Agriculture is a key economic sector in Albania generating approximately 20% of GDP (vs. 2% average in EU) and is the main source of employment in rural areas, accounting for about 40% of the employed population (vs 3% in the EU). The key challenge remains transforming agriculture from a subsistence-orientated production into a modern commercial and competitive sector.
Despite the favorable climate and soil composition, which offers advantageous conditions for agricultural development in Albania, the sector is characterized by low productivity. This is due to several structural and legal issues. These include high fragmentation of arable land and very small land pots with a significant gap in terms of technology and infrastructure deficient collection, storage, marketing, distribution as well as significant collateral requirements and uncertainty over enforcement processes due to deficiencies in the land ownership titles and cadaster system, which deter the financing of the sector. In addition, underdeveloped infrastructure and agricultural support services, such as poor roads affecting agribusinesses access to markets, land-mortgage registry, licensed warehouses and overall market information advisory services, lead to an overall low level of productivity.
In addition to the above structural challenges, limited access to finance is a major impediment for growth. Agribusinesses are severely under served by the financial system with loans to the sector accounting for only 2% of the total lending to the economy, with a financing gap estimated to be around USD 750 million. Reasons for such low levels of financing are rooted in both supply (banks and other financial institutions) and demand (farmers and agribusinesses) factors.
On the supply side, local financial institutions have been conservative with agriculture lending. Financing of this sector carries higher risks, which require specific skills to manage and high operational costs. As a result, banks have only slowly invested in products and technical expertise to build effective agro-lending capacities.
On the demand side, agribusinesses often do not meet the necessary requirements to access financing. Lack of collateral, absence of licenses and business plans and overall high level of informality in the sector are serious barriers for obtaining financing. In this context of market failure, an integrated mechanism to connect sources of funding with businesses in need of funding can support closing the gap between demand and supply and contribute to the overall Albanian agribusiness sector growth by providing both dedicated financing and advisory services to these businesses.
In response to these challenges facing Albanian agribusinesses, the EBRD and the Government of Albania launched the Albania Agribusiness Support Facility (AASF) in 2016.