Investment rates, unstable pillars of economic development

One of the most meaningful and least debated indicators in Albania’s macroeconomic analyses is the investment rate, the ratio between gross fixed capital formation (GFCF) and gross value added (GVA). This indicator is essential to understand whether today’s economic growth is laying the foundation for tomorrow’s development, or merely sustaining short-term consumption cycles.

The dynamics for 2024 show a modest increase on the surface, but with concentrated undercurrents.

According to INSTAT, in 2024:

• The non-financial sector (S.11) invested 42.55% of its GVA, up from 41.01% in 2023 — a 1.5 percentage point increase.
• The household sector (S.14) invested only 4.92% of its GVA, slightly down from 5.11% in 2023.

This means that almost the entire burden of long-term investment rests on the non-financial sector, which in reality comprises a broad mosaic of micro-enterprises, construction, trade, and services, often consumption-oriented.

A persistent investment trend in the non-public sector

The fact that over 40% of GVA in the non-financial sector goes toward fixed investment appears positive. The indicator is higher than the regional average and signals an intent to expand production or service capacities. If this rate were concentrated in manufacturing, sustainable tourism, or technology, it would represent a real potential for economic transformation.

However, it reveals a severe sectoral imbalance and a lack of depth in productivity terms.

The investment rate in Albania cannot be discussed in isolation from the nature and direction of these investments. When there is a tendency for capital to concentrate in the construction sector, often for non-productive purposes, it becomes evident that we are dealing more with a wealth shift than actual value generation. In contrast, investments in productive and value-added sectors are not occupying the space they deserve in an economy aiming for sustainable growth.

Another striking aspect is the limited involvement of households in long-term investment. Published figures show a very low investment rate from families, reflecting not only economic constraints but also the absence of effective instruments to convert savings into productive capital. This creates a gap between savings potential and the ability to influence the economic cycle through investment.

Misallocation of Private Capital

In the absence of guiding policies and a climate favoring partnerships in strategic sectors like technology, clean energy, or agro-processing, available private capital ends up in safe but not necessarily transformative areas. This hampers the transition toward a productivity- and innovation-based development model.

In this context, relying on a numerically high investment rate that fails to support economic restructuring poses a risk of slipping into a consumption-led, unsustainable growth path. Even rising wages, on this terrain, cannot serve as a long-term stabilizing tool, as they contribute more to consumption than to value generation.

This way, the economy risks falling into the trap of growth without transformation — where nominal economic volume increases, but the quality of its generating sources does not change.

The direction of investment matters more than the volume

It is clear that the way investments are directed in Albania matters more than their absolute level. If attention and capital continue to concentrate mainly in sectors like construction — often driven by speculative demand or emigration, and not in production or innovation sectors, then even the highest investment rate will not produce sustainable economic transformation. The tax structure itself, which does not clearly distinguish between productive and non-productive investments, may be pushing capital toward less strategic destinations.

At the same time, the minimal presence of households as investing actors reflects not only income limitations, but also the lack of inclusive financial instruments, such as microcredit, fiscal incentives, or financial education that could enable the conversion of small savings into development capital. This forced passivity contributes to an economy where savings do not translate into growth.

Likewise, the absence of policies guiding private capital toward high-potential sectors like technology, clean energy, or agro-processing creates a gap between investment capacity and transformation needs. If this gap continues, available capital will go where it’s easiest and least risky, but not where it’s most useful to the economy.

Within this context, wage growth, however welcome for consumers cannot support economic sustainability unless followed by growth in productive investments. Otherwise, the risk of an economic model that consumes more than it rebuilds becomes very real.

For this reason, the current model of capital generation and distribution requires not merely improvement, but a full rethinking.