Albania is an upper middle-income country with a gross domestic product (GDP) per capita of USD 5,373 (2019 IMF estimate) and a population of approximately 2.9 million people. An estimated 45 percent of the population live in rural areas. The IMF estimates Albania’s real GDP increased by 2.2 percent in 2019, and that GDP will contract by 5 percent in 2020 because of the November 2019 earthquake and the COVID-19 crisis. The IMF projects the economy will grow by 8 percent in 2021, provided COVID-19 restrictions ease by summer 2020. The rebound is expected to be fueled mostly by increased consumption and a large post-earthquake reconstruction program. During the post-earthquake International Donors Conference in February, international donors pledged close to USD 330 million in grants and approximately USD 940 million in soft loans.
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. Prior to the first Intergovernmental Conference, which marks the start of accession negotiations, Albania must implement a number of reforms in the justice sector, adopt changes to its electoral code, advance efforts to support minority rights, reduce unfounded asylum claims in EU member states, and show tangible progress in its fight against organized crime and corruption.
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 Bank of Albania data, flow of FDI has averaged USD 1.1 billion in the last six years, and stock FDI reached USD 9.5 billion at the end of 2019. Investments are concentrated in the energy sector, extractive industries, banking and insurance, telecommunications, and real estate. Switzerland, The Netherlands, Canada, Turkey, Austria, 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, 2020, 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), like free trade zones. (The government is a member of and an advocate for the Western Balkan Initiative, a regional zone intended to increase connectivity and commercial activity.) The development of the first TEDA has yet to begin after several failed tender attempts.
The government made significant advancements in its Digital Revolution Agenda during 2019. As of January 2020, 61 percent of all public services to citizens and businesses were available online through the E-Albania Portal, up from 15 percent in 2019. The reform is ongoing, and the government states that by December 2020, 91 percent of all public services will be available online. This should help 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, 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 (3P) 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 3P 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.
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, which will provide some relief for title holders.
Transparency International’s 2019 Corruption Perceptions Index ranked Albania 106th of 180 countries, a drop of seven places from 2018. Consequently, Albania and North Macedonia are now perceived as the most corrupt countries in the Western Balkans. Albania also fell 19 spots in the World Bank’s 2020 Doing Business survey, ranking 82nd 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 Government of Albania (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 organized crime ties. 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.
|TI Corruption Perceptions Index||2019||106 of 180||http://www.transparency.org/
|World Bank’s Doing Business Report||2020||82 of 190||http://www.doingbusiness.org/
|Global Innovation Index||2019||83 of 129||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, historical stock positions)||2018||N/A||http://apps.bea.gov/international/
|World Bank GNI per capita||2018||USD 4,860||http://data.worldbank.org/indicator/
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The GoA understands that private sector development and increased levels of foreign investment are critical to support sustainable economic development. Albania maintains a liberal foreign investment regime designed to attract FDI. The Law on Foreign Investment outlines specific protections for foreign investors and allows 100 percent foreign ownership of companies, except in the areas of domestic and international air passenger transport and television broadcasting. Albanian legislation does not distinguish between domestic and foreign investments.
The 2010 amendments to the Law on Foreign Investment introduced criteria specifying when the state would grant special protection to foreign investors involved in property disputes, providing additional guarantees to investors for investments of more than 10 million euros. Amendments in 2017 and 2018 extended state protection to December 31, 2019. The Law on Strategic Investments approved in 2015 offers incentives and fast-track administrative procedures, depending on the size of the investment and number of jobs created, to both foreign and domestic investors who apply before December 31, 2020.
The Albanian Investment Development Agency (AIDA) is the entity responsible for promoting foreign investments in Albania. Potential U.S. investors in Albania should contact AIDA to learn more about services AIDA offers to foreign investors (http://aida.gov.al/ ). The Law on Strategic Investments stipulates that AIDA, as the Secretariat of the Strategic Investment Council, serve as a one-stop-shop for foreign investors, from filing of the application form to granting the status of strategic investment/investor. Despite hospitable legislation, only a few foreign investors have benefited from the “Strategic Investor” status.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign and domestic investors have equal rights of ownership of local companies, based on the principle of “national treatment.” According to the World Bank’s “Investing Across Borders” indicator, just three of 33 sectors have restrictions against full foreign ownership, or in the case of the agriculture sector, against foreign land ownership.
- Domestic and international air passenger transport: foreign interest in airline companies is limited to 49 percent ownership by investors outside the Common European Aviation Zone, for both domestic and international air transportation.
- Television broadcasting: no entity, foreign or domestic, may own more than 40 percent of a television company.
- Agriculture: No foreign individual or foreign incorporated company may purchase agricultural land, though land may be leased for up to 99 years.
Albania currently lacks an investment-review mechanism for inbound FDI. However, in 2017, the government introduced a new provision in the Petroleum Law, which allows the government to reject a petroleum-sharing agreement or the sale of shares in a petroleum-sharing agreement to any prospective investor due to national security concerns. Albanian law permits private ownership and establishment of enterprises and property. Foreign investors do not require additional permission or authorization beyond that required of domestic investors. 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. Foreigners can acquire concession rights on natural resources and resources of the common interest, as defined by the Law on Concessions and Public Private Partnerships.
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) allow for the following legal types of business entities to be established through the NRC: sole proprietorship; unlimited partnership; limited partnership; limited liability company; joint stock company; branches and representative offices; and joint ventures.
Other Investment Policy Reviews
The World Trade Organization (WTO) completed a Trade Policy Review of Albania in May 2016 (https://www.wto.org/english/tratop_e/tpr_e/tp437_e.htm ). In November 2017, the United Nations Conference on Trade and Development (UNCTAD) completed the first Investment Policy Review of South-East European (SEE) countries, including Albania (http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=1884).
The National Business Center (NBC) serves as a one-stop shop for business registration. All required procedures and documents are published online (http://www.qkb.gov.al/information-on-procedure/business-registration/). Registration may be done in person or online via the e-Albania portal. Many companies choose to complete the registration process in person, as the online portal requires an authentication process and electronic signature and is only available in the Albanian language. When a business registers in the NBC it is also automatically registered with the Tax Office, Labor Inspectorate, Customs, and the respective municipality. According to the 2020 World Bank Doing Business Report, it takes 4.5 days and five procedures to register a business in Albania.
Albania neither promotes nor incentivizes outward investment, nor does it restrict domestic investors from investing abroad.
6. Financial Sector
Capital Markets and Portfolio Investment
The government has adopted policies to promote the free flow of financial resources and foreign investment in Albania. The Law on “Foreign Investments” is based on the principles of equal treatment, non-discrimination, and protection of foreign investments. Foreign investors have the right to expatriate all funds and contributions of their investment. In accordance with IMF Article VIII, the government and Central Bank do not impose any restrictions on payments and transfers for international transactions. Despite Albania’s shallow foreign exchange market, banks enjoy enough liquidity to support sizeable positions. Portfolio investments continue to be a challenge because they remain limited mostly to company shares, government bonds, and real estate.
In the recent years, the high percentage of non-performing loans and the economic slowdown forced commercial banks to tighten lending standards. However, following a decrease in non-performing loans (NPL) in 2018 the, lending increased by 7 percent year-over-year in 2019. The credit market is competitive, but interest rates in domestic currency can be high, ranging from 6 percent to 7 percent. Most mortgage and commercial loans are denominated in euros because rate differentials between local and foreign currency average 2.5 percent. Commercial banks operating in Albania have improved the quality and quantity of services they provide, including a large variety of credit instruments, traditional lines of credit, and bank drafts etc.
Money and Banking System
In the absence of an effective stock market, the country’s banking sector is the main channel for business financing. The sector is sound, profitable, and well capitalized. The high rate of non-performing loans (NPL)s had been a concern for several years but has declined recently. The Bank of Albania’s legal measures to address the problem have generated positive results. The banking sector is 100 percent fully privatized. It has undergone consolidation over the last couple of years, as the number of banks decreased from 16 in 2018 to 12 in 2020. As of December 2019, the Turkish -owned National Commercial Bank remained the largest bank in the market, with 27 percent of the market share, followed by Austrian Raiffeisen Bank, with 15 percent, and Albanian Credins Bank, with 14.8 percent. The American Investment Bank is the only bank with U.S. shareholders, and it ranks seventh with 5.2 %percent of the banking sector’s total assets, which in 2019 reached $13.5 billion.
Albania’s banking sector weathered the financial crisis better than many of its neighbors, due largely to a limited exposure to international capital markets and lack of a domestic housing bubble. In December 2019, Albania had 446 bank outlets, down from 474 a year ago and the peak of 552 in 2016. Capital adequacy, at 18.3 percent, remains above Basel requirements and indicates sufficient assets. At the end of 2019, the return on assets was 1.5 percent. The number of NPLs continued to fall, reaching 8.4 percent at the end of the 2019, down from 11.1 percent in 2018, and significantly below the 2014 level when NPLs peaked at 25 percent. As part of its strategy to stimulate business activity, the Bank of Albania has adopted a plan to ease monetary policy by continuing to persistently keep low interest rates. The most recent reduction was in March 2020, when the interest rate was reduced to the historic low of 0.5 percent, down from a rate of 1 percent in place since June 2018.
Most of the banks operating in Albania are subsidiaries of foreign banks. Only three banks have an ownership structure whose majority shareholders are Albanian. However, the share of total assets of the banks with majority Albanian shareholders has increased because of the sector’s ongoing consolidation. There are no restrictions for foreigners who wish to establish a bank account. They are not required to prove residency status. However, U.S. citizens must complete a form allowing for the disclosure of their banking data to the IRS as required under the U.S. Foreign Account Tax Compliance Act.
Foreign Exchange and Remittances
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. Foreign exchange is regulated by the 2009 Regulation on Foreign Exchange Activities no. 70 (FX Regulation).
BoA maintains a free -float exchange rate regime for the domestic currency, the Lek. Albanian authorities do not engage in currency arbitrage, nor do they view it as an efficient instrument to achieve competitive advantage. BoA does not intervene to manipulate the exchange rate unless required to control domestic inflation, in accordance with the Bank’s official mandate of inflation targeting.
Foreign exchange is readily available at banks and exchange bureaus. Preliminary notification is necessary if the currency exchange is several million dollars or more – the law does not specify an amount but provides factors for determining the threshold for large exchanges – as the exchange market in Albania is shallow. A 2018 campaign launched by the BoA to reduce the domestic use of the euro to improve the effectiveness of domestic economic policies has produced tangible results. The share of foreign currency loans in total loans fell from 60 percent in 2015 to 50 percent in 2019. Foreign currency deposits, which to some extent reflect relatively high remittances, rose to 54.6 percent of total deposits.
The Banking Law does not impose restrictions on the purchase, sale, holding, or transfer of monetary foreign exchange. However, local law authorizes the BoA to temporarily restrict the purchase, sale, holding, or transfer of foreign exchange to preserve the foreign exchange rate or official reserves. In practice, BoA rarely employs such measures. The last episode was in 2009, when the Bank temporarily tightened supervision rules over liquidity transfers by domestic correspondent banks to foreign banks due to insufficient liquidity in international financial markets. It also asked banks to halt distribution of dividends and use dividends to increase shareholders’ capital, instead. BoA lifted these restrictions in 2010.
The Law on Foreign Investment guarantees the right to transfer and repatriate funds associated with an investment in Albania into a freely usable currency at a market-clearing rate. Only licensed entities (banks) may conduct foreign exchange transfers and waiting periods depend on office procedures adopted by the banks. Both Albanian and foreign citizens entering or leaving the country must declare assets in excess of 1,000,000 lek (USD 9,000) in hard currency and/or precious items. Failure to declare such assets is considered a criminal act, punishable by confiscation of the assets and possible imprisonment.
Although the Foreign Exchange (FX) Regulation provides that residents and non-residents may transfer capital within and into Albania without restriction, capital transfers out of Albania are subject to certain documentation requirements. Persons must submit a request indicating the reasons for the capital transfer, a certificate of registration from the National Registration Center, and the address to which the capital will be transferred. Such persons must also submit a declaration on the source of the funds to be transferred. In January 2015, The FX Regulation was amended and the requirement to present the documentation showing the preliminary payment of taxes related to the transaction was removed.
Albania is a member of the Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a Financial Action Task Force-style regional body. In February 2020, Albania was included in the category of jurisdictions under increased monitoring, also referred to as the Grey List. Albania had previously been on this list and was taken off in 2015. The 2020 International Narcotics Control Strategy Report (INCSR) placed Albania in the “Major Money Laundering Jurisdictions” category following its inclusion for the first time in 2017. The category implies that financial institutions of the country engage in currency transactions involving significant amounts of proceeds from international narcotics trafficking.
Sovereign Wealth Funds
Parliament approved a law in October 2019 to establish the Albanian Investment Corporation (AIC). The law entered in force in January 2020. The AIC would develop, manage, and administer state-owned property and assets, invest across all sectors by mobilizing state owned and private domestic and foreign capital, and promote economic and social development by investing in line with government-approved development policies.
The GoA plans to transfer state-owned assets, including state-owned land, to the AIC and provide initial capital to launch the corporation. The IMF Staff Concluding Statement of November 26, 2019, warned that the law would allow the government to direct individual investment decisions, which could make the AIC an off-budget spending tool that risks eroding fiscal discipline and circumventing public investment management processes.
Endemic corruption continues to undermine the rule of law and jeopardize economic development. Foreign investors cite corruption, particularly in the judiciary, a lack of transparency in public procurement, and poor enforcement of contracts as some of the biggest problems in Albania.
Corruption perceptions continue to deteriorate, with Albania falling an additional seven positions in Transparency International’s 2019 Corruption Perceptions Index (CPI), now ranking 106th out of 180 countries, tied with North Macedonia as the lowest in the Balkans. Despite some improvement in in Albania’s score from 2013 to 2016, progress in tackling corruption has been slow and unsteady. Albania is still one of the most corrupt countries in Europe, according to the CPI and other observers.
The country has a sound legal framework to prevent conflict of interest and to fight corruption of public officials and politicians, including their family members. However, law enforcement is jeopardized by a heavily corrupt judicial system.
The passage of constitutional amendments in July 2016 to reform the judicial system was a major step forward, and reform, once fully implemented, is expected to position the country as a more attractive destination for international investors. Judicial reform has been described as the most significant development in Albania since the end of communism, and nearly one-third of the constitution was rewritten as part of the effort. The reform also entails the passage of laws to ensure implementation of the constitutional amendments. Judicial reform’s vetting process will ensure that prosecutors and judges with unexplained wealth or insufficient training, or those who have issued questionable verdicts, are removed from the system. As of publication, more than half of the judges and prosecutors who have faced vetting have either failed or resigned. The establishment of the Special Prosecution Office Against Corruption and Organized Crime and of the National Investigation Bureau, two new judicial bodies, will step up the fight against corruption and organized crime. Once fully implemented, judicial reform will discourage corruption, promote foreign and domestic investment, and allow Albania to compete more successfully in the global economy.
UN Anticorruption Convention, OECD Convention on Combatting Bribery
The government has ratified several corruption-related international treaties and conventions and is a member of major international organizations and programs dealing with corruption and 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 several 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 the 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 a member of the Stability Pact Anti-Corruption Initiative (SPAI). Albania is not a member of the OECD Convention on Combating Bribery of Foreign Public Officials in international Business Transactions. Albania has also adopted legislation for the protection of whistleblowers.
Resources to Report Corruption
To curb corruption, the government announced a new platform in 2017, “Shqiperia qe Duam”(“The Albania We Want”), which invites citizens to submit complaints and allegations of corruption and misuse of office by government officials. The platform has a dedicated link for businesses. The Integrated Services Delivery Agency (ADISA), a government entity, provides a second online portal to report corruption.
14. Contact for More Information
Economic and Commercial Officer
U.S. Embassy Tirana, Albania
Rruga Elbasanit, Nr. 103
Tirana, Albania +355 4 224 7285