Albania, a formerly closed, centrally-planned state, is making the difficult transition to a more modern open-market economy.
Macroeconomic growth averaged around 6% between 2004-08, but declined to about 3% in 2009-10. Inflation is low and stable. The government has taken measures to curb violent crime, and recently adopted a fiscal reform package aimed at reducing the large gray economy and attracting foreign investment.
Remittances, a significant catalyst for economic growth have declined from 12-15% of GDP to 9% of GDP in 2009, mostly from Albanians residing in Greece and Italy; this helps offset the towering trade deficit.
The agricultural sector, which accounts for almost half of employment but only about one-fifth of GDP, is limited primarily to small family operations and subsistence farming because of lack of modern equipment, unclear property rights, and the prevalence of small, inefficient plots of land.
Energy shortages because of a reliance on hydropower, and antiquated and inadequate infrastructure contribute to Albania's poor business environment and lack of success in attracting new foreign investment needed to expand the country's export base.
FDI is among the lowest in the region, but the government has embarked on an ambitious program to improve the business climate through fiscal and legislative reforms.
The completion of a new thermal power plant near Vlore has helped diversify generation capacity, and plans to upgrade transmission lines between Albania and Montenegro and Kosovo would help relieve the energy shortages.
Also, with help from EU funds, the government is taking steps to improve the poor national road and rail network, a long-standing barrier to sustained economic growth.