducing risk management,marketing, human resource management disciplines – and turned the bank into a full service commercial bank.

In 2005, a comprehensive branch refurbishment programme also took place and the branch network was given a more professional,customer friendly appearance. We launched the biggest Bankomat/ATM network in the country and we are continuing to expand thatnetwork fur ther.

A wide range of products were launched for different business customers. Raiffeisen Bank in Albania star ted lending to customers afterseven years of absence from that market. To support all of these activities a wide range of training and service improvement initiativeswere undertaken.

We now have a full range of products and services available for businesses, individuals and government and I am proud today to say thatwe have star ted a revolution in the banking services.

Raiffeisen Bank Albania is the largest bank in the country and occupies the number one position for all major key performance indicators.Its asset base is close to 2 billion Euros. Raiffeisen Bank has more than 30% (20.2%) market share in loans and 35% in deposits. Ournearest competitor in loans has a market share of 12% and in 15% deposits. Our loan portfolio increased by 174 million Euros reachinga volume of 474 million Euro by the year end from a position of no loans in January 2005. In the private individual market our lendingvolume doubled during the year. Lending to the business sectors grew by 45% in 2007.

Our network continued to expand in 2007 with four new branches opening, bringing us to 98 branches in total, with many othersrefurbished and extended to a higher standard. Our ATM network now consists of almost 160 machines throughout Albania – morethan twice as large as any other bank’s network in the country. We launched our point of sale network for payment by cards inrestaurants, hotels and retailers throughout the country and finished the year with 400 operational terminals.

I could speak at length about the accomplishments at the Bank, but instead I would like to outline why Raiffeisen International felt thatAlbania was an appropriate place to invest. For a bank such as Raiffeisen International we look at the economic indicators and determinewhether they will be positive to help ensure the development of the economy and the country as a whole.

Albania has a stable currency, low inflation, low local currency interest rates and sufficient foreign reserves. Combined with a relativelystable political situation it is felt that Albania can develop along the lines of similar countries in South East Europe.

Albania offers a lot as a market and especially as a banking market. Raiffeisen International has a history of 140 years in Austria wherewe have offered universal banking services to customers from large corporates to individuals and we are doing the same in Albania. Wehave invested a lot of money in the country because we believe in Albania.

Keynote speechBy Mr Oliver J Whittle, CEO, Raiffeisen Bank, Albania


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Albania has the second youngest population in Europe with an average age of 32 years old. We found in Albania an educated youngworkforce combined with a low salaries market and a flat rate tax of 10% on salaries and 10% on company profits. This combinationputs Albania at a comparative advantage for all the businesses in the country.

Albania posted real GDP growth of 6% in 2007, according to estimates from the Bank of Albania. Growth was supported by thecontinued rapid increase in commercial bank lending, as well as a low-inflation environment. The strong performance of the exports andtourism sectors as well as continued productivity gains in manufacturing, compensated for the slowdown in agriculture and the declinein electricity production.

Agro-industry, which accounts for about 20% of total agricultural output in Albania, was the fastest-growing part of the sector, expandingby 6% as demand for local dairy products increased. However, agriculture as a whole continues to be held back by poor infrastructure,fragmented landholdings, migration of the rural population to urban areas, and lack of access to credit.

The year 2007 saw positive growth in the service trade. The net value of services reached 3 million Euros, performing far better thanthe previous year.

Having grown only slowly in 2006 owing to severe electricity supply problems, industry surged in 2007 to grow by an estimated 14% inreal terms. The extractive/mining, manufacturing and construction sectors grew strongly. Sales in trade, hotels and restaurants also grewrapidly.

During 2007, we notice an improved trade balance in all service industries. Albania continues to be a net importing country in transportand insurance services, a phenomenon that naturally relates to increased imports of goods and that directly impact the deficit in servicetrade. Financial, communication and business-related services also show higher rates of development, suppor ting the competitiveadvantages of Albania in the international market of services.

Foreign Direct Investment flows generated 463 million Euros during 2007, with 205 million Euros in annual change, as compared with2006. This is primarily attributed to investments in the communication field, triggered by the privatisation process, and the growth offoreign capital stock/shares in the Albanian financial sector.

FDI flows have been followed by capital flows of approximately 129 million Euros through borrowing, 93% of which has been allocatedto the public sector.

The Albanian Government sold the communication company Albtelecom to the Turkish group. Proceeds from the privatisation of thetelecom company lowered the domestic financing requirement to 1.7% of GDP, compared to the programmed 2.5%.

The privatisation of the distribution arm of KESH, according to the IFC, should be finalised by the end of 2008 but at the same time theimprovements in cash flow and the regulatory regime in the electricity sector are critical to support the privatisation process.

Other state owned companies such as ARMO, INSIG and government minority stakes are likely to be privatised during 2008-2009.These will provide good foreign investment opportunities, and Raiffeisen Bank would be very happy to advise any potential bidder, andultimately work with the successful bidders in supporting their investment plans.

The Bank continues to be the country's Number one, and is the leading bank in industries such as cars and car fuel, steel, liquid gas,construction and edible oil production. Raiffeisen Bank currently services 450 corporate customers – the most reputable and largestones in Albania – and is the bank of choice for a third of them.

Due to its fur ther improved service range, Raiffeisen Bank succeeded in handling more than 65% of total government expenditures andsupports the Government in digitalising its payment system. Moreover, in cooperation with Vodafone, Raiffeisen Bank will be handlingreceivables by direct debit for about 10,000 police staff across the country. It was also chosen as banking par tner by the generalcontractor for the Durres-Kukes road, a project calculated to be valued in the range of 400 to 500 million Euros.

The Bank's commitment toward the energy sector was rewarded by being selected by German Kreditanstalt für Wiederaufbau (KfW)to act as one of two intermediaries for their guarantee fund.

The environment for doing business in Albania has improved a great deal in recent years and is moving in the right direction. Albaniahas a relatively stable political situation which has lead to some very positive policy implementations such as the property registration,credit register, flat rate tax system, infrastructure investments and processing of salaries through the banking channels.


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From an economic perspective Albania belongs to the fast growing economies of the region – with a stable macroeconomic environmentand policies in place for poverty reduction. The Government is committed to fighting corruption while tax collection is moving towardsimproving the ability of the Government to borrow as well as increasing lending potentials.

For banks, loan to GDP is one of the key parameters to compare countries. Generally more loans to GDP mean more economicdevelopment. This shows Albania is following the region in developing its economy. In 2004 Albania, had 500 million Euros in loans,representing roughly 9% of the GDP. In 2006, the volume of loans tripled to 1.5 billion or 22% of GDP. Clearly the GDP of Albania ison a similar path to that of other countries in the region.

Raiffeisen Bank is fully confident that the economy will develop in a positive manner, given the experience and history of the region.

Raiffeisen Bank has more than 1400 staff, being one of he largest financial employers in the country. Our branch staff are fully trainedand continue to be so as we believe human resources are an asset for the company.

Our branch network offers banking services and products in areas where no other bank can as we cover all the whole country. We willcontinue to expand our network and we will continue training our staff in offering 21st century banking standards in Albania.

I hope that Raiffeisen Bank will be your bank of choice and your partner if you come and invest in Albania. We will be there, ready toassist and support your business needs. ❙

Distinguished Organisers of this Forum, Members of the Parliament, Mr Chairman, Excellencies, Ladies and Gentlemen,

I am honoured to address this event. Please allow me to star t by expressing the gratitude of the Ministry of Finance of Albania to theorganisers of the Forum – the Embassy of Albania here in London, in cooperation with the Developing Market Associates, for giving usa chance to communicate directly with and to brief you on the reforms we have gone through to date, and to offer an open invitationto all of those who want to visit Albania, to come and see and invest in Albania. For sure they will generate profits there. Albania is anormal European country which, in 17 years, has made great efforts to join the family it traditionally belongs to. We just got the invitationto join NATO. We are confident that soon we will get another important invitation to join the EU. This is the dividend of the investmentto reforms to which Albania remains firmly committed.

Albania’s economic transition

Albania is firmly moving ahead through the tough path of transition to a fully liberalised market economy, building a society where thelaw reigns and where the fundamental human rights are respected. We have reason to feel proud of what Albania has managed to achieveduring such a short period of time. The collapse in 1990 of one of the most brutal communist regimes found Albania in a desperatesituation, the Government could not feed its people, state owned enterprises were all shut down and this was followed by a massiveoutflow of the Albanian youth towards Italy, Greece and other western countries during 1991 and 1992.

The transition process from a centralised to a free market economy was not only marked by a transformation of markets’ mechanismsand existing infrastructure, but above all, by the need for the establishment and consolidation of new instruments and legal, institutional,economic and social provisions so as to increase the efficiency and use of public and private resources. It has also been aiming at a moreeffective and optimal GDP redistribution among different social groups, by creating the appropriate social protection mechanisms tobetter serve an improved welfare system and to respect the fundamental rights of human beings.

After the collapse of the centralised economic system and the subsequent opening of the country, unemployment reached record levels,amounting to as high as 22% in 1993. Efforts for undergoing reforms star ted at the beginning of 1992, following a GDP fall of morethan 50% of that recorded in 1989.

The 1992 democratically elected Government designed and implemented a very ambitious economic programme which aimed to avoidthe possibility of an economic and humanitarian crisis, to place the country in the right path to a market economy, to return trust amongyoung people that Albania was a normal country inwhich to live and work, and to build free market institutions as guarantors of privateownership and free initiative. Key elements of this programme included the liberalisation of economic activities and of the prices of goodsand services, liberalisation of the foreign trade and foreign currency regime, the introduction of a very simple tax system, monetarylimitation and other ambitious policies. All these elements were coordinated with a package of structural reforms which includedprivatisation, reforms in the private and financial sectors, and a new legal framework for the market economy and the private sector Mostof the agricultural sector, state-owned residential properties and small industries underwent privatisation. This tendency continuedfur ther with the privatisation of the transport sector, the services, and that of the small and medium-size enterprises. In 1995, theGovernment of Albania star ted privatising the large state-owned companies. The lowest economic growth recorded at the star t of the1990’s was overturned with a gradual upward trend. The 1989 GDP growth was matched only at the end of the last decade.

Albania achieved encouraging results. Real GDP growth, whereby the agricultural sector was the most important of all sectors in theeconomy, reached 10% in 1993, 9.4% in 1994, and around 8% in 1995. The private sector star ted to boost growth earlier than expectedand it became the major employment source for the population. With this trend in hand, Albania was ranked first in terms of GDP growth,compared to other central and eastern European countries.


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Albania's strong economic indicators – howthe transition to a free market economy hasraised Albania's pro!le and its prospectivedevelopmentBy Hon Mr Florjan Mima, Deputy MInister of Finance, Government of Albania

Annual inflation fell from the 25% level of 1991, to a single-digit figure. The local currency star ted gradually stabilising and the Albanianprivate sector strengthened rapidly. In 1995 the exchange rate dropped to 92.8 LEK/$ from 102 LEK/$ in 1993.

The collapse of the pyramidal schemes in 1997, which was associated with huge monetary borrowing from the population, caused manysocial problems, which also brought about a fall in GDP growth. During the 1997 crisis, the Albanian LEK lost almost half its value, tothen re-bounce to the January 1998 rate of one dollar costing 143 LEK. Inflation approached 20% level in 1996 and 50% in 1997.

This said, in cooperation with the World Bank and the IMF, Albania has undergone a deep macroeconomic restructuring. There is a needfor continued reforms in the sectors of the economy. 20% of the Albanian active labour force works and lives abroad. The high level ofremittances has a positive influence on GDP growth and contributes to the narrowing of trade deficit impact. In 1998, the Albanianeconomy star ted to recover from the GDP decline of about 11% and in 1999 economic growth reached 13.5%. Public capitalexpenditures have had an upward trend. From 11.2 billion LEK in 1993, they reached 16.6 billion in 1996 and almost 36 billion LEK in2000. It is important to emphasise that internal financing and foreign financing carry the same weight in total capital expenditures.

Albania’s economic performance from 1998 has been impressive indeed. With a few exceptions, Albania, during the last 10 years, hasachieved fast non-inflationary economic growth. Real growth from 2000 has fluctuated between 4.2 – 7.9%. During the last three years,real growth has averaged at 5.8%. Preliminary evaluations for 2006 recorded an economic growth level of 5.5%. Despite the energycrisis, short-run indicators for 2007 supported an economic growth rate of 6%. Moreover, economic growth has also been supportedby a strong growth of Albanian exports, industrial production, foreign direct investment and a very satisfactory business performance.

During this period, economic growth has been followed by a continuous consolidation of the economic equilibrium. Evidence indicatestoward low and stable inflation, lower budget deficit and public debt, improvement of the balance of payments, general stability inmonetary indicators, an increased volume of lending to the economy and a decline in non-performing loans, a stable exchange rate andthe position of the local currency against the US dollar and the Euro. During the last five years the exchange rate has fluctuated butalways in favour of the local currency (LEK). Notwithstanding, the trend has also been helped by a lesser need for the Government todemand financing of its deficit, because of increased budget revenues from a better tax administration and also from privatisations. Wecould mention as an example the case of Albtelekom, the national fix line telephone company which was recently privatised.

Foreign investors continue to show an immense interest in Albania; FDI inflow increased by 85% from the year before (or three timeshigher than the 10-year average). The Government has therefore undertaken a series of reforms these past couple of years. The measureshave aimed at improving the business climate – especially in the context of increasing investments confidence and security in Albania, byestablishing industrial parks, developing information technology, and so on. Moreover, during the last couple of years the privatisationof strategic sectors of state-owned enterprises has star ted. Taking into account the focus of investors’ interest in the sectors ofinfrastructure, energy and mining, there is the ‘Albania 1 Euro’ initiative which has surely aroused further more foreign investors’ interestin Albania.

Public capital expenditures increased from 36 billion Lek in 2000 to 38.3 billion Lek in 2004. During the last three years public capitalexpenditures have increased significantly – from 38.4 billion Lek in 2005 to 56.7 billion Lek in 2007, and according to the 2008 forecastit is expected that these expenditures should go up to 105.6 billion Lek, or 9.84% of GDP, fur ther emphasising the Government’sobjective to improve infrastructure and living conditions in general.

Economic freedom and the need for reform acceleration

The Albanian economy is a new free market economy and the challenges remain in the context of developing this economy to acompetitive one and to be able to face the market pressure from the neighbouring well organised markets. These characteristics of theAlbanian economy are also certified by important international institutions such as ‘Heritage Foundation’, EBRD, IMF and the WorldBank, which all profile the Albanian economy in the right path for reforms related to the free market

According to Heritage Foundation’s report on economic freedom, Albania during the last decade has followed a fluctuating trend, duealso to the 1997 crisis. In 1995 Albania ranked 80th for economic freedom and in 2000 it dropped to 110th place. ‘Business Freedom’‘Fiscal Freedom’ and ‘Trade Freedom’ are the highest scored indices for Albania; while among the lowest scoring indices are ‘Freedomfrom Corruption’ and ‘Property Rights’.

Since 2000, Albania has taken positive steps toward the improvement of economic freedom indicators. From 110th place in 2000, itranks 56th in 2008. And as such Albania is now classified as one of the countries with an ‘overall free economy’. It is noted that indicatorswhich have best performed include ‘Fiscal Freedom’ and ‘Monetary Freedom’.


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Referring again to the same repor t for 2008, Albania has made much better progress compared to other countries in the region,surpassing EU member states as well. With a score of 63.3 points, Albania’s economic freedom is higher than its neighbouring countries,be them EU member states or not, with Italy scoring at only 62.5, Macedonia at 61.1, Greece at 60.1 and Bulgaria at 62.9 points.

Good progress has also been made towards fiscal freedom, scoring at 90.3 points because of flat tax reform which has positivelyinfluenced businesses and individuals by reducing both corporate and personal income tax rates from respectively 20% and 25% to just10% which is proven to have improved tax compliance. In the monetary freedom indicator Albania scored 80.4 points because inflationhas been kept at an average level of 2.3% between 2004 and 2006. Relatively low and stable price levels have contributed positivelytoward the final evaluation of this last indicator. The financial freedom indicator scored 70 points because, although a small financialsector, it is also growing at fast rates particularly in certain aspects. There are 17 banks in Albania, of which 15 have foreign capital. TheTirana Stock Exchange, although not fully operational is an independent body which soon will be privatised. Investment Freedom indicatorscored 70 points in Albania – foreign and indigenous companies are regarded equally in front of Albanian law, and almost all the sectorsof the economy are open to receive foreign investments. Foreign companies can enjoy 100% control over Albanian companies and profitrepatriation is also permissible by law. They can open and maintain bank accounts in foreign currency as well.

Currently, reforms and efforts are focused on the areas of property ownership, the battle against corruption and privatisation.

The reform undertaken in the field of property rights will be a powerful incentive for the Albanian economy. It will increase the interestof the public and the foreign investors to see the investment in Albania as a profitable and risk free process.

With reference to corruption, Albanian is ranked in 111th place out of a total of 163 places according to the Transparency International’s

Corruption Perception Index for 2006. This is an immense improvement compared to 2005, but complaints from businesses still confirmthe presence of corruption in courts, police, land registry, tax and customs administrations. In just two years tens of officials invloved inbribery and other criminal acts have been placed behind bars. The public is cooperating with law enforcement agencies and people’sreports have been of immense importance to the success of investigation processes.

The privatisation process of state-owned companies has not proceeded as quickly as was anticipated. The Government decision toprivatise ARMO, the national oil refinery company, represents a turning point for one of the most important sectors of the Albanianeconomy, that of oil extraction and refinery. For 2008 the Albanian Government is committed to removing all barriers which have sofar slowed down the privatisation of other important state-owned companies, such as electric power corporation, insurance companies,and its stake in mobile communications industry.

Improving the business climate has played a key role in the process of reforms conducted so far. Currently Albania does not have non-tariff barriers, but bureaucracy in administrative procedures still hinders the normal inflow and outflow of goods and the normal operationof businesses. Additionally, the most recent ‘One Stop-Shop’ initiative has responded to such delays by providing a way for businessregistration with governmental agencies down to just one day, a significant improvement from the previous long practice which requireda 42-day waiting time. Another important facet of this initiative has helped towards the goal of diminishing ‘informality’ as a phenomenonand increasing the number of registered taxpayers.

There has been a positive impact through the reduction of time (hours) needed for a company to pay taxes. Such time is shorter thanthat required to businesses in Bulgaria and Bosnia-Herzegovina, and is also lower than the average time for business-tax-payment in theregion. However it can be expected that in the framework of e-filing and e-payment reforms taken from the Albanian Government inthe last few months, the time required for Albanian business tax-payment will be cut fur ther.

Referring to the labour tax/social security contributions, the Government of Albania has reduced the share of employers from 30% to20% and the plan is that it will be fur ther reduced. Unemployment is gradually decreasing and for 2007 it was 13.2% as compared to13.8% in 2006.

The most recent fiscal reforms aim at establishing a simple and transparent tax system that helps voluntary compliance, reduce corruptionand facilitate economic growth. Apart from the introduction of the flat income tax, placing Albania among the countries with the lowesttax burden in the region, the small business tax has been reduced by 50%; all customs duties related to capital investments have beenabolished; a VAT 12 months deferral scheme has been introduced for machinery and equipments; a 6% compensation scheme for VATunregistered farmers has been introduced; the number of applicable taxes, fees and charges levied at national level has been reducedand a process of decentralisation is underway with a particular focus on strengthening the local finances. Very soon the Governmentof Albania will make public its intention to remove withholding taxes on investments related incomes both at corporate and individuallevels so as to avoid double taxation. Albanian VAT is in full compliance with EU respective directives and it is a broad based tax withno exemptions, single rate at 20% and a registration threshold of some 100,000 USD annual turnover.


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Future challenges

As with other economies in transition, the challenges faced by the Albanian economy are considerable and for this reason there is a needfor continuous and essential structural reforms. Within the framework of financial policies such challenges have been more concretelyresponded to by the Ministry of Finance, with the development of the Strategy for Public Finances (2007-2013) and with the NationalStrategy for Development and Integration. Based on the positive progress of the economy so far, our most important ambitions include:

• a sustained GDP growth of 7% for the period 2010-2011, from the current 6%• public revenue increased from 26% of GDP to about 27-28% of GDP• increased business confidence and an improved business climate• further fiscal consolidation and sustainability with a particular focus on keeping under control the fiscal deficit and further reduce the

debt to GDP ratio• increased public expenditure efficiency on primary sectors such as road infrastructure, health, education• continue to privatise in strategic sectors (oil production, energy, telecommunications, insurance etc)• maintain inflation within 2-4% band and follow a prudent monetary policy• introduce a second pillar for pensions, concurrent to the mandatory PAYG system• continue to simplify the tax system, reduce certain excessive tax rates, improve administration by fighting corruption and better serving

taxpayers needs by strengthening and expanding the tax and customs electronic filing and payment from large taxpayers to the restof the taxpaying community.

Distinguished delegates,I have tried my best to give you as clear a picture of this sector as possible. Allow me to conclude by assuring that the Ministry of Financeof Albania will always be a loyal partner to you and a great supporter of your potential initiatives in Albania!

Thank you for your attention! ❙


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Investment forum

Honorable Ladies and Gentlemen, Representatives of Businesses,

It is a pleasure to stand here today and to speak to you all about Albania and the opportunities it offers for businesses.

Initially I want to start by thanking the organisers of this event for this opportunity and I especially want to thank you all for being here. This isa clear indication of your interest in our small but beautiful country and it is very encouraging for us to see this level of interests. Your presencehere today makes us even more confident in continuing our efforts towards the development of the country in order to see a growing presenceof businesses like yourselves, who are willing to explore what Albania has to offer.

Macroeconomic outlook of Albania in 2007

I would like to start this presentation by giving you a quick overview of the economic development of Albania in the last year so that you canhave a clear picture of the business climate in the country and then I will present to you some of the investment opportunities Albania has tooffer. Feel free to ask questions to all of us and we will try our best to provide you with the information you might need in order to put Albaniain the future agendas of your business and investment plans.

The Albanian economy has marked positive developments in the last few years regardless of the many difficulties it continues to face such asinsufficient supplies of electricity. However, we are optimistic about the economic development in the country which has shown even in 2007a GDP growth rate of 6% confirming once again the overall positive trend. This growth is attributed to a number of factors starting with thereforms undertaken by the Government which aim to improve the overall business climate in the country and to further reduce theadministrative barriers faced by both foreign and domestic businesses. One of the main contributing factors to this growth, which has remainedconsistent for the past five years, is also the dynamic private sector in the country which contributes almost 80% of the GDP. This sector inthe last year has shown further consolidation and increased efficiency.

Inflation has been kept under control at the 2-4% level, in the past few years. The rate for the year 2007 was 2.9%, which is slightly higher thanthe previous year’s 2.4%, although this was mainly due to outside factor such as an increase in the price of electricity and higher prices for cerealsin the world markets.

Unemployment for the past two years has been reduced slowly, dropping to 13.2%, as opposed to 14 and 13.9% respectively in 2005 and2006. The national income per capita has also marked significant growth from USD 2, 889 in 2006 to USD 3,404 in 2007.

The influx of Foreign Direct Investments at the end of 2007 underwent a considerable increase compared to the same the year before. Weexpect the final figure to reach to 460 million Euros compared to 260 Million Euros in 2006. This is a very encouraging figure because it reflectsonce again that our efforts in trying to attract FDIs have been effective, and it shows an increase in the confidence of foreign businesses to investin Albania.

There is no doubt that the largest contribution to economic growth is attributed to the private sector, and in 2007 positive development hasbeen attributed mainly to the industrial and service sectors which have played a crucial role in the increase in employment, income per capitaand overall economic growth. The Albanian economy is by now completely open and characterised by fully liberalised trade, while the bankingsector, which is completely private, has progressively given a boost to the financing of the economy.

Therefore, as you see, both the stability level and the Albanian economy performance at the macro level are very promising. Having said that,I have to add that this is a necessary but not yet sufficient condition to invest in a country, even more so when globalisation has broken downthe time and space boundaries, and where the geographical distance is as important as the business climate, qualified labor force, efficientadministration, et cetera.

The following is exactly where the intervention of the Albanian Government and the Ministry of Economy, Trade and Energy have been focusing,in particular in the last year :

Keynote speechBy Hon Mr Gemc Ruli, Minister of Ecoomy and Energy, Government of Albania


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During this year we have advanced significantly towards the reduction of the administrative barriers through the drafting of an overall actionplan for regulatory reform aiming at the improvement of the business climate, by already achieving evident results such as:

• Shortening the time needed for registering a business activity to one day (from 42 days in the past); Starting from September 2007 the OneStop Shop for business registration (the National Registration Center) has been effective in providing this important service for new businessesin the country;

• We have completed the broad simplification of licensing procedures in the hydrocarbons sector, mining, public works, health, environmentand all other sectors. This is an ongoing process which will produce more results in the future;

• We are in the process of reorganising the inspection system in order to totally eliminate the excessive burden to businesses;• We are Completing reform in the framework of the fiscal and procurements system; the filing of e-tax and functioning of e-procurement are

in their first stages of functioning in the country.

We have passed a new law on Concessions and Public-Private Partnerships which is in line with international standards and practices and inconformity with the European Union directives. This law aims to increase the participation of the private sector in important sectors such asinfrastructure, energy, tourism industry, etc in order to provide the best possible services to the public. This law is already finding an excellentimplementation in the energy sector;

The ‘Interim Agreement’ of the free trade with the EU has gradually been implemented since 1 December 2006: the trade policies of Albaniaare progressively deepening our trade regime with a very liberal approach aiming at strengthening our competitiveness and fostering internalproduction. Our trade policies are in full compliance with the WTO principles and rules, providing consistent transparency and consultationwith all members.

The Interim Agreement provides a comprehensive agenda for Albanian trade policies and sets clear priorities and directions for improvements;The Single Free Trade Agreement, CEFTA 2006, in force from November 2007 for all the parties, is another great achievement for Albania,showing our proactive vision for trade policy. This agreement is especially important because we are not talking simply about an economic andsocial space among countries in the region of a 30 million people market, but we are talking about a whole regulatory framework having asubstantial impact onquality Infrastructure, state aid, deregulation of state monopolies, subsidies according to the EU rules of enterprises thatare under state ownership, application of the same rules for competition, and the same fiscal treatment. So, the whole regulatory frameworkis being adopted with great speed towards the EU model.

Great efforts are being put into the reform for the reduction of informality in the economy; this is one of the most challenging reformswe have undertaken. Although, we are facing an expected resistance, we are determined to take it to the end. Informality ‘per se’ is aphenomenon that strikes hard at the competition, the ability of different companies to increase their competitiveness based on thesame rules of the game, the opportunity to progress, the ability of the country to bring in more and better foreign investments, as wellas to promote a healthy economy.

Investment opportunities

So, honorable ladies and gentlemen, our legal infrastructure in the last years has seen a positive evolution. But even in the light of what Istressed above, I would like to deliver in my speech an even more practical approach by mentioning some of the sectors that display the bestopportunities to invest safely in Albania:

The year 2008 will be highlighted by three major privatisation processes in the country:

a. In the coming weeks the country’s oil refining and marketing company ARMO will be up for privatisation. You can find detailed informationon this opportunity published in the international press and also on the website of our Ministry (http://www.mete.gov.al), in brief this companyis made of:i. Two refining plants in Fier and Ballsh strategically located close to the most populated areas of the country and both of the main ports(Durres and Vlore)

ii. Terminal in the port of Vlore strategically located both for import and export purposes with accompanying storage capacities located in Nartenear the terminal.

b. Another important privatisation that will soon take place and probably the most important and complex for our country is that of theDistribution Sector of the Albanian Power Corporation. i. The International Finance Corporation was selected as the Transaction Advisor to the Albanian Government, assisting us in preparing thecompany and the process of privatisation.

ii. The expression of interest announcement for purpose of prequalification of the potential investors interested in participating in the privatisationbid, will be launched.

iii. The due diligence process of the prequalified investors will take place as soon as the first phase will be finished with the aim that Internationalopen tender for this privatisation and the contract negotiation following that tender, to be concluded within the year 2008.

c.The third privatisation to take place is that of the remaining 65% of the shares of the state owned Insurance Company, INSIG. The other 35percent of shares are owned by EBRD. We are in the process of selecting the international consultant to assist us in this privatisation whichwe aim to complete within this year.

I encourage all of you to explore this opportunities and to participate in these upcoming privatizations.

Investment opportunities in the energy sector

I would also like to say that we are seeing increasing interest in the energy sector and in particular in the construction and operation eitherthrough private investment of concessions of the electricity generation plants (more concretely Hydro Power or Thermo Power Plants). In orderto understand the growing interest in this particular sector let me explain briefly the Albanian power system.

Similar to other countries in the Balkan region, Albania has a small market, lacks primary resources, and has limited generation and interconnectioncapacities; moreover, we have an energy system that is very unbalanced. One of the peculiarities of our system is almost the full dependenceon the limited and unstable hydro resources, which are located mainly in the northern part of the country generating around 98% of thedomestic electricity production. This peculiarity, and the lack of primary energy sources had led to a high dependence on imports of electricity,which at certain periods like the years 2001 – 2002 and 2005 – 2007, reach over 50% of the entire domestic consumption. On the otherhand, the lack of interconnection capacities with the neighboring systems has also been an impediment in the effort to balance the local demandwith electricity imported from other sources in the region. These difficulties, alongside the challenges in the regional network have forced theAlbanian Government to re-evaluate its policies and the development programmes of the country and the economy in order to give priorityto the development of the energy sector.

Under these circumstances, we have foreseen a number of measures and interventions which aim at reforming and developing the infrastructureof this vital sector for the future of our economy and for the integration of Albania in the regional and European markets. While the Governmentis in the process of investing in order to increase the interconnection capacities within the regional network, we have put great efforts intoattracting private investments in the generation of power through concessions. Also, considering Albania’s unexploited hydro capacities thissector has proven to be a good destination for foreign investments also encouraged by an increase in the demand for renewable energy. Someopportunities in this sector that are available in Albania are as follows:

Hydro power generation:

Currently only 35% of Albania’s hydro capacities have been exploited. We are working on involving the private sector (both local and foreign)to participate in the development of the remaining capacities though the construction of Hydro Power Plants through a PPP model.

While the small HPPs have seen a considerable increase mainly through the participation of the Albanian businesses, we are also seeing greatinterest from large companies who aim at constructing large HPPs with the purpose of generating both for the local market and exports. Oneof the recent examples of this latter type is the tender for the construction of three Hydro Power Plants on the Devoll River of an installedcapacity about 350 MW warded to the Austrian company EVN after a successful international tender process. The contract negotiations arecurrently taking place in order to conclude such a transaction.

Also in process, there are two studies that will enable us to launch international bids for the construction of other large hydropower generationplans such as the Skavica HPP located on the upper part of the Drin River cascade, the largest river in Albania. In the mean time, we expectthe final offers of the prequalified bidders on another PPP project for construction of Ashta HPP, a 40 – 60 MW installed capacity HPP whichwill be constructed in the very downstream of the Drini River.

The pre-feasibility study for the cascade of the Vjosa River, the second largest in Albania will be completed by the end of 2008. The study resultswill serve to launch a bid for the optimisation of the hydro potential of this fully unexploited river. There are also other rivers in Albania, forwhich we have only outdated studies that are also of interest to investors, which in most cases we encourage to conduct their own feasibilitystudies and to present unsolicited proposals to the Albanian government for the construction of HPPs, such as has been the case of EVN asmentioned earlier.

Albania is regarded as having great opportunities in developing wind and solar generation capacities which currently are completely lacking inthe country and studies are under way by private investors to assess the true opportunities in these areas.


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Mining and Hydrocarbon sectors

A sector that is just as attractive is the mineral one. Albania has many ore resources, especially in copper, chrome, and nickel. The mining sectorrepresents an important contributor to the economic growth of the country and requires that its development takes place in a sustainable way.The Albanian mining sector has good mineral potential due to the prospective mineral belts with proven resource potential, and close proximityto major European markets. Albania has a broad portfolio of deposits types, some of which can be developed by domestic companies usingdomestic capital markets, and other by international mining companies using global capital markets. For the following strategic metals theexploration potential is summarised as follows:Chrome – high for small-to-medium size deposits, prospective terrains contain potential for undiscovered deposits at depths at which very fewcompanies are exploring Cooper – very high for small deposits (in clusters) with foreign explorers introducing new deposit models and modern exploration techniques.Nickel – high for medium deposits, although few companies are actively exploring

There is also an increasing interest by foreign companies in the oil and natural gas exploration and production sector. The policy for theattraction of foreign investments is based on:

• Opening of the oil and gas industry to free competition and market liberalisation• Encouragement via liberal foreign investment legislation and a specific, simple and flexible petroleum legislation• An effective and appropriate institutional organisation and simplified, flexible and fast licensing procedures.

Under the conditions of a very favorable market, many investors would be interested in those resources.

Other sectors of the economy

I would also like to mention here, as a competitive sector of great interest, the garment and leather industry. This sector comprises about 60%of our exports, and in the year 2007 alone it showed an increase of 20%. The latest trend that we are feeling is the displacement of well-knownEuropean companies from China or Romania and Bulgaria. In order to cope with that fast growth, the Albanian Government, by means of theApproved Strategy for Vocational Education and Schemes of Employment Promotion, is investing a lot of funds in vocational education andvocational training. This way Albania offers the advantages of cheap labor and geographical proximity with the EU countries.

• Very interesting are the facts that prove that the credit sector and that of insurance are becoming interesting: in the last three months threecompanies, well-known in the banking and insurance world market, bought respectively the control packages of two domestic banks and thatof an insurance company. I think that this sector too can be seen as a good option for investment;

• Very welcome and also incremental in numbers are companies that invest in agricultural production and processing, fisheries and even thatof aquaculture. Due to its characteristics and still intact opportunities, the agro-processing industry, even after the reforms undertaken in thatsector by the government, is experiencing steady growth, and especially in the last few years;

• I think that one of the sectors that will be developed in the future, judging from the interests of foreign investors, will be that of services, andmore explicitly those that are called ‘call centres’. This sector needs a labor force with a good comprehension of foreign languages. Thoseconditions are met by the domestic labor market.

Tourism

Tourism continues to be a very attractive sector too. It has seen considerable growth over the pasts few years, contributing significantly to theoverall growth of the country and employment numbers. In 2007, it marked a 19% contributing to 11% growth in employment compared to2006. Fortunately, a large part of the Albanian coast remains unexploited and here the opportunities to invest in resorts or large touristcomplexes are real and very promising. Tourism in Albania has great opportunities to develop, and that is thanks to the coastline and beautifullake areas of the country as well as the rich cultural heritage.

I am almost done with this rational and specific presentation about opportunities to invest in Albania. But I wanted, at the end of my presentation,to mention something that is not measured statistically, but that every investor has felt personally: the strong will of the Albanian Governmentto help and promote investments; the strong will to improve the business climate and to fight the corruptive practices; the will to reformeverything with speed and quality, as that is the only way that we will bring Albania in line with the other countries of the European family.

Lastly, I want to invite you all to visit Albania and to see for yourself all the changes and improvements that I have mentioned in this presentation,and to also experience first hand one of the most dynamic societies in the region. I really hope that you will find Albania to be a very gooddestination for your investment and I hope that you will become an active part of the future development of our country.

Thank you for your attention. ❙


Investment forum

Honourable Ministers, Honourable Mr Ambassador, Honourable investors and businessman,

Dear friends,

Allow me to begin my speech by thanking you for giving me the opportunity to address such a distinguished auditory and become oneof the main actors in the beginning of a long cooperation between Albanian and British investors.

It’s an honour and a privilege to be here today and introduce the innumerable investment possibilities that my country offers in the fieldof tourism.

Albania is a small country in the heart of Europe, which until not so long ago was totally isolated and unknown to many of you, a country,which in the last 17 years, that has made huge steps forward in all fields, thus coming closer to the European Union where she belongs.Like all other Mediterranean countries, Albania has been blessed with wonderful nature and climate, but unlike them, her 362km longcoastline and its mountains, which cover almost 70% of the territory, are almost totally unspoilt. In this aspect, Albania is one of a kindand offers a wide range of investment possibilities in the field of tourism.

The Albanian Government, of which I have the honour to be part, considers the development of tourism to be one of its top prioritiesand for this reason it has constantly taken measures for the promotion and facilitation of foreign investment in this field. In May 2007,the Albanian Parliament adopted the law on tourism, which regulates the tourism sector in full compliance with the standards set by the21st agenda of the European Union and covers a wide range of important aspects of tourism that were not addressed by the previouslegislation. This law aims at transforming Albania into a safe and attractive country for investors, be they foreign or local. Visitors, whoare also the consumers of the full range of Albanian tourism related services, will find in this new law the protection and guarantees thatwere lacking in the previous legislation, such as the right to complain and be paid damages in cases of bad service provided by the hostor tour operator. The Governmental structure that shall provide such service is the Tourist Service Office.

The Ministry of Tourism has finished completing the legal framework on tourism, determining the principles and rules for the subjectsoperating in the field of tourism and setting contemporary standards for tourist services and all other services related to tourism. Thislegal framework regulates the relationships existing between private institutions and private tourism subjects, local or foreign, operatingin the territory of the Republic of Albania, and determines the rights and obligations of such subjects, in compliance with the demandedstandards. We have also finished a draft law ‘On maritime tourism’ and the draft amendment ‘On some amendments and changes tothe law on tourism’.

During the last two years, the Albanian Government has undertaken colossal work for the improvement of the country’s infrastructure,especially the road infrastructure, facilitating investments, above all, in the field of tourism. The totalitarian system of the past left Albaniawith poor road infrastructure, but during the last two years hundreds of kilometres of new and modern roads have been built, amongstwhich I would like to point out includes the ongoing construction of the 150km long road that crosses the southern part of the country.

The construction of other rural roads have already begun, such as the roads that go to important archaeological sites as Bylis, Phoenikeand Antigonea.

One of the most important projects for the development of Albanian tourism is a joint project of the World Bank and the AlbanianGovernment on the Drafting of the Integrated Plan for the Development of the southern coastline (Albanian Riviera). This regionalmaster plan will serve as a support platform for other regional studies that shall be made for coastline tourist areas, because it determinesthe main criteria for the development of the southern coastline while respecting natural parks, protected areas, traditional villages ofsouthern Albania that hold cultural and historical value and natural landscapes.

Besides planning the development of the area, this project includes some very important components, such as road infrastructure investments,sewage network, port infrastructure, tourism signage and restoration of cultural monuments. The total value of this project is $13.6 Million.


Investment forum

Keynote speechBy HE Ylli Pango,Albanian Minister of Tourism, Culture, Youth and Sports


Investment forum

Another important foreign investment for the infrastructure of tourist areas is the CARDS Project, as well as the grants and investmentsof the Dutch government reaching a total of €29 Million.

With an investment of over 50 Million Euros, the new terminal of the Tirana International Airport, considered to be the ‘Gate of AlbanianTourism’ and inaugurated in March 2007, set a new record with 1.1 Million passengers travelling through it in 2007, thus marking a 22%increase compared with 2006.

Government or private ownership of land has already been determined for the rest of the Albanian coast. The list of governmentowned land has been updated offering a unique diversity of investment opportunities. This list includes:

• The area stretching along the coast of Velipoja (northern coastline), where the coastline is only some hundreds metres away from themountains and their amazingly healthy climate;

• The bay of Lalzi, which is only 40 minutes drive from the international airport of Tirana. This area is becoming a major attraction forinvestments in the field of tourism;

• The Karpen – Spille – Divjakë area, where sand dunes combine with dense forests, constituting a unique natural asset;• The bay of Vlora, or “amphitheatre of the Ionian”, with Radhima and ancient Oricum, the peninsula of Karaburn and the island of

Sazan;• The area known as the Albanian ‘Ionian sout’, beginning in Palasë and going as far as Konispol, an area of indescribable beauty. Some

of the most interesting government owned lands in this area are to be found in the amazingly beautiful villages of Palasa, Dhërmi, Jal,Himarë and Kakome.

What I have just mentioned are some of the areas that embody the Albanian coastal charm, but Albania also has breathtaking highmountains, which represent a huge potential for the development of mountain tourism.

Foreign investors, interested in investing in the Albanian tourism sector, can benefit from the Albanian law on concessions and take theabove mentioned lands by concession for a period of 35 years. According to this law, the concession contract can be renewed a secondtime for all successful businesses.

Albania is a country with ancient history and enormous cultural heritage. Despite her small surface, she has over 200 cultural monumentsof historical significance waiting to be discovered by tourists from all around the world. In this respect, Albania offers a variety ofpossibilities for tourists.

• Cultural tourism has a strong impact on local economies. The areas that promote high quality cultural tourism in Albania, such as Butrinti(UNESCO), Gjirokastra (UNESCO), Berati, Apollonia, Durrësi, Lezha, Shkodra and many more, give the tourists a better chance to getto know a previously unknown country. With the increase of the number of tourists come bigger opportunities for the preservation ofcultural heritage (I can mention the case of Butrint, where archaeology meets nature, and the case of Gjirokastra, where the castle, thehistorical centre and the characteristic houses charm tourists coming from all around the globe).

Investments and the rehabilitation of historic centres continue to be a priority of our ministry in both of the sites I mentioned above.After several years long intensive work, Berat has finally become listed as an inscribed UNESCO world heritage site.

• Gorgeous archaeological and historical sites astonish visitors with their beauty and power and underline the importance of theprotection of similar sites in our country. Maybe the best aspect of cultural tourism is that it increases the potential for diversifiedeconomic development, which boosts economic growth based on the characteristics that distinguish communities in the eyes of visitors(Like the case of Antigonea);

• Given the variety of the country’s sources of tourism, we remain focused on the diversification of the tourism related products,promoting not only sun and sand tourism, but also rural tourism in all its forms, such as ecotourism, agricultural tourism, etc. A verygood example in this concern comes from the locality of Bërzhita, near Tirana;

• A recently launched project, aiming at the promotion of the rural tourism is the Project of the 40 Inns, which is supported throughaid given by the Ministry of Tourism, Youth and Sports for the improvement of the existing conditions, the creation and promotion ofthe appropriate tourism packages for traditional houses having special architecture, according to the areas that are projected to hosttourists who are seeking an authentic experience, especially in the Albanian Alps. Ten characteristic houses have already beentransformed into inns and are waiting for their guests: Seven in the Alpine village of Theth, one in the marvellous valley of Valbona, twoothers in the Kelmendi Alpes. The project is working for the identification and preparation of the other 30 houses;

• In the framework of the better promotion of our cultural and natural resources we have drafted the 10 Great Itineraries of Albania,which divide Albania into 10 areas that can be separately visited. These itineraries include the Alps, natural and archaeological sites,UNESCO World Heritage cities such as Butrint and Gjirokastra, but also the amazing Adriatric and Ionian coastlines. We have just

launched 11 Cultural and National Itineraries, that only concern the southern coast of Albania. These itineraries offer to the visitorsa perfect combination of the country resources. All these itineraries, as well as others on which we are currently working, can easilybe found in the official website of Albanian tourism www.albaniantourism;

• The cultural and historical itineraries are another important project, focusing on the recognition of Albania’s antique and medieval cities,as well as the roads linking these cities with other eastern and western European cities. These cultural and historical itineraries areproof of the important role Albania has played throughout history, due to its favourable geographic position.

• The project ‘Traces of Venetian Culture’, describing the traces of Venetian culture along the Albanian coast, beginning with the Venetiantower in the city of Durrës, is one of the most important cultural itineraries of Albania. This project combines the discovery of differentVenetian fortresses to be found along the Albanian coast, from Shkodra in the north to Butrint in the south, reflecting the political andeconomic developments of that period and aimed at the attraction of western tourists, fond of this culture. It’s worth mentioning herethe excellent example of cooperation between Albania and Britain regarding the Unesco World Heritage Site of Butrint. Together withthe Butrint Foundation we have managed to revive the Eternal Butrint again. I take this occasion to heartedly thank Lord Rothschildand Lord Sainsbury who, through their foundation, have been present in Albania for over 10 years now.

Ladies and Gentlemen,As I mentioned above, the development of tourism is a priority for the Albanian government and the ministry I head has done remarkablework in this regard. Allow me to present some figures, which I hope shall help you better understand the immense potential Albaniarepresents when it comes to tourism:

• The total number of visitors, up until December 2007, reached 2.1 million, including Albanian immigrants residing in foreign countries,signalling the beginning of the tourism ‘boom’ for the country. The number of foreign visitors up until December 2007 reached 1.098million;

• 92% of these tourists were European, 5% American, 2% Asian and 1% from other countries;• Albania’s neighbouring countries have generated the greatest number of visitors – Kosovo 32%, Macedonia 24%, Montenegro 10%, Italy

9%, Serbia 7%, Great Britain 6%, and Greece 6%. Let me mention also the visitors from other western European countries such asGermany, Austria and France;

• The contribution of tourism in the Albanian economy is approximately 11%;• Albania has a share of 0.6% of the total demand for tourism in Central and Eastern Europe;• This year marked an increase in the number of foreign visitors, reaching the figure of 19% compared with year 2006 and 46% compared

with 2005. The greatest increase has been registered during the months of January (31%), March (30%), June (27%) and October (31%),showing a stretching of the high season throughout the year.

• The total number of visitors for the period January – March 2008 was approximately 340,000. 160,000 of which are emigrants residingabroad;

• The number of foreign visitors is 176,861, of which 1204 are day visitors and 175,657 are visitors with at least one overnight stay(tourists);

• 92% of these visitors were European, 4% American and 4% Asian;• Albania’s neighbouring countries have generated the greatest number of visitors for this first trimester : Kosovo 23%, Macedonia 28%,

Montenegro 14%, Italy, Serbia, Great Britain and Greece 9-10%;• The majority of visitors have entered Albania by land – 71%, 21% by air and 8% by sea;• The main purpose for the visitors having entered the country during the period January - March 2008 is on vacation, 83%, 12% for

business and 5% for other purposes;• The first trimester of 2008 marks a 23% increase compared to the same period of 2007 and an increase of 58% compared with 2006;• The number of beds has increased from 17,000 in the year 2004 to 34,000 in the year 2007, marking an increase of 100%. This figure

includes 11, 200 beds belonging to family tourism and 22, 800 beds to other accommodating premises;• The number of tourism agencies went from 60 in the year 2004 to 116 in 200;.• According to the World Travel & Tourism Council, the contribution of tourism to the Albanian GDP is actually around 3.8% (for the

year 2006) and we predict it will grow by 7.5% every year for the period 2007-2013;• It is forecasted that in 2013 the average income of every visitor shall be 35-40% higher than in 2006.

The gross income generated by the tourism industry in the last years are as follows:

Year 2004 Euro 592 MillionYear 2005 Euro 692 MillionYear 2006 Euro 805 MillionYear 2007 Approximately Euro1 Billion

Until not so long ago, western Europeans knew Albania only through the news, which at times, has often not been very flattering. ButI am proud to see that today this negative image that has identified my country for so long is finally changing. The Albanian Government


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has done a remarkable job and has managed to increase the available information on Albania, thus improving the image of the country.Some of the initiatives taken by us are as follows:

• Shooting of the advertisement on Albanian tourism with the slogan ‘ALBANIA, A NEW MEDITERRANEAN LOVE!’, and this wasbroadcast 133 times on the international news channel, CNN. This advertisement aims at consolidating the Albanian positions in theEuropean and World tourism market;

• On April 14th 2008, the third edition of the Albania Guide was published, supported by the Ministry of Tourism, Culture, Youth andSports. This 750 page guide presents: Albania’s tourism sources, geographical position, flora, fauna, national parks, traditional costumes,ethnography, natural monuments, accommodating structures etc;

• The creation of the Offices for Tourism Services at the local level in all of Albania’s tourist destinations. This Office serves to bothpromote these destinations to interested tourists and monitor the operations of all tourism related services provided by localoperators;

• The planning of the establishment, in collaboration with the Albanian Embassies abroad and the Ministry of Foreign Affairs, and withCentres of Albanian Tourism and Culture in some of Europe’s biggest countries. These centres aim at the promotion of Albaniancultural and tourism values in the market of origin;

• The continuous updating of the official website for Albanian tourism, www.albaniantourism.com, the showcase of Albanian tourismdevelopment in the world;

• The Albanian National Tourism Agency has already published different leaflets on Albanian tourism and culture, which are also to befound on our official tourism website, www.albaniantourism.com. NTA is currently producing a new series of promotional guide bookscovering all fields tourists could have interest in, such as archaeology, nature, sports, various activities etc;

• Our plans for medium-term tourism development include the creation of the necessary conditions for the incorporation of Albanianhotels in the ‘online booking’ process. We have already made the first steps in this regard.

In my position as Minister of Tourism, I am proud to announce that the interest of foreign investors in the Albanian tourism sector isgrowing every day. The Ministry of Tourism, Culture, Youth and Sports has recently received a considerable number of very interestingprojects from serious investors, such as Club Med and Luxury Resorts. The nationality of these investors includes the following: UK, USA,Switzerland, Greece, Italy, Austria, Israel, Hungary and Turkey.

In early 2008 the tourism department at the Ministry issued the necessary documentation to:

1. Montani Mngt Ltd (Swiss)2. Omnix Group (International)3. Land-Invest & Mlrs (UK)4. Trigranit (Hu)5. Portosecuro (Aus)6. M.C. Arancia (Turkey)

There is a growing level of interest in Albania within foreign media as well. Prestigious newspapers and magazines who have written onAlbanian tourism in the last couple of years include the following:

‘National Geographic’ – 23-09-2007‘National Geographic’ – 24-09-2007‘The Guardian’ – 11-08-2007‘European Property’ – 03-01-2008‘National Geographic’ – 14-01-2008‘Shermanstravel.com’ – 14-01-2008‘Metro’ (Canada) – 10-04-2008

These magazines, amongst others, consider Albania to be a most important destination when it comes to her coastline, and also a veryimportant destination for her mountains – the Albanian Alps, and her amazing nature and welcoming people.

Honourable Ladies and Gentlemen, Friends,I came here today to make a short presentation on Albania’s tourism panorama and to formally invite you to become Albania’s partnersin her road toward development.

The time to invest in Albania is now.

Thank you! ❙


Key contacts

Governmental Institutions

Accreditation DepartmentStreet “Reshit Collaku”, Bldg. “Eraldi”, TiranaTel: (+ 355) 4 362 566Fax: (+355) 4 364 608www.albanianaccreditation.gov.al

Albanian Agency for Business and Investments (ALBINVEST)“Gjergj Fishta” Boulevard, Bldg. Shallvare, TiranaTel: (+355) 4 252 976 / 252 886Fax: (+355) 4 222 341www.albinvest.gov.al

Albanian Directorate of Patents and Marks“Zhan D’Ark” Boulevard, No.3, TiranaTel/Fax: (+355) 4 234 412www.alpto.gov.alAlbanian Electricity Regulatory AuthorityStreet “Marsel Kashen”, No.10, TiranaTel/Fax: (+355) 4 222 963www.ere.gov.al

Albanian Insurance Supervisory AuthorityStreet “Perlat Rexhepi”, Bldg.10, TiranaTel/Fax: (+355) 4 247 148 / 250 686www.ams.gov.al

Albanian Securities CommissionStreet “Dëshmorët e 4 Shkurtit”, No.6, TiranaTel/Fax: (+355) 4 228 260www.acs.gov.al

General Department of CustomsStreet “Sami Frashëri”, TiranaTel: (+355) 4 234 499Fax: (+355) 4 243 914www.dogana.gov.al

General Directorate of StandardizationStreet “Mine Peza”, No.143/3, TiranaTel: (+355) 4 226 255Fax: (+355) 4 247 177www.dps.gov.al

General Tax DepartmentStreet “Mustafa Lleshi”, No.7, TiranaTel: (+355) 4 374 158Fax: (+355) 4 374 159www.tatime.gov.al

INSTAT – Institute of StatisticsStreet “Lekë Dukagjini”, No.5, TiranaTel: (+355) 4 222 411 / 230 484

Fax: (+355) 4 228 300www.instat.gov.al

Public Procurement Agency“Deshmoret e Kombit” BoulevardTel: (+355) 4 232 652Fax: (+355) 4 230 434www.app.gov.al

Telecommunication Regulatory Entity Street “Reshit Collaku” No.43, TiranaTel: (+355) 4 259 571Fax: (+355) 4 259 106www.ert.gov.al

Chambers of Commerce and Investors Unions

Albanian – British Chamber of Commerce and Industry“Rogner” Hotel, “Dëshmorët e Kombit” Boulevard, TiranaTel: (+355) 4 371 618 / 377 056Fax: (+355) 4 342 344www.abcci.com

The American Chamber of CommerceStreet “Dëshmorët e 4 Shkurtit”, Bldg.1, TiranaTel: (+355) 4 259 779Fax: (+355) 4 235 350www.amcham.com.al

Association of Italian Entrepreneurs in Albania“Skenderbej” Square, Pallati i Kultures, TiranaTel/Fax: (+355) 4 234 243

Chamber of Commerce and Industry of TiranaStreet “Kavajës”, No.6, TiranaTel: (+355) 4 230 284Fax: (+355) 4 227 997www.cci.gov.al

Foreign Investors Association of AlbaniaStreet “Ismail Qemali”, Bldg.7/1, TiranaTel/Fax: (+355) 4 251 030www.fiaalbania.org

Union of Chambers of Commerce and IndustryStreet “Kavajës”, No.6, TiranaTel: (+355) 4 230 284Fax: (+355) 4 227 997

Union of Investors and Industrialists in Albania“Zogu 1st” Boulevard, TiranaTel: (+355) 4 235 052 / 5 / 6Fax: (+355) 4 235 060 / 1

Key contacts

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