Foreign Direct Investment in the Services Sector

The Foreign Direct Investment (FDI) represents one of the engines of the Albanian economic development. Radical changes have been made to transform the country’s economic structure into a structure oriented towards FDI, economic liberalization, creating a more flexible and attracting environment for foreign investors.

Over the last 20 years, Albania has been changing from an agricultural economy to a services-oriented one. The services sector in Albania is new and dynamic. In 2009, the services sector is estimated at 57.6% of GDP or €680.3 million, and it employs 38% of the total labor force. Given the following graph we see that the in percentage of GDP for 2009 the distribution is: the services sector (57.6%), industry and construction (23.5%) and agriculture (18.9%).


^{Source: INSTAT
Comments and analysis:ODA}

FDI in the services sector corresponds to three-quarters of the total FDI in the economy of Albania. In 2009 the investment was estimated at €680.3 million in the services sector, increasing by 9.7% from 2008. The two main services concerned are telecommunication and financial intermediation with respectively 23% and 33% of the total FDI. The telecommunication service is the most dynamic sector of services in the Albanian economy. The FDI in this sector was increased through privatizations and current investments by foreign investors. An increase of 20% in the telecommunication sector in 2009 contributed about 533 million ALL at the GDP. In the financial intermediation services, perhaps influenced by the size of investments in this sector but also by legal characteristics, the FDI are more widely spread. It is a characteristic of the transition countries, that in their early market economy development stages, the financial sector development is preceded by the development of the banking sector. Various studies have shown that the presence of banks from developed countries in the developing economies is a prerequisite for generating FDI from foreign powerful companies in other sectors of the domestic economy. In 2009 the sector grew by 9%, contributing about 443 million ALL at the GDP.


^{Source: INSTAT
Comments and analysis:ODA}

From what was shown above, investments in the financial services and telecommunication are due at the beginning to the privatization process. Once owned, the privatization firms invested significant amounts of capital by developing in this way the Albanian economy. To attract more FDI in these services as well as in other sectors of the economy – we should keep in mind that the services sector does not affect the growth of exports and consequently it does not improve the trade balance – intensification of policies that facilitate the conditions of doing business is needed.

The entire dataset is shown in the table below:


^{Source: INSTAT
Comments and analysis:ODA}