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Albania

Executive Summary

Albania is an upper middle-income country with a gross domestic product (GDP) per capita of USD 5,286 (2020 IMF estimate) and a population of approximately 2.9 million people. The IMF estimates that Albania’s economy contracted by 3.5% in 2020, due to the combined effect of the COVID-19 pandemic and the November 2019 earthquake. The contraction is smaller than initial forecasts due in large part to the positive net growth in construction, real estate, and agriculture sectors fueled by large government spending and private investments in real estate. Albania’s economy maintained its macroeconomic and fiscal stability during 2020, thanks to prudent macro and fiscal policies. Budgetary and COVID-19 related support provided by the international financial institutions and the EU helped the country meet urgent payment needs, and respond efficiently to two consecutive shocks, the earthquake and pandemic. During 2020, the IMF disbursed USD190 million under the Rapid Financing Instrument, the World Bank approved USD 80 million under its Fiscal Sustainability and Growth Development Policy Financing (DPF) program, and the EU approved around USD 205 million for Albania under its 3-Billion-Euro Macro-Financial Assistance (MFA) package for ten enlargement and neighborhood partners.

The IMF projects the economy will grow by 5 percent in 2021. The rebound is expected to be fueled mostly by increased consumption, better performance of tourism sector, and continued post-earthquake reconstruction program financed by the government and close to USD 330 million in grants raised from the post-earthquake International Donors Conference in February 2020.

However, uncertainties related to the pandemic, elevated fiscal deficits and public debt, and a relatively high level of non-performing loans (NPLs) present challenges for the projected recovery. In 2020, the fiscal deficit expanded from 1.9% to 6.7% year-on-year and public debt increased from 66.6% to almost 80% of GDP.

Albania received EU candidate status in June 2014, and in March 2020, the European Council endorsed the recommendation of the European Commission to open accession talks with Albania.  Albania awaits its first Intergovernmental Conference, which would mark the start of accession negotiations.

The Albanian legal system ostensibly does not discriminate against foreign investors.  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.  The Law on Foreign Investment outlines specific protections for foreign investors and allows 100 percent foreign ownership of companies in all but a few sectors. Albania has been able to attract increasing levels of foreign direct investment (FDI) in the last decade.

According to the UNCTAD data, during 2016-2019, the flow of FDI has averaged USD 1.2 billion and stock FDI reached USD 8.8 billion at the end of 2019. Despite the pandemic, according to preliminary data of the Bank of Albania the FDI flow in 2020 was relatively stable at USD 1 billion. Investments are concentrated in extractive industries, the energy sector, banking and insurance, information and communication technology, and real estate. Switzerland, The Netherlands, Canada, Italy, Turkey, Austria, Bulgaria, and Greece are the largest sources of FDI.

To attract FDI and promote domestic investment, Albania approved a Law on Strategic Investments in 2015.  The law outlines investment incentives and offers fast-track administrative procedures to strategic foreign and domestic investors through December 31, 2021 depending on the size of the investment and number of jobs created. In 2015, to promote FDI, the government also passed legislation creating Technical Economic Development Areas (TEDAs) similar to free trade zones. The development of the first TEDA has yet to begin but the Government of Albania (GoA) announced a new tender on March 2021 for the development of the first TEDA after previous unsuccessful attempts.

As of March 2021, 95 percent of all public services to citizens and businesses were available online through the  E-Albania Portal . The platform offered more than 1,200 types of services to citizens and businesses. Increased digitalization of services is expected to curb corruption by limiting direct contacts with public administration officials.

Despite a sound legal framework and progress on e-reform, foreign investors perceive Albania as a difficult place to do business. They cite corruption, particularly in the judiciary, a lack of transparency in public procurement, unfair competition, informal economy, frequent changes of the fiscal legislation, and poor enforcement of contracts as continuing problems in Albania. Reports of corruption in government procurement are commonplace. The increasing 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.

Transparency International’s 2020 Corruption Perceptions Index ranked Albania 104th out of 180 countries, an improvement by two places from 2019. Albania fell 19 spots in the World Bank’s 2020 Doing Business survey, ranking 82nd falling from 63rd in 2019. Although this change can be partially attributed to the implementation of a new methodology, the country continues to score poorly in the areas of granting construction permits, paying taxes, enforcing contracts, registering property, obtaining electricity, and protecting minority investors.

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, 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.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 104 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 82 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 83 of 131 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 2019 $5,200 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

Kenya

Executive Summary

Kenya has a positive investment climate that has made it attractive to international firms seeking a location for regional or pan-African operations. The novel coronavirus pandemic has negatively affected the short-term economic outlook, but the country remains resilient in addressing the health and economic challenges. In July 2020 the U.S. and Kenya launched negotiations for a Free Trade Agreement, the first in sub-Saharan Africa. The World Bank’s 2020 Ease of Doing Business report ranked Kenya 56 out of the 190 economies it reviewed – five spots higher than in 2019. Since 2014, Kenya has moved up 73 places on this index. Year-on-year, Kenya continues to improve its regulatory framework and its attractiveness as a destination for foreign direct investment (FDI). Despite this progress, U.S. businesses operating in Kenya still face aggressive tax collection attempts, burdensome bureaucratic processes, and significant delays in receiving necessary business licenses. Though corruption remains pervasive, Transparency International ranked Kenya 124 out of 180 countries in its 2020 Global Corruption Perception Index – an improvement of 13 spots compared to 2019.

Kenya has strong telecommunications infrastructure and a robust financial sector and is a developed logistics hub with extensive aviation connections throughout Africa, Europe, and Asia. In 2018, Kenya Airways initiated direct flights to New York City in the United States. Mombasa Port is the gateway for East Africa’s trade. Kenya’s membership in the East African Community (EAC), the Africa Continental Free Trade Area (AfCFTA), and other regional trade blocs provides it with preferential trade access to growing regional markets.

In 2017 and 2018 Kenya instituted broad reforms to improve its business environment, including passing the Tax Laws Amendment (2018) and the Finance Act (2018), which established new procedures and provisions related to taxes, eased the payment of taxes through the iTax platform, simplified registration procedures for small businesses, reduced the cost of construction permits, and established a “one-stop” border post system to expedite the movement of goods across borders. However, the Finance Act (2019) introduced taxes to non-resident ship owners, and the Finance Act 2020 enacted a Digital Service Tax (DST). The DST, which went into effect in January 2021, imposes a 1.5 percent tax on any transaction that occurs in Kenya through a “digital marketplace.” The oscillation between business reforms and conflicting taxation policies has raised uncertainty over the Government of Kenya’s (GOK) long-term plans for improving the investment climate.

Kenya’s macroeconomic fundamentals remain among the strongest in Africa, averaging five to six percent gross domestic product (GDP) growth since 2015 (excepting 2020 due to the negative economic impact of the COVID-19 pandemic), five percent inflation since 2015, improving infrastructure, and strong consumer demand from a growing middle class. There is relative political stability and President Uhuru Kenyatta has remained focused on his “Big Four” development agenda, seeking to provide universal healthcare coverage, establish national food and nutrition security, build 500,000 affordable new homes, and increase employment by growing the manufacturing sector.

The World Bank’s November 2020 Kenya Economic Update report noted that the ongoing locust invasion, COVID-19 pandemic, and drought conditions in certain parts of the country, pose near-term challenges to Kenya’s economic recovery, but also highlighted mitigating measures enacted by the GOK and Central Bank of Kenya (CBK) as positive developments. American companies continue to show strong interest to establish or expand their business presence and engagement in Kenya, especially following President Kenyatta’s August 2018, and February 2020 meetings with former-President Trump in Washington, D.C. Sectors offering the most opportunities for investors include: agro-processing, financial services, energy, extractives, transportation, infrastructure, retail, restaurants, technology, health care, and mobile banking.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 124 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report* 2020 56 of 190 http://www.doingbusiness.org/en/rankings 
Global Innovation Index 2020 86 of 131 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2019 $353 http://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2019 $1,750 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 
Investment Climate Statements
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