Overview
Under socialism, Albania pursued a policy of self-sufficiency and economic development based on heavy industry, utilizing the country's extensive minerals resources. However, the country's isolation and unwillingness or inability to import the most modern technology meant that most large-scale manufacturing was primitive and inefficient by world standards, or even by contrast with its Balkan neighbours. With the transition to a market economy, Albania was simply unable to maintain most of its uncompetitive industrial plants, and production quickly collapsed.
This has meant that Albania has not had to undergo the protracted transition of more highly industrialised neighbours like Romania or the former Yugoslav republics, but it also means that Albania is lacking in the skills and resources to develop a modern industrial sector, despite the availability of raw materials and nearby markets.
Since 1990, entire sectors including steel, copper, chrome, nickel and fertilizers have expired or are operating at a tiny fraction of their former capacity. On the other hand, some sectors have survived and seen renewed growth, including food and beverage processing (see the article on Agriculture, Food and Rural Development); building materials including cement, bricks and tiles; pharmaceuticals; and some textile production.
Even at the height of the socialist drive for self-sufficiency, Albania was too small a market to support the kinds of machinery, vehicle and armaments industries developed elsewhere in eastern Europe. However consumer products sectors, notably textiles and footwear, were relatively well developed and have survived a painful transition to a market economy.
Manufacturing (i.e., industry excluding construction) today accounts for a little over 15% of Albania's GDP. This compares with 36.5% in 1990, but also with a low of 11.8% in 1997. Other than footwear, most manufacturing is still for domestic consumption, although there are prospects for exports in sectors adding value to Albania's mineral wealth, and potentially in sectors utilising Albania's low-cost but productive workforce, assuming long-term access to EU markets is assured by the Stabilization and Association Agreement signed in February 2006.

Mining and Metallurgy
Albania, like its neighbours in the Balkans, has a rich and diverse geology including globally significant reserves of nickel and chrome, and regionally significant resources of copper, bauxite, and iron ore. These were extensively developed in the communist era, building on historic copper mining as far back as Roman times, and on initial exploitation of chrome and nickel by Italian companies in the 1930s. Former industrial complexes lie crumbling outside the cities of Elbasan, Shkoder and Korce, as well as smaller towns like Lezhe, Burrel and Kukes.
Since the late 1990s several of these complexes have been granted to foreign companies under 30-year concessions, but little investment (in either existing or new) facilities has been reported. Albania has not yet attracted major international mining or metallurgical companies, and the smaller Turkish and Italian companies that have acquired concessions have apparently not been able to raise the capital needed to rebuild the country's minerals industry.
Elbasan had the largest metallurgical complex in Albania, the home of the 'Steel of the Party' integrated iron and steel works with a design capacity of around 750,000 tons per annum. Until 1990, this complex employed 12,000 people. Although the blast furnaces and basic oxygen converters closed in 1991, small scale steel production from scrap metal continued from the plant's single Italian-made Danieli electric furnace until 2006, with less than 1,000 employees. These, too, were made unemployed in February 2006 when the Turkish company Kurum, which had been granted the concession to operate Elbasan, closed the plant and withdrew from Albania, declaring that high electricity costs and the lack of protection from imported steel made its operation unprofitable. Under Kurum, production averaged less than 100,000 tons per year. The government was left looking for a new operator, one who would be willing to invest (as Kurum apparently did not) in environmental controls and new equipment.
Albania was the world's third-largest producer of chromite (after South Africa, and Kazakhstan in the former Soviet Union) in the 1980s. Chrome metal (usually in the form of ferrochrome) is used in the manufacture of chrome-bearing grades of stainless steel, with the largest buyers being West Germany, Czechoslovakia and Sweden. Production fell from close to 1 million tons of chromite in 1988, to under 80,000 tons in 1999. Chromite ore is still mined by Albkrom, the state-owned mining company, which operated processing plants at Burrel, Bulqize, Ternova, Batra and Klos. While Albchrom itself has not been privatised, individual assets have been concessioned. Two ferrochrome plants, at Burrel and in the Elbasan metallurgical complex, are held by the Italian company Darfo S.p.a., of Brescia, while the Turkish company Hayri Ogelman Madencilik operates the Kalimash mining complex, and has rights to develop other deposits.
Copper was mined at several locations in north and central Albania, and processed at smelters at Rubik, Lac and Kukes. The modern industry commenced in Rubik in 1943, under Italian occupation. Peak output, in 1988, was around 17,000 metric tons of metal; production of refined copper products ceased in 1998. Albbaker, the former state-owned copper mining company, was concessioned to the Turkish firm Ber-Ober Madencilik in 2000. Ber-Ober has invested in repairing the Fushë Arrez copper beneficiation plant but production is still at a low level.
Nickel deposits are located primarily along Albania's eastern border, with mines near Pogradec, Korce and Kukes. It is likely that future exploitation will feed modern ferronickel smelters across the border at Kavadarci (Macedonia) and Glogovci (Kosova).

Industrial minerals and chemicals
The most successful sector of heavy industry to date appears to be the construction materials sector, including cement, brick, ceramic tile, plaster and aggregates. Albania's construction boom has provided a ready market, and the costs of freight give a degree of protection domestic producers against imports. It is important to stress, though, that Albania remains a net importer of most construction materials, and is almost entirely dependent on imported glass, steel, pipes, and wiring - products in which Albania was once self-sufficient.
Two major cement plants, at Elbasan and Fushë Krujë, were privatised in 1997 and 2000 respectively, and have seen significant investment in modernising their production facilities and associated limestone quarries. Both Elbasan and Fushë Krujë are majority-owned by the Lebanese Seament Holding group, and have been the beneficiaries of World Bank-financed expansion projects. Brick production is undertaken in many cities in Albania. The brick industry has seen some foreign investment, notably from Italy in Tirana and Greece at Korcë.
Chemicals present a different picture - one of unremitting decay and a legacy of environmental disaster. Fertilizer production ceased in the late 1990s. The two biggest plants, for phosphate fertilizer production at Lac and nitrate (ammonia-urea) production at Fier, remain heavily-polluted 'hot spots' for arsenic and other poisons. Chlorine-alkali and PVC production was centered on a plant outside Vlore, where production ended in the early 1990s leaving heavy mercury contamination of soil and groundwater.

Light industry: shoes, textiles and consumer products
Albania's greatest manufacturing success story in its shoe industry - now the second-largest shoe exporter in Europe, after Italy. Italian and Greek investors have joined local Albanian entrepreneurs into this sector, producing a wide range of leather, rubber and plastic finished shoes and boots, as well as shoe components for assembly in Italy and elsewhere. In particular, the low costs of processing hides in Albania (partly, it is true, due to low environmental standards) have made Albania a leading producer of leather, both in the form of unprocessed hides and of semi-finished shoe 'uppers', most of which are exported to Italy. It is a good bet that any high fashion, hand-crafted Italian shoe or boot is actually assembled from Albanian components. The textile industry under communism produced large batches of low quality goods for the domestic market. Today, Albania's textile sector is largely one of small-scale, specialised businesses focusing on assembly for export, or niche products for the domestic market. The balance of trade in textiles has been positive since 1999, though finished products (such as cotton shirts, trousers and underwear) are still largely produced from imported semi-finished products. Italian and German companies have found Albania - principally the cities of Tirana and Shkodra - to be attractive places to produce fashion items in small batches, with high quality and flexibility. In the future, it is likely that domestic production of more of the raw materials (especially natural fibers like wool and cotton) will meet a higher proportion of the Albanian industry's needs.
Food, beverage and tobacco products are considered in the article on 'Agriculture, Food and Rural Development.' While these sectors have not yet tried to break out into export markets, the success of some producers in recapturing domestic markets from imports suggest that at least exports to the Balkan region may be on the cards soon. Albania was formerly largely self-sufficient in basic pharmaceuticals, and the industry was successfully privatized with the sale of Albania's antibiotics producer 'Euro Medica' in 1998 and the generic drugs manufacturer, Profarma, in 2003. Other small-scale manufacturing includes soap, furniture, joinery, rubber and plastics extrusions, paper products and packaging materials.

The future
As with other sectors, much of the future development of the manufacturing sector will depend on Albania's ability to solve its electricity supply and transportation infrastructure problems. However, the country's advantages - notably its location plus a low-paid but educated and productive workforce - suggest that it if Albania is now securely on the path to European integration, it does not have to join the 'race to the bottom' of third-world development.
Albania has a promising future in light industry sectors that can combine the country's low labour costs, raw materials and access to nearby European markets. Food and beverages, and wood and ceramic products, look set to join footwear and textiles as export sectors. These industries will increasingly add value in Albania, and are likely to continue to grow in the major cities, near to transportation, domestic consumers, and a young labor force that continues to migrate to Tirana and the coastal cities.
Meanwhile Albania's mineral resources, and its historic metal processing sector, appear to cry out for large-scale foreign investment. The reality, though, is that the world has many low-cost metal ore bodies awaiting development, and south-east Europe has a surfeit of metal smelting and refining capacity. With global metal demand rising on the back of increased demand from China and India, it may only be a matter of time before new investment comes to Albania's mining 'ghost towns.' A herd mentality appears to be in the nature of the mining and metals industries: once the first multinational 'major' comes in to Albania, others may rapidly follow; but that may take a while.

© SEEBusinessguides 2006/2007