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2013 Investment Climate Statement - Albania


2013 Investment Climate Statement
Bureau of Economic and Business Affairs
April 2013
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Openness to Foreign Investment

Albania has put in place a liberal foreign investment regime with the goal of increasing FDI. The Government of Albania (GOA) has taken measures to improve the overall business climate in the country by streamlining business procedures through e-government reforms and undertaking comprehensive structural reforms to both improve relevant legislation in a variety of sectors and lower fiscal burdens for companies. Despite progress in these reforms, major challenges remain with investors citing endemic corruption, weak law enforcement, insufficiently defined property rights, government red tape, lack of developed infrastructure, and frequent changes in the legal framework.

Legal Framework

The 'Law on Foreign Investment' is designed to create a hospitable climate for foreign investors and stipulates the following:

  • No prior government authorization is needed for an initial investment and no sector is closed to foreign investment;
  • 100 percent foreign ownership of companies is permissible;
  • Foreign investment may not be expropriated or nationalized directly or indirectly, except for designated special cases, in the interest of public use and as defined by law;
  • Foreign investors enjoy the right to expatriate all funds and contributions in kind from their investments; and
  • Foreign investors receive ‘most favored nation’ treatment according to international agreements and Albanian law.

Additionally, in September 2010, the parliament approved several amendments to this law that provide special protection for foreign investment in the tourism, energy and agriculture sectors. This state special protection is not granted a priori but only after occurrence of a dispute, through a decision of the Council of Ministers following a request presented by the respective minister and the foreign investor.

According to the ‘Law on Foreign Investments’ special state protection is also granted to real estate investments under the Albanian Concession Law. This applies to immovable property made available to the foreign investor by the Albanian state or an immovable property over which the foreign investor has rights based on a valid, legal, public document or act issued by a competent state-entity or public authority, where such investment exceeds or is foreseen to exceed the value of EUR 10 million. Under the special state protection, the foreign investor is represented in the judiciary process by the Albanian state and any injunction order issued by the court shall be executed over state properties.

The ‘Law on Protection of Competition’ governs incoming foreign investment whether it is through mergers, acquisitions, takeovers, or green field investments, irrespective of the industry or sector. In the case of particular share transfers in insurance and banking industries, additional regulatory approvals are needed. Also, transactions between parties outside Albania -- "foreign to foreign" transactions -- are covered by the competition law which explicitly states that it applies to all undertakings, whether domestic or foreign, whose activities have a direct or indirect effect on the Albanian market.

There are limited exceptions to this liberal investment regime - most of which apply to the purchase of real estate: agricultural land cannot be purchased by foreigners, but may be rented for up to 99 years; and commercial property may be purchased, but only if the proposed investment is worth three times the price of the land. There are no restrictions on the purchase of private residential property.

Investors in Albania are entitled to judicial protection of legal rights related to their investments. Foreign investors have the right to submit disputes to an Albanian court. In addition, parties to a dispute may agree to arbitration. Provisions regarding domestic and international commercial arbitration are incorporated into the Albanian Code of Civil Procedure. However, many companies complain about the sluggishness of the courts and the endemic corruption in the judiciary. The continued delay in the establishment of the Administrative Court is another factor that lengthens the time of court proceedings.

Taxation

Albania's tax system does not discriminate against foreign investors; no distinction is made between foreign and domestic investors. Reforms are ongoing to increase the efficiency of tax administration and to reduce corruption. In 2008, Albania reduced corporate income tax from 20% to 10% and cut social security contributions paid by employers to 15%. Albania now has a flat 10% tax on both personal and corporate income and a VAT of 20%. Employers currently contribute 15% and 1.7% respectively of employees’ salary for state social security and health programs.

A major concern for the business community is reference prices (alternately called market prices) that customs officials use to calculate dues on imported goods, although the GOA claims the use of reference prices is limited. Reference prices are also used by tax authorities to determine salaries (for the purpose of calculating personal income tax, social and health contributions) as well as real estate transactions.

Visa requirements

Visa requirements to obtain residence or work permit requirements are straightforward and do not pose an undue burden on potential investors. There are no discriminatory or preferential export and import policies affecting foreign investors. Albania has no local content requirements.

The ‘Law on Entrepreneurs and Commercial Companies’ sets guidelines on the activities of companies and the legal structure under which they may operate. The law was updated in 2008 to conform Albanian legislation to the European Unions's acquis communitaire. The most common type of organization for foreign investors is a limited liability company. (See “establishment” below for other forms.)

Business Licenses

The National Business Registration Center, established in September 2007, serves as a one-stop-shop for business registration. Starting a business is now easier with online publishing of forms and procedures, reduction of registration costs, and the consolidation of tax, health insurance, and labor registration into a single application. Business licensing has also been streamlined with the opening of the Business Licensing Center in July 2009. As a result, many licenses were abolished and a broad simplification of licensing procedures has been implemented across several sectors.

Public Procurement

Albania improved public procurement procedures by introducing an e-procurement law in 2006. Direct tendering has been abolished (except for defense procurements) and criteria to identify abnormally low bids have been introduced (although not fully in line with the acquis.) The 2010 amendments of the law established the Public Procurement Commission (PPC), transferring the claims-reviewing function from the Public Procurement Agency (PPA) to the Commission. (Previously the PPA was responsible for both policymaking and implementation of the law, as well as with reviewing the claims.) The Public Procurement Advocate, established in 2008, performs functions similar to an ombudsman by safeguarding the rights and interests of bidders against acts or omissions by contracting authorities. Regardless of legal improvements, companies confront a nontransparent process when competing for public tenders whether it is ‘fixed’ technical specifications designed to lock out a potential bidder or a lack of clear communication with the relevant ministries. A lack of enforcement of existing laws is also a common challenge foreign companies grapple with.

Concessionary Projects

The 2006 ‘Law on Concessions’ established the framework for promoting and facilitating the implementation of privately financed concessionary projects. The law aims to enhance transparency, fairness, efficiency and long-term sustainability in the development of infrastructure and public service projects. One of its major amendments includes improved regulation for unsolicited proposals and of public-private partnerships in general. The law applies to the following sectors:

  • education and sport;
  • electricity and heating: generation and distribution ;
  • health;
  • IT and database infrastructure: service and maintenance ;
  • natural gas distribution;
  • prison infrastructure;
  • public service provision and management contracts, including those related to sectors specified above.
  • recycling projects, rehabilitation of land and forests, in industrial parks, housing, governmental buildings,
  • solid waste: collection, transfer, processing and administration ;
  • telecommunication;
  • tourism and culture;
  • transport (railway system, rail transport, ports, airports, roads, tunnels, bridges, parking facilities, public transport);
  • water: production and distribution, treatment, collection distribution and administration of waste water, irrigation, drainage, cleaning of canals, dams;

In order to promote investment in priority sectors, the GOA may offer concessions to local or international investors for the symbolic price of one Euro. The Government may, with the approval of the Minister of Economy, authorize concessions in other sectors besides those listed. The law does not apply to concessions that require a separate operating license, unless that is included in the framework of the concession agreement.

Albania has completed most privatizations of state-owned enterprises with only a few left. These privatizations are to be carried out by open international tender or auction. Outstanding privatizations include: state-owned insurer INSIG, state-owned oil company Albpetrol, 16% of telecom operator Albtelecom and its constituent Eagle Mobile, and the privatization of real estate owned by the military. The privatization process for four small Hydropower Plants (HPPs) is expected to be finalized in early 2013 and is ongoing for the oil company Albpetrol.

The GOA does not screen foreign investment; U.S. investors are extremely popular with both government officials and ordinary citizens. Companies interested in entering the Albanian market should contact the Albanian Investment and Development Agency (AIDA), which provides direct assistance to investors, promotes SMEs, Albanian exports, and tracks FDI.

Key Benchmarks

(Corruption Perception Index, Heritage Economic Freedom, WB Doing Business, and

U.S. Millennium Challenge Corporation Scorecard)

 

2013

2012

2011

2010

2009

2008

2007

TI Corruption Index

n/a

3.3

3.1

3.3

3.20

3.40

2.90

Heritage Economic Freedom

n/a

65.1

64

66

63.70

63.30

61.38

World Bank - Ease of Doing Business (rank)

85

82

77

81

86

135

120

MCC Government Effectiveness

n/a

n/a

n/a

0.08

0.00

-0.15

-0.33

MCC Rule of Law

n/a

n/a

n/a

-0.24

-0.22

-0.20

-0.47

MCC Control of Corruption

n/a

n/a

n/a

0.09

-0.12

-0.30

-0.34

MCC Fiscal Policy

n/a

n/a

n/a

-4.20

-3.60

-3.98

-4.41

MCC Trade Policy

n/a

n/a

n/a

85.80

75.80

63.20

57.40

MCC Regulatory Quality

n/a

n/a

n/a

0.60

0.24

0.01

-0.01

MCC Business Start Up

n/a

n/a

n/a

0.98

0.97

0.97

0.39

MCC Lands Rights Access

n/a

n/a

n/a

0.87

0.81

0.73

n/a

MCC Natural Resource Management

n/a

n/a

n/a

97.29

79.65

79.43

n/a

Moody’s Investors Service assigned Albania its first-ever sovereign rating in 2007. In November 2012, Moody's rated the country ceilings for local-currency debt and deposits to “Ba1” from a respective “A3” for local-currency debt and “Baa1” for deposits. The ceiling for foreign-currency bonds was reassessed to “Ba2” from a previous “Ba1” rating, while the ceiling for foreign-currency deposits remained “B2”.

Currency Conversion and Capital Transfer Policies

The Central Bank of Albania (BOA) formulates, adopts, and implements foreign exchange policies and maintains a supervisory role in foreign exchange activities in accordance with the ‘Law on the Bank of Albania’ No. 8269 and the ‘Banking Law’ No. 9662. The Regulation on Foreign Exchange Activities (FX Regulation) amended in September 2009 is the most specific piece of legislation regarding the issue.

Capital Controls

As a general rule, the Banking Law does not impose any restrictions on the purchase, sale, holding, or transfer of monetary foreign exchanges. However, the Law on the Bank of Albania authorizes the bank to temporarily restrict the purchase, sale, holding, or transfer of foreign exchanges if the BOA so decides, in order to preserve the foreign exchange rate or its official reserves. In practice, the BOA rarely uses such measures. In 2009, the BOA temporarily tightened supervision rules over liquidity transfers by domestic banks to their foreign mother banks due to the widespread lack of liquidity in international financial markets and its negative effects on the domestic sector. It also asked that banks not distribute their dividends but instead use it to increase shareholders’ capital. The restriction was lifted in 2010.

The Albanian currency is the ‘lek’ and it follows a floating free regime that is convertible at banks and exchange bureaus. The ‘Law on Foreign Investment’ guarantees the right to transfer and repatriate any funds associated with an investment from Albania into a freely usable currency at a market-clearing rate. Albanian authorities do not engage in currency arbitrage because it is not viewed as an efficient instrument to attract foreign investors. Foreign exchange transfers can only be carried out by licensed entities (domestic banks, foreign bank branches, and foreign exchange offices) that are required to report their foreign exchange activities to the BOA on a regular basis. These entities are also obliged to complete and keep all documentation required for transfers abroad. Foreign exchange is readily available despite the fact that the exchange market in Albania remains small and daily transactions do not exceed USD 20 million.

Although the Foreign Exchange Regulation provides that residents and non-residents may transfer capital within and into Albania without any restrictions, capital transfers out of Albania are subject to certain documentation requirements. Physical persons must submit a request indicating the reasons for the capital transfer, the amount of capital transferred outside the territory of Albania, and the address to which the capital is to be transferred. Such persons must also submit a declaration on the source of the funds to be transferred. Average delays for remitting investments returns are those defined by banks themselves and in general do not pose a problem to investors. However, a serious issue for both domestic and foreign investors remains VAT reimbursement from the tax department, as delays can exceed 60 days and routinely last several months. Albania lacks a legal parallel market to provide alternative payment instruments in lieu of payment in hard currency.

Both Albanian and foreign citizens entering or leaving the country must declare assets in excess of lek 1,000,000 (approximately USD 10,000) in hard currency and/or precious items. Failure to declare such assets is considered a criminal act and punishable by confiscation of the assets and detention.

Legal System

Albania has a civil law system similar to that of most other European countries. The Albanian Constitution provides for a clear separation of legislative, executive, and judicial branches; thus supporting the independence of the judiciary. Civil Procedure in Albania is governed by the Civil Procedure Code enacted in 1996. The civil court system consists of District Courts in the first instance, appellate courts in the second instance, and the Supreme Court in the third instance. Outside this system there is another special court, namely the Constitutional Court which, upon request, reviews whether laws or subsidiary legislation are in compliance with the Constitution and also protects and enforces the constitutional rights of citizens and legal entities. The District Courts are organized in special sections for adjudication of family disputes, commercial disputes, and administrative disputes. Parties may appeal the judgment of the first instance courts within 15 days, while Appellate Court judgments may be appealed within 30 days to the Supreme Court.

As Albania does not have a commercial code, legislation is encapsulated in a series of commercial laws. Relevant laws include: Foreign Investment Law; Commercial Companies Law; Bankruptcy Law; Environmental Law; Corporate and Municipal Bonds; Transport Law; Maritime Code; Secured Transactions Law; Employment Law; Taxation Procedures Law; Banking Law; Insurance and Reinsurance Law; Concessions Law; Mining Law; Energy Law; Water Resources Law; Waste Management Law; Excise Law; Oil and Gas Law; Gambling Law; Telecommunications Law; Value Added Law; and Sports Law.

Albania has enacted and introduced laws and subsidiary legislation in respect to property rights and contract rights. The courts, the courts’ bailiffs, and the private bailiffs are the authorities empowered by law to respectively issue the writ of execution and enforce the claims of parties described therein. According to the Albanian Civil Procedure Code, foreign court judgments are recognized and enforced by the Court of Appeal in a summary proceeding.

Bankruptcy

Bankruptcy is governed by the 2002 ‘Law on Bankruptcy,’ amended in May 2008. It is similar in organization to the German bankruptcy law. The Bankruptcy Law, as amended, governs the reorganization or liquidation of insolvent businesses. It sets out non-discriminatory and mandatory rules for the repayment of the obligations by a debtor in a bankruptcy procedure. The new insolvency law established time limits for insolvency, professional qualifications for insolvency administrators, and an Agency of Insolvency Supervision to regulate insolvency administrators. A simplified insolvency procedure for small businesses is also in place. Nonetheless, the Law on Bankruptcy has reportedly never been used and there have been no bankruptcy procedures to date vice a voluntary liquidation procedure.

Dispute Settlement

The three possible methods of dispute resolution in Albania are mediation, arbitration, and the Court system. The effective settlement of disputes is rare in Albania; the judicial system is viewed by the business community to be slow and inefficient, and a lack of transparency and endemic corruption remain challenges to any settlement process. The Albanian Code of Civil Procedure requires the courts to complete judgment of disputes within a reasonable timeframe but it does not provide for a specific deadline for commercial disputes. The judgment of commercial litigation submitted before an Albanian Court (including First Instance, Appellate, and Supreme Court) takes an average of five years. Court cases are lengthy and costly for businesses and, as a result, there is a preference to resolve disputes without seeking a judicial remedy.

Arbitration

An alternative to dispute settlement via the courts is private arbitration or mediation. Parties can engage in arbitration when they have agreed to such a provision in the original agreement, when there is a separate arbitration agreement, or by mutual agreement at any time when the dispute arises. Legislation distinguishes arbitration of international disputes from arbitration of domestic disputes in that the parties involved in an international dispute may agree to settle through either a domestic or foreign arbitration tribunal.

Under the Albanian Constitution, ratified international agreements prevail over domestic legislation. Albania has signed and ratified the 1966 Convention “On the Settlement of Investment Disputes” between States and Nationals of Other States (Washington Convention) as well as the Convention of 1958 “On the Recognition and Enforcement of Foreign Arbitral Awards” (New York Convention). It has also ratified the 1927 Convention and the European Convention on Arbitration (Geneva Convention).

A new law on commercial arbitration, still in draft form, would regulate domestic and international arbitration procedures and transpose the provisions of the United Nations Commission on International Trade Law (UNCITRAL), which in turn, incorporates the New York Convention provisions. International arbitration proceedings may currently be conducted through either of these ratified international conventions. Domestic arbitration continues to be governed by the provisions of the Civil Code Procedure which is more or less in line with UNCITRAL arbitration. A private arbitration center also exists: the Albanian Commercial Mediation and Arbitration center (MEDART), which is a service center that was established under a World Bank funded legal and judicial reform project in 2001.

In order to have a settlement recognized, a case must be brought before the Court of Appeals, which must not enter into the merits of the case when assessing the solicitation for recognition and enforcement of the award. The Albanian Appellate Court may refuse to recognize the foreign arbitral award on the grounds that:

  • the foreign arbitration has no jurisdiction to resolve the dispute, and/or
  • the defendant/respondent was not duly notified if the foreign arbitration has ruled in its absence, and/or
  • the same case between the same parties is subject to a decision of the Albanian courts, and/or
  • Albanian courts are examining an action filed with the Albanian courts before the foreign arbitration award became final and enforceable, and/or
  • the foreign arbitration award is issued in breach of the foreign country legislation and/or
  • the award does not comply with the basic principles of the Albanian legislation (i.e. public policy)

Generally procedures for the recognition of a foreign arbitral award last one month and the Court’s decision can be appealed to the Supreme Court by either party. The appeal must be filed within 30 days from the date of decision or notification of the other party (if absent). However, the appeal process does not suspend enforcement of the award unless ordered by the Supreme Court upon special request submitted by the defendant.

The possibility of bringing an action before the local court in order to avoid arbitration proceedings is remote. According to explicit provisions in the Albanian Code of Civil Procedure, if a party brings actions before local courts despite the parties’ agreement to arbitrate, the court would upon motion of the other party dismiss the case without entertaining the merits of the case. The decision of the court to dismiss the case can be appealed to the Supreme Court, which has 30 days to consider the appeal.

Expropriation and Compensation

The Albanian Constitution guarantees the right of private property. According to Article 41, expropriation or limitation in the exercise of a property rights can occur only in the public interest and with fair compensation. In the post-communist period, expropriation has been limited to land needed for the public interest, mainly infrastructure projects including but not limited to roads, energy infrastructure, water works, airports, etc. However, compensation has generally been below market value and some owners have complained publicly about the compensation process being slow and unfair.

There are many ongoing disputes regarding properties confiscated during the communist regime. The restitution and compensation process that started in 1993 has been slow and marred by corruption. Many U.S. citizens of Albanian origin have long-running restitution disputes; court cases tend to drag on for years without a final decision, forcing many to take the case to the European Court of Human Rights in Strasburg, France.

The GOA has presented three methods of compensation for confiscation claims: restitution; compensation of property with similarly valued land in a different location; and cash settlement/financial compensation. However, the process is not expected to be completed in the near term due to the large number of requests, the large financial cost associated with the process, and the slow pace of compensation with similarly valued property.

Performance Requirements and Incentives

Albania has no requirements that are inconsistent with the WTO Trade-Related Investment Measures (TRIMs) obligations. Albanian law provides for equal treatment of foreign and domestic investors and does not generally establish performance requirements, export quotas, or incentives specific to foreign investors, with a few exceptions. One important exception is a requirement for the purchase of commercial property by foreigners: such a purchase can be made only if the investor plans to improve the value of the property by three times the purchase price.

Incentives are regulated by the 2005 ‘Law on State Aid’ and are designed to facilitate the development of specific economic activities or to promote national culture and heritage priorities. The law governs all sectors of manufacturing and services, with an exception of agriculture and fisheries, and applies to both central and local government, as well as other entities acting on behalf of the state that confer benefits to particular enterprises. Incentives include:

  • Tax exemption of dividends designated for investments;
  • subsidized leases of state-owned enterprises
  • GOA (Decision of Council of Ministers No. 529 dated June 9, 2011) can lease public property or grant a concession for the symbolic price of 1 euro if the properties will be used for manufacturing activities and the investment exceeds Euro 10 million.
  • GOA can lease public property or grant a concession for the symbolic price of 1 euro if the activity addresses social and economic issues in a certain area. Criteria and terms are decided on a case by case basis through a decision of Council of Ministers;
  • In 2012, the GOA removed the 20 percent VAT on all machinery and equipment for investments worth more than USD 500,000;
  • Apparel and footwear producers are exempt from VAT on raw materials as long as the finished product is exported; in 2011, the GOA also removed customs tariffs for imported apparel and raw materials in the textile and shoe industries;

Energy Sector Incentives

GOA ensures favorable pricing for the sale of electricity generated from new hydro power plants with less than 15MW installed capacity for a period of 15 years, approved annually by the Energy Regulator. The Law on Concessions establishes the necessary framework for promoting and facilitating the implementation of privately financed concessionary projects. (See Concessionary Projects above.)

Right to Private Ownership and Establishment

Albanian law permits private ownership and establishment of enterprises and property. Foreign investors do not need additional permission or authorization beyond that required of domestic investors. GOA applies restrictions only on the purchase of real estate: agricultural land cannot be purchased by foreigners, but may be rented for up to 99 years. Commercial property may be purchased, but only if the proposed investment is worth three times the price of the land. There are no restrictions on the purchase of private residential property. Both foreign and domestic investors continue to experience significant issues in resolving property disputes arising from unclear or incomplete documentation.

Foreigners can acquire concession rights on natural resources and on resources of the common interest, as defined by the ‘Law on Concessions.’ For some business operations, licenses are needed. The National Licensing Center (NLC) became operational in 2009 and serves as a one-stop-shop for business licenses. For projects in the energy sector, there is a separate one stop window streamlining procedures for all licenses needed in energy projects. More information on the types of licenses and application procedures can be found at www.qkl.gov.al

The 2007 ‘Law Establishing the National Registration Center’ (NRC) allows business entities to be registered in a single place, in one day, for one Euro. More information on NCR can be found at www.qkr.gov.al . Both NLC and NRC were established with assistance from the Millennium Challenge Corporation Albania Threshold Program, as e-government initiatives, and save investors valuable time in establishing and carrying out business operations, while also increasing transparency and reducing opportunities for corruption.

Foreign and domestic investors have numerous options available for organizing business operations in Albania. The 2008 ‘Law on Entrepreneurs and Commercial Companies,’ and ‘Law Establishing the National Registration Center’ (NRC) allows for the following legal types of business entities to be established through the NRC: Sole Entrepreneur; Unlimited Partnership; Limited Partnership; Limited Liability Company (Shpk); Joint Stock Company; Branches and Representative Offices; and Joint Ventures. More details can be found by visiting NLC at www.qkl.gov.al

Protection of Property Rights

Real Estate

Real Estate is registered at the Real Estate Registration Office or Registrars Office. The procedures are cumbersome and there are frequent issues regarding claims to property titles. Nonetheless, recent changes in legislation will allow a notary public to have access to real estate registers and confirm the legal ownership of property. For large transactions, it is still advisable to hire an attorney to properly check documents and follow up procedures for the registration of the property.

Property disputes are problematic in Albania. In 1990, following the fall of communism, the GOA undertook reforms to acknowledge ownership rights for property that had been expropriated during the communist regime. The property restitution and compensation process started in 1993 and remains uneven and unresolved to this day. More lucrative land in high value coastal areas has not yet been fully registered due to existing disputes over titles. The legalization process to address large scale illegal construction started in 2006 and is also ongoing. Illegal construction is a major impediment to securing property titles. The number of informal buildings is estimated to be 350,000 and comprises a surface area of 320,000 hectares. (See ‘restitution’, above).

Despite some progress, immovable property rights (land rights) are not well defined. Property legislation has developed in a piecemeal and uncoordinated way resulting in overlapping property titles and lengthy legal disputes. The uncoordinated and haphazard government response has aggravated this already complex property issue. The improper functioning of the land registry system, the large presence of illegal construction, and widespread corruption all contribute to the most daunting and pressing challenge the GOA faces: fair and open property restitution.

Currently, enforcement of property rights is pursued in the civil court system. An overwhelmingly large number of civil cases in the Albanian courts involve property issues while many property disputes linger for years before reaching a final ruling. This has resulted in a large backlog. The lack of enforcement of court decisions is another issue of concern. This has led to an increasing number of Albanian citizens filing suit with the European Court for Human Rights in Strasbourg against the GOA over property claims.

These unresolved property issues have undermined efforts to develop a functional land market and have dampened FDI inflows. To address the negative impact, the Albanian government approved a law in 2010 that grants special protection to investments of an immovable property, made available to the foreign investor by the Albanian state; or an immovable property over which the foreign investor has rights based on a valid, legal, public document or act issued by a competent state-entity or public authority, where such investment exceeds or is foreseen to exceed the value of Euro 10 million (USD 13 million). Under this special state protection, the foreign investor is represented in the judiciary process by the Albanian state and any injunction order issued by the court shall be executed over state properties.

Copyrights

Overall, copyright and IPR protections are weak and the efficacy of the national strategy for the enforcement of copyrights and intellectual and industrial property rights approved in 2010 remains to be seen. The strategy aims to strengthen administrative capacity, improve inter-institutional coordination, and raise awareness of the benefits of IPR. Meanwhile, U.S. companies are advised to consult an attorney experienced in IPR issues and avoid potential risk by establishing solid commercial relationships and drafting tight contracts.

Execution of penalties continues to be a major concern in the protection of IPR and the potential ‘Law on Copyrights’ has remained in draft form since 2009. In March 2012, Albania amended provisions on the Criminal Code to more adequately address infringement of industrial property rights and compliance with TRIPS Agreement obligations. However, the amendments do not cover the violations that would be covered by a new Copyright Law. Patent regulations were also amended to comply with the Patent Law Treaty and the European Patent Office. Regardless of the legal framework, IPR protection in Albania is weak.

Albanian law protects copyrights, patents, trademarks, stamps, mark of origin, and industrial designs. But there remains a significant gap between the law’s intent and how it is enforced. IPR rules are poorly enforced in Albania and IPR infringement remains pervasive.

Albania has been updating its legal framework for the protection of Copyrights and Intellectual and Industrial Property Rights and the main institutions responsible for IPR enforcement include the Albanian Copyright Office (ACO), the General Directorate of Patents and Trademarks (GDPT), the General Directorate for Customs, Tax Inspectorate, Prosecutor’s Office, police, and the courts.

The Albanian Copyright Office (ACO), established in 2006, is the main institution responsible for monitoring and implementing the law on copyright approved in 2005. However, the ACO lacks administrative and institutional capacity and law enforcement on copyrights remains incomplete and violations of copyrights are rampant. The number of cases of violation of copyright law brought to court remains low. The ACO sanctions are not effective and the low fines it levies do not serve as an adequate deterrent. In 2010, a ‘Law on Administrative Contraventions’ was adopted to improve collection of fines for infringement of copyrights. But enforcement of this law remains uneven.

Patents and Trademarks

The Directorate General for Patents and Trademarks (GDPT) is responsible for the registration and administration of patents, commercial trademarks and service marks, industrial designs and geographical indications. In 2008, GOA approved the Industrial Property Law and a number of by-laws and regulations, however, further capacity building and additional human resources are needed for GDPT. The General Directorate of Customs includes a directorate for the protection of the IPR and has the powers to act ex officio.

In 2010 Albania became a contracting party to the WIPO Patent Law Treaty and a full member of the European Patent Organization.

Transparency of Regulatory System

Albania’s regulatory system has improved in recent years but still faces many challenges. Improper and uneven enforcement of legislation, rigid bureaucracy, frequent changes to legislation, and lack of transparency in developing legislation and regulations are all a burden for the business community. Foreign investors often note the lack of proper law enforcement and extensive red tape that leads to the prevalence of corrupt procedures and practices.

Albania has adopted legislation and established the agencies that superficially provide transparent rules and regulations to foster competition and attract investment. The 2003 ‘Law on Protection of Competition’ has been amended several times; the Agency for the Protection of Competition was established in 2004. The law seeks to secure “clear game rules.” However, the legislation’s uneven enforcement is reported to be one of the major reasons for distorting competition in the market. The operational independence and administrative capacity of the Competition Authority also needs to be strengthened so it can serve as an able watchdog.

Other independent agencies and bodies, including the Energy Regulator, Telecom Regulator, and other major institutions operate to ensure transparency in different sectors. New legislation on public procurement introduced e-procurement and resulted in improved transparency in public procurements. However, as in many other areas the proper enforcement of the law remains a challenge and problems with tender procedures are frequent. Business registration and licensing are streamlined through the once stop shop centers for registration and licensing. Although business registration is an easy step, licensing still remains cumbersome in some sectors. A 2008 Company Law includes rules on disclosure requirements, formation, maintenance and alteration of capital, mergers and divisions, takeover bids and shareholders' rights, as well as corporate governance principles. The ‘Law on Accounting and Financial Statements’ includes reporting provisions that stipulate large companies will apply International Financial Reporting Standards, while small and medium businesses will apply National Financial Reporting Standards.

Proposed laws and regulations are sometimes not published in draft form for public comment and are not discussed thoroughly with stakeholders. Businesses have difficulty obtaining copies of laws and regulations, especially in their draft form. Even when there is a public consultation on certain legal initiatives, the stakeholders’ input is rarely incorporated into the final version. Although Albania has taken some steps forward to improve business advocacy by establishing the Business Advisory Council, business participation in the legislative process remains limited. Frequent changes to legislation are also a concern for the business community.

Efficient Capital Markets and Portfolio Investment

In the absence of a stock market, Albania’s banking sector remains the main channel for business financing. It is sound, profitable, and well-capitalized. The sector is fully private and consists of 16 banks, most of which have foreign shareholders. The Austrian Raiffeisen Bank predominates with around 27% of all banking sector assets, followed by the Turkish National Commercial Bank with 19%. Market share of Greek banks has significantly decreased in recent years, having been replaced by French and Italian banks. The two main Albanian banks possess just 10% of sector assets. Raiffeisen, Intesa San Paolo, Societe General, and Alfa bank are the most internationally recognized banks.

Albania’s banking sector has largely escaped the global financial crisis due to a low amount of loans relative to total deposits and a lack of a domestic mortgages impacted by real estate bubbles. The sector remained profitable even during the peak of the financial crisis when it suffered a reduction of deposits by about 15%. Profits through September 2012 reached USD 100 million with a 0.8% return on assets and 9% return on equities. Deposits have significantly increased over the last few years, reaching almost USD 1 billion or 44% more than at the end of 2009 when deposits recovered to their pre-crisis level. The repatriation of savings from thousands of Albanian emigrants in Greece is the main factor behind growth in deposits.

In 2012, commercial banks tightened lending standards due to the economic slowdown and the rise of nonperforming loans. In November 2012, nonperforming loans reached 23% of all private loans compared to 18.7% a year ago and to just 4.3% before the financial crisis of 2008. However, capital adequacy at 15.9% -far above Basel requirements- indicates the sector currently has sufficient assets to withstand the negative trend.

In November 2012, total assets of the banking sector were estimated at USD 11 billion, 8% higher than the year before and consisting mostly of bank deposits. Retail deposits represent almost 86% of the total deposits which are equally denominated in local and foreign currency. Market concentration remains fairly high as the largest five largest banks dominate the market with about 74% of total assets. The banking sector continues its expansionary phase and as of November 2012, there were 556 banking outlets in the country, compared to 548 in the prior year. (There were only 127 in 2005.) Also the number of debit/credit cards, ATM, and Point-of-Sales terminals continues to grow rapidly. However, the annual volume of transactions with debit/credit cards remains limited to approximately 10% of total deposits.

The BOA has the flexibility to intervene in the currency market to protect exchange rates and official reserves, but only for a period not exceeding 12 months. In 2009, following the global financial crisis, the BOA restricted the distribution of domestic banking sector profits in order to maintain sufficient liquidity in the sector. The restriction was lifted in July 2010. In 2012, BOA further loosened monetary policy to stimulate economic growth. The key interest rate has been a historical low of 4% since July 2012.

Commercial Credit

The GOA has adopted policies promoting the free flow of financial resources as a mechanism to promote foreign investment in Albania. Foreign investors have no special, additional requirements to receive credit from banks operating in Albania. The credit market is quite competitive but interest rates can be high, currently between 12% and 14%. However, most mortgage and commercial loans are denominated in Euros as rate differentials between local and foreign currency average 6%. Commercial banks have improved the quality of services they offer; the private sector has widely benefited from the expansion of these instruments. Nonetheless, businesses report that high interest rates, distrust of the banking system, and high operating costs of banks remain concerns for investors looking for access to credit.

Portfolio Investment

While portfolio investments remain limited mostly to company shares, government bonds, and real estate, GOA has undertaken different measures to attract foreign investment, such as the 10% flat rate on both corporate and personal income taxes and a 2010 launch of its debut Eurobond in international markets with an attractive interest rate of 7.5%.

State Owned Enterprises

The privatization process of State Owned Enterprises (SOEs) in Albania is nearly complete and SOEs are active only in a few sectors (mainly utilities). SOEs are present is energy generation (KESH), water supply, ports, railway, insurance (INSIG), and extraction and sale of oil (the state-owned company Albpetrol is currently undergoing privatization.)

In general, there is no discrimination between public and private companies operating in the same sector but there have been allegations by businesses that state-owned companies were granted preferential treatment in government contracts. SOEs operate as commercial companies in compliance with the ‘Law on Entrepreneurs and Commercial Companies.’ SOE corporate governance structures include an executive director and a supervisory board comprised of members equally drawn from the Ministry of Finance, the Ministry of Economy, Trade and Energy, and the ministry or institution to which the company reports. According to procedure, the SOE supervisory board reports directly to the government. SOEs are required to submit annual reports and are also required to undergo independent audits. Albania does not have a major sovereign wealth fund.

Corporate Social Responsibility

There is little domestic awareness of corporate social responsibility (CSR), and CSR initiatives are usually started by foreign companies. CSR legislation remains ‘on the books’ in Albania, but it has not been fully implemented. Academic instruction on CSR in Albania is in a very early stage of development. Corporate governance courses, environmental engineering, and business ethics curricula have been introduced recently but only at a small number of universities. The UNDP Global Compact and Corporate Social Responsibility project launched in 2007, has organized a number of educational events aimed at informing all stakeholders, government, and media in particular, on their role in raising overall awareness of CSR in Albania, and in increasing knowledge and engagement of business communities in CSR practices.

Political Violence

Overall levels of political violence are low. However, a political demonstration led by the opposition Socialist Party (SP) turned violent on January 21, 2011. Four protesters were shot and killed with many injured, including police, protesters and bystanders. An investigation into the events surrounding the violence is ongoing.

Albania held its most recent parliamentary elections on June 28, 2009. The new government was formed with a coalition between the ruling Democratic Party (DP) and the Movement for Socialist Integration (LSI). The Socialist Party (SP) returned to Parliament in September 2011, ending a two year boycott resulting from alleged electoral fraud in the 2009 elections. Albania will elect a new parliament on June 23, 2013, which may prompt some politically related conflict near the election date.

Small crime, specifically incidents of extortion, theft, and robbery are continuing concerns for the business community. Recent crime statistics also indicate an increase in violent crimes since 2009. Albania is a steady source of stability in the region and has friendly relations with all neighboring countries.

Corruption

Corruption remains pervasive in Albania and affects all aspects of Albanian society. The culture of impunity is widespread and deeply rooted. Ordinary citizens and foreign investors alike can point to the judiciary, uneven enforcement of laws and of property rights, a weak regulatory environment, and opaque government procurement as indicators of endemic corruption. Although the number of corruption cases investigated and prosecuted is rising, conviction rates remain low. Furthermore, high-level corruption cases of politicians or affluent business leaders very rarely end in conviction. Perception of corruption continues to be high and Albania’s score in the 2012 Transparency International (TI) Corruption Perception Index stood at “3.3”. In 2012, Albania ranked 113 out of 174 countries, down from 87 out of 178 countries surveyed in 2010.

While anti-corruption legislation exists, enforcement lags behind. Albanian legislation has been amended frequently in recent years to strengthen the framework dealing with corruption and organized crime in order to bring Albanian legislation in line with the civil and criminal conventions of the European Union. Under the Albanian Criminal Code, both active and passive corruption, abuse of office, and undue influence are considered criminal offenses. In addition to basic corruption offenses, there are specific criminal provisions addressing active and passive corruption by persons exercising public functions, high state officials and locally elected persons, judges, prosecutors, and employees of the judicial bodies and the private sector. There are also provisions addressing trading in influence. In March 2012, the Parliament passed amendments to the Criminal Code addressing the cases of bribery by foreign public officials and increasing the penalties for corruption in the private sector, closing existing loopholes in the legislation. In 2012, the Parliament also approved constitutional changes, restricting the immunity of high level public officials and judges, which has been continuously cited as a major impediment to the prosecution of senior officials. Nonetheless, there is not a sufficient track record of investigations, prosecutions, and convictions in corruption cases at all levels including senior officials.

GOA has ratified several international treaties and conventions relating to corruption and is a member of major international organizations and programs dealing with corruption and/or organized crime. Albania has ratified the Civil Law Convention on Corruption (Council of Europe), the Criminal Law Convention on Corruption (Council of Europe), the Additional Protocol to Criminal Law Convention on Corruption (Council of Europe), and the United Nations Convention Against Corruption (UNCAC). Albania has also ratified a number of key conventions in the broader field of economic crime, including the Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime (2001) and Convention on Cybercrime (2002). Albania has been a member of the Group of States Against Corruption (GRECO) since the ratification of the Criminal Law Convention on Corruption in 2001 and is also a member of the Stability Pact Anti-Corruption Network (SPAI). Albania is not a party to Organization for Economic Cooperation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Police authorities and the Prosecutor General’s Office are in charge of criminal investigations and law enforcement, while the State Audit Commission and internal auditing units within different state institutions, inspect, assess, and report alleged cases of corruption. A Joint Investigative Unit against corruption and economic crime was established in 2007 in the Tirana District Prosecution Office. The unit is a multi-agency taskforce composed of police staff from the prosecutor’s offices, the state, customs and tax police and other relevant institutions, working together on specific investigations. Based on the first unit model, six more units were established in regions throughout Albania to prosecute corruption and economic crimes outside Tirana. The High Inspectorate for the Declaration and Audit of Assets (HIDAA), established in 2003, collects and audits the annual declaration of assets and properties of mid-high level public officials in central and local executive agencies as well as politicians, and also supervises the prevention of conflicts of interest.

The High State Control is the highest institution of economic and financial control. It supervises the economic activity of state institutions and other state juridical persons as well as the use and preservation of state funds by the central and local government institutions as well as state owned enterprises. The Head of the High State Control is appointed and dismissed by the Assembly upon proposal of the President.

Another institution involved in combating corruption is the Inter-Ministerial Anti-Corruption Task Force headed by the Prime Minister. This structure serves as a coordinating body for anti-corruption initiatives, namely anti-corruption strategy which is drafted every year. The Anti-Corruption Task Force is supported by the Department of Internal Administrative Control and Anti-Corruption (DIACA) which has relatively wide-ranging powers to investigate allegations of irregularities by public officials. DIACA serves as an Inspectorate for all central executive public institutions and is mandated to investigate allegations of procedural irregularities and irregularities in the handling of public finances. It reports to the Prime Minister. In the Judiciary, the High Council of Justice is in charge of appointment and removal of judges and prosecutors in the first and second instances. Specialized inspectors investigate allegations of misconduct of judges and the High Council of Justice then takes the relevant disciplinary measures.

Transparency International (TI) Albania is the main international non-governmental (NGO) watchdog organization in Albania. There are other NGOs that perform watchdog functions regarding corruption but in general the role of the civil society in denouncing corruption is weak.

Bilateral Investment Agreements

A bilateral investment treaty between the United States and Albania was signed in 1995 and entered into force in January 1998. This treaty, inter alia, ensures that U.S. investors receive national or most-favored-nation treatment and provides for dispute settlement. As of December 2012, Albania has concluded bilateral investment treaties in force with the following countries:

Austria, Belgium, Bosnia and Herzegovina, Bulgaria, China, Croatia, Czech Republic, Denmark, Egypt, Lithuania, Finland, France, Germany, Greece, Hungary, Israel, Italy, Kosovo (UNMIK), Kuwait, Macedonia, Malaysia, Moldova, Netherland Antilles, Netherlands, OPEC Fund for International Development, Poland, Portugal, South Korea, Romania, Russia, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, United Kingdom, USA, Tunisia, Malta and Azerbaijan.

Agreements signed but yet to enter into force: San Marino, Cyprus, Qatar and Republic of Kosovo.

Agreements in the process of being negotiated: Saudi Arabia, Georgia, Morocco, Belarus, and Canada.

Tax Treaties

Albania has also signed agreements for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital with several countries. These agreements supersede Albanian domestic laws. The following countries have ratified treaties for the avoidance of double taxation with Albania: Poland, Romania, Malaysia, Hungary, Turkey, Czech Republic, Russia, Macedonia, Croatia, Italy, Bulgaria, Sweden, Norway, Greece, Malta, Switzerland, Moldova, Belgium, China, France, Egypt, Netherlands, Kosovo, Serbia, Montenegro, Austria, Slovenia, Latvia, South Korea, Bosnia and Herzegovina, Ireland, Luxemburg, Spain, Estonia, Germany, Kuwait, and Singapore.

Tax treaties negotiated, awaiting signature: Slovakia, Lebanon, Ukraine and India.

Tax agreements in process: Qatar, Pakistan, Thailand, Mexico, Indonesia, Australia, Morocco, Vietnam, United Arab Emirates and Syria.

OPIC and Other Investment Insurance Programs

The U.S. Overseas Private Investment Corporation (OPIC) signed a bilateral agreement with Albania in 1991. Albania has also ratified the World Bank’s Multilateral Investment Guarantees Agency (MIGA) Convention. Both instruments provide investment guarantees against certain non-commercial risks (i.e., political risk insurance) to eligible foreign investors for qualified investments in developing member countries. MIGA's coverage is against the following risks: currency transfer restriction; expropriation; breach of contract; war; terrorism; civil disturbance; and non-honoring of sovereign financial obligations. MIGA and OPIC often cooperate on projects.

In 1998, OPIC supported the Southeast Europe Equity Investment Fund (SEEF), which invested heavily in southeastern Europe. OPIC supported its successor, SEEF II managed by Bedminster Capital. SEEF II has invested in the Albanian health and IT sectors. For more information on OPIC, please visit:

http://www.opic.gov
Overseas Private Investment Corporation
1100 New York Ave., NW Washington, DC 20527
Tel: 202-336-8400
Email for general business inquiries to: info@opic.gov

Labor

Labor relations between employees and management are regulated by individual employment contracts pursuant to the ‘Law on the Status of the Civil Employee and the Labor Code.’ Albania was an International Labor Organization (ILO) member from 1920-1967, is currently an ILO member since 1991, and adheres to all basic ILO conventions protecting worker rights. The GOA has established the National Council of Labor, composed of government officials, trade unions, management, and employers associations, to improve social dialogue between stakeholders. The institutions governing the labor market include: Ministry of Labor and Social Affairs, National Employment Service, State Labor Inspectorate, and private actors such as employment agencies, and vocational training centers.

Both employees and managers have the right to form trade unions (Labor Code, article 176). Trade unions are organized both at the national level (according to industrial sector) and at the company level. The Labor Code guarantees the right to strike, as part of the right to negotiate wages and working conditions. Employment contracts are applicable both to union and non-union workers. The two main national-level trade unions, both affiliated with the International Trade Union Confederation (ITUC) are the Confederation of Trade Unions (KSSH) and the Union of the Independent Trade Unions of Albania (BSPSH). Employment contracts can be for a limited or an unlimited period, but as a general rule, they cover an unlimited period of duration if not specified in the contract.

Albania has a labor force of about 1.06 million people; the official unemployment rate during the third quarter of 2012 stood at 13.32%. Almost 45.5% of the population is considered self-employed in the agricultural sector. Almost 1.2 million Albanians have emigrated to Italy and Greece since 1991 and a majority of young Albanians speak English, Italian, or Greek as a second language.

While some members of the labor force are highly skilled, many work in low-skill industries or have outdated skill sets. Albania has a tradition of a strong secondary educational system, while vocational schools are less prevalent. University education remains uneven and studying abroad remains the best option for qualified students. The average salary in public administration during third quarter of 2012 was 51,270 lek (USD 480) per month. In July 2012, the GOA raised the minimum monthly wage applicable to both public administration and the private sectors to 21,000 lek (USD 200), which is still among the lowest in the region.

Foreign-Trade Zones/Free Ports

The GOA approved the ‘Law on the Establishment and Functioning of Economic Zones,’ on July 19, 2007, to replace the 2000 ‘Law on Free Zones’. The newer legislation establishes free trade zones and industrial parks near ports, airports, or at the crossroads of international transport, and makes their establishment and the functioning more efficient. Economic zones are proposed by the Ministry of Economy and approved by the Council of Ministers on a case-by-case basis. The latter has the power to define the status of the zone (either a “free zone” or an “industrial park”), areas and boundaries, the economic activities to be performed within the zones, time constraints, the type of permission (lease, concession, etc.), and procedures for selection of the “developer.” The latter is based on criteria defined in the ‘Law on Concessions.’

Following approval of the new law in 2007, the GOA approved the construction of several industrial parks: Koplik, Elbasan, Shkoder, Lezhe, Shengjin, Vlore, and the industrial and energy park in Durres (the largest, with 850 hectares), the last four of which are located near the main ports of Albania. Industrial parks may be used for production, manufacturing, agro-processing, export-import and supporting activities.

In 2009 the GOA approved the first free economic zone, adjacent to the Vlore container port. In March 2010, following an open international tender, the GOA selected Zumax AG, operator of the Vlore port, as the developer of the zone. None of these projects have progressed significantly to date.

Foreign Direct Investment Statistics

Significant foreign direct investment (FDI) inflows started only after 2000, when Albania finally overcame lingering effects of the 1997 pyramid schemes. FDI rose drastically after 2007, fueled initially by large privatizations and later by projects in several sectors including financial services, mining, telecommunications, construction, manufacturing, oil, hydro, and retail. The drastic growth in FDI inflows in the last four years has put Albania on par with countries in the region.

The Bank of Albania reports the following figures for foreign direct investment inflows in Albania from 2000 including data for first three quarters of 2012. Albania’s foreign direct investments abroad are insignificant.

FDI inflows by year (million USD)

Year

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012*

FDI

143

207

135

178

324

258

315

639

874

1,091

925

1,039

709

Source: Bank of Albania
*BoA estimate for the first three quarters of 2012

This year Bank of Albania published for the first time the FDI stock by country of origin and by industry destination. The data is available only for the period 2007-2010:

FDI stock according to countries (million USD)

Country

2007

2008

2009

2010

Greece

1,056

1,013

892

1,006

Italy

292

464

466

557

Austria

201

272

282

503

Canada

1

12

137

389

Turkey

211

277

311

388

USA

99

127

60

38

Others

626

813

822

788

Total

2,487

2,978

2,970

3,670

FDI stock according to sectors (million USD)

Sector

2007

2008

2009

2010

Extracting industries

14

42

194

460

Processing industries

311

641

536

580

Construction

181

286

246

317

Transportation and Telecommunication

808

559

473

559

Financial Intermediation

785

768

777

905

Production and distribution of electrical energy

14

26

128

170

Other sectors

374

656

616

680

Total

2,487

2,978

2,970

3,620

Resources

AIDA Albanian Investment and Development Agency (former ALBINVEST)
Blv Gjergj Fishta, Pall. Shallvare Tirane
Tel: +355 (0) 42251001
e-mail: info@aida.gov.al
web: www.aida.gov.al



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