Albania is an upper middle-income country with a gross domestic product (GDP) per capita of USD 5,288 (2018) and a population of approximately 2.9 million people, around 45 percent of whom live in rural areas. According to IMF estimates, real GDP increased by 4.2 percent in 2018, and growth is expected to decline during 2019 but remain close to 4 percent in the medium term. Albania received European Union (EU) candidate status in June 2014 and has since been seeking to open accession negotiations. The EU has encouraged Albania to continue progress in reforms related to five key priorities: public administration reform, justice reform, the fight against corruption, the fight against organized crime, and protection of human rights, including the rights of persons belonging to minorities and property rights.
Foreign investors cite corruption, particularly in the judiciary, a lack of transparency in public procurement, and poor enforcement of contracts as continuing problems in Albania. In 2016, the Government of Albania (GOA) passed sweeping constitutional amendments to reform the country’s judicial system and improve the rule of law. The implementation of judicial reform is underway, including the vetting of judges and prosecutors for unexplained wealth. While numerous judges and prosecutors have been dismissed by a vetting commission for unexplained wealth or organized crime ties, foreign investors perceive the investment climate as problematic and say Albania remains a difficult place to do business.
Investors report ongoing concerns that regulators use difficult-to-interpret or inconsistent legislation and regulations as tools to dissuade foreign investors and favor politically connected companies. Regulations and laws governing business activity change frequently and without meaningful consultation with the business community; business owners and business associations frequently note they did not receive enough notice, time, or opportunity for engagement on regulatory and legislative changes. Major foreign investors report pressure to hire specific, politically connected subcontractors and express concern about compliance with the Foreign Corrupt Practices Act while operating in Albania. Reports of corruption in government procurement are commonplace. The increasing use of public private partnership (3P) contracts has narrowed the 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. The government had signed more than 200 3P contracts by the end of 2018.
Property rights remain another challenge in Albania, as clear title is difficult to obtain. There have been instances of individuals manipulating the court system to obtain illegal land titles. Compensation for land confiscated by the former communist regime is difficult to obtain and inadequate. The agency charged with removing illegally constructed buildings often acts without full consultation and fails to follow procedures.
To attract FDI and promote domestic investment, the host government 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, depending on the size of the investment and number of jobs created. The government also passed legislation creating Technical Economic Development Areas (TEDAs), like free trade zones. The development of the first TEDA, in Spitalle, Durres, was granted to a consortium of local companies in August 2017, but only after the tender had failed three times. Development of the TEDA has yet to begin, as one of the bidders has challenged the decision in the court.
Transparency International’s 2018 Corruption Perceptions Index ranked Albania 99th of 180 countries, a drop of eight places from 2017. Consequently, Albania is now perceived as the most corrupt country in the Western Balkans. While it improved by two spots, to 63rd, in the World Bank’s 2019 “Doing Business” survey, Albania continued to score poorly in the areas of enforcing contracts, registering property, granting construction permits, and obtaining electricity.
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 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.
Energy and power, tourism, water supply and sewerage, road and rail, mining, and information communication technology represent the best prospects for foreign direct investment in Albania over the next several years.
Table 1: Key Metrics and Rankings
Andorra is an independent principality with a population of about 76,100 and area of 181 square miles situated between France and Spain in the Pyrenees mountains. Although not a member of the European Union (EU), Andorra is part of the EU Customs Union and, due to a monetary agreement with the EU, uses the euro as its national currency. Andorra has become a popular tourist destination; tourism accounts for about 80 percent of GDP. Over 8 million people visit the Principality each year, drawn by its winter sports, summer climate, and duty-free shopping. Andorra has also become a wealthy international commercial center because of its integrated banking sector and low taxes. As part of its effort to modernize its economy, Andorra has opened to foreign investment, and engaged in other reforms, such as advancing tax initiatives aimed at supporting a broader infrastructure.
Andorra is actively seeking to attract foreign investment, and to become a center for entrepreneurs, talent, innovation, and knowledge. In doing so, Andorra has fostered a large project with the Massachusetts Institute of Technology (MIT) on innovation and big data, employing Andorra’s unique economy as a test market.
The Andorran economy is undergoing a process of diversification centered largely on tourism, trade, property, and finance. To provide incentives for growth and diversification in the economy, the Government began sweeping economic reforms in 2006. The Parliament approved three main regulations to complement the first phase of economic openness: the law of Companies (October 2007), the Law of Business Accounting (December 2007), and the Law of Foreign Investment (April 2008 and June 2012). From 2011 to 2017, the Parliament approved direct taxes in the form of a corporate tax, tax on economic activities, tax on income of non-residents, tax on capital gains, savings taxation, and personal income tax. These regulations aim to establish a transparent, modern, and internationally comparable regulatory framework.
These reforms also target investment from international businesses that have the potential to boost Andorra’s economic development and diversification. Prior to 2008, Andorra limited foreign investment, worried that large foreign firms would have an oversized impact on its small economy. For example, previous regulations restricted non-citizens with less than 20 years residence in Andorra to own no more than 33 percent of a company. While foreigners may now own 100 percent of a trading enterprise or a holding company, the Government must approve the establishment of any private enterprise. The approval can take up to one month, which can be rejected if the proposal is found to threaten the environment, the public order, or the general interests of the Principality.
Andorra has a per capita income above the European average and higher than the level of its neighbors, Spain and France. The country has developed a sophisticated infrastructure including a one-of-a-kind micro-fiber-optic network for the entire country that provides universal access to all households and companies. Andorra’s retail services are well known around Europe, thanks to more than 2,900 shops, the quality of their products, and competitive prices. Products taken out of the Principality are tax-free up to certain limits; the purchaser has to declare those that exceed the allowance.
Canada and the United States (U.S.) have one of the largest and most comprehensive investment relationships in the world. U.S. investors are attracted to Canada’s strong economic fundamentals, its proximity to the U.S. market, its highly skilled work force, and abundant resources. As of 2017, the U.S. had a stock of USD391 billion of foreign direct investment (FDI) in Canada. U.S. FDI stock in Canada represents 49 percent of Canada’s total investment. Canada’s FDI stock in the U.S. totaled USD523 billion.
U.S. FDI in Canada is subject to the provisions of the Investment Canada Act (ICA), the World Trade Organization (WTO), and the 1994 North American Free Trade Agreement (NAFTA). Chapter 11 of NAFTA contains provisions such as “national treatment” designed to protect cross-border investors and facilitate the settlement of investment disputes. NAFTA does not exempt U.S. investors from review under the ICA, which has guided foreign investment policy in Canada since its implementation in 1985. The ICA provides for review of large acquisitions by non-Canadian investors and includes the requirement that these investments be of “net benefit” to Canada. The ICA also has provisions for the review of investments on national security grounds. The Canadian government has blocked investments on only a few occasions.
Canada, the United States, and Mexico completed negotiations for a modernized and rebalanced NAFTA agreement on September 30, 2018. The new United States-Mexico-Canada Agreement (USMCA) was signed by all three countries November 30, 2018 and will come into force after the completion of the domestic ratification processes by each individual member of the agreement. The agreement updates NAFTA’s provisions with respect to investment protection rules and investor-state dispute settlement procedures to better reflect U.S. priorities related to foreign investment. All Parties to the agreement have agreed to treat investors and investments of the other Parties in accordance with the highest international standards, and consistent with U.S. law and practice, while safeguarding each Party’s sovereignty and promoting domestic investment.
Although foreign investment is a key component of Canada’s economic development, restrictions remain in key sectors. Under the Telecommunications Act, Canada maintains a 46.7 percent limit on foreign ownership of voting shares for a Canadian telecom services provider. However, a 2012 amendment exempts foreign telecom carriers with less than 10 percent market share from ownership restrictions in an attempt to increase competition in the sector. In May 2018, Canada eased its foreign ownership restrictions in the aviation sector, which increased foreign ownership limits of Canadian commercial airlines to 49 percent from 25 percent. Investment in cultural industries also carries restrictions, including a provision under the ICA that foreign investment in book publishing and distribution must be compatible with Canada’s national cultural policies and be of “net benefit” to Canada. Canada is open to investment in the financial sector, but barriers remain in retail banking.
As Europe’s largest economy, Germany is a major destination for foreign direct investment (FDI) and has accumulated a vast stock of FDI over time. Germany is consistently ranked by business consultancies and the UN Conference on Trade and Development (UNCTAD) as one of the most attractive investment destinations based on its reliable infrastructure, highly skilled workforce, positive social climate, stable legal environment, and world-class research and development.
The United States is the leading source of non-European foreign investment in Germany. Foreign investment in Germany was broadly stable during the period 2013-2016 (the most recent data available) and mainly originated from other European countries, the United States, and Japan. FDI from emerging economies (particularly China) grew substantially over 2013-2016, albeit from a low level.
German legal, regulatory, and accounting systems can be complex and burdensome, but are generally transparent and consistent with developed-market norms. Businesses enjoy considerable freedom within a well-regulated environment. Foreign and domestic investors are treated equally when it comes to investment incentives or the establishment and protection of real and intellectual property. Foreign investors can fully rely on the legal system, which is efficient and sophisticated. At the same time, this system requires investors to closely track their legal obligations. New investors should ensure they have the necessary legal expertise, either in-house or outside counsel, to meet all requirements.
Germany has effective capital markets and relies heavily on its modern banking system. Majority state-owned enterprises are generally limited to public utilities such as municipal water, energy, and national rail transportation. The primary objectives of government policy are to create jobs and foster economic growth. Labor unions are powerful and play a generally constructive role in collective bargaining agreements, as well as on companies’ work councils.
German authorities continue efforts to fight money laundering and corruption. The government supports responsible business conduct and German SMEs are increasingly aware of the need for due diligence.
The German government amended domestic investment screening provisions, effective June 2017, clarifying the scope for review and giving the government more time to conduct reviews, in reaction to an increasing number of acquisitions of German companies by foreign investors, particularly from China. The amended provisions provide a clearer definition of sectors in which foreign investment can pose a “threat to public order and security,” including operators of critical infrastructure, developers of software to run critical infrastructure, telecommunications operators or companies involved in telecom surveillance, cloud computing network operators and service providers, and telematics companies. All non-EU entities are now required to notify Federal Ministry for Economic Affairs and Energy in writing of any acquisition of or significant investment in a German company active in these sectors. The new rules also extend the time to assess a cross-sector foreign investment from two to four months, and for investments in sensitive sectors, from one to three months, and introduce the possibility of retroactively initiating assessments for a period of five years after the conclusion of an acquisition. Indirect acquisitions such as those through a Germany- or EU-based affiliate company are now also explicitly subject to the new rules. In 2018, the government further lowered the threshold for the screening of investments, allowing authorities to screen acquisitions by foreign entities of at least 10 percent of voting rights of German companies that operate critical infrastructure (down from 25 percent), as well as companies providing services related to critical infrastructure. The amendment also added media companies to the list of sensitive businesses to which the lower threshold applies. German authorities strongly supported the European Union’s new framework to coordinate national security screening of foreign investments, which entered into force in April 2019.
Table 1: Key Metrics and Rankings