FDI are considered an important factor to the economic growth of Albania. Transition to market economy and the democratic changes in the Albanian society after the 90s paved the way to the establishment of a legal framework which encouraged the flow of foreign investment. This study shows the reasons for investor motivation in Albania, considering such factors as reasons related to the low labor cost, infrastructure quality, cost of services and stimulators packages. The study is trying to find out whether investments made from foreign investors have fulfilled their predictions and if they will continue to invest in the future

Nene, Mamica

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European Scientific Journal (European Scientific Institute)

European Scientific Journal40Foreign direct investment in Albania. A study on investorsmotivationMamica Nene, PhDUniversity “Fan S. Noli “, Korca, AlbaniaAbstractFDI are considered an important factor to the economic growth of Albania.Transition to market economy and the democratic changes in the Albaniansociety after the 90s paved the way to the establishment of a legal frameworkwhich encouraged the flow of foreign investment. This study shows the reasonsfor investor motivation in Albania, considering such factors as reasons related tothe low labor cost, infrastructure quality, cost of services and stimulatorspackages. The study is trying to find out whether investments made from foreigninvestors have fulfilled their predictions and if they will continue to invest in thefuture.IntroductionThe long communistic era until 1991 was a barrier in the foreign capitalflow in the Albanian economy. Changes occurred in our country after 1991 and1992 brought the need of transition from centralized planned methods toadoption with the free market system. In order to create a competitive advantagein world markets and provide an entry ticket to European Union, financingthrough FDI is necessary. As result of these changes, there was an urgent needfor politic and economic reforms. Considering the fact that the Albanian economywas open to the free market, it began the foreign investments flow. Until 1996there was a tendency for increasing the FDI level. There was a decrease of theFDI flow in 1997 as result of political disorders after the pyramidal companiescrashed following with the Kosovo crisis in 1999. Since 2002 onwards, the FDIEuropean Scientific Journal41level has been increased reaching 658 million $ in 2007. About 60% of theforeign investments came as result of privatization process in Albania. Foreigninvestments have been mostly concentrated in main towns such as Tirana andDurres, whereas the main investors originate mainly from the countries of theRegion, where the Italian and Greek ones take the main place by 40% and 26%respectively.Investor motivation. Practical studyIn order to realize this study, secondary and primary data were taken intoaccount. In this aspect, resources of secondary data were used, provided fromnational and international institutions, economic bulletins, surveys made fromnon-profit organizations and information from the Internet. The study iscompleted with collecting primary data which consisted on the personalinterviews to 122 foreign businesses having their activity in Albania out of a totalof 1347 businesses. The statistical analysis of the questionnaires was madethrough SPSS17 program, which calculates the frequency of answers.With regard to the business sector, among selected sectors, theprocessing industry was represented by 44 companies or (36.1%), agriculture 4companies (3.3%), the textile industry 50 enterprise (41%), construction with 20companies (16.3 %), and other businesses with 4 enterprises (3.3%). There is atotal of 122 businesses.In this research, 26% of companies interviewed belonged to joint-ventureform, 53% fully foreign owned 21% belonged to the form of contractingproduction. The completely foreign companies take the highest percentage, whiletwo other forms were similar in percentage to each other.In order to find out the reasons why investors invest in Albania, aquestionnaire was compiled. It relied on the theory of John Dunning (1988,eclectic theory OLI),3 and the universal model found at Bitzenis (2003).4 Thereasons have been classified through an evaluation scale.3 Dunning J, H,(1988).’The Eclectic Paradigm of International Production: A Restatement and Some PossibleExtensions, Journal of International Business Studies. Vol 19, No 1, page 1-31.4 Arstidis Bizenis “Did Financial Incentives affect Foreign Direct Investment Inflow in Bulgaria”?  SEEJE 1(2003)page 65-84European Scientific Journal42So, concerning the low labor cost, as considered to be the reason of theirinvestment, none of the investors or 0% chose to answer “none”,  3% of themchose to answer “very little, 7% answered “a little”, 23% answered  “on average”,30% answered “very much” and 37% of them answered  “extremely”. It seemslike the low labor cost has been a strong reason for their investment decision.Concerning the fact whether their investment reasons related to the lowmaterial cost, 28% of the investors chose to answer “none”, 8% answered “verylittle”, 15% chose to answer “little”, 16% answered “on average”, 31% answered“very much”  and 2% answered  “extremely”.Asked if they decided to invest in Albania because of the infrastructurequality, 46% of the respondents answered “none” 15% answered “very little”,34% answered “little”, 5% answered “on average”, and none of them or 0%chose to answer “very much” and “extremely”. These results show thatinvestment decisions have been influenced very little from the infrastructurequality. The fact is that only the last years the Albanian infrastructure has beenimproved considerably.As far as services cost is concerned, asked if this was one of the reasonsof investing here, 8% of the respondents chose to answer “none”, 15% answered“very little”, 47% answered “a little”, 25% answered “on average”, 5% answered“very much”, and none of them or 0% answered “extremely”.Another argument related to the interest how foreigners estimate the wayof living in Albania. Asked about how they consider the living conditions, 14.7%of the respondents thought the living conditions were “very good”, 18% considerthem “good”, 39.3% answered “on average”, 18% said they were “bad” and 9.8%answered “very bad”. The aim of involving this section in to create an idea, evenabout the way how foreigners perceive their stay in Albania. Besides theirbusiness activities, they of course live a part of their lives in Albania. Regardlessthe above answers, interpretation of results of this section are better completedwith the answers provided from investors. In most of cases, the investors affirmthat nevertheless the way Albanians live, they have been trying to live in betterconditions than natives.European Scientific Journal43Another argument related to the stimulators packages. Asked if this wasthe reason they decided to invest in Albania, 18% of them answered “none”, 26%of them answered “very little”, 37% answered “a little”, 16% answered “onaverage”, 3% answered “very much”, and none of them or 0% answered“extremely”. From these answers, seems like stimulators packages are notconsidered important for the investment decisions in Albania.Performance related to predictionsAnother discussion topic is related to the fact in what level the investmenthas fulfilled their predictions or expectations. The performance related toexpectations is a critical variable to investors for two important reasons. The firstreason is related to the fact that this performance influences directly to the futureinvestment plans. In the developed countries, a high level of investments in oneyear from the FDI sector is the result of expansion of existing investment basis. Avicious circle is created when success bring more success. This is relativelyeasier to the countries that implement successful FDI programs and try toincrease the investment stock each year.In Albania, the fact that the investment stock is lower makes it difficult toincrease the stock of existing investments. After all, the low level of investmentbasis makes it more manageable to understand the satisfaction level of existinginvestors, to learn about their plans and evaluate the factors affecting theirdevelopment.The second reason why performance of investors related to expectationsis important, comes from the fact that the existing investors serve as a referencepoint for those who plan new investments.Asked about this problem, 7% of investors think that their investment hasalready fulfilled their expectations “very well” and “better than predicted”respectively, 60% think their investment was made according the prediction, 21%think their investment was “below prediction” and 5% said that the investmentwas “much more below than predicted”.European Scientific Journal44With the information provided above on investors’ motivation andperformance, the research tried to explain an insight on future plans ofcompanies’ investments and places where they would be settled. The objectivein this case was to use the collected information to provide an evaluation ofplanned investment volume according the investors’ population from threecoming years.  Such a prediction could help the Promotion Agency AlbInvest indeveloping a more focused treatment on its investment promotion programs forthe future. Asked if they would undertake new investments from three comingyears, 90% or 74% of investors said “yes”, and 32% or 26% said “no”. Thus, ahigher percentage of investors think to undertake new investments which meanexpansion of their activity.For those who think to invest in the coming years, asked about the level ofinvestment to be taken into consideration, 15% think they would invest up to 50%of the investment, 7% think about investing the double and 1% think to invest thedouble of the previous investment. Based on these results, seems like 50% ofthe investors think to invest up to 50% of the investment they have made untilnow and this is a positive opinion because it shows there will be a businessvolume expansion.Asked what would be their favorite places, 39% of the respondentsthought about the area where they had previously invested, 8% thought aboutother places around Albania and 30% thought about both options.ConclusionIn order to realize the reasons of undertaking investment activities inAlbania from foreigners, some types of research were made related to laborcosts, infrastructure, service costs and stimulators packages.From the results of the study it was drawn the conclusion that one of thereasons for foreigners to invest was the one concerning the low cost of laborpower. This is one of the above-mentioned reasons in other studies, which in turncame to be proved in the present study. Thus, foreign investors chose to invest inAlbania because of the labor low cost. However, the low cost of materials too is aEuropean Scientific Journal45factor estimated from the foreigners as “averagely important” and “veryimportant” for their investment motivation.The infrastructure quality and service cost do not seem to be consideredfrom the foreign investors, as a reason to their motivation. Such result draws theconclusion that infrastructure quality needs improvements in order to beconsidered as a factor which helps business activities.Although foreign investors have considered specifically bank andinsurance service quality seems like service cost has not been a strong reason intheir decision-making.Stimulators packages are considered as elements which attract foreigninvestors. However, indicators on stimulators packages should not be the mainfactor in their motivation. This finding remains inside the theoretical and empiricalliterature where stimulators as FDI determinants are considered as having smalleffects.In this paper, it is shown that stimulators packages have been estimatedas “less important” for investment decisions in Albania, whereas the economicconditions are considered as “averagely and very important” respectively for theinvestment decisions in Albania. These results give us the conclusion thatstimulators packages should be studied carefully from policy markers not only inavoiding undeserved favors to foreign investors but also in the fact that thesestimulating packages not always are dominating in investment decisions. Politicaland economic stability factors should be more important when an investmentdecision is made.As far as investors’ motivation is concerned, the survey tried to provideinformation on future plans for investment and their favorite places. Thisinformation helps in providing an evaluation of the investment volume thatinvestors plan for three coming years. In the same time, the Promotion Agencyshould make a more focused treatment in its investment promotion programs forthe future.European Scientific Journal46The investors’ surveys are optimistic in nature as they generally weresatisfied with the decision they had made and wished to increase theirinvestment flows in the future. Most of the respondents prefer to re-invest in theexisting place, whereas those situated in Tirana and Durres prefer to expandtheir investments in other areas of Albania.These results could serve as information to the Government for evaluatingthe tendency of investment increase and helping the development policyformulation of the country. Also, they could help the Promotion Agency to focuson forms and most favorite sectors for future investments, providing them withthe necessary assistance to fulfill their plans.Taking chance of the individual chats with investors, seemed like theycould plan to serve other markets in absence of trade tariffs and other barriers.Such an attitude is characteristic for EU countries and USA where firms oftenrationalize and concentrate the production in that area they perceive efficientwithin the marketplace. Meanwhile there is no concrete indicator from this surveythat this attitude could be present even in the context of Albanian markets, agreater integration of Albania in EU probably could lead to such rationalism in thefuture.Such attitudes are found within multinational corporations wherecompetitive advantages are often re-evaluated and place decisions are subject ofconstant reviews. These issues, which are raised as consequence of economicintegration will present challenged and new opportunities to the InvestmentPromotion Agency and the Government for the future in Albania.European Scientific Journal47ReferencesAristidis Bitzenis -Did Financial Incentives Affect Foreign Direct InvestmentInflows In Bulgaria? (SEE Journal of Economics 1 (pg 65-84) (2003)Bank of Albania – Foreign Direct Investments in Albania for 2007 EconomicBulletin volume 11 nr 4 pg 110 December (2008)Bitzenis, A., -The Determinants of FDI in Transition Countries; Incentives andBarriers Based on a Questionnaire Research; The case of Bulgaria, 1989-2000,Proceeding of international Conference, (2001)Dunning J, H,-The Eclectic Paradigm of International Production: A Restatementand Some Possible Extensions, Journal of International Business Studies. Vol19, No 1, pg 1-31. (1988).Dunning, J. H -Multinational Enterprises and the Global Economy, Wokingham,England: Addison-Wesley(1993)Dunning, John H. - Explaining the International Direct Investment Position ofCountries: Towards a Dynamics or Developmental Approach, Archive 117 no1,pg 30-64 (1981)Dunning, John H. - Globalization and the Theory of MNE Activity. University ofReading, Discussion Papers in International Investment and Management 264.(1999).Dunning, John H. -Determinants of Foreign Direct Investment: GlobalizationInduced Changes and the Role of FDI Policies. Paper presented at the AnnualBank Conference on Development Economics in Europe, Oslo (2002)Endrita Xhaferaj –Bank of Albania “Analysis in Foreign Direct Investments inAlbania” ( 2005).Endrita Xhaferaj –Foreign Direct Investment in the developing countries inEastern Europe, Albania case, September (2005)Minimax Consulting -Guide for Doctorate Research (2008)UNIDO -Pilot Survey in Sub Saharan Africa Annex Pilot Survey questions. pg41(2002)United Nations -Survey of Best Practices in Investment Promotion”. 50 questionsfor foreign investors pg 22(1997)http://www.albinvest.gov.

FOREIGN DIRECT INVESTMENT IN ALBANIA. A STUDY ON INVESTORS MOTIVATION

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FOREIGN DIRECT INVESTMENT IN ALBANIA. A STUDY ON INVESTORS MOTIVATION

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