Setting the scene

In the late 1990s Albania emerged from a communist regime after years of suffering as one of the most centralised and repressed economies in the world. Isolated from the rest of Europe, the transformation to a market oriented economy and pluralistic democracy was more of a shock than in any other Eastern European country.

Initially, the fragile democracy found it difficult to exist within the new order. Most industries and the agricultural sector had collapsed; the Gross Domestic Product (GDP), which was already the lowest in Europe by early 1992, had fallen by more than 50 per cent from 1989 and the country was at the edge of hyperinflation.

The first democratic elections in March 1992 gave power to the inexperienced leaders of the young Democratic Party, which was formed at the end of 1990 and led by Sali Berisha.

Following this, Albania became the recipient of massive financial and technical aid from the world's financial institutions. The World Bank, the International Monetary Fund (IMF), the European Union (EU) and bilateral donors from Italy and the United States (US), assisted Albania between 1991-1995 with finance worth US$2.2 billion. With this help the new Government introduced a very strict programme of economic reforms, resulting in Albania becoming one of the fastest growing economies of the region, finally opening for business.

The programme of structural reforms helped Albania to achieve steady positive economic growth, which rose an average of nine per cent every year between 1993-1996. Meanwhile, the budget deficit fell sharply; the country reached all the targets set by the IMF; the currency stabilised; and inflation fell to a one digit number in 1995.

In 1992 Albania began to attract foreign investment when, in an attempt to bolster the country's industrial base, Albania introduced new mining and foreign investment laws. The new laws allowed foreign companies to invest in the country's rich mineral base, one of the finest resources of chromium, copper, and large oil and gas fields.

However, Albania also suffered from illegal activities, which picked with the foundation of the 'pyramid investment schemes'. In a country lacking a strong banking infrastructure, this led to money laundering, as most of the financial transactions were carried on through informal channels. Finally, the 'pyramid schemes' collapsed under pressure from the central bank, who warned of the danger of the schemes' growth. The collapse left the country with a loss of hundreds of millions of dollars in household savings and Albania returned to the poverty of the early 1990s. The schemes were widely condemned by international observers amid allegations from the opposition parties that the Berisha Government did not react soon enough because of its desire to gain re-election. The gains of the previous years of intense security which led to the stabilisation of the economy started to diminish. In such a climate, Berisha was forced to step away. In July 1997, Prof. Dr Rexhap Mejdani was elected as President and a new re-structuring programme began again.

Fatos Nano, Prime Minister, Albania
Albania's economic development

Arben Malaj, Minister of Finance
Foreign investments in Albania

The Bank of Albania
The Albanian banking system

Selami Xhepa, Chair, Albanian Center for Foreign Investment Promotion
A positive investment climate, competitive incentives and an investment promotion center