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Chinese Investment Developments in the Balkans 2016: Focus on Albania

June 24, 2016

Balkanalysis.com editor’s note: this analysis, by Albanian expert Blerina Mecule, constitutes the first part of our occasional series on Chinese investment in the Balkans in 2016.

By Blerina Mecule

Huntington was right when he predicted that economic regionalism was going to increase in the 21st century. Culture and religion also form the basis of economic cooperation. The most significant dividing line goes through the Balkans, and coincides with the historic boundary between the Hapsburg and Ottoman empires.

Therefore, the process of international business development and expansion has to be considered also in this framework.

The Balkans: New Signs of Chinese Engagement

In May 2016, Sarajevo hosted the Regional Business Forum, during which the Balkan governments urged to boost business cooperation in order to increase foreign investments. Promoting the benefits of a united regional economy was one of the main goals of the forum, which involved participants from Albania, Bosnia, Croatia, Macedonia, Montenegro, Serbia and Slovenia. The forum attracted more than 1,500 international delegates including Qatar, Kuwait and China.

In recent years, China has showed a growing interest in investing in energy projects and infrastructure in the Balkans. China is working to connect Europe and Asia through the New Silk Road project- which has significant ramifications, economic and political, for the whole Balkan region.

In the first day of the forum, representatives of Elektroprivreda Bosnia and Herzegovina and China’s Gezhouba Group signed an agreement for the construction of part of a lignite power plant in the Bosnian town of Tuzla, a deal which has a total value of over 700 million euros.

“This agreement represents one of the biggest post-war energy investments in Bosnia after the war,” said Saimi Zeidan, a journalist from Al Jazeera and conference moderator, reported Balkan Insight. It added that China “created the 16+1 group in 2012, an initiative aiming to improve trading and economic ties between Beijing and countries from Central and Eastern Europe.”

The mutually-perceived importance of Chinese investment in the Balkans was also highlighted by Chinese leader Li Xinping’s state visit to Serbia. According to XinhuaNet, the lavish visit – accompanied by Serbian fighter jets – was the first such visit in 32 years and came seven years after Serbia became the first regional country to sign a strategic partnership deal with Beijing. In April, Serbia’s sole steel mill (in Smederevo) was bought by China’s HeSteel Group (HBIS) for 46 million euros.

The Chinese master plan in which the Balkan and Central European countries play a role is officially called the Silk Road Economic Belt and the 21st Century Maritime Silk Road. According to XinhuaNet, it “is aimed at building a trade and infrastructure network connecting Asia with Europe and Africa along the ancient trade routes.”

Focus on Albania: Chinese Investment in 2016

While Greece, Macedonia, Serbia and Hungary are directly on the line of this proposed path, other Balkan countries are trying to reap the benefits of Chinese investment.

Regarding Albania, it is well-know that the country’s political orientation makes it one of the most pro-Euro-Atlantic countries in the Western Balkans. In the author’s September 2015 Balkanalysis.com interview with Arian Spasse, director of the Albanian ministry of foreign affair’s special department for relations with the European Union, it was noted that even though nearby countries like Italy and Greece are natural partners, the recent economic crisis in both countries have forced Albanian companies to adapt and look for new markets.

Indeed, during the first four months of 2016, business ties between Albania and China rose notably as Chinese companies acquired players in strategic sectors of the Albanian economy. In addition, China emerged as the second-largest trading partner for Albania during March 2016, accounting for 7.7 per cent of the country’s total international trade.

Energy Sector Developments

The latest moves seem to show a growing Chinese ambition to control strategic sectors of Southeast Europe’s economy. In March 2016, Canada’s Banker’s Petroleum announced the sale of oil exploration and production rights to affiliates of China’s Geo-Jade Petroleum for a price of 384.6 million euros. It is an interesting development, as Balkanalysis.com in 2012 had discussed Banker’s Petroleum activities at the time, in the context of a detailed study of the Albanian energy sector. Now the Chinese will hold those drilling rights.

Infrastructure News: an Airport Acquisition and Road and Port Development

On April 26, 2016, China Everbright and Friedmann Pacific Asset Management announced the acquisition of Tirana International Airport SHPK, which operates the Albanian capital’s major airport. The group will take over the airport until 2025, with a two-year extension to 2027 after approval from the Albanian government.

More recently on June 6, the government said announced it was ready to work with China State Construction (CSC) on the 16-mile Arber Road project leading east to Macedonia. The project value is 200 million euros.

Most recently, on June 11, Albania’s Ministry of Transport and Infrastructure signed an agreement for a yacht section of the port in Shengjin. This $7 million investment will come after an agreement was signed between the Transport Ministry and the “Adriatic” company, which won the tender. This northern Albanian port has been developed by the Chinese for several years.

Albanian Transport and Infrastructure Minister Edmond Haxhinasto said that this port will have a capacity of 200 yachts, brining tourism and employment. “The minister said that the port is designed with the most modern technology of cruise ships anchoring and it should be operational within one year,” reported China.org.cn.

The Eastern Adriatic has seen renewed interest in ports for yachts and super-yachts, the most famous case being Porto Montenegro, developed by international investors and recently purchased by a UAE interest, Investment Corporation of Dubai.

Some Concerns

However, according to Zef Preci, director of the Albanian Center for Economic Research, Chinese investment will not lead to more prosperity for the Albanian economy. “The possible geostrategic implications are not taken into consideration by the Albanian government at all,” reported Balkan Insight in early May.

Preci believes the Albanian government is simply enjoying the fact that investments are coming, regardless of the source. “I don’t think that the Euro-Atlantic spirit proclaimed in the country in the last 25 years is going to be saved with a continuous growth of Chinese companies’ presence,” he says.

A recent article in Forbes also expressed some reservations. “There is concern among some leading Albanian politicians that when China invests, it does so to export its own labor into the foreign market. This is particularly worrisome in the case of Albania that has a 17.1% unemployment rate, and where jobs are badly needed.” But at the same time, the article concedes, this month “China’s government cranked up the volume on its soft power by giving Albanian farmers a 1.3 million euro grant to buy new equipment.”

Conclusion

As is becoming increasingly clear, the Balkans is at the crossroad between East and West. The process of globalization has shifted national priorities into the internationally interconnected economic and trade interests, which in the case of the Western Balkans provides a valid counter-alternative on issues related to ethnicity and national identity, which have historically had both positive and negative consequences, even leading to wars at various times.

Hence, common regional economic initiatives, within the common path towards Euro-Atlantic structures, have proven fundamental for the Western Balkans to obtain the Western (Euro-Atlantic) “identity card” they have sought for over two decades. Their inability to do so has often been caused by factors outside of their control; now, the historic Brexit vote will have yet-to-seen implications for Balkan countries, and the EU itself.

Thus, with internal problems and enlargement fatigue gripping Europe, and the steady rise of China, the big question for the future will be if the Western Balkans in future develops on its proclaimed Euro-Atlantic path, or takes a more Euro-Asiatic one. Because of its historic relationships and positive views of the West, however, Albania is not likely to change its political orientation- even if it seeks to develop its economy with assistance from the East.

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