Poorly diversified energy investment dominates Albania’s FDI in year’s first half

Tirana Times
By Tirana Times September 25, 2018 17:09

Poorly diversified energy investment dominates Albania’s FDI in year’s first half

Story Highlights

  • FDI in the first half of this year mainly originated from Switzerland, the headquarters of the TAG AG consortium that is building the Albanian section of a major Trans Adriatic Pipeline bringing Caspian gas to Europe

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TIRANA, Sept. 25 – More than two-thirds of foreign direct investment that flowed into Albania in the first half of this year went to the energy sector and was mainly attributed to two major energy-related projects already in their final investment stage, unveiling tough challenges ahead with filling the huge FDI void that is expected once the key projects finish and attracting investment in higher value-added sectors.

The Trans Adriatic Pipeline and the Devoll Hydropower, the key drivers of Albania’s FDI growth in the past four years, were the main contributors in the first half of this year when FDI grew by an annual 28 percent to €494 million, up €109 million compared to the same period last year, according to Albania’s central bank.

FDI in the first half of this year mainly originated from Switzerland, the headquarters of the TAG AG consortium that is building the Albanian section of a major Trans Adriatic Pipeline bringing Caspian gas to Europe.

TAP, whose Albania section kicked off in 2014, is already in its final construction stage in Albania with the investment stage expected to complete by early 2019 before bringing first Caspian gas to Europe by 2020.

Swiss FDI to Albania during the first half of this year was at €194 million while total FDI stock from Switzerland, the overwhelming majority of which linked to TAP, was at €1.1 billion, ranking Switzerland the second largest foreign investor in the Albania.

The Netherlands, home to the major Devoll Hydropower project that is being built by Norway’s Statkraft through its wholly-owned Netherlands-based Statkraft Markets B.V., was the second largest contributor to FDI growth in the first half of this year with €101 million.

A wholly state-owned Norwegian company, Norway’s Statkraft has already made operational its first Banja hydropower plant as part of its Devoll Hydropower project, one of the country largest foreign investment projects and is set to complete its second and final Moglice HPP by early 2019.

Dutch foreign investment in Albania has also been boosted by British-Dutch multinational Royal Dutch Shell which has made some key oil discoveries in the country and is planning to engage in a production stage that could bring billions of euros in investment in the oil industry. The potential investment by Shell oil giant is currently the sole major project in sight that could replace the huge FDI gap of €200 to €300 annually left by TAP and the Devoll Hydropower starting 2019 following their completion.

FDI stock from Canada also rose by €30 million to €914 million in the first half of this year, fuelled by investment by Bankers Petroleum, the country’s largest oil producer which in mid-2016 was taken over by China’s Geo Jade.

Higher FDI in the oil sector has also been fuelled by a pickup in commodity prices with oil prices having hit a three-and-a-half year high of $80 a barrel.

  

Lower FDI from Greece, Italy

Albania saw lower FDI inflows during the first half of this year from Italy and Greece, the top trading partners and traditional investors in the country during the past quarter of a century of transition to democracy and a market economy.

FDI inflows from Greece, the traditional top investor in Albania, was at only €13 million in the first half of this year, negatively affected by several key Greek investments in the banking, health and education sectors selling their Albania units which is expected to be officially reflected on an FDI decline later this year due to most transactions taking place in the third quarter of the year.

Yet, neighboring Greece, home to half a million Albanian migrants and the traditional second largest trading partner, remained the top foreign investor in Albania in mid-2017 with an FDI stock of €1.27 billion.

Unlike trade exchanges that were severely affected by Greece’s 8-year recession that contracted its economy by a quarter by 2016, Greek FDI in Albania has doubled in the past decade.

FDI from Italy, Albania’s traditional top trading partner, also grew by a mere €16 million in the first half of this year, to rank the neighboring country across the Adriatic, also home to some 500,000 Albanian migrants, the sixth largest foreign investor in the country with an FDI stock of €646 million.

FDI from Austria and Turkey was at €34 million respectively in the first half of this year, boosted by investment in the hydropower sector.

 

Energy reliant

Albania’s FDI was largely reliant on the energy sector with investment in the oil, mining, natural gas and electricity sector accounting for about 70 percent of FDI inflows for the first half of the year.

Meanwhile, FDI stock in sectors with great potential such as the key agriculture and tourism sectors remain quite modest, negatively affected by the long-standing issue of unclear property titles that have in several cases led major investors in the travel and tourism industry to quit their Albania projects.

Albania’s FDI stock climbed to €7.1 billion in the first half of this year, representing about 60 percent of the country’s GDP.

A recent IMF study has shown Albania has managed to attract only about a tenth of the inward foreign direct investment stock in the Western Balkans in an FDI race that is led by Serbia, the region’s largest economy, with a 55 percent share alone.

As in much of the region, corruption is a key concern for potential foreign investors to Albania, where an inefficient judiciary that is being reformed also remains a key barrier.

Foreign investors have also voiced concern over Albania having a higher tax burden compared to regional Western Balkan competitors.

 

FDI incentives

Albania has extended for another year incentives on strategic investment as it prepares to draft a new comprehensive law that will provide the same protection to both Albanian and foreign investors and specify the country’s strategic sectors.

The one-year extension until December 2019 comes as a late 2015 law on strategic investment offering easier procedures to investors is set to expire by the end of this year and the ruling Socialist Party majority prepares to draft a new investment law by 2019 in a bid to improve the legal framework and attract much needed foreign direct investment and know-how.

In a bid to promote elite tourism investment, Albania has been offering tax incentives for a 10-year period  on luxury accommodation units for investments ranging from €8 million to €15 million for four and five-star units that will have to be carried out by internationally renowned chained-brand hotels or local companies under management or franchise contracts with them.

Tirana Times
By Tirana Times September 25, 2018 17:09