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Albania

Executive Summary

Albania is an upper middle-income country with a gross domestic product (GDP) of USD 16.77 billion (2021 IMF estimate) and a population of approximately 2.9 million people.

In 2020, the economy contracted by 4 percent in the height of COVID-19 and in 2021 re-bounded with a growth rate of 8.7 percent. The increase was fueled by construction, easing of pandemic related restrictions, recovery of tourism sector, increase in the real estate sector, record domestic electricity production, and continued budgetary, monetary, and fiscal policy support, including IMF and EU pandemic and earthquake related support. The initial growth projection for 2022 was 4.1 percent, despite uncertainties related to the pandemic, elevated fiscal deficits and public debt, and external and internal inflationary pressures. However, uncertainties due to Russia’s 2022 invasion of Ukraine, surging energy prices, and inflationary pressures, coupled with limited room for fiscal maneuvering due to high public debt that exceeded 80 percent at the end of 2021, present challenges to the Albanian economy.

Albania joined NATO in 2009 and has been a member of WTO since 2000. The country signed the Stabilization and Association Agreement with the European Union in 2006, received the status of the EU candidate country in 2014, and began accession negotiations with the EU in July 2022.

Albania’s legal framework is in line with international standards in protecting and encouraging foreign investments and does not discriminate against foreign investors. The Law on Foreign Investments of 1993 outlines specific protections for foreign investors and allows 100 percent foreign ownership of companies in all but a few sectors. The U.S.-Albanian Bilateral Investment Treaty, which entered into force in 1998, ensures that U.S. investors receive national treatment and most-favored-nation treatment. Albania and the United States signed a Memorandum of Economic Cooperation in October 2020 with an aim of increasing trade and investment between the two countries. Since the signing multiple U.S. companies have signed agreements for major projects in the country.

As a developing country, Albania offers large untapped potential for foreign investments across many sectors including energy, tourism, healthcare, agriculture, oil and mining, and information and communications technology (ICT). In the last decade, Albania has been able to attract greater levels of foreign direct investment (FDI). According to the UNCTAD data, during 2010-2020, the flow of FDI has averaged USD 1.1 billion and stock FDI at the end of 2020 reached USD 10 billion or triple the amount of 2010. According to preliminary data of the Bank of Albania the FDI flow in 2021 is expected to reach USD 1 billion. Investments are concentrated in extractive industries and processing, real estate, the energy sector, banking and insurance, and information and communication technology. Switzerland, the Netherlands, Canada, Italy, Turkey, Austria, Bulgaria, and France are the largest sources of FDI. The stock FDI from United States accounts for a small, but rapidly growing share. At the end of Q3 2021, the United States stock FDI in Albania reached USD168 million, up from USD 99 million at the end of 2020, nearly a 70 percent increase.

Despite a sound legal framework, foreign investors perceive Albania as a difficult place to do business. They cite endemic corruption, including in the judiciary and public procurements, unfair competition, informal economy, frequent changes of the fiscal legislation, and poor enforcement of contracts as continuing challenges for investment and business in Albania. Reports of corruption in government procurement are commonplace. The continued use of public private partnership (PPP) contracts has reduced opportunities for competition, including by foreign investors, in infrastructure and other sectors. Poor cost-benefit analyses and a lack of technical expertise in drafting and monitoring PPP contracts are ongoing concerns. U.S. investors are challenged by corruption and the perpetuation of informal business practices. Several U.S. investors have faced contentious commercial disputes with both public and private entities, including some that went to international arbitration. In 2019 and 2020, a U.S. company’s attempted investment was allegedly thwarted by several judicial decisions and questionable actions of stakeholders involved in a dispute over the investment. The case is now in international arbitration.

Property rights continue to be a challenge in Albania because clear title is difficult to obtain. There have been instances of individuals allegedly manipulating the court system to obtain illegal land titles. Overlapping property titles is a serious and common issue. The compensation process for land confiscated by the former communist regime continues to be cumbersome, inefficient, and inadequate. Nevertheless, parliament passed a law on registering property claims on April 16, 2020, which will provide some relief for title holders.

In an attempt to limit opportunities for corruption, the GoA embarked on a comprehensive reform to digitalize all public services. As of March 2021, 1,200 services or 95 percent of all public services to citizens and businesses were available online through the E-Albania Portal . However, Albania continues to score poorly on the Transparency International’s Corruption Perceptions Index. In 2021, Albania declined to 110th out of 180 countries, a fall of six places from 2020. Albania continues to rank low in the Global Innovation Index, ranking 84 out of 132 countries.

To address endemic corruption, the GOA passed sweeping constitutional amendments to reform the country’s judicial system and improve the rule of law in 2016. The implementation of judicial reform is underway, heavily supported by the United States and the EU, including the vetting of judges and prosecutors for unexplained wealth. More than half the judges and prosecutors who have undergone vetting have been dismissed for unexplained wealth or ties to organized crime. The EU expects Albania to show progress on prosecuting judges and prosecutors whose vetting revealed possible criminal conduct. The implementation of judicial reform is ongoing, and its completion is expected to improve the investment climate in the country. The Albanian parliament voted overwhelmingly and unopposed to extend this vetting mandate in February 2022.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 110 of 180 http://www.transparency.org/research/cpi/overview 
Global Innovation Index 2021 84 of 132 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2018 $35 https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2020 $ 5,210 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

10. Political and Security Environment

Political violence is rare, the more recent instances being an attempt led by a former Albanian leader designated by the USG for corruption to breach a party headquarters in January 2022 that required police intervention and political protests in 2019 that included instances of civil disobedience, low-level violence and damage to property, and the use of tear gas by police. Albania’s April 2021 elections and transition to a new government were peaceful, as were its June 2019 local elections. On January 21, 2011, security forces shot and killed four protesters during a violent political demonstration. In its external relations, Albania has usually encouraged stability in the region and maintains generally friendly relations with neighboring countries.

11. Labor Policies and Practices

Albania’s labor force numbers around 1.2 million people, according to official data. After peaking at 18.2 percent in the first quarter of 2014, the official estimated unemployment rate has significantly decreased in recent years. In December 2021, unemployment reached 11.4 percent compared to 11.8 percent at the end of 2020 marking an improvement following the economic disruption due to the COVID-19 pandemic. Unemployment among people aged 15-29 remains high, at 20.6 percent. Around 40 percent of the population is self-employed in the agriculture sector. According to the International Labor Organization (ILO), share of informal employment in the employed population was almost 57 percent in 2019, the highest in the region.

The institutions that oversee the labor market include the Ministry of Finance, Economy and Labor, the Ministry of Health and Social Protection, the National Employment Service, the State Labor Inspectorate, and private entities such as employment agencies and vocational training centers.  Albania has adopted a wide variety of regulations to monitor labor abuses, but enforcement is weak.

Outward labor migration remains an ongoing problem affecting the Albanian labor market especially in the IT and health sector. There is a growing concern about labor shortage for both skilled and unskilled workforces.  In recent years, media outlets have reported that a significant number of doctors and nurses have emigrated to the European Union, especially Germany. According to the World Bank, Albania has the lowest number of doctors per capita in the region with just 1.647 doctors per 1,000 inhabitants in 2019. In December 2021, the average public administration salary was approximately 70,531 lek (approximately USD 650) per month. The GoA has announced it will increase the minimum wage by 6.5 percent to 32,000 lek per month (approximately USD 300) in April 2022, which remains the lowest in the region.

In March 2019, parliament approved a new law on employment promotion, which defined public policies on employment and support programs. Albania has a tradition of a strong secondary educational system, while vocational schools are viewed as less prestigious and attract fewer students.  However, the government has more recently focused attention on vocational education. In the 2020-2021 academic year, about 19,000, or 18.5 percent, of high school pupils were enrolled in vocational schools.

The Law on Foreigners 79/2021 that was approved in July 2021 and various decisions of the Council of Ministers regulate the employment regime in Albania.  Employment can also be regulated through special laws in the case of specific projects, or to attract foreign investment.  The Law on TEDA’s provides financial and tax incentives for investments in the zone. Law on Foreigners extends the same employment and self-employment rights of Albanian citizens to citizens of the five Western Balkan countries and provides the same benefits that the original law provided to the citizens of EU and Schengen countries.

The Labor Code includes rules regarding contract termination procedures that distinguish layoffs from terminations.  Employment contracts can be limited or unlimited in duration, but typically cover an unlimited period if not specified in the contract. Employees can collect up to 12 months of salary in the event of an unexpected interruption of the contract. Unemployment compensation is approximately 50 percent of the minimum wage.

Pursuant to the Labor Code and the recently amended “Law on the Status of the Civil Employee,” both individual and collective employment contracts regulate labor relations between employees and management.  While there are no official data recording the number of collective bargaining agreements used throughout the economy, they are widely used in the public sector, including by SOEs. Albania has a labor dispute resolution mechanism as specified in the Labor Code, article 170, but the mechanism is considered inefficient. Strikes are rare in Albania, mostly due to the limited power of the trade unions and they have not posed a significant risk to investments.

Albania has been a member of the International Labor Organization since 1991 and has ratified 54 out of 189 ILO conventions, including the eight Fundamental Conventions, the four Governance Conventions, and 42 Technical Conventions. The implementation of labor relations and standards continues to be a challenge, according to the ILO.

See the U.S. Department of State Human Rights Report: https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/; and the U.S. Department of Labor Child Labor Report: http://www.dol.gov/ilab/reports/child-labor  .

Kosovo

Executive Summary

Already one of Europe’s poorest countries, Kosovo was hit hard by the COVID-19 pandemic but recovered quickly. Although economic growth estimates for 2021 differ significantly between the Central Bank of Kosovo’s 9.9 percent estimate and the International Monetary Fund’s (IMF) 7.5 percent estimate, both point to a robust economic recovery and faster growth rates than initially forecast. A large inflow of remittances and diaspora tourism combined with increased exports contributed to this growth. Although many international financial institutions remain cautious in forecasting economic growth for 2022 given the unpredictability of the pandemic and global supply chain shocks, most expect Kosovo’s GDP to grow between 3.8 and 4 percent.

The pandemic has not led to permanent changes in Kosovo’s investment policies. The government enacted several relief measures that are all temporary and focused on maintaining employment levels and helping businesses preserve liquidity. As such, Kosovo’s COVID-19 relief measures did not significantly affect its broader investment policy environment.

Kosovo has potential to attract foreign direct investment (FDI), but that potential is constrained by its failure to address several serious structural issues, including limited regional and global economic integration; political interference in the economy; corruption; an unreliable energy supply; a large informal sector; difficulty establishing property rights; and tenuous rule of law, including a glaring lack of contract enforcement. The country’s ability to sustain growth relies significantly on international financial support and remittances. Its ongoing dispute with Serbia and lack of formal recognition by many countries and international organizations, including the lack of membership in the United Nations, also create obstacles to doing business.

Increased energy prices throughout Europe, particularly in the last quarter of 2021 through the first quarter of 2022 exposed Kosovo’s vulnerability to energy price shocks and its serious issues with energy reliability. By January 2022, the Kosovo government had to subsidize the energy sector in the amount of €90 million (about 1.3 percent of GDP) and increase energy tariffs to cover the cost of increased energy imports. Kosovo also faced blackouts due to maintenance issues at its two dilapidated coal-fired power plants. The Energy Regulatory Office in February 2022 instituted block tariffs for residential consumers but did not change electricity prices for businesses.

In 2021, the net flow of FDI in Kosovo was estimated at $466 million, a significant increase over the 2020 amount of $382 million. Real estate and leasing activities are the largest beneficiaries of FDI, followed by financial services and energy. The food, IT, infrastructure, and energy sectors are growing and are likely to attract new FDI.

One key sector of the economy that has sustained strong growth is the wood processing sector. Companies producing kitchens, baths, doors, upholstered furniture, and combined wood, metal and glass have seen increased investment since 2017. The sector is maturing and receiving support in business development services and access to finance. Kosovo is also addressing its energy security by increasing its renewable energy capacity and facilitating more bankable renewable projects. Kosovo has also rapidly increased the exports of bedding, mattresses, and cushions, but this development has mainly been concentrated within a few companies.

Kosovo’s laws and regulations are consistent with international benchmarks for supporting and protecting investment, though justice sector enforcement remains weak. Kosovo has a flat corporate income tax of 10 percent. In 2016, the government partnered with the United States Agency for International Development (USAID) and other international donors to launch the Kosovo Credit Guarantee Fund, which improves access to credit. With USAID assistance, Kosovo passed legislation to establish a Commercial Court, which aims to handle business disputes fairly, efficiently, and predictably and is expected to improve the business enabling environment by reducing opportunities for corruption and building investor and private sector trust in the judiciary.

Property rights and interests are enforced, but legal system weaknesses and difficulties associated with establishing title to real estate, in part due to competing claims arising from the history of conflict with Serbia, make enforcement difficult. Kosovo has a legal framework for protecting intellectual property rights (IPR), but enforcement remains weak, largely due to a lack of resources. While IPR theft occurs in Kosovo, there is insufficient data on how widespread the issue is. The issue does not get attention in the media, and the U.S. Embassy in Pristina has not had significant complaints of IPR theft in Kosovo from U.S. companies. Anecdotally, the IPR theft that occurs tends to be mostly in lower-value items that likely do not garner significant attention.

All legal, regulatory, and accounting systems in Kosovo are modeled on EU standards and international best practices. All large companies are required to comply with international accounting standards. Investors should note that despite regulatory requirements for public consultation and the establishment of an online platform for public comments ( http://konsultimet.rks-gov.net ), some business groups complain that regulations are passed with little substantive discussion or stakeholder input.

In Kosovo’s recent history, the political environment has been characterized by short electoral cycles and prolonged periods of caretaker governments. However, the current governing coalition has an overwhelming majority, and all indications point to the likelihood that it will remain in place for much, if not all, of its four-year term. In addition, there have been few substantive changes in legislation and regulations on foreign investment and the general business environment despite previously short electoral cycles. To date, the U.S. Embassy in Pristina is not aware of any damage to commercial projects or installations. The government, which took office March 2021, ran on an anti-corruption platform and has a strong electoral mandate to enact positive change.

The public consistently ranks Kosovo’s high unemployment rate (officially 25.9 percent in 2021) as among its greatest concerns. Unemployment levels for first-time job seekers and women are considerably higher than the official rate. Many experts cite a skills gap and high reservation wage as significant contributing factors.

Despite the challenges, Kosovo has attracted a number of significant investors, including several international firms and U.S. franchises. Some investors are attracted by Kosovo’s relatively young population, low labor costs, relative proximity to the EU market, and natural resources. Global supply disruptions brought on by the COVID-19 pandemic have sparked greater interest recently from some businesses to utilize Kosovo as a base for near-shoring production destined for the EU market. Kosovo does provide preferential access for products to enter the EU market through a Stabilization and Association Agreement (SAA).

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 87 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2020 N/A https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2020 USD 283 Million  http://data.imf.org/CDIS
World Bank GNI per capita 2020 USD 4,480 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

10. Political and Security Environment

In recent history, the political environment has been characterized by short electoral cycles and prolonged periods of caretaker governments. Despite the political instability, there have not been substantial legislative and regulative changes, especially regarding investments and business environment. There have been no reports of any damage to commercial projects or installations.

Kosovo held national assembly elections on February 14, 2021, after the Constitutional Court ruled in December 2020 that a convicted Member of Parliament’s (MP) decisive 61st vote to form the government was not valid. For the first time in the last 20 years, the elections produced an overwhelmingly clear victor, the Levizja Vetevendosje (“Self-Determination Movement”) led by Albin Kurti, which formed a government in March 2021 with the help of only a few minority MPs. This was unusual as Kosovo’s proportional electoral system typically favors coalitions and partnerships. The new government has restored perceptions of political stability and is likely to provide a break from Kosovo’s short electoral cycles.

The current administration’s electoral victory centered mainly on anti-corruption promises. While the administration has produced some results in fighting corruption, balancing the budget, and reforming the public administration, it has been relatively slow in introducing new laws and regulations as well as drafting strategies that would guide economic policymaking.

Kosovo is not a member of the United Nations and regional neighbors Serbia and Bosnia and Herzegovina are among the countries that do not recognize its statehood. In November 2018, Kosovo imposed a 100 percent tariff on all goods from Serbia and Bosnia and Herzegovina but in April 2020 dropped the 100 percent tariff in favor of “reciprocal measures.” The previous administration dropped these “reciprocal measures” temporarily in June 2020 to give way for negotiations on “economic normalization” with Serbia. Despite a White House-brokered set of commitments signed on September 4, 2020, in Washington, DC, by Kosovo’s then-Prime Minister Avdullah Hoti and Serbian President Aleksandar Vucic, there are numerous issues remaining that might lead to trade and investment barriers between the two countries. In addition, the lack of recognition also exposes Kosovo to subtle technical difficulties in carrying on day-to-day business activities. For example, Kosovo is not listed in the ISO 3166 list of countries, which results in numerous companies and services not listing Kosovo in the drop-down menu of countries and forces businesses in Kosovo to either register and divert their business through a third country or renders them unable to use such services. Due to Kosovo’s lack of Country Code Top-Level Domain (ccTLD), it is more difficult to track cyberattacks.

11. Labor Policies and Practices

According to the Kosovo Statistical Agency, almost two thirds of Kosovo’s population of 1.8 million is of working age (15-64). The official unemployment rate is 25.8 percent. Youth unemployment is estimated at 48.6 percent. There are no reliable statistics on Kosovo’s informal economy, but a 2017 EU-commissioned report estimated the informal and black market at 32 percent of GDP. Informal businesses dominate in the agriculture, construction, and retail sectors. Because of pervasive informality and the slow pace of courts, informal and verbal agreements often carry more significance than formal agreements and contracts. Private-sector employers make a practice of not providing contracts to their employees and paying them in cash. In the public sector, employers sometime hire employees as contract workers and enroll them in the regular payroll when the budget for salaries becomes available.

Kosovo’s Labor Law requires employers to observe employee protections, including a 40-hour work week, payment of overtime, adherence to occupational health and safety standards, respect for annual leave benefits, and up to a year of maternity leave (six months of employer paid leave at a reduced rate, followed by three months of government paid leave and three months of unpaid leave). The Labor Law distinguishes between layoffs and firings, and mandates severance pay only for laid off workers (when at least 10 percent of employees are dismissed collectively).

The law also establishes a monthly minimum wage, which the government set in 2011 at €130 ($146) for employees under 35 and €170 ($191) for those over 35 years of age. Kosovo has no unemployment insurance or any other safety net programs for workers laid off for economic reasons. It is estimated that about one third of employees are employed in the public sector and SOEs. Although the country’s average monthly salary amounts to nearly €416 ($457) in take-home pay, there are stark differences between the private sector average of €342 ($376), the public administration average of €552 ($607), and the SOE average of €680 ($748).

The Labor Law has no nationality requirement and is not waived for investment purposes. There are no additional or different labor laws for special economic zones or free zones.

Labor unions are independent by law, but in practice, many of them are closely associated with political parties. The government, labor unions, and private sector representatives signed a collective bargaining agreement in 2014, which has been partially implemented. Kosovo’s Statistical Agency and the Ministry of Economy do not collect specific data on implementation. Public-sector employees – including doctors, teachers, and judges – sporadically go on strike to demand implementation of the entire agreement, better working conditions, or higher wages. In January 2019, education and health workers went on a month-long strike demanding higher wages, only stopping the strike after the Kosovo Assembly approve the Law on Wages, which granted some of their demands. Strikes and protests in the private sector are almost nonexistent. Local courts formally adjudicate labor disputes.

The Ministry of Finance, Labor, and Transfers established a compliance office with the authority to inspect employer adherence to labor laws. The International Labor Organization office in the country is project-focused and does not serve as a government advisor on labor legislation or international labor standards. The government plans to reform inspectorates, labor inspectorate included, and has already increased the labor inspectorate’s number of inspectors from 38 to 90. The Inspectorate issues fines and penalties depending on the extent of the violation of labor legislation. The Labor Inspectorate and the judicial system investigate and prosecute labor practice violations. Municipal social work centers at the Ministry of Finance, Labor, and Transfers investigate and report on child labor issues, while the Labor Inspectorate inspects violations of child labor practices for children aged 15-18 years.

Kosovo’s education system has been criticized for not sufficiently linking its curriculum to the needs of Kosovo’s business community. Kosovo’s large, young labor force often remains idle due to mismatches between applicant skills and employer needs.

Montenegro

Executive Summary

Montenegro’s economy is centered on three sectors, with the government largely focusing its efforts on developing tourism, energy, and to a lesser extent, agriculture. The tourism sector officially accounts for about 25 percent of GDP, although some analysts believe it accounts for over one-third when taking into account the grey economy. In the energy sector, the most important development project in the transmission system was the construction of a one-way underwater electricity cable to export power to Italy, which included the development of a 433-kilometer-long tunnel approximately 1,200 meters below the Adriatic Sea surface. The project cost 800 million euro and began operation in December 2019. There are several other ongoing energy projects, including the controversial ecological reconstruction of the coal-fired thermal plant in Pljevlja in partnership with China’s Dongfang Electric Corporation, as well as the development of a 55-megawatt wind power plant in Gvozd, a project supported by the European Bank for Reconstruction and Development (EBRD). The Montenegrin government also signed concession agreements for exploratory offshore oil and gas drilling, which began in March 2021, although preliminary results indicate that the drill site is not feasible for exploitation.

According to the Central Bank of Montenegro (CBCG), foreign direct investment (FDI) to Montenegro in 2021 totalled €898.4 million. Although no one source country dominates FDI, significant investments have come from Italy, Hungary, China, Russia, and Serbia, with other investments also coming from the United Arab Emirates, Azerbaijan, Turkey, and the United States. Montenegro has one of the highest public debt-to-GDP ratios in the region, currently at 83 percent. Infrastructure development remains a government priority, including the second section of Montenegro’s first highway, a project designed to better connect the more developed south with the relatively underdeveloped north of the country. The pandemic hit Montenegro’s economy hard, with the unemployment rate reaching 24 percent by the end of 2021. In addition, GDP declined by 15.3 percent in 2020, the biggest drop in Europe. The country enjoyed a strong recovery in 2021, however, with the government announcing a GDP growth rate of 14 percent for the year, one of the highest in Europe. Economic recovery will continue to face challenges, however. Developments in Ukraine and Russia, two of the Montenegro’s main sources of tourists, will threaten economic growth. An internal political crisis, after Parliament in early February 2022 passed a motion of no-confidence in the Government and subsequently removed the Parliament’s Speaker, also threatens economic stability. As of late March 2022, a caretaker Government was running the country’s day-to-day operations and ongoing negotiations to form a new Government were taking place, with the possibility of snap elections if these talks fail.

Montenegro began implementing a wide-ranging economic reform program known as Europe Now, which eliminated all individual health care contributions, almost doubled the minimum wage, increased pensions, and introduced a system of progressive taxation. As a candidate country on its path to joining the European Union (EU), Montenegro has opened all 33 negotiating chapters (and closed three). But the county’s candidacy is dependent on progress against interim benchmarks in rule of law. The European Commission’s 2021 Country Report for Montenegro termed progress in this area as “limited.” Despite regulatory improvements, corruption remains a significant concern. Montenegro joined NATO in June 2017. Montenegro has not joined the Open Balkan Initiative, previously known as “Mini-Schengen,” an initiative championed by Serbia and Albania designed to facilitate trade, services, and movement of people throughout the Western Balkans.

Table 1
Measure Year Index /Rank Website Address
Transparency International Corruption Perceptions Index 2021 64 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 50 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country (M USD, stock positions) 2021 NA http://www.apps.bea.gov/international/factsheet
World Bank GNI per capita 2020 USD 7,900 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign Investment

2. Bilateral Investment Agreements and Taxation Treaties

Montenegro signed the Central European Free Trade Agreement (CEFTA) in July 2007. The agreement has been signed by seven other countries (Albania, North Macedonia, Moldova, UNMIK/Kosovo, Croatia, Serbia, and Bosnia and Herzegovina). A free trade agreement with Turkey has been in force since March 2010. Montenegro had a free trade agreement with Russia, but the agreement is not currently in force, nor are the free trade agreements with Kazakhstan and Belarus, which have a customs union with Russia. In 2011 Montenegro signed a free trade agreement with Ukraine and with the European Free Trade Association (EFTA) countries (Switzerland, Norway, Iceland, and Liechtenstein). Montenegro has not signed a Bilateral Investment Treaty (BIT) with the United States.  The United States restored Normal Trade Relations (Most-Favored Nation status) to Montenegro in December 2003.  This status provides improved access to the U.S. market for goods exported from Montenegro.  Montenegro has also been designated as a beneficiary developing country under the U.S. Generalized System of Preferences (GSP) program which expired on January 1, 2021. As a result, Montenegrin imports entering the United States that were eligible for duty free treatment under GSP up to December 31, 2020 (jewelry, ores, stones, and various agricultural products) are now subject to regular duties.

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

10. Political and Security Environment

Montenegro has a multi-party-political system with a mixed parliamentary and presidential system.  Seventeen months after the August 2020 national elections removed the ruling Democratic Party of Socialists (DPS) after almost three decades in power and a new Government was formed, the coalition government of Prime Minister Zdravko Krivokapic collapsed on February 4, after Parliament backed a vote of no confidence called by the smallest block within the coalition, Black and White, along with DPS and other opposition parties. President and DPS leader Milo Djukanovic on March 3, 2022, named Deputy Prime Minister and Black and White leader Dritan Abazovic as the Prime Minister designate. The Krivokapic cabinet continued to operate under a “technical mandate” while negotiations on forming a new minority government took place, with the DPS and other opposition parties announcing they would offer their support. As of late March 2022, a caretaker government managed the country’s day-to-day activities; if negotiations to form a new government fail, national elections would be held.

Former Prime Minister Milo Djukanovic was elected President of Montenegro in April 2018 for a five-year term.

11. Labor Policies and Practices

Montenegro’s total labor force consists of approximately 250,000 people with almost 50,000 workers, or close to 20 percent of the labor pool, employed in the public sector.  The unemployment rate was 24 percent as of December 2021, according to the country’s Unemployment Agency. As the result of the Europe Now reform program passed in December 2021 and taking effect as of January 2022, the minimum wage in Montenegro has almost doubled from EUR 250 to EUR 450 per month, which has also led to the increase of the country’s average salary from EUR 537 to EUR 686 per month. A stated goal of the reform program was to tackle the informal economy, estimated at almost 30 percent of GDP, with large numbers of workers officially earning only the minimum wage, but receiving additional payments in cash out of sight of the tax authorities.

According to AmCham, finding skilled middle managers represents a serious challenge for its member companies, and many foreign companies choose instead to hire foreigners for skilled positions. To tackle youth unemployment, Montenegro is prioritizing efforts to improve practical job skills, including English language training and digital literacy. However, university students in Montenegro obtain little or no practical work experience while studying for their bachelor’s degree. It is widely mentioned in business circles that Montenegrin young adults prefer public sector work to private companies, despite the higher salaries, due to the perceived job security and less demanding workload. 2019 was marked by the intensive work on the Labor Law in a form of a dialogue among social partners regarding disputable legal solutions and the new Labor Law has been adopted in December 2019.

Over the past few years, private sector employment has increased, and total employment in the public sector (including SOEs) has decreased.  Employment in Montenegro is led by three major sectors: tourism, maritime and offshore jobs (including on cruise ships or freighters), and manufacturing.

The new Montenegrin Labor Act introduced important employment regulations. The maximum duration of a fixed-term contract has been extended from 24 months to 36 months. Employers that employ more than 10 employees must adopt an internal general policy which lists positions and sets out job descriptions. Part-time positions cannot be for fewer than 10 hours per week, except for the GM/CEO. Full-time positions are 40 hours per week. Minimum statutory annual leave is 20 working days for regular jobs and 30 working days for jobs with severe conditions where full-time work hours are reduced from 40 to 36 hours per week. As of October 2019, Sunday became a non-working day for trade shops in Montenegro. Employees who have a six-day long work week are entitled to a minimum of 24 working days of annual leave. Employers are obliged to adopt an annual leave plan prior to April 30 each calendar year for the current year. Employers are not allowed to compensate employees for unused annual leave, except in the case of employment termination that occurs before the employee has consumed his or her entire annual leave allowance for the given year. Should an employer’s operations be shut down, employees can receive 60 percent of their average salary earned over the previous six months, but not less than the minimum wage, for a maximum period of four months within a given calendar year.

The new Labor Law contains an explicit provision stating that an employer may only pay salaries to the employee’s bank account. Employment may not be terminated during pregnancy or maternity/ parental leave, except in case of a serious breach of work duties. Maternity leave may be taken for 365 days, beginning 28 days prior to childbirth. In cases in which employees claim unlawful termination, the employee must initiate proceedings before the Agency for Peaceful Resolution of Labor Disputes or before the Centre for Alternative Dispute Resolution. After doing so, the employee may initiate court proceedings against the employer. Court proceedings must be initiated within 15 days from the end of the mandatory mediation. The statute of limitations for monetary claims arising out of employment is four years from the date on which the obligation became due. Claims for payment of pension and disability insurance contributions are not subject to any statute of limitations.

The procedure for determining a breach of work duties has been adjusted, now allowing for dismissal for breach without having to first conduct disciplinary proceedings in the following cases: (i) if the employee’s behavior is such that he/she cannot continue to work for the employer (e.g. coming to work intoxicated; drinking or using narcotics during work; refusing to undergo a medical examination to determine intoxication; abusive, offensive, or inappropriate behavior towards customers or employees, etc.); (ii) if the employee knowingly provided inaccurate data during the hiring process; (iii) abuse of sick leave; (iv) failure to return to work after the end of unpaid leave.

The Law on Peaceful Resolution of Labor Disputes was adopted in 2007. It introduces out-of-court settlements of labor disputes. The Law on the Employment of Nonresidents took effect in 2009 and mandates the government to set a quota for nonresident workers in the country. In December 2020, the Government established a quota 20,454 work permits for foreigners in 2021. Procedures for hiring foreign workers were simplified, and taxes for nonresident workers have been significantly decreased to help domestic companies that are experiencing problems engaging domestic staff, particularly for temporary and seasonal work.

The Law on Foreigners in Montenegro came into force in 2015. At the beginning of 2016, amendments suggested by AmCham Montenegro and business organizations (including the Montenegrin Employers’ Federation, Montenegrin Chamber of Economy, Montenegro Business Alliance, and Montenegrin Foreign Investors Council) were adopted that improve and liberalize Montenegro’s business environment.  According to changes to the law, businesses are no longer required to provide official records proving that the company was unable to hire Montenegrin nationals with the required skills before hiring foreigners.

Changes were made to the Law on Pensions and Care of Invalids in 2017, including gradually increasing the age of retirement from 65 to 67 years (for both men and women) by 2042. These revisions are designed to eliminate anticipated shortfalls in the pension fund. The amended Law on Pensions and Care of Invalids which improves the conditions for retirement and harmonization of pensions, and increases the minimum pension was adopted in July 2020. The new Law improves the conditions for retirement, because one quarter of the period of service that was the most unfavorable for future retirees is excluded from the accounting period.

Until 2008, there was only one trade union confederation at the national level in Montenegro, the Confederation of Trade Unions of Montenegro (SSCG). SSCG is the successor of the former socialist trade union and inherited the property, organizational structure, and rights to participation in the tripartite bodies on the national level. As of 2008, a new confederation, the Union of Free Trade Unions of Montenegro (USSCG), split away from SSCG.

All international labor rights are recognized within domestic law, such as freedom of association, the elimination of forced labor, child labor employment discrimination, minimum wage, occupation safety and health, as well as weekly working hours.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) (M USD) 2019 USD 5,543 2020 USD 4,770 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country (M USD, stock positions) 2019 N/A 2020 N/A BEA data available at https://apps.bea.gov/international/factsheet
Host country’s FDI in the United States (M USD, stock positions) 2019 N/A 2020 N/A BEA data available at http://bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2019 8.3 2020 10.6 UNCTAD data available at https://stats.unctad.org/handbook/EconomicTrends/Fdi.html
Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 5,697 100% Total Outward N/A N/A
Russian Federation 619 10.8%
Azerbaijan 464 8.1%
Italy 367 6.4%
Republic of Serbia 334 5.8%
Cyprus 329 5.7%
“0” reflects amounts rounded to +/- USD 500,000.

North Macedonia

Executive Summary

The Republic of North Macedonia, an EU candidate country, and a NATO member since March 2020, continues to be receptive to U.S. commercial investments. The COVID-19 pandemic has deeply impacted North Macedonia’s economy and delayed foreign direct investment inflow. The government’s COVID stimulus measures helped limit the economic drop to 6.1 percent in 2020, and assisted the recovery in 2021, which saw four percent GDP growth.  Government support also cushioned the impact of the crisis on the labor market, with unemployment falling to 15.7 percent in 2021 and then to 15.2 percent in Q1 of 2022.  In its Growth Acceleration Plan, the government set targets to double average annual GDP growth rate from 2.5 percent to 5 percent in the period 2022-2026, create 156,000 new jobs, and reduce unemployment to 8.6 percent.  It also committed to “green growth” by accelerating the energy transition and reducing greenhouse gas emissions in accordance with the Declaration on Green Agenda signed November 2020.  Although economic effects of the pandemic linger, Russia’s aggression in Ukraine is exacerbating the energy crisis and supply chain woes.

While doing business is generally easy in North Macedonia and the legal framework is largely in line with international standards, corruption is a consistent issue. Large foreign companies operating in the Technological Industrial Development Zones (TIDZ) generally report positive investment experiences and maintain good relations with government officials. However, the country’s overall regulatory environment remains complex, and frequent regulatory and legislative changes, coupled with inconsistent interpretation of the rules, create an unpredictable business environment conducive to corruption. The government generally enforces laws, but there are numerous reports that some officials remain engaged in corrupt activities. Transparency International ranked North Macedonia 87th out of 180 countries in its Corruption Perceptions Index in 2021, 24 spots higher from the prior year, with a score of 39/100 in absolute terms.

The Office of the Deputy Prime Minister for Economic Affairs continues to coordinate government activities related to foreign investments.  The government made limited efforts in 2021 to attract new investment, focusing instead on economic recovery from the pandemic. However, the government did court foreign companies and investors for public projects in transportation and energy infrastructure.  The State Commission for the Prevention of Corruption has opened number of corruption-related inquiries, including several involving high-level officials, and the government appointed a new Deputy Prime Minister for Good Governance, who will focus on structural and procedural changes to reduce opportunities for corruption.

Fitch Ratings reaffirmed North Macedonia’s previous credit rating of BB+ with a negative outlook, and Standard & Poor’s reaffirmed its credit rating at BB- with a stable outlook.

There are several areas to watch in 2022. In 2021, Embassy Skopje identified digitalization and green energy as areas ripe for U.S. investment due to the government’s growing commitment to invest in these strategic sectors. North Macedonia’s location, at the crossroads of pan-European transport corridors VIII and X, is an advantage as companies consider “near-shoring” their production to be closer to consumption centers in Europe as fallout from the pandemic and Russia’s invasion of Ukraine continue to snarl global supply chains.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 87 of 180 http://www.transparency.org/
research/cpi/overview
Global Innovation Index 2021 59 of 132 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 USD 12 https://apps.bea.gov/international/
factsheet/
World Bank GNI per capita 2020 USD 5,750 https://data.worldbank.org/indicator/
NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

10. Political and Security Environment

North Macedonia generally has been free from political violence over the past decade, although interethnic relations have been strained at times. Public protests, demonstrations, and strikes occur sporadically, and often result in traffic jams, particularly near the center of Skopje.

Following 2016 parliamentary elections, an organized group of protestors leveraged ongoing protests and eventually stormed the parliament building on April 27, 2017, in reaction to the change of government and the election of Talat Xhaferi as Speaker of Parliament, the first ethnic Albanian to assume that post since the country’s independence. More than 100 people were injured, including several members of the government and seven MPs. On March 18, 2019, 16 individuals were convicted and given lengthy prison sentences for their involvement in the attack, including the former head of the Public Security Bureau (who had previously served as Minister of Interior) and former security officers. On July 26, 2021, in the so-called Parliament Violence Organizers’ case, the trial court issued roughly six-year prison sentences against the former VMRO-DPMNE Speaker of Parliament Trajko Veljanoski, former Minister of Education and Science Spiro Ristovski, former Minister of Transport and Communications Mile Janakieski, and former Administration for Security and Counterintelligence Director Vladimir Atanasovski, for organizing the attack on Parliament.  Prosecutor and defense appeals were pending before the appellate court as of March 8, 2022. The related cases against the former VMRO-DPMNE Prime Minister Nikola Gruevski and former counter-intelligence official Nikola Boshkoski, both fugitives, were ongoing.

There is neither widespread anti-American nor anti-Western sentiment in North Macedonia. A poll released February 2022 showed that 45.2 percent of all respondents saw the United States as the most influential foreign actor in country. There have been no incidents in recent years involving politically motivated damage to U.S. projects or installations. Violent crime against U.S. citizens is rare. Theft and other petty street crimes do occur, particularly in areas where tourists and foreigners congregate.

North Macedonia has been a member of NATO since 2020. The country has been an EU candidate country since December 2005 and, in March 2020, the General Affairs Council of the European Union decided to open accession negotiations with North Macedonia, which was endorsed by the European Council the following day. However, Bulgaria refused to approve North Macedonia’s EU negotiating framework in November 2020, effectively blocking the official launch of EU accession talks. In January 2022, the new governments of North Macedonia and Bulgaria re-launched efforts to resolve outstanding bilateral issues through intensified talks with a view to lifting Bulgaria’s veto.

11. Labor Policies and Practices

Foreign investors, especially those in labor-intensive industries, find North Macedonia’s competitive labor costs and high number of English speakers attractive. The average net wage in December 2021 was MKD 29,943 ($534) per month. Тhe minimum net wage for April 2021 through March 2022 was set to MKD 15,194 ($270) per month. In January 2022, the government raised the minimum wage to 18,000 MKD ($321), effective April 2022.

In the fourth quarter of 2021, North Macedonia’s labor force consisted of 934,482 people, of which 795,276 (84.8 percent) were officially employed and 142,206 (15.2 percent) were officially unemployed. North Macedonia’s employed labor force is roughly 60.4 percent male and 39.6 percent female. The largest number of employees are engaged in manufacturing (20 percent), trade (15.9 percent), and agriculture (11 percent). The total unemployment rate for youth ages 15 to 24 years old is 30.9 percent. About 18 percent of the unemployed have a university education. Informal sectors of the economy, including agriculture, are estimated to account for 22 percent of employment.

According to the IMF and domestic experts, the informal economy is estimated at approximately 40 percent of the overall economy. In 2019 the government adopted an Action Plan for Combating the Informal Economy 2020-2021 which includes priorities such as improving, measuring and monitoring, raising public awareness of the negative impact to society, and strengthening the tax code.

Despite the relatively high unemployment rate, foreign investors report difficulties in recruiting and retaining workers. Positions requiring technical and specialized skills can be especially difficult to fill due to a mismatch between industry needs, the educational system, and graduates’ aspirations. Many well-trained professionals with highly marketable skills, such as IT specialists, outsource to foreign companies or choose to work outside the country. To address shortages of factory workers, the government encourages the dispersal of labor-intensive manufacturing investments to different parts of the country, and companies often bus in workers from other areas. The Operational Plan for Active Programs and Measures for Employment and Services in the Labor Market for 2021 defines active government measures, programs, and services for self-employment and employment to stimulate job creation. The Plan also provides subsidies for new and existing jobs, internships, specialized skills training, vocational training for unemployed persons, and re-qualification or retraining. The Labor Law and accompanying measures do not discriminate against gender, rase or ethnicity.

Relations between employees and employers are regulated by individual employment contracts, collective agreements, and labor legislation. The Law on Working Relations regulates all forms of employment relations between employees and employers to include retirement, lay-offs, and union operations. Severance and unemployment insurance are also covered by the same law. Most labor-related laws are in line with international labor standards and generally align with recommendations of the International Labor Organization (ILO). Labor laws apply to both domestic and foreign investments, including those in the free economic zones, and employees under each are equally protected.

The Employment Agency ( http://www.av.gov.mk/home.nspx ) provides professional, organizational, administrative and other services related to employment and unemployment insurance and provides support, assistance and services to all stakeholders in the labor market.

Employment of foreign citizens is regulated by the Law on Employment and Work of Foreigners: http://mtsp.gov.mk/content/pdf/zakoni/Zakon_vrabotuvanje_stranci_21715.pdf .

There is no limitation on the number of employed foreign nationals or the duration of their stay. Work permits are required for foreign nationals, and an employment contract must be signed upon hiring. The employment contract, which must be in writing and kept on the work premises, should address the following provisions: description of the employee’s duties, duration of the contract (finite or indefinite), effective start and termination dates, workplace location, hours of work, rest and vacation periods, qualifications and training, salary, and pay schedule. The law establishes a 40-hour work week with a minimum 24-hour rest period, paid vacation of 20 to 26 workdays, and sick leave benefits. Employees may not legally work more than an average of eight hours of overtime per week over a three-month period, or 190 hours per year. According to the collective agreement for the private sector between employers and unions, employees in the private sector have a right to overtime pay at 135 percent of their regular rate. In addition, the law entitles employees who work more than 150 hours of overtime per year to a bonus of one month’s salary. Although the government sets occupational safety and health standards for employers, those standards are not enforced in the informal sector.

The Law allows free associating in trade unions if workers agree to organize themselves in such a format. Trade unions are interest-based, legally autonomous labor organizations. Membership is voluntary, and activities are financed by membership dues. About 22 percent of legally employed workers are dues-paying union members. Although legally permitted, there are no unions in the factories operating in the free economic zones. Most unions, with exception of a few local branches, are generally not independent of the influence of government officials, political parties, and employers.

There are two main associations of trade unions: The Union of Trade Unions and the Confederation of Free Trade Unions. Each association is comprised of independent branch unions from the public and private sectors. Both associations, along with representatives from the Organization of Employers of North Macedonia and relevant government ministries, are members of the Economic – Social Council. The Council meets regularly to discuss issues of concern to both employers and employees, and reviews amendments to labor-related laws.

The rights of workers in industrial divisions are regulated by National Collective Bargaining Agreements, and there are two on the national level—one for the public sector and one for the private sector. Only about 25 percent of the labor force is covered by these agreements. National collective agreements in the private sector are negotiated between representative labor unions and representative employer associations. The national collective agreement for the public sector is negotiated between the Ministry of Labor and Social Policy and labor unions. Separate contracts are negotiated by union branches at the industry or company level. Collective bargaining agreements are most prevalent in the metal industry, private sector education, and court administration.

An out-of-court mechanism for labor dispute resolution was introduced in 2015 with ILO assistance. North Macedonia’s labor regulations comply with international labor standards and are in line with the ILO. In 2018, the government adopted a number of changes to the Law on Labor relations, most of which related to workers’ rights in procedures for termination of work contracts, severance pay, and apprenticeships. http://www.mtsp.gov.mk/content/pdf/zakoni/2018/ZRO%20izmeni%202018.pdf

Investment Climate Statements
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