Agriculture is a key economic sector in Albania generating circa 20% of GDP (vs. 2% average in the EU) and is the main source of employment in rural areas, counting for about 40% of the employed population (vs. 3% in the EU). The key challenge remains transforming agriculture from a subsistence-oriented production into a modern, commercial and competitive sector.
Despite the favourable climate and soil composition, which offers advantageous conditions for the development of agriculture in Albania, the sector is characterized by low productivity and underdeveloped rural areas, which is due to several structural and legal issues. These include high fragmentation of arable land and very small land plots with a significant gap in terms of technology and infrastructure deficient collection, storage, marketing, distribution and management systems which affect the quality and safety of goods and the access to local and export markets as well as significant collateral requirements and uncertainty over enforcement processes due to deficiencies in land ownership titles and cadastre system which deter the financing of the sector. In addition, underdeveloped infrastructure and agricultural support services, such as poor roads, which affect agribusinesses' access to markets, land-mortgage registry, licensed warehouses and overall market information advisory services, resulting in an overall low level of productivity.
In addition to the above structural challenges, limited access to finance is another major impediment for growth. Agribusiness is severely underserviced 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 not generally invested in products and technical know-how 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 licences 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 would appear to be critical in 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.