September 25, 2008 / 12:26 AM / 9 years ago

Little Albania grows towards the mainstream

TIRANA (Reuters) - In times of economic turmoil in many countries, Albania, once the most isolated and desperately poor nation in Europe, is showing robust growth and attracting attention from foreign investors.

A modern airport opened in 2007 and in the capital Tirana, Bang & Olufsen sells expensive audio and video products to prosperous Albanians, albeit a few blocks from the main squares where pavement tiles are still cracked.

Economists including the International Monetary Fund expect GDP growth of at least six percent this year, which would be among the highest in eastern Europe, if the country can avoid the chronic power shortages that have hampered it in the past.

In June, the former Stalinist Balkan country of 3.3 million moved up to a “middle income” country from low income in World Bank classifications, receiving an invitation this year to join NATO. It expects to apply for EU membership next year.

A World Bank study this month rated Albania as best in the Balkans and among the world’s top 10 countries for easing business regulations.

“Three years ago, although there has been growth and macroeconomic stability, still the country was really not at all preferred by foreign investors,” Prime Minister Sali Berisha told Reuters in an interview earlier this month.

In his post since September 2005, he says he has fought corruption, lowered taxes, reduced the size of government and introduced a series of business-friendly laws.

Despite “a tremendous lowering of taxes and tariffs,” Berisha said his government had in three years generated more revenue than the previous one did in six.

AMRA, a U.S.-Swiss group, bought the ARMO crude oil refineries for 125 million euros ($183.3 million) this summer in what was one of the biggest privatizations since Albania toppled communism in 1990.

Construction is key.

The government has made building a road linking Albania’s main port of Durres and Kosovo its top priority although the 600 million euro artery has stretched its resources. Berisha says it will integrate Albania’s agriculture with Kosovo‘s, help trade and tourism, and revive the poor north.

Italy’s power utility Enel wants to build a coal-fired power station and is looking into nuclear opportunities. Austria’s EVN is about to clinch a 1 billion euro ($1.39 billion) deal to build hydropower plants. Greek and Spanish firms are building cement factories. The British want to build ports.

In another sign Albania is keen to work with global institutions, finance ministry officials say it plans its first Eurobond later this month, for 250-300 million euros. “We want Albania to be listed on the euro markets, in the financial markets,” said Deputy Finance Minister Sherefedin Shehu.

While Balkan countries such as Macedonia and Serbia have stock markets, Albania’s plans to develop one remain on hold. Public wariness remains strong in the wake of pyramid scheme scandals of the late 1990s which led to months of anarchy in which more than 2,000 people died.

Albanians accept it may take at least a decade before the country becomes a full member of the rich group of democratic states.

“We are far from the standards,” Shehu said. “I don’t expect it to happen in seven or eight years, 10 perhaps.”

MANY PROBLEMS

Many people still complain their lives in Europe’s second poorest country after Moldova have not improved significantly and rising fuel prices have forced them to leave their cars at home.

“Only a few people lead the good life. The rest are having trouble making ends meet because of rising prices,” said Arben Nivica, whose boutique sells imported clothes.

And as in many developing countries, big challenges exist. “Still there remain many problems, still there is corruption,” Berisha said.

Other problems include an inefficient judicial system, hazy property titles, poor trash collection, and the shortage of energy. Albania relies almost completely on hydropower, but has not been able to meet growing demand because of a lack of rain and an ailing distribution network.

Blackouts have affected domestic and industrial customers, especially in winter, since the end of communism. At the peak of demand in winter Albania imports between eight and 12 million kilowatts a day mainly from Balkan neighbors.

“Certainly more needs to be done as regards democratic culture and the independence of state institutions, and as regards the rule of law, and the fight against organized crime and corruption remains a major challenge,” said EU Enlargement Commissioner Olli Rehn earlier this month.

Sometimes economic development appears a little out of control. Tirana Mayor Edi Rama, who is also leader of the opposition Socialists, complains that building on the capital’s outskirts is unregulated and could cause problems.

“Every fast growth has its advantages and disadvantages,” he told Reuters. “The city is being more and more surrounded and suffocated in the surrounding counties.”

The head of the central bank, Ardian Fullani, singled out property titling as a key issue facing Albania.

“The main problem, the main topic in Albania, remains... the efficiency of the structural reform, beginning from the issues over the title of the land,” he said in a recent interview. “To get a clear title is very difficult.”

One example is a Club Med resort project still on hold after several years.

“It is a problem,” Prime Minister Berisha said about registration of property, but added: “Foreign investors don’t face serious matters about it because as far as prices are low they solve it.”

Tourism offers huge potential, as much of the country’s 362 km (224 mile) coastline is undeveloped. But the energy shortage, poor waste collection and weak transportation have slowed investment. “There are several big companies looking from all over the world, United States, Germany, Italy,” Berisha said.

Albania also suffers from a large trade deficit, alleviated mainly by remittances from Albanians abroad. ”That is what the country is living on,“ said one foreign ambassador, who declined to be identified because he was not authorized to speak to the media. ”There is very little production here.

“If the building (boom) stops, the economy may collapse,” he added. “I have my doubts it is sustainable.”

Archbishop Anastasios Yannoulatos, head of the Albanian Orthodox Church, complained about high taxes on restoration work and a complex legal system that makes it hard to solve property disputes. Most of all, the Greek-born church leader cautioned, things take time in Albania.

“You have to wait here,” he said in an interview. “You need first patience, second patience, and third patience.”

Editing by Sara Ledwith

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