Despite the setbacks caused by the COVID-19 pandemic, Albania has managed to sustain its economic growth. However, this growth has not been sufficient to bridge the gap between Albania and the European Union in terms of GDP per capita, according to a comprehensive report by the United Nations Economic Commission for Europe (UNECE) published this week.
Over the past decade, Albania’s economy has expanded at an increasingly rapid pace, rebounding strongly from the pandemic-induced contraction. Nevertheless, the rate of convergence with the EU has been relatively slow, and Albania’s GDP per capita still lags significantly behind the EU average, representing less than one-third of it.
This disparity in living standards has led to significant emigration from Albania, resulting in remittances that make up nearly 10% of the country’s GDP. Additionally, Albania is experiencing a shrinking working-age population, and employment in the agricultural sector has been steadily declining, though it still accounts for around 35% of the workforce.
The report also highlights that Albania’s trade potential remains underutilized. Trade openness is deemed relatively low, limiting the country’s ability to overcome the constraints posed by its small domestic market.
One of the key obstacles to Albania’s fuller integration into the global economy is regulatory deficiencies and inadequate infrastructure, which hinder connectivity. While there have been some recent improvements, border crossing agreements offer significant room for enhancement. Addressing regulatory risks and improving administrative quality would positively impact trade growth and foreign direct investment attraction, facilitating export diversification and taking advantage of potential shifts in investment flows due to geographical proximity.
The report also underscores Albania’s weak innovation performance and low productivity growth, which limit the benefits of its economic development.
The labor market in Albania is characterized by high unemployment rates, low labor force participation, and widespread informal employment. Coupled with skill shortages, these structural challenges impede productivity growth. Moreover, the proportion of employment in high-skilled professions is notably lower in Albania compared to other Western Balkan countries.
Albania’s innovation performance is also weak, with a growing gap compared to the EU. According to the report, there is substantial room for improvement in the business environment, as indicated by various international rankings across different dimensions.
