Albania | Frontier Markets

When NATO issued a formal invitation to Albania back in April to join its alliance, Sali Berisha, its prime minister, was naturally delighted. Historically one of Europe’s poorest countries, and also one dogged (to this day) by criticisms of an often questionable judicial system, Albania has a dodgy past. But Berisha feels that joining NATO will help him change Albania’s reputation for corruption and lawlessness. If accurate, this in turn could fuel a continued turnabout in the nation’s economic prospects. As one commentator observes, the fundamentals for a thriving economy are (at least in part) there:

In recent years the Albanian economy has improved . . . Between 2003-2007, Albania experienced an average 5.5% annual growth in GDP. Fiscal and monetary discipline has kept inflation relatively low, averaging roughly 2.5% per year between 2004-2006. In 2007, inflation increased to 3%, still within the target range set by the Bank of Albania. Albania’s public debt reached 54.1% of GDP in 2007, and the growing trade deficit was estimated at 22% of GDP in 2007. Economic reform has also been hampered by Albania’s very large informal economy, which the International Monetary Fund (IMF) estimates equals 50% of GDP.

In recent years especially the government has been trying to attract foreign investment and to promote domestic investment, although pundits point out that cumbersome business laws, a lack of transparency in business procedures, an archaic tax system (including tax collection), a culture of bureaucratic corruption, and no real time-tested means to solve property ownership disputes, raise many question marks. Moreover, they maintain, growth in the region may also be thwarted by inadequate energy and transportation infrastructure. Most cities aside from the capital, Tirana, and the main port of Durres, face regular power outages. Additionally, with just one international airport and a less than desirable railway system, the cost of transporting goods over mountainous terrain and poor roads is difficult and relatively expensive.

That said, as The Economist noted last week, “foreign investment is starting to flow in. A Canadian company is refurbishing neglected oilfields; a Turkish group is setting up a new mobile-phone network, [and] a new highway to Kosovo is due to be finished next summer, boosting regional trade and encouraging tourists.” And the country received high marks in two recent and “influential” reports: the World Bank’s “Doing Business” and Transparency International’s index on corruption.