Production line at a car factory
The impacts of COVID-19 and consequent supply chain disruptions have driven some companies to consider bringing supply chains closer to production. The global automotive industry is an example, with developed countries looking beyond traditional source countries for auto parts. This is an opportunity that Albania can leverage by exploring reshoring trends in automotive value chains and more structural changes in vehicle production processes.
The European automotive industry can be divided into two areas: (1) core regions with large markets where strategic, managerial, and marketing decisions are taken and complex activities based on highly skilled labor are carried out and (2) peripheral regions characterized by small markets, where auto parts and simple components are produced for export.
Indeed, the European periphery regional automotive value chain links major international vehicle manufacturers and large tier-one suppliers, especially in Western Europe, with parts suppliers in Central and Southeastern Europe, the Middle East, and North Africa. As a result, a dense automotive trade network provides proximity to major markets, low labor costs, widespread industrial experience, and more.
Increasingly, the European periphery regional automotive value chain plays a key role in industrial development across the Western Balkans, with Serbia, North Macedonia, Montenegro, and Bosnia and Herzegovina having already established a substantial presence. The search for cost efficiency gains drove pre-pandemic investments away from the core of the European vehicle market, but COVID-19 prompted firms to refocus on suppliers that are closer. This could work in Albania’s favor.
Opportunities for Albania
The long-term trend of vehicle electrification offers Albania scope to improve its strategic position in the European periphery regional automotive value chain. With the electric vehicle subsector’s growth—including increasing electrification of conventional and hybrid vehicles—Albania as a major copper producer could emerge as a hub for copper-wire production and sub-assemblies for electric motors and onboard power electronics.
According to the Albania Country Private Sector Diagnostic (CPSD)—an assessment of private sector investment opportunities produced by the World Bank and the International Finance Corporation—the country’s auto parts industry is still in its early stages, with low labor costs the major draw. Manufacturing in Albania largely comprises labor-intensive products, requiring semi-skilled manual workers and including niche components such as exhaust systems, rubber parts, and wiring. Growing this industry will require a focus on workforce skilling, auxiliary supply chains, and incentive structures.
Albania needs a more technically skilled and productive workforce equipped with diverse managerial abilities to stay competitive and access more sophisticated segments of the auto value chain. So, expanding Albania’s technical education infrastructure is crucial. However, the sector’s long-term competitiveness will hinge on Albania’s overall cost competitiveness and ease of doing business. Government efforts to forge bilateral partnerships, create incentives, and strengthen connectivity will be key to determining the scale and quality of foreign investment and its capacity to stimulate growth among local firms.
For example, Delmon Group—a French automotive parts supplier for the automotive, aeronautics, and railway industries, with plants in France, China, and Spain—imports all its raw material because even if it found high-quality material suppliers locally, the group usually lacks the managerial sophistication to handle bulk orders efficiently.
Albania also has opportunities to partner or learn from neighboring countries:
Türkiye: Albania’s Technological and Economic Development Areas are similar to Türkiye’s Gebze Organized Industrial Zone, so studying the latter’s architectural layout and infrastructure, among others, could offer insights. Türkiye’s automotive equipment manufacturers—predominant in the European periphery regional automotive value chain—could also be off-takers for spare parts produced more competitively in Albania.
Italy: a cooperation agreement between Torino Polytechnic University and the Polytechnic University of Tirana could facilitate knowledge sharing and technological spillovers. Likewise, the European Union-funded technology center in Ispra, Italy, is highly competent in advanced automotive research. Creating academic exchange programs could help the Polytechnic University of Tirana to develop an industry-oriented curriculum.
Western Balkans: Albania can also draw lessons from Serbia’s experience with industrial zones and North Macedonia’s university-industry collaborations.
Roadmap for the future
The CPSD highlights that operationalizing Albania’s three Technological and Economic Development Areas could ensure a cluster of firms focused on this high-potential segment. Moreover, the automotive sector’s formal inclusion under the Law on Strategic Investments can inspire more confidence among investors.
Albania is also developing a strategic framework for connectivity under the Trans-European Transport Network regulations and the Transport Community Treaty. The goal is to reduce transportation costs and accelerate regional economic integration. While road and rail infrastructure projects are planned—especially along the Adriatic-Ionian corridor and Pan-European Corridor VIII—aligning logistics and road safety standards with EU is key.
Most importantly, the CPSD recommends defining the positioning of Albania’s auto parts industry within the European periphery regional automotive value chain and establishing an industry association for auto sector investors, enabling effective industry analysis and oversight while facilitating discussions with the government. That will help generate sustainable employment and ensure wage growth.
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