Import substitution: From dependency to economic sovereignty

In a world shaken by geopolitical crises, price volatility, and supply chain disruptions, Albania cannot remain hostage to import dependency. Substituting imports with domestic production is no longer an ideological or nostalgic choice—it is a strategic necessity for economic sovereignty, food security, and sustainable growth. This approach should be treated as a serious political, economic, and institutional agenda, aiming for quality employment, balanced development, and resilience against external shocks.

I. Where are we most dependent? – Sectors with high import exposure

Sectoral analysis clearly shows that import dependency is high—and in some cases, alarming. The agri-food sector—despite its significant domestic potential—imports over 50% of basic consumer products such as wheat, flour, meat, milk, oils, and sugar. Ironically, Albania even imports off-season fruits despite its favorable climate.

The construction industry is another highly dependent sector—from steel and aluminum to machinery and scaffolding. Meanwhile, everyday consumer products like detergents, plastics, clothing, and footwear are mainly imported, harming domestic competition.

The most sensitive point is technology and pharmaceuticals—categories that are almost entirely imported. Every laptop, phone, or medicine we use represents one euro leaving the local economy.

II. Why are we dependent? – A complex mix of factors

The lack of a developed processing industry is a major root of this dependency. Albania produces raw materials but does not process them. For instance, agriculture supplies fruits and milk, but lacks the capacity to transform them into juice, cheese, or canned goods.

Furthermore, high production costs—due to expensive energy and poor logistics—make importing easier and cheaper than producing. Technical capacity is also limited: technologies are outdated, R&D investment is scarce, and the workforce requires upskilling.

On the policy side, the absence of a long-term industrial strategy, fiscal instability, and unclear incentives discourage investors from taking risks in the manufacturing sector. Additionally, fragmented value chains mean that agriculture and industry operate in parallel, with little efficient interaction.

III. What does this dependency cost us?

The consequences are multiple and intertwined. Economically, Albania suffers from a chronic trade deficit and remains vulnerable to international price fluctuations. Fiscally, although imports generate VAT and customs revenue, they do not contribute to sustainable development. Socially, the lack of domestic production means job instability—especially in agriculture and industry.

In times of crisis—such as the pandemic or the war in Ukraine—this economic model becomes dangerously fragile. Supply chains are disrupted, prices rise, and the absence of domestic alternatives leaves the country in a precarious position.

IV. Where can we act? – Sectoral structure and substitution potential

Several sectors present immediate intervention opportunities with tangible effects:

• Agriculture: With 80% of inputs imported and only 20% domestic value added, the potential for food processing is immense.
• Food Industry: Dependency on wheat, oils, and preservatives can be significantly reduced through basic production investments.
• Textiles: By expanding spinning and dyeing capacities and building local brands, dependency can be lowered with major employment gains.
• Construction: Though currently balanced between imports and domestic production, improvements are possible through recycling and metallurgy investments.

In sectors like pharmaceuticals and technology, substitution potential is currently lower, but not impossible—provided investments are made in technology transfer and international collaboration.

V. Is it economically worth it? – The import substitution multiplier

Economically, import substitution generates multiplier effects. For example, each €1 not spent on wheat imports can generate €1.5–€1.8 in total production through the activation of value chains—from farmers to processors, sellers, and transporters.

In the food industry, this multiplier ranges from €1.3 to €1.6. In electronics or pharmaceuticals, the effect is more modest—highlighting the need for a selective and gradual approach.

VI. What are the main barriers?

The road is not paved with roses. Domestic producers face limited capacities, outdated equipment, and a lack of specialization. Logistics infrastructure is poor, and transport costs are a barrier in themselves. Without a solid industrial policy, investors hesitate to take long-term steps.

Additionally, consumer purchasing power is limited, and informality distorts fair competition. All these challenges require careful but coordinated interventions.

VII. What policies do we need?

a) Public Policy

• Differentiated VAT and selective customs tariffs to protect domestic production within WTO rules
• Subsidies for technology and energy
• Support for certification, marketing, and standardization
• Technology transfer centers and incentives for tech spin-offs

b) Fiscal Policy

• Lower profit tax for priority sectors
• Soft loans for supply chains
• Public-private schemes for industrial parks and agro-parks

c) Education and research role

• Vocational education aligned with real market needs
• Collaboration between universities and industry
• Testing infrastructure for standards and quality

d) Legal Framework and measurable objectives

• Reform of trade and investment legislation
• 2025–2030 targets:
  • 20% reduction in agricultural imports
  • 30% increase in domestic industrial production for local consumption
  • Broader product diversity in three core categories

VIII. Developing production infrastructure

Specialized zones are needed for agribusiness, light and heavy industry, as well as for pharmaceuticals and biotechnology. This must be accompanied by digitization of value chains and enhanced collaboration between producers, processors, and traders.

IX. Effects on the trade balance and economic resilience

Import substitution leads to a reduction in the trade deficit, increased foreign exchange reserves, and a stronger, more sustainable, and competitive economy. The only risk is excessive protectionism and price hikes—hence the emphasis that this process must be competitive, not protectionist.

From analysis to action

Replacing imports with domestic production is an investment in economic sovereignty. It requires a selective approach, inter-institutional coordination, and private sector inclusion. If implemented with political intelligence and economic determination, this strategy could become one of Albania’s core development pillars for the coming decade.

In conclusion, we consider the following actions essential:

• Drafting a National Strategy for Import Substitution, aligned with EU smart industrialization policies
• Establishing a National Agency for Industrial Development
• Networking domestic producers to build horizontal supply chains
• Launching a public campaign to promote local products—not as an obligation, but as an act of awareness and economic patriotism