How is the Car - Automotive Industry in Albania?

Albania, a small country with great opportunities in automotive manufacturing

The European automotive industry can be divided into two areas: (1) core regions with large markets where strategic, managerial, and marketing decisions are made and complex activities based on a highly skilled workforce are carried out, and (2) peripheral regions characterized by small markets, where auto parts and simple components are produced for export.

In fact, the European peripheral regional automotive value chain connects large international vehicle manufacturers and major first-tier suppliers, particularly in Western Europe, with parts suppliers in Central and Southeastern Europe, the Middle East, and North Africa. Consequently, a dense automotive trade network provides proximity to large markets, low labor costs, widespread industrial experience, and more.

The European peripheral regional automotive value chain is increasingly playing a key role in the industrial development in the Western Balkans, with Serbia, North Macedonia, Montenegro, and Bosnia-Herzegovina already establishing a significant presence. The search for cost efficiency drove pre-pandemic investments away from the center of the European vehicle market, but COVID-19 has prompted firms to refocus on closer suppliers. This could work in Albania's favor.

Automotive Industry Opportunities for Albania

The long-term trend of vehicle electrification offers Albania scope to improve its strategic position in the European peripheral regional automotive value chain. With the growth of the electric vehicle sub-sector, including the increasing electrification of traditional and hybrid vehicles, Albania, as a major copper producer, could become a hub for copper wire production and sub-assemblies for electric motors and on-board power electronics.

According to the Albania Country Private Sector Diagnostic (CPSD), an assessment of private sector investment opportunities produced by the World Bank and the International Finance Corporation, the country's auto parts industry is still in its early stages, with low labor costs being its biggest draw. Manufacturing in Albania largely consists of labor-intensive products that require semi-skilled manual workers and include niche components such as exhaust systems, rubber parts, and wiring harnesses. Growing this sector will require a focus on workforce skills, ancillary supply chains, and incentive structures.

To maintain its competitiveness and access more complex parts of the automotive value chain, Albania needs a more technically capable and productive workforce equipped with a variety of management skills. Therefore, expanding Albania's technical training infrastructure is crucial. However, the long-term competitiveness of the sector will depend on Albania's overall cost competitiveness and ease of doing business. The government's efforts to establish bilateral partnerships, create incentives, and strengthen connectivity will be key in determining the scale and quality of foreign investment and its capacity to foster growth among local firms.

For example, Delmon Group, a French automotive parts supplier for the automotive, aerospace, and railway industries with factories in France, China, and Spain, finds that even when it locates high-quality material suppliers locally, the group often lacks the managerial complexity to handle bulk orders efficiently.

Albania also has opportunities to partner with or learn from neighboring countries:

Turkey: Albania's Technological and Economic Development Zones are similar to Turkey's Gebze Organized Industrial Zone, so studying the architectural layout and infrastructure of the latter, among others, can provide ideas. Turkey's automotive equipment manufacturers, who are dominant in the European peripheral regional automotive value chain, could also be buyers for spare parts produced more competitively in Albania.

Italy: A cooperation agreement between the Polytechnic University of Turin and the Polytechnic University of Tirana could facilitate knowledge sharing and technological spillovers. Similarly, the European Union-funded technology center in Ispra, Italy, is highly competent in advanced automotive research. Establishing academic exchange programs could help the Polytechnic University of Tirana develop an industry-focused curriculum.

Western Balkans: Albania can also draw lessons from Serbia's experience with industrial zones and North Macedonia's university-industry collaborations.

Roadmap for the Future of the Albanian Automotive Industry

The CPSD underlines that activating Albania's three Technological and Economic Development Zones could provide a cluster of companies focused on this high-potential segment. Furthermore, officially including the automotive sector in the Strategic Investments Law could instill greater confidence among investors.

Albania is also developing a strategic framework for connectivity under the Trans-European Transport Network regulations and the Transport Community Treaty. The goal is to reduce transport costs and accelerate regional economic integration. As road and railway infrastructure projects are planned, particularly along the Adriatic-Ionian corridor and Pan-European Corridor VIII, aligning logistics and road safety standards with the EU is key.

Most importantly, the CPSD recommends defining Albania's position within the automotive parts industry's European peripheral regional automotive value chain and establishing an industry association for automotive investors, thereby facilitating negotiations with the government while ensuring effective industry analysis and oversight. This will help create sustainable employment and ensure wage growth.