Extractive industry: great wealth, but limited profitability and a narrow window of reform

According to the ALTAX Observatory study (Alb), Albania has generated a considerable volume of revenue from its underground resources during the 2010–2025 period, but the analysis of the extractive sector reveals a profound contradiction between its economic potential and the actual value realized. While direct revenues amount to approximately USD 15.8 billion, estimates of opportunity losses range from USD 16 billion to USD 47 billion, as a result of a limited fiscal structure, the lack of domestic processing, and institutional weaknesses in the management of extractive rents.

Declining Production and the Absence of Savings Mechanisms

The oil sector, once the main pillar of the extractive industry, has entered a clear downward trajectory. Production has declined by approximately 46% from 2016 to 2024, falling from 24,000 to 13,000 barrels per day. The remaining reserves, estimated at around 150 million barrels, risk being depleted between 2035 and 2040 in the absence of new investments and, more importantly, without a sovereign wealth fund to cushion this depletion.

By comparison, countries such as Norway have built strong savings and investment mechanisms through sovereign wealth funds, avoiding the classic effects of the “Dutch disease.”

Negative Impact on Productivity and Economic Structure

The analysis of Total Factor Productivity (TFP) shows a negative effect of −2.51%, confirming that the extractive sector has not acted as a driver of diversification but rather as a factor that has distorted the allocation of economic resources.

This pattern resembles cases of countries that have experienced phases of “natural resource dependence,” where short-term growth does not translate into sustainable development.

An Incomplete Value Chain and a Fragmented Economy

One of the deepest structural problems is the lack of domestic processing. Minerals such as chromium and oil are exported mainly as raw materials, leaving outside the Albanian economy the added value created during the processing stages.

If only 30% of mineral production were processed domestically, the economy could generate an additional USD 800 million to USD 1.2 billion per year. Currently, the economic multiplier effect remains around 1.2×, whereas in integrated economies it reaches 2.5–3×.

This “enclave economy” model is typical of economies where the extractive sector is not linked to domestic industry.

Accumulated Environmental Costs and Hidden Liabilities

Another critical dimension is the environmental legacy. More than 5,000 abandoned oil wells constitute a major economic and ecological liability. The cost of rehabilitation is currently estimated at USD 150–300 million, but if action is delayed, it could rise to USD 400–500 million by 2035–2040.

This is a typical example of the “cost of inaction,” where postponing decisions exponentially increases the fiscal burden.

Reform Potential: Three Transformational Pillars

The analysis suggests that there are three key interventions that could alter the economic trajectory:

• The creation of a sovereign wealth fund to accumulate extractive rents;
• Progressive mineral royalties ranging between 10–15%, with flexible schemes linked to price levels;
• Mandatory domestic processing of up to 30% of production.

These measures could double the sector’s economic contribution within five years and significantly improve its impact on productivity.

Lost Opportunities: A USD 16–47 Billion Gap

Under comparative scenarios, the Albanian economy faces a substantial gap between the current trajectory and a reformed one. The current scenario generates approximately USD 15.8 billion over 15 years, whereas an advanced management scenario could generate between USD 47 billion and USD 63 billion.

In economic terms, this represents a structural gap of USD 16–47 billion, linked not to a lack of resources but to the way they are governed.

Energy as a New Strategic Opportunity

Unlike the traditional extractive sector, renewable energy presents a more positive trajectory. Photovoltaic generation has increased by more than 679% in two years, reaching approximately 218 MW in 2024. However, the main constraint is not production, but grid integration and balancing capacity.

In this context, Albania has the potential to become a regional energy hub through projects such as LNG in Vlora, but only if transparency and open market access are ensured.

In conclusion, Albania’s extractive industry is at a critical juncture where the collision between resource depletion and the lack of reforms is shaping the country’s economic future.

The current model has generated revenues, but not transformation. While countries such as Kazakhstan and Botswana have demonstrated that extractive rents can be converted into long-term development, Albania remains at a stage where resources are being depleted faster than the country’s capacity to transform them into sustainable wealth.

The window for action is not open indefinitely, and economic time is moving faster than institutional time.