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.

Algeria

Executive Summary

Algeria’s state enterprise-dominated economy is challenging for U.S. businesses, but multiple sectors offer opportunities for long-term growth. The government is prioritizing investment in agriculture, information and communications technology, mining, hydrocarbons (both upstream and downstream), renewable energy, and healthcare.

Following his December 2019 election, President Abdelmadjid Tebboune has promised economic and political reforms, though progress has been slow due to COVID-19, his own extended absences for medical reasons, and a lack of popular support. Algeria adopted a new Constitution in December 2020 and after dissolving parliament in February 2021, President Tebboune announced legislative elections will take place in June 2021.

In 2020, the government eliminated the so-called “51/49” restriction that required majority Algerian ownership of all new businesses, though it retained the requirement for “strategic sectors,” identified as energy, mining, defense, transportation infrastructure, and pharmaceuticals manufacturing (with the exception of innovative products). In the 2021 Finance Law, the government reinstated the 51/49 ownership requirement – with retroactive application – for any company importing items into Algeria with an intent to resell. The government passed a new hydrocarbons law in 2019, improving fiscal terms and contract flexibility in order to attract new international investors. The new law encouraged major international oil companies to sign memorandums of understanding with the national hydrocarbons company, Sonatrach. The government did not meet its goal of issuing all 43 regulatory texts enacting the legislation by March 31, 2021; thus far only 10 have been released. The Algerian government took several steps, including establishing a standalone ministry dedicated to the pharmaceutical industry and issuing regulations to resolve several long-standing issues, to improve market access for U.S. pharmaceutical companies.

Algeria’s economy is driven by hydrocarbons production, which historically accounts for 95 percent of export revenues and approximately 60 percent of government income. Following the significant drop in oil prices in March 2020, the government cut budgeted expenditures by 50 percent and significantly reduced investment in the energy sector. Though the 2021 budget boosted state spending by 10 percent amidst a modest recovery in global hydrocarbon prices, Algeria continues to run a persistent budget deficit. Despite a significant reduction in revenues, the historically debt-averse government continued to resist seeking foreign financing, preferring to attract foreign direct investment (FDI) to boost employment and replace imports with local production. Traditionally, Algeria has pursued protectionist policies to encourage the development of local industries. The import substitution policies it employs tend to generate regulatory uncertainty, supply shortages, increased prices, and limited selection for consumer goods. The government depreciated the Algerian dinar approximately 15% over the last year in an effort to conserve its foreign exchange reserves, resulting in significant food inflation.

The government has taken measures to minimize the economic impact of the COVID-19 pandemic, including delaying tax payments for small businesses, extending credit and restructuring loan payments, and decreasing banks’ reserve requirements.

Economic operators deal with a range of challenges, including complicated customs procedures, cumbersome bureaucracy, difficulties in monetary transfers, and price competition from international rivals particularly China, France, and Turkey. International firms operate in Algeria complain that laws and regulations are constantly shifting and applied unevenly, raising commercial risk for foreign investors. An ongoing anti-corruption campaign has increased weariness regarding large-scale investment projects. Business contracts are subject to changing interpretation and revision of regulations, which has proved challenging to U.S. and international firms. Other drawbacks include limited regional integration, which hampers opportunities to rely on international supply chains.

Table 1: Key Metrics and Rankings

Argentina

Executive Summary

Argentina presents investment and trade opportunities, particularly in agriculture, energy, health, infrastructure, information technology, and mining. However, economic uncertainty, interventionist policies, high inflation, and persistent economic stagnation have prevented the country from maximizing its potential. Argentina fell into recession in 2018, the same year then-President Mauricio Macri signed a three-year $57 billion Stand-By Arrangement (SBA) with the International Monetary Fund (IMF). Efforts to rationalize spending contributed to Macri’s defeat by the Peronist ticket of Alberto Fernandez and former president Cristina Fernandez de Kirchner (CFK) in 2019. The new administration took office on December 10, 2019 and reversed fiscal austerity measures, suspended the IMF program, and declared public debt levels unsustainable. The COVID-19 pandemic deepened the country´s multi-year economic recession. This led the government to intensify price, capital, and foreign trade controls, rolling back some of the market driven polices of the previous administration. After recording its ninth sovereign default in May 2020, the government of Argentina restructured international law bonds for $65 billion and domestic law bonds for $42 billion. The debt restructuring provides financial relief of $37.7 billion during the period 2020-2030, lowering average interest payments from 7 percent to 3 percent. In August 2020, the government formally notified the International Monetary Fund (IMF) of its intent to renegotiate $45 billion due to the Fund from the 2018 Stand-by Arrangement. In 2020, the Argentine peso (official rate) depreciated 29 percent, inflation reached 36 percent, the poverty rate reached 42 percent, and the economy contracted 10 percent.

The Fernandez administration’s economic agenda during 2020 focused on restructuring the country’s sovereign debt and addressing the impact of the COVID-19 pandemic. The government increased taxes on foreign trade, further tightened capital controls, and initiated or renewed price control programs. The administration also expanded fiscal expenditures, which were primarily directed at mitigating the economic impact of the COVID-19 pandemic. Citing a need to preserve Argentina’s diminishing foreign exchange reserves and raise government revenues for social programs, the Fernandez administration passed a sweeping “economic emergency” law in December 2019, that included a 35 percent advance income tax plus a 30 percent tax on purchases of foreign currency and all individual expenses incurred abroad, whether in person or online.

After the first COVID-19 case was confirmed in Argentina on March 3, 2020, the country imposed a strict nationwide quarantine on March 20, which became one of the longest in the world. The confinement measures were relaxed starting in the second semester of 2020, although multiple restrictions remained in place. Hotel and lodging, travel and tourism, and entertainment activities were deeply affected and were still not fully operational as of March 2021. According to estimates from the Argentine Small and Medium-Sized Confederation´s (CAME), 90,700 retail stores and 41,200 businesses permanently closed in Argentina during 2020, accounting for more than 185,300 jobs losses. As a result of the confinement measures, economic activity dropped 10 percent during 2020 compared to 2019, reaching levels similar to the 2002 economic crisis.

The Argentine government issued a series of economic relief measures, primarily focusing on the informal workers that account for 40 percent of the labor force as well as small and medium size enterprises (SMEs). The government prohibited employers from terminating employment until April 2021 and mandated a double severance payment until December 31, 2021. The government also prohibited the suspension of utility services (water, natural gas, electricity, mobile and land line services, and internet and cable TV) for failure to pay. The government’s ninth sovereign default and self-declared insolvency has limited its access to international credit, obligating it to finance pandemic-related stimulus measures and COVID-19 vaccine purchases via money printing, which may hamper its efforts to restrain inflation and maintain a stable exchange rate in the near term. The government is expected to further expand fiscal expenditures ahead of mid-term elections in October 2021.

Both domestic and foreign companies frequently point to a high and unpredictable tax burden and rigid labor laws, which make responding to changing macroeconomic conditions more difficult, as obstacles to further investment in Argentina. In July 2020, the government passed a teleworking law which imposed restrictive regulations on remote work. The law discourages companies from granting workplace flexibility and lowering labor costs via telework. In 2019, Argentina ranked 36 out of 41 countries evaluated in the Competitiveness Ranking of the World Economic Forum (WEF), which measures how productively a country uses its available resources.

As a MERCOSUR member, Argentina signed a free trade and investment agreement with the European Union (EU) in June 2019. Argentina has not ratified the agreement yet. In May 2020, Argentina proposed slowing the pace and adjusting the negotiating parameters of MERCOSUR’s ongoing trade liberalization talks with South Korea, Canada, and other partners to help protect vulnerable populations and account for the impact of the COVID-19 pandemic.  Argentina previously ratified the WTO Trade Facilitation Agreement on January 22, 2018. Argentina and the United States continue to expand bilateral commercial and economic cooperation, specifically through the Trade and Investment Framework Agreement (TIFA), the Commercial Dialogue, and under the Growth in the Americas initiative, in order to improve and facilitate public-private ties and communication on trade, investment, energy, and infrastructure issues, including market access and intellectual property rights. More than 300 U.S. companies operate in Argentina, and the United States continues to be the top investor in Argentina with more than USD $10.7 billion (stock) of foreign direct investment as of 2019.