TIRANA, June 15 – Austrian foreign direct investment to Albania has significantly slowed down in the past four years, turning Albania into one of the Western Balkans least attractive destinations for Austrian investors.
A report by the Vienna Institute for International Economic Studies, one of the top centers for research in Central, East and Southeast Europe, shows Austrian FDI to Albania has grown by only 10 percent in the past four years to reach a total stock of €424 million at the end of 2016.
However, when compared to 2013, Austrian FDI in Albania has in fact contracted. Albanian central bank data shows Austrian FDI hit a record high of €432 million in 2013 when Austria’s Verbund, already active in Albania through its Ashta hydropower plant sold its 50 percent stake in the Devoll hydropower plant, one of the country’s biggest foreign investment projects, to Norway’s Statkraft. The wholly-owned state-run Norwegian company has already completed one HPP and is working on its second major HPP that is expected to come into operation by the end of 2018.
The slowdown in Austrian FDI also comes amid an increase in the country’s tax burden after Albania abandoned its 10 percent flat tax in 2014 to apply a 15 percent tax on corporate income, dividends, rents and capital gains, making the country less competitive compared to other regional EU aspirant competitors applying flat tax regime of 9 to 10 percent.
Some fifty Austrian companies operate in Albania employing about 2,800 people with leading investments in the banking, insurance and hydro-electricity sectors.
Austria ranked the sixth most important foreign investor in Albania at the end of 2016 with its FDI stock accounting for 7.5 percent of the total, down from the fourth largest investor in 2012 when it held about 12 percent of the country’s FDI stock.
Earlier this year, a survey conducted by the Albanian unit of Advantage Austria, the official trade promotion organization of Austria, showed more than half of Austrian businesses operating in the country consider Albania an unattractive investment destination with corruption, lack of rule of law and bureaucracy as the top concerns.
“Compared to Austrian investments in other regional countries, Albania is a lot behind. There are still old issues such as corruption, the inefficient judiciary and poor public administration services,” said Peter Hasslacher, the head of Advantage Austria for Albania, Kosovo and Slovenia.
Trade exchanges between Albania and Austria remain low and are dominated by Albanian imports of “food and beverages” as well as “machinery, equipment and spare parts.”
The 2016 volume of trade exchanges dropped by a sharp 25 percent to 7.6 billion lek (€55.5 mln), accounting for only about 1 percent of the country’s trade exchanges, according to INSTAT.
Austria has been one of Albania’s main supporters of Albania’s since the country’s independence in the early 20th century to present day Euro-Atlantic integration efforts, also providing key development support.
The Vienna Institute report shows that at €424 million, Austrian FDI stock in Albania is higher only compared to neighboring Montenegro and Kosovo among the six EU aspirant Western Balkans countries. Austrian FDI stock in both Kosovo and Montenegro, which have been independent from Serbia for about a decade now, was at €186 million and €121 million respectively at the end of 2016.
Austrian FDI stock in other regional countries ranged from €525 million in neighboring Macedonia, to €1.27 billion in Bosnia and Herzegovina, and €3.6 billion in Serbia where Austria ranks the second most important and top investor.
Thanks to some major energy-related investment, mainly the Trans Adriatic Pipeline bringing Caspian gas to Europe and the Devoll HPP, Albania has remained the Western Balkans second largest FDI recipient in the past few years with FDI inflow peaking at about €1 billion in 2016.
“In the Western Balkans, Serbia remained the most important FDI target with inflows similar to the previous year. Albania received the second largest amount of FDI in the region, mainly in energy projects – more than before the financial crisis,” says the Vienna Institute.
“In contrast, Bosnia and Herzegovina was less successful than in earlier years, probably on account of its increasingly segmented economic and regulatory environment. Macedonia received more FDI than the year before, despite mounting political uncertainty. Suppliers of the automotive industry and electronics make the country unique in the region, with its high share of FDI in manufacturing,” the report adds.
Vienna Institute experts say forecasts for FDI inflows in 2017 point upwards, as the international economic environment continues to improve, although plagued by uncertainties while economic growth in the Western Balkans is bound to be more robust than in the previous years.
“Both consumption and investments recover and attract foreign companies in the EU-CEE and the Western Balkans. These regions have maintained cost competitiveness, despite surging wages and occasional labour shortages, by benefiting from considerable productivity improvements,” says the Vienna Institute.
Austria remains the third most important investor in the EU-CEE in terms of inward FDI stock, after the Netherlands which hosts multinational holdings and Germany which integrates most of the international value chains in the region. Austria occupies prime position in Slovenia, Bosnia and Herzegovina and Croatia. It ranks second in Bulgaria, the Czech Republic, Romania, Slovakia, Macedonia and Serbia and third in Hungary and Belarus.
