Foreign Direct Investments increased again in the third quarter of the year and for the first time exceeded the value of 1 billion euros during the 9-month period.

According to data from the Bank of Albania, the flow of Foreign Direct Investments reached the value of 404 million euros, an increase of 15.5% compared to the same period last year.

Foreign Direct Investments this year are recording the highest historical levels. For the 9th month of 2023, the progressive value of Foreign Direct Investments reached 1 billion and 88 million euros, this figure is 10.6% higher compared to the same period of the previous year.

The full breakdown of Foreign Direct Investment by sector is not yet available.

However, according to preliminary information from the Bank of Albania, during the third quarter of 2023, incoming foreign exchange flows in the form of foreign direct investments were mainly concentrated in real estate, to the extent of 23%, the hydrocarbon sector, to the extent of 15%, the sector of energy, to the extent of 14%, as well as financial intermediation, to the extent of 10%.

Even during the third quarter, the increase in foreign investment was almost equally divided between new flows and reinvested profits of existing enterprises.

The main contribution to growth came from new capital investments, which reached 214 million euros, 41% more compared to the third quarter of 2022. Meanwhile, the reinvested profit category reached 201 million euros, up 3% compared to the same period of the previous year.

However, reinvested profits have a lead in the structure of foreign investments for the entire 9-month period. In 9 months, companies with foreign shareholders have reinvested profits in the amount of 575 million euros, or as much as 53% of foreign direct investments during this period.

The high weight of reinvested profits is typical especially for extractive industry or financial services sectors, which require continuous flows of new investments to support business growth.

The increase in reinvested profits is partially affected by the performance of the exchange rate. While new foreign investments generally come in foreign currency, the reinvested profits of foreign companies are figures reported in Lek, which are converted into Euros, which is also the currency in which the Balance of Payments is reported for statistical purposes.

The significant increase in the share of reinvested profits in the structure of foreign direct investments can be partly explained by the strengthening of the Lek in the exchange rate.

Although in the last two years the economic environment in Europe has been disturbed by strong shocks, such as the war in Ukraine and the strong inflationary wave, foreign direct investments continue to grow and touch new historical records.

For the most part, this is coming thanks to existing enterprises, but a growing contribution is also being made by the real estate sector. The market growth cycle in recent years, but also competitive prices with other countries for the coastal property segment, have aroused a growing interest from foreign investors as well.

(Source: Monitor)