Geoeconomic fragmentation, unstable supply, and strategic dilemmas for Albania and Kosovo

In the last decade, and especially after 2020, the world has shifted toward a new economic reality where globalization, once an unstoppable force of cooperation and interconnection is gradually being replaced by a new geoeconomic order, divided into blocs and dominated by strategic interests.

Albania and Kosovo, as countries on the periphery of this system, are not merely spectators but involuntary participants in this transformation with major consequences.

The IMF emphasizes[1] that globalization has entered a new phase where geopolitics has become a determinant for the flow of goods, technology, and capital. According to the model presented, the division into geoeconomic blocs will influence the divergence of technological standards, complicate international transfers, and weaken market efficiency.

This reinforces the idea that Albania and Kosovo, as countries on the EU’s periphery and outside the strategic chains of the G7 and BRICS, will face disproportionate effects of fragmentation. The impact is not just on prices, but on the functioning of the economy itself from supply standards to investments.

The fragmentation of global supply networks, driven by the US-China trade war, the COVID-19 pandemic, and the war in Ukraine, has rendered supply chains no longer functioning as integrated systems. In their place, more localized and divided approaches have emerged, often along geopolitical lines. For small economies like those of Albania and Kosovo, this brings a double risk: on the one hand, they do not benefit from global production, while on the other, they experience the shocks of disruptions with full intensity.

The example of 2022, when cement and iron prices in Albania rose by over 50%, is more than an episode of inflation it is a clear sign of structural dependence on centralized supply sources. Kosovo faces similar challenges, especially in the construction and industrial sectors, which rely on narrow and poorly diversified imports.

From rhetoric to strategy, emphasizing the vital role of diversification

In theory, source diversification is a classic mechanism for minimizing risk. But for Albania and Kosovo, it must become an active tool of economic policy—not merely a point in a long-term strategy.

The Supply Concentration Index (Herfindahl-Hirschman Index, HHI), which exceeds the 0.25 threshold for both countries, indicates a dangerous dependence on a handful of countries: Italy, Turkey, and Greece for Albania; Germany and Turkey for Kosovo. This dependence not only creates economic risk but also limits the strategic autonomy of these states in moments of crisis.

Developments in the EU and G7, such as reshoring and friend-shoring policies, offer an opportunity to follow the same logic: building more sustainable and geographically closer supply chains. In this regard, the CEFTA markets, Central Asia, or North Africa represent promising alternatives for more secure and less crisis-exposed supplies.

But these will not happen automatically, as they require detailed market analysis, financing mechanisms, long-term partnerships, and proactive trade diplomacy.

The cost of inaction is much higher

For a country like Albania, where prices and inflationary pressures directly hit consumers and fiscal capacities are limited, every effort for diversification is perceived as costly in the short term.

The same applies to Kosovo, which heavily relies on remittances and has a high dependence on imports.

But the cost of inaction is much higher.

During the pandemic, Albania experienced serious disruptions in the import of aluminum and electric panels—key products for the construction sector. This was not just a supply crisis, but translated into inflation, construction delays, and uncertainty for investors.

Thus, the apparent costs of diversification must be weighed against the long-term benefits in stability and resilience.

Selected policies as solutions, from strategic reserves to domestic production

Consequently, Albania and Kosovo should undertake selected policies:

• building strategic reserves for critical products,
• secure agreements for emergency supplies, and
• incentives for domestic producers to replace a portion of essential imports.

In times of external crises, internal adaptability is the determining factor. But here lies one of the biggest challenges for Albania and Kosovo: the lack of structural flexibility.

Labor markets are fragmented, production capacities are unsuited for new demands, while the migration of qualified labor remains an open wound.

In this context, geoeconomic fragmentation is like a mirror reflecting the fragility of these economies.

Investments in industrial parks, technological training centers, and workforce requalification are essential—not only to address the current crisis but to prevent future ones.

Human capital, not just physical capital, will determine whether Albania and Kosovo will remain passive consumers or become engaged producers in this new order.

Fragmentation, inflation, and technology, the data speaks clearly

IMF and World Bank data are clear:
A deepening fragmentation between blocs such as the EU and BRICS is expected to increase basic commodity prices for net importing countries like Albania and Kosovo.

Moreover, technological isolation could become a real consequence if steps are not taken to diversify partnerships and technology sources.

In a scenario of managed diversification, the short-term cost is minimal (around 0.02% of GDP), but the benefits during crises are significant (reduction of losses up to 12%).

This is a strong argument for moving from speculation to action.

Differentiated but synchronized strategies

In confronting shared economic challenges, Albania and Kosovo are seeking different but synchronized paths to build functional resilience.

Their approaches are designed according to each country’s structural specifics and comparative advantages.

• In the supply chain:
  • Albania aims to diversify sources for construction inputs and technology,
  • while Kosovo focuses on expanding access to construction materials beyond EU borders.
• In industrial policy:
  • Albania favors subsidies for local producers of critical inputs,
  • Kosovo promotes industrial parks focused on reshoring and technological processing.
• In the labor market:
  • Albania is directing resources toward requalification in engineering, electronics, and technology,
  • Kosovo emphasizes diaspora engagement for training and technological projects.
• In trade diplomacy:
  • Albania seeks agreements with G20 countries outside the EU (India, South Korea, Indonesia),
  • Kosovo focuses on leveraging CEFTA as a platform for regional supply chain architecture.

Both countries are showing a clear effort to adopt targeted and flexible strategies, aiming not only for survival but a sustainable repositioning in the new regional and global economy.

From small economies to smart economies

In a world dividing into new blocs, Albania and Kosovo cannot afford the luxury of inertia.

Fragmentation is not only a threat—it is also an opportunity for those who interpret it correctly and act swiftly.

The future will not depend on the size of the economy, but on the capacity to plan and undertake bold actions.

To move beyond partial transformations, Albania and Kosovo must build long-term functional resilience, supported by three key pillars:

•  A new supply architecture – Through coordination with CEFTA and the use of EU instruments (such as IPA III), both countries must establish more flexible and geopolitically resilient supply chains.

• Productive industrial policy – Support should focus on local production and strategic sectors such as construction and technology, reducing dependency on imports and shielding the economy from external inflation.

• Human capital for the future – Investment in reskilling, technological capabilities, and diaspora engagement is crucial for building a workforce ready to face the challenges of the coming decade.

If Albania and Kosovo fail to act with courage and vision, they risk remaining passive victims of global developments. But if they embrace a coordinated and strategic approach, they hold the potential to become models of smart resilience in the Western Balkans.It is no longer the size of the economy that determines destiny, but the level of preparedness and the ability to make decisions beyond routine that define the direction.

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[1] “Geo-Economic Fragmentation and Supply Chain Vulnerabilities” (WP/2025/102)