Agriculture is an essential economic sector in Albania, generating about 20% of GDP (compared to the EU average of 2%) and being the primary source of employment in rural areas, accounting for around 40% of the workforce in this sector (compared to 3% in the EU). The main challenge remains the transformation of agriculture from an industry producing for local needs into a modern sector oriented towards commercialization and international market competitiveness.
Although Albania’s climatic conditions and land composition are favorable for agricultural product development, the sector is still characterized by low production performance. Moreover, there needs to be more infrastructure and human resources investment in rural areas, where this sector is most concentrated, resulting in structural and legal gaps.
In this context, some of the challenges faced by Albanian agriculture today include the following aspects:
- High fragmentation of arable land;
- Lack of technological inputs, distribution infrastructure, and management systems;
- Lack of marketing and sales strategies for products;
- Inability to meet minimum credit requirements such as collateral; • Lack of land ownership titles;
- Underdeveloped infrastructure and lack of agricultural support services;
- Legal gaps.
In addition to these structural challenges, limited access to finance is another barrier to economic growth in this sector. Agribusiness is highly underestimated by the financial system when it comes to lending. As a result, agriculture represents only 2% of total lending in the economy. The reasons for such low financing levels are rooted in the supply side (banks and other financial institutions) and the demand side (farmers and agribusinesses).
Local financial institutions have shown a conservative approach to lending to the agricultural sector. This is because financing this sector carries higher risks, which require specific abilities to manage and increased operational costs. As a result, banks have generally yet to invest in products and technical expertise to build practical agro-lending capacities.
On the other hand, agribusinesses often need to meet the requirements for financing. However, this sector’s lack of collateral, licenses, business plans, and overall informality are severe obstacles to obtaining funding. Therefore, there is a need for facilitating an integrated mechanism that can mediate between financing sources and businesses in the market.
In response to these challenges Albanian agribusinesses face today, the European Bank for Reconstruction and Development (EBRD) and the Albanian Government initiated the Albanian Agribusiness and Tourism Support Facility (AATSF) in 2016.