Albania

Executive Summary

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.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 106 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 2019 83 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 N/A http://apps.bea.gov/international/
factsheet/
World Bank GNI per capita 2018 USD 4,860 http://data.worldbank.org/indicator/
NY.GNP.PCAP.CD

7. State-Owned Enterprises

State-owned enterprises (SOEs) are defined as legal entities that are entirely state-owned or state-controlled and operate as commercial companies in compliance with the Law on Entrepreneurs and Commercial Companies. SOEs operate mostly in the generation, distribution, and transmission of electricity, oil and gas, railways, postal services, ports, and water supply. There is no published list of SOEs.

The law does not discriminate between public and private companies operating in the same sector. The government requires SOEs to submit annual reports and undergo independent audits. SOEs are subject to the same tax levels and procedures and the same domestic accounting and international financial reporting standards as other commercial companies. The High State Audit audits SOE activities. SOEs are also subject to public procurement law.

Albania is yet to become party to the Government Procurement Agreement (GPA) of the WTO but has obtained observer status and is negotiating full accession (see https://www.wto.org/english/tratop_e/gproc_e/memobs_e.htm).  Private companies can compete openly and under the same terms and conditions with respect to market share, products and services, and incentives.

SOE operation in Albania is regulated by the Law on Entrepreneurs and Commercial Companies, the Law on State Owned Enterprises, and the Law on the Transformation of State-Owned Enterprises into Commercial Companies. The Ministry of Economy and Finance and other relevant ministries, depending on the sector, represent the state as the owner of the SOEs. SOEs are not obligated by law to adhere to Organization for Economic Cooperation and Development (OECD) guidelines explicitly. However, basic principles of corporate governance are stipulated in the relevant laws and generally accord with OECD guidelines. The corporate governance structure of SOEs includes the supervisory board and the general director (administrator) in the case of joint stock companies. The supervisory board comprises three to nine members, who are not employed by the SOE. Two-thirds of board members are appointed by the representative of the Ministry of Economy and Finance, and one-third by the line ministry, local government unit, or institution to which the company reports. The Supervisory Board is the highest decision-making authority and appoints and dismisses the administrator of the SOE through a two-thirds vote.

Privatization Program

The privatization process in Albania is nearing conclusion, with just a few major privatizations remaining. Entities to be privatized include OSHEE, the state-run electricity distributor; 16 percent of ALBtelecom, the fixed- line telephone company; and state-owned oil company Albpetrol. Other sectors might provide opportunities for privatization in the future.

The bidding process for privatizations is public, and relevant information is published by the Public Procurement Agency at www.app.gov.al . Foreign investors may participate in the privatization program. The Agency has not published timelines for future privatizations.

9. Corruption

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.

10. Political and Security Environment

While political violence is rare, political protests in 2019 included instances of civil disobedience, low-level violence and damage to property, and the use of tear gas by police. Albania’s June 2017 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.

Investment Climate Statements
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