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
|TI Corruption Perceptions Index||2018||99 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2019||63 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2018||83 of 126||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, stock positions)||2017||$56||http://www.bea.gov/international/factsheet/|
|World Bank GNI per capita||2017||4$,320||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|