Enemy at the Gate - Russian and Chinese Investments in Albania and Western Balkans

by Artan Gjergji, Senior Economics Expert*

Member of the Albanian Policy Center (APC)

At the international conference entitled “Spheres of Influence and Challenges in the Western Balkans: The Threat from Russia”, organized on November 18, 2024, in Tirana by the Konrad Adenauer Stiftung in cooperation with the Albanian Policy Center (APC), the potential risk that threatens the countries of the Western Balkans from direct and indirect, political and economic interventions of Russian and Chinese interests in the region was discussed from all perspectives among researchers, academics, diplomats and experts in physical and cyber security.

At this conference, I had the honor of sharing with the international guests my thoughts on the economic aspect of this risk, trying to see this issue not only as closely related to Albania's interests per se, but also as related to its involvement in the tensed economic and political vortex of the Western Balkans region.

Some of my thoughts and views on one of the panels of this honorable conference were as follows:

1. It seems like Albania has no direct economic influence, but the reality is a little different - if analyzed as an isolated country, Albania is the least affected country by the influence that Russian or Chinese capital has on the Western Balkans region. This is because the trade exchange levels with these countries are completely modest, and those of capital circulation or investments are completely negligible. However, looking from a political and strategic perspective, the close ethnic and political connection between Albania and Kosova means that any threat or attack that could come to this country, which Albania considers its "Little Brother", would automatically involve Albanian politics with all its economic, political, diplomatic and military arsenal in the blink of an eye. For this reason, the influence of this capital in the region should never be neglected, along with the implications that the circulation of Russian and Chinese capital has in Kosova and especially in Serbia, since they are also the main hotspot of the problem.

2. We must curb the political-economic behavior of “Josif Broz Tito-like” followed by Serbia - analyzing the political-economic behavior of Serbia under the leadership of Aleksandër Vucic, I have always been of the opinion that he is a clever imitator of the policy followed by Tito in between 60s-80s. He publicly declared himself a supporter of the left-wing socialist line and doctrine (although not aligned with Russia and the Eastern Bloc of Communist countries), while benefiting from generous financial and human resources assistance from Western capitalist countries. This is precisely the approach, as an Albanian proverb says, with “one hand in sugar and the other in sweets (baklava)” , which is being applied but in a different direction from Vucic. In other words, Vucic now publicly expresses an official pro-Western agenda and integration into the European Union, but on the other hand, he clearly “flirts” with his solid ally: Russia, politically, militarily and economically without any shyness.

There is no surprise of Serbia in this approach ala-Josif Broz Tito. In fact, the surprise comes from the “turning a blind eye” behavior by the highest EU or US leaders (expressed openly and publicly by their envoys in the Balkans), simply and only at the cost of an unjustified “fear” (in my judgment, but not only mine) of an unnecessary turmoil or problem in the Western Balkans region. In fact, the exact opposite would happen if both the EU and the US were to stop treating Vucic as their “favorite spoiled son”, putting him and Serbian politics in front of the difficult but final choice, to clearly and definitively decide on which side of the fence they want to position themselves. Only if this is done, the Western Balkans will significantly reduce the risk of Russian and Chinese influence (at least capital) in the region.

3. Albania has managed to find a good balance of preventing the inflows of Russian and Chinese capital – starting from 2016, Chinese capital has attempted to enter Albania in various forms (mainly through the “One Belt, One Road” initiative) and in many cases it has succeeded. Capital of Chinese origin has achieved its goal with the only international airport in the country, “Mother Teresa” (today TIA), which for a period of several years (2016 – 2020), was under the ownership of China Everbright Ltd. This is an asset management company with Chinese capital and located in Hong Kong, which bought it from a German business and sold it to Albanian businesses. Another case dating back to 2016 is that of one of the largest companies in Albania for the extraction and processing of oil, Bankers Petroleum, which was created with a concession contract from a Canadian company, but which was later sold to the Chinese company Geo-Jade Petroleum Corporation, which still owns it today. It should be mentioned that these two cases, are "favors" of certain interests with the support of local politics, more than a tendency for the influence of Chinese capital in the Albanian market.

There have been cases and tendencies of the Chinese capital influxes in later years, but in one way or another, the Albanian Government, supported by foreign diplomatic channels or intelligence services, has managed to become an obstacle and not allow penetration into the domestic market. Thus, Chinese capitals attempted to apply the same “hostage” lending scenario as in the case of Montenegro, with one of the main transport arteries in the country, the Arbri Road, through a financially unfavorable loan that was blocked in time before reaching the implementation phase. Also, another attempt to purchase a controlling stake in a financial institution in the country from funds with Chinese capital was blocked by the authorities even though it was still in the phase of expression of interest and due diligence of the business parties in the transaction.

Meanwhile, although at much more minimalist levels, Russian capital has made efforts to enter the country since 2012, when the Russian international company Gazprom expressed interest and became part of the international tender for the privatization of Albpetrol sh.a., the largest state-owned oil production company in Albania. Despite public and confidential intelligence information, Gazprom was ranked as the third unsuccessful bidder with 52 million euros, far below the winning bid of 850 million euros with a mixed capital between businesses from Albania and Azerbaijan. This casts doubt on Gazprom’s true intention, more to sabotage the transaction’s success from Azerbaijani competitors, than to actually acquire a significant asset in Albania. This confirms once again the belief that Russian capital has had little or no interest in the Albanian economy.

4. We must be careful about funds coming from seemingly neutral directions - although the main part of today's debate in this conference is the risk arising from Russian and Chinese influence (including capital), I think that no less attention should be paid to the capital inflows from other seemingly friendly and neutral countries such as the United Arab Emirates (UAE) or tax havens in the heart of Europe such as the Netherlands, Luxembourg, Monaco or Switzerland. Especially in countries with autocratic tendencies and without elite circulation such as those of the Western Balkans, a significant part of the transactions for strategic foreign direct investments from these countries leave much to be desired with the lack of transparency regarding the identity of the end-investors or the origin of the income sources. This phenomenon leaves the countries receiving the capital exposed to unknown and sometimes even hostile groups and interests.

For example, although Albania apparently has most of its capital for foreign investments originating from EU countries such as the Netherlands or Luxembourg and more recently from Dubai, if the ultimate investors are investigated, it turns out that most of them come from shell companies registered offshore and that the real identity of the ultimate shareholders is unknown.

With this element, I don’t mean that these investments are currently part of or included with capital originating from Russia/China, but one thing must be very clear. Capital is like flowing water, and it seeks a path. Therefore, when Russian or Chinese capital finds a strong blockade to enter directly into the Western Balkan countries, they will look for alternative indirect methods by creating outlets in different locations (mainly tax havens) to enter the region without any problems.

For this reason, I agree with the idea put forward by politicians and academics that Albania, but also all the countries in the region that are part of NATO or that have a clear pro-Western agenda, should create special structures to verify (fact-check) the origin and purposes or agendas of foreign capital entering the region. Such organizations would protect the Western Balkans fragile economies from unnecessary macroeconomic shocks with certain and unfriendly geopolitical backgrounds.

5. Europe should avoid double-standard behavior - another element that I would like to emphasize in this honorable panel, has to do with the fact that Europe, which in many cases puts pressure on the Western Balkans countries to become a barrier to capital investments from Russia or China, is not blocking these funds on their side. It is enough to mention Russian investments in the gas sector or the petrol stations of the Russian company Lukoil distributed in Germany and continental Europe; or the large railway project from Hamburg to Beijing and Shanghai, to understand that the European Union must be more coherent in its behavior and actions.

On the other hand, we must never forget that one of the main reasons that has facilitated the penetration of Russian and Chinese capital is the negligence or lack of interest shown by EU regarding the economic problems in Western Balkans, expressed also by the very low level of investments from the EU in the region. Thus, the EU in the Growth Plan for the Western Balkans approved by the European Commission in November 2023, foresees a fund of about 6 billion euros for the region, when China alone has planned more than 32 billion euros of investments years ago. The difference is clear, while the Western Balkan countries are growing countries with an extraordinary need for financing but also frustrated by the long and tedious process of European integration.

*Note – this statement was made at the international conference entitled “The Spheres of Influence and Challenges in the Western Balkans: Threat from Russia”, organized on November 18, 2024, in Tirana by the Konrad Adenauer Stiftung in cooperation with the Albanian Policy Center (APC)