EXECUTIVE SUMMARY
The rapid economic development and EU integration are high on the Albanian Government’s agenda. The country’s main policies over the past few years have result ed in a liberalized economic framework and improved conditions for doing busi ness and for attracting FDI. Positive rates of economic growth were achieved in each year through 2008–2011. Albania had one of the highest rates of growth in Europe on average during this period and weathered the financial crisis relatively well. Albania is ranked 18th among 141 countries according to UNCTAD’s In ward FDI Performance Index for 2010, up sharply from the 68th place it occupied in 2005. This improved position reflects an - investor-friendly business environ ment and opportunities opened up by the privatization of state-owned enterprises. In terms of UNCTAD’s Inward FDI Potential Index, Albania was ranked 81st in 2009 (the most recent year for which data are available), far behind other European coun tries. This low ranking was due to, among other things, poor infrastructure, and mod est research and development activity. As a result of new public investments in the past four years important improvements have been made in the road infrastructure and the energy supply has become stable, but there are several other areas where improvements need to be made. The country needs further improvements in its FDI potential if it wish es to attract more FDI, especially greenfield investments by foreign transnational corpo rations (TNCs). FDI inflows increased from one quarter to one third of the value of gross domestic capital formation from 2009 (€717 million) to 2010 (€793 million). It fell back again to one quarter in 2011 (€742 million) which can still be considered as a good result in the absence of major privatization deals. FDI fi
nanced 62 per cent of the current account deficit in 2011, down from more 77 per cent a year before. Despite the 2011 decline, FDI is an important factor in Albania’s economic growth and financial stability. But a more significant decline may reduce economic growth and make the country more vulner able to external financing shocks. Albania has applied a policy framework favorable to FDI, and has more recently in troduced policies to support private-sector development in general. Measures are also underway for further improvements, includ ing in the legal system and the new agency (AIDA) in charge of investment promotion. Industrial sector (including manufactur ing and mining) accounted for almost 50 per cent of the inflow of FDI in 2010 and 2011, with mining and metal working be ing the main recipients. Some labour-inten sive industries such as wearing apparel and foot-wear have attracted a large number of projects with modest amounts of capital, mainly from Italy and Greece. The degree of foreign-affiliate participa tion in the Albanian economy is similar to that in the Central European countries. The turnover of foreign investment enterprises (FIEs, i.e. enterprises with 10 per cent or more ownership by a foreign investor) represented 29 per cent of the country’s to tal in 2010, and 51 per cent of the turno ver in manufacturing. Both these shares are 1–2 percentage points higher than they were two years earlier. The turnover of FIEs is generated by three main economic activi ties, trade (24 per cent), manufacturing (21 per cent), and transport and telecom munications (18 per cent). In manufac turing, FIEs are most important in the tobacco industry, petroleum products and the production of metals in which they produce almost the total output of the country. As to employment in FIEs, the 9