Challenges and Prospects of Foreign Direct Investments in Hydropower Sector in Albania

Abstract

The role of foreign direct investment in the country's economic development is widely debated. Many countries have welcomed FDI as an essential contribution to the development processes. Albania is in trend in receiving huge FDI inflows in hydroelectric sector because it provides great opportunities to develop hydropower plants. During the last few years, FDIs in hydropower have contributed to the rapid growth of the state economy. Today, energy plays an important role to achieve sustainable development especially in developing countries like Albania. In general, electricity generation in Albania mainly depends on hydropower, as about 90% of electricity is generated by it. This thesis aims to make a deep analysis of determinants of Foreign Investments in Albania, focusing in the energy sector. Also, as it was mentioned above, it is important to analyze the relationship between FDI, electricity consumption and economic growth in Albania. The thesis uses regression model to study the relationship between electricity consumption, economic growth and foreign direct investment in Albania from the period 1985 to 2014, retrieved from the World Bank and Energy Regulator Authority. This study has found that there is a long-run relationship only among electricity consumption and economic growth. Also, if three variables, (energy consumption, FDI and GDP) are taken together to see the co-integration between them it can be said that in group they are not co-integrated to each other. Further, a questionnaire will be part of this study in order to have a clear view of foreign direct investments and to analyze the potential of the hydropower sector in Albania. More specifically, there were interviewed through structured and semi-structured interviews 72 domestic and foreign investors in the field of hydropower. The survey shows that main difficulties that foreign investors face when they invest in Albania are tax rate, political risk, property issue, corruption etc.