Insurers pay less in claims as market heads to new slowdown

Insurers pay less in claims as market heads to new slowdown

TIRANA, Nov. 14 – Insurance companies are paying less in claims as market growth is heading to a slowdown for the fifth year in a row. A report by Albania’s Financial Supervisory Authority shows insurance premiums in the eight private

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Durres Port German concessionaire warned over ousting rival stevedoring companies

Durres Port German concessionaire warned over ousting rival stevedoring companies

TIRANA, Nov. 14 – Albania’s competition authority has warned it could fine a German concessionaire at Durres Port over ousting rival stevedoring companies since late 2015 when it became the sole provider of stevedoring services for out-of-gauge cargo at the

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Albania’s 2019 fiscal package only partly meets expectations for better business climate

Albania’s 2019 fiscal package only partly meets expectations for better business climate

TIRANA, Nov. 14 – Tax incentives offered by the government in the 2019 fiscal package only partly meet expectations by foreign and Albanian business representatives to improve the country’s business climate and make the Albanian economy more competitive compared to

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Swiss concessionaire fined €400,000 for abusing Albania monopoly position

Swiss concessionaire fined €400,000 for abusing Albania monopoly position

TIRANA, Nov. 13 – Albania’s competition watchdog has fined the country’s vehicle technical control concessionaire around €400,000 for abusing its monopoly position by causing delays and placing car owners at unfavorable position when undergoing compulsory annual and semi-annual inspections. The

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EU expects Albania’s growth to slow down over next couple of years

EU expects Albania’s growth to slow down over next couple of years

TIRANA, Nov. 13 – The European Commission has revised Albania’s 2018 growth outlook upward, but expects the Albanian economy to slightly slow down over the next couple of years due to lower electricity production and the completion of two large

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Local company gets ‘lucrative’ €50 mln PPP for Albanian Riviera access road

Local company gets ‘lucrative’ €50 mln PPP for Albanian Riviera access road

TIRANA, Nov. 12 – Another local Albanian company has been awarded what looks like a lucrative public private partnership project to upgrade and maintain road infrastructure following an unsolicited proposal claiming it a bonus and facing no competition at a

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Indian-led consortium to build first major solar plant in Albania

Indian-led consortium to build first major solar plant in Albania

By Ervin Lisaku TIRANA, Nov. 12 – Albania has selected an Asian consortium led by India Power Corporation Ltd to build the country’s first major solar power plant in a bid to diversify current wholly hydro-dependent domestic electricity generation that

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Albanian apple growers face below-cost prices

Albanian apple growers face below-cost prices

TIRANA, Nov. 8 – Apple growers in the northern Albanian region of Dibra say thousands of metric tons of apples are destined to be sold below cost or go rotten because of overproduction and lack of refrigerated warehousing that could

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Vienna Institute warns of PPP, judiciary reform risks to Albania’s outlook

Vienna Institute warns of PPP, judiciary reform risks to Albania’s outlook

TIRANA, Nov. 7 – The Vienna Institute for International Economic Studies says it expects Albania’s economy to grow by an average of 4 percent annually over the next couple of years, but warns of risks that public private partnerships and

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2019 fiscal package: Albania tightens tax evasion rules, offers incentives

2019 fiscal package: Albania tightens tax evasion rules, offers incentives

By Ervin Lisaku TIRANA, Nov. 7 – Albania’s ruling Socialist Party majority has unveiled a series of legal changes aimed at fighting tax evasion among high income earners, local businesses and transactions involving foreign-owned assets starting next January, in addition

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                    [post_content] => TIRANA, Nov. 14 - Insurance companies are paying less in claims as market growth is heading to a slowdown for the fifth year in a row.

A report by Albania’s Financial Supervisory Authority shows insurance premiums in the eight private companies operating in Albania grew by an annual 3.6 percent to 12.46 billion lek (around €100 million) in the first three quarters of this year as the market remained overwhelmingly non-life oriented and reliant on compulsory motor insurance accounting for two-thirds of the market income.

Meanwhile, spending on insurance claims dropped to 3.4 billion lek (€27 mln), down by 8.5 percent compared to the first three quarters of 2017, to account for only about a quarter of the insurers’ income over January-September 2018.

The decline in insurance claims paid for this year comes as the number of road accidents dropped by 12.3 percent to about 1,300 with a death toll of 152 and around 1,600 injured, in slightly lower figures compared to the first three quarters of 2017, according to state-run statistical institute, INSTAT.

Growth in the small insurance market of about 1 percent of the Albanian GDP slowed down to 5.4 percent in 2017 following double-digit growth rates in 2013-2016 and a moderate contraction in 2013, when it suffered its first blow following the 2008 global financial crisis.

The moderate 2017 growth reflects a 5 percent growth in the number of vehicles undergoing compulsory technical control and paying insurance last year. Some 421,573 vehicles underwent technical control last year, with the compulsory insurance accounting for 52 percent market share, according to the Institute of Transport and the Financial Supervisory Authority. Another 14 percent of the market's income also relies on cross-border compulsory vehicle insurance policies.

Meanwhile, claims paid out in the insurance market, the overwhelming majority of which belongs to vehicle insurance, continued their upward trend in 2017, increasing by 15.8 percent.

Insurance companies whose annual turnover is at about €112 million at a modest per capita insurance of about €35 million, see the proposed introduction of compulsory natural disaster insurance or channeling a portion of the mandatory social security contributions to the country’s nascent private pension funds as a golden opportunity to boost their income considering about 1 million home and businesses and more than 700,000 contributors to the pension system.
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                    [post_content] => TIRANA, Nov. 14 – Albania’s competition authority has warned it could fine a German concessionaire at Durres Port over ousting rival stevedoring companies since late 2015 when it became the sole provider of stevedoring services for out-of-gauge cargo at the port’s eastern terminal which it has been operating since July 2013 under a 35-year concession contract with the Albanian government.

The competition watchdog says EMS APO, a wholly owned subsidiary of Germany's EMS Shipping and Trader GmbH, could be abusing its dominant position by refusing access to the infrastructure it possesses at the port’s eastern terminal to three local Albanian companies that already had contracts with the state-run Durres Port Authority before the terminal switched to private management in mid-2013.

Two of the companies, including Albanian Stevedoring Company, where the German concessionaire was the owner of 49 percent stake for about six years until mid-2015, signed cooperation deals with the new concessionaire in late 2013 and early 2014. However, cooperation was suspended in November 2015 after EMS APO was licensed by Albanian authorities to also offer stevedoring services for out-of-gauge cargo such as scrap, coal, clinker, chrome and iron nickel.

The competition watchdog says the German concessionaire risks facing a fine of up to 10 percent of its annual turnover, equal to about €460,000 considering the company's 2017 revenue, for what could be a severe violation of competition rules over discriminatory criteria placed on the companies it signed contracts with and not handling ships under the 'first come, first served principle.’

The competition watchdog also recommends that the infrastructure ministry should in the next three months consider measures that could make the eastern terminal available also for other licensed stevedoring operators.

Back in 2015, the German concessionaire warned of legal action following disputes with port authorities and rival companies over stevedoring services at the port’s eastern terminal, leading to the suspension of work over what it called “illegal occupation of the terminal and an orchestrated attempt to squeeze EMS APO out of business.”

Reacting to their claims, Durres port authorities said in 2015 that “EMS representatives should be aware that even in case they are licensed, they cannot create a monopoly in the stevedoring services because Durres Port is an open port and every customer can choose the stevedoring company on their own which is essential to keep this service competitive and avoid monopoly prices.”

The port’s eastern terminal is mainly used for import and export of bulk cargo such as chrome, clinker and coal, but also for any other kind of cargo like break bulk, general cargo and project cargo. It also handled steel pipes for the construction of the Albania section of the major Trans Adriatic Pipeline bringing Caspian gas to Europe.

EMS APO had an annual turnover of around 580 million lek (€4.6 mln) and net profits of 55.5 million lek (€440,000) in 2017, according to financial reports submitted with Albania's National Business Center.

The container and ferry terminals at Durres Port are also handled by foreign companies under concession contracts while general cargo at the western terminal is handled by the Durres Port Authority , the state-run company that manages and supervises the country's largest port, also a hub to landlocked regional countries, mostly Kosovo and Macedonia.

The Durres Port handles about three quarters of maritime passengers and the overwhelming majority of about 90 percent of maritime transport in Albania. Offering regular ferry trips to the Italian ports of Bari, Ancona and Trieste, the Durres port is also the main handler of the country’s trade exchanges, about half of which are carried out with Italy, Albania’s main trading partner.

Albania has three other ports in Vlora, Saranda and Shengjin with the latter only involved in maritime transport.

The Durres Port has also become an attractive cruise ship tourism destination with thousands of tourists visiting the ancient city of Durres as part of their Mediterranean tours.

 
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                    [post_content] => TIRANA, Nov. 14 - Tax incentives offered by the government in the 2019 fiscal package only partly meet expectations by foreign and Albanian business representatives to improve the country’s business climate and make the Albanian economy more competitive compared to regional competitors performing better on doing business.

While a perennial business community request to reduce the dividend tax in order to give a boost to diversification of investment has been taken into account, reducing the tax burden on high income earners has only been partly reflected on the 2019 fiscal package.

In its proposals for the 2019 fiscal package, the American Chamber of Commerce in Albania representing some of the key foreign and local investors in the country, says the government has to settle the issue of timely VAT refunds, offer a broader inclusion in the deductible expenses, extend the loss carryforward period, recognize non-collectable bad debt in financial reports even without a final court decision, lift the obligation to place a bank guarantee before initiating a customs appeal and establish an independent appeals unit for the customs sector.

The chamber also suggests that delays in VAT refunds can be settled by allowing the payment of other tax obligations such as tariffs, VAT or other national taxes paid at customs offices through tax credits.

While legal changes have made VAT refunds automatic within 30 days for businesses exporting more than 70 percent of their total sales value as of mid-2016 and within 60 days for all other taxpayers, timely VAT refunds remain a problem for the majority of businesses operating in the country, surveys have shown.

The AmCham says that it is necessary to re-categorize progressive taxation rates on salary income and raise the monthly income threshold on which high-rate personal income tax is applied “in order to establish a fair, non-discriminatory tax system that is based on contractual freedom and is easy to apply in practice.”

Albania currently applies progressive taxation of up to 23 percent on personal income for monthly wages of more than 130,000 lek (€1,017) under a system that excludes the first 30,000 lek (€225) from taxation and applies a 13 percent rate on income from 30,000 to 130,000 lek. Authorities say the current progressive taxation system has led to some high income earning professionals such as private hospital doctors and lawyers fictitiously switch to small businesses in order to avoid paying the 23 percent rate, but pledge to settle the phenomenon under new tougher legal changes fighting tax evasion.

Legal changes increasing the 13 percent taxation threshold to 150,000 lek (€1,188) starting next year are expected to ease the tax burden for some 15,400 employees in the country, but calculations show what high income earners benefit from the hike in the personal income threshold taxed by 13 percent is a mere 2,000 lek (€16) a month.

The AmCham also wants the loss carryforward period to be extended to five years, up from a current three years in order to make Albania more attractive to greenfield investment which in general takes investors three to five years of operations before starting to generate a profit.

"Albania’s loss carryforward provision does not serve the establishment of an attractive environment for greenfield investment. Regional countries such as Greece, Bulgaria, Serbia and Turkey offer companies a minimum period of five years to make use of their tax losses,” says the AmCham in its latest magazine.

 

Tirana Chamber of Commerce proposals

In their proposals for the 2019 fiscal package, the Tirana Chamber of Commerce and Industry, the largest Albanian-run business association, has also requested automatic VAT refunds after the expiry of the 30-day and 60-day deadlines, applying VAT for every businesses, but reclassifying small businesses to increase their annual turnover threshold to an annual 10 million lek (€80,000) and stripping them of VAT obligations.

The annual turnover threshold for a business to be included in the 20 percent VAT system was more than halved to 2 million lek (about €15,700) last April, triggering protests by some 10,000 business owners who warned of bankruptcy over a hike in tax burden and tougher competition from shopping chains and supermarkets already in the VAT chain as well as a decline in the purchasing power.

The Tirana Chamber of Commerce also proposed a three-tier progressive corporate income tax of 15 and 20 percent for corporates with annual profits $2 million to $4 million and a 30 percent rate for companies generating profits of more than $4 million which in Albania's economy are mainly the case of concessionaires holding exclusive rights and operating under monopoly conditions.

Albania currently applies a 15 percent corporate income tax, which business representatives describe as too high compared to regional countries applying flat tax regimes of around 10 percent on both personal and corporate income.

The Tirana Chamber of Commerce also proposed lower taxation for the construction industry where costs have significantly increased following an 8 percent infrastructure tax levied on the sale price and the developers’ obligation to donate 3 percent of their construction area to local government social housing units for apartment blocks with a total area of more than 2,000 m2.

The higher construction costs in the past couple of years have been reflected on a hike in prices, with apartment prices in Tirana ranging from €600/m2 in suburban areas to more than €1,000 in downtown areas, in prices considered too high for one of Europe’s lowest-income countries.

The Tirana Chamber also proposes levying a luxury tax on coastal homes worth more than €300,000, compared to the lower value-based property tax that Albania will apply starting next year at a fixed 0.05 percent rate on all homes and at 0.2 percent on business facilities.

 

2019 fiscal package 

The major change in the upcoming fiscal package includes a reduction in the dividend tax to 8 percent, down from a current 15 percent, a slight reduction in the tax burden for high income earners, some VAT reductions and exemptions as well as cuts in the plastic and glass packaging to reduce local production costs.

The year-end fiscal package follows a mid-2018 package when the ruling Socialist Party majority approved lower corporate income tax for mid-sized businesses and incentives on agribusinesses.

In addition to tax incentives, the ruling Socialists have unveiled a series of legal changes aimed at fighting tax evasion among high income earners, local businesses and transactions involving foreign-owned assets starting next January in a carrot and stick approach ahead of next year’s June 30 local elections.

Albania climbed only two steps to rank 63rd out of 190 global economies for the ease of doing business in the latest World Bank report, continuing to lag behind most of its regional competitors ranking in the top 50.
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                    [post_content] => TIRANA, Nov. 13 – Albania’s competition watchdog has fined the country’s vehicle technical control concessionaire around €400,000 for abusing its monopoly position by causing delays and placing car owners at unfavorable position when undergoing compulsory annual and semi-annual inspections.

The Competition Authority says it has fined SGS Automotive Albania, a subsidiary of Switzerland-based multinational SGS, at 5.69 percent of its 2017 turnover, which according to financial reports submitted by the company with the National Business Center is equal to 51 billion lek (€408,000).

The fine comes only one year before the expiry of the concessionaire’s 10-year concession contract with the Albanian government as the sole provider of compulsory technical control services in the country.

Most vehicles in Albania have to pass compulsory technical control once a year but the service is compulsory every six months for special vehicles such as taxis and buses.

The competition authority, which monitored the concessionaire’s operations for one and a half years until December 31, 2017, says the Swiss unit has abused its monopoly position in Albania by failing to provide quality services that would avoid long lines of vehicles waiting to undergo inspection.

Inspectors say the concessionaire has not made use of its mobile technical control centers to ease the inspection process which in Albania peaks in December when some 60,000 vehicles, about 15 percent of the country’s total are tested.

"Although aware of the influx of vehicles that have to undergo compulsory technical control at certain periods of the year, SGG has never made available the mobile control centers to avoid long lines and offer satisfactory conditions for its customers," says the competition watchdog.

The Competition Authority says the concessionaire also places vehicle owners at unfavorable position by requiring them to sign a form under which the concessionaire claims no responsibility for any damage that the vehicle can incur during the inspection process, in behavior which state inspectors say constitutes abuse of the company’s dominant position.

With less than one year to go before the concessionaire's Albania's contract expires in September 2019, the competition watchdog recommends liberalizing the technical control service by also offering customers the car repair service as most EU countries do.

There has been no reaction by the Swiss concessionaire which has also recently extended online booking to avoid wait times for car owners. The watchdog’s decision can however be appealed with administrative courts, as most companies facing competition penalties do.

The Competition Authority has earlier noted court appeals against its decisions and their prolonged examination are considerably curbing its efforts and interventions to reestablish free and efficient market competition.

SGS which charges between 2,000 lek (€16) to 3,000 lek (€24) for initial tests and applies penalties for retesting, reported annual turnover of 898.5 million lek (€7.2 million) and net profits of around 161 million lek (€1.28 million) for 2017, in its best ever performance since launching operations in late 2009, according to Albania’s National Business Center.

Albania had some 535,570 vehicles in 2017, but only 421,570 underwent the compulsory technical control, according to the country’s Institute of Transportation.

The Balkan country has one of Europe’s highest death tolls from road accidents with an estimated 15 fatalities per 100,000 inhabitants. About 2,000 road accidents took place last year, with a death toll of 222, the lowest level for the past six years when data is available.

Experts blame the high number of accidents on reckless driving, poor road infrastructure and lack of road signs.

 

Old vehicle import ban

The Albanian government has recently adopted a ban on imports of all vehicles older than 10 years and not meeting the Euro 5 emission standards that have been implemented in the EU since late 2009.

The decision set to become effective starting January 2019 is aimed at reducing pollution from car emissions, one of the main contributors to high levels of air pollution in the country with negative effects on both humans and the environment. The initiative also targets gradually making the country’s vehicle fleet younger, currently at 20 years old, twice higher compared to EU’s average car age.

Albania has been gradually applying EU norms on car emissions since late 2016 in a decision that has seen a high number of car owners install new catalytic converters to meet emission standards in order to pass their annual compulsory technical control tests.

Only 3.3 percent of vehicles circulating in the country, some 14,000, are estimated to meet Euro 5 and 6 emission standards applied in the EU since late 2009 and 2014 respectively, in a situation that significantly contributes to air pollution in the country.
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                    [post_content] => TIRANA, Nov. 13 – The European Commission has revised Albania’s 2018 growth outlook upward, but expects the Albanian economy to slightly slow down over the next couple of years due to lower electricity production and the completion of two large energy projects that drove FDI growth in the past few years.

In its new autumn forecast, the EU’s executive arm has raised Albania’s 2018 GDP outlook to 4.1 percent, down from a previous 3.6 percent earlier in spring after the Albanian economy grew by 4.4 percent in the year’s first half on the back of “very favorable weather conditions pushing agricultural and hydroelectricity production and a good tourist season.”

The outlook for 2019 when Albania hopes to launch EU accession talks has been left unchanged at 3.9 percent and the Commission expects growth to linger around the same level even in 2020.

In its lower forecast for the next couple of years, the Commission also cites negative effects from Euro’s free fall against the Albanian national currency hitting exports, in addition to lower contribution of the hydro-dependent electricity sector as well as the Trans Adriatic Pipeline and Devoll Hydropower, the two major energy-related projects that drove growth and FDI in the past four years but whose contribution is set to wane by early 2019 when their investment stage completes.

“Economic growth is expected to remain solid, driven mainly by private consumption. It is, however forecast to soften in 2019 as electricity production is unlikely to continue at the exceptional level of early 2018. The strengthening Albanian currency is likely to weigh on export growth. The high level of public debt as a share of GDP is forecast to continue its gradual decline,” says the Commission.

The European Commission’s forecasts are slightly higher compared to the World Bank and the IMF which expect Albania’s economy to slow down to 3.5 to 3.7 percent in 2019 on the back of lower FDI following the completion of two major energy-related investment, but yet lower compared to the Albanian government’s target of 4.3 percent for 2019 and growth gradually picking up to 4.5 percent by 2021 when Albania heads to general elections.

Macedonia and Montenegro are expected to grow between 2.8 to 3.1 percent over 2019-2020 while prospects for Serbia, the region's largest economy have improved to 3.8 percent

 

Euro depreciation effect 

Europe’s single currency trading at a 10-year low against the Albanian lek has so far not had any significant impact on the country’s overwhelmingly Eurozone-destined exports which grew by an annual 15 percent in the first three quarters of this year, apparently defying a 10 percent depreciation of the euro against the Albanian lek, despite exporters complaining of huge losses.

However, the European Commission warns the delayed negative exchange rate effects will likely appear next year when new investment decisions and contracts are made.

“The recent real appreciation of the Albanian currency weighs on price competitiveness and the export industries’ margins, but a negative effect on exports is likely to appear only in 2019 when new investment decisions and contracts will be made,” says the Commission.

The EU’s economic and financial affairs unit expects Albania’s oil industry to have a lower contribution to exports as uncertainties surround international oil prices which have fallen to a nearly 8-month low of $70 a barrel after gradually picking up since the mid-2014 slump. Albania’s hydro-dependent electricity sector is also expected to have a lower contribution as the country has been facing a new drought period in the past few months.

“In 2019 and 2020, export growth is forecast to decelerate partly on account of the lagged appreciation effect, but mainly because of lower oil and electricity exports,” says the Commission.

The euro has been trading at a 5-month low of 124.5 lek in the past few days, in a new downward trend since mid-Sept. 2018 after stabilizing at 126 lek since early June when Albania’s central bank decided to apply its uncommon emergency intervention policy and purchase excess euro from the local currency exchange.

The main opposition Democrats, some local experts and even international financial institutions have blamed illegal euro inflows from crime proceeds for the euro’s free fall in Albania.

London-based financial institution recently said some ‘unrecorded cross-border activities’ may also be contributing to the appreciation pressures on the Albanian lek which it says reflects the ongoing de-euroisation policy initiative of the central bank in the financial sector, as well as the capital conversion of some banks.

 

Downside risks 

The European Commission also warns a slowdown in reforms and public debt reduction agenda could pose downside risks to the country’s outlook. In addition, a slowdown in growth in Italy, Albania’s main trading partner and the destination of more than half of the country’s poorly diversified exports could mean more trouble for Albania.

“A slower than announced reduction of public debt would undermine financial markets’ new confidence and put infrastructure investments at risk which are key for sustaining growth and energy supplies. A slowdown of reforms could dampen the private demand while exports could suffer from lower than projected growth of Albania’s major trade partner Italy,” says the Commission.

Public debt currently stands at about 70 percent of the GDP, but the Albanian government’s target is bringing it down to a more affordable 60 percent of the GDP by 2021.

The Eurozone’s third largest economy, Italy is expected to slow down to 1.1 to 1.3 percent over 2018-2020 over fears that the breach of EU spending rules by its populist government could trigger a debt default.

Prospects in Greece, Albania’s traditional second largest trading partner and top investor, are more optimistic as its economy is forecast to grow by annual 2 percent over 2018-20 in ongoing recovery after overcoming its 8-year recession in 2016 that saw its economy shrink by about a quarter.

Recessions in Italy and Greece, Albania’s main trading partners, top investors and the hosts of 1 million Albanian migrants, had a series of negative effects on Albania through lower trade, investment and remittance flows in the aftermath of the 2008-2009 global financial crisis.

The Commission also expects Turkey, one of Albania’s main trading and investment partners, to slow down to 3.8 percent in 2018, less than half of last year’s 7.4 percent economic expansion, and fall into recession in 2019 before returning to moderate growth of 3 percent in 2020.

Prospects in Turkey, one of the fastest growing emerging economies until last year, received a severe blow this year when the Turkish lira lost 40 percent of its value against the US dollar leading to a double-digit inflation and a sharp downgrade in GDP growth forecasts.

Experts have earlier warned that due to stronger trade, investment and human ties with Italy, a possible slowdown in GDP growth in Italy, the Eurozone’s third largest economy and Albania’s top trading partner, could affect the Albanian economy more than the Turkey and global trade dispute spillover effects.

Albania conducts about 36 percent of its trade exchanges with Italy, the host of some 500,000 Albanian migrants who are a major source of remittances for Albanians at home. Over 90 percent of Albania’s garment and footwear products, an industry relying on cheap labor costs but employing about 100,000 people and producing the country’s top exports, go to Italy.
                    [post_title] => EU expects Albania’s growth to slow down over next couple of years
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                    [post_date] => 2018-11-12 18:14:16
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                    [post_content] => TIRANA, Nov. 12 – Another local Albanian company has been awarded what looks like a lucrative public private partnership project to upgrade and maintain road infrastructure following an unsolicited proposal claiming it a bonus and facing no competition at a tender held last September.

Albanian-owned Gjikuria has been announced the winner of upgrading a 15-km road project linking the southern Albania town of Orikum and its yachts port to the Dukat village and the Llogara Pass along the Albanian Riviera in a project that authorities say increases road safety and serves tourism development in the southern Albanian region of Vlora, one of the country’s top destinations

The announcement is made by the transport ministry on this week’s bulleting of the public procurement agency.

The Gjikuria company, which had earlier been awarded a six percentage point bonus for its unsolicited proposal, bid to complete the project for €50.5 million, almost the same to authorities’ estimated value in the tender. Once contract negotiations conclude, the project is expected to be carried out under a 13-year PPP with the Albanian government in return for initial investment and maintenance at the company’s own funds. The company will start getting taxpayer support in annual instalments once it has carried out a quarter of construction works.

The winning company faced competition by a single operator which bid €63 million but which a public procurement transparency portal said was disqualified for also failing to submit a bid guarantee of about 2 percent of the project's value.

The Albanian government said it is undertaking the reconstruction due to the current 16 km road segment being in a degraded condition and causing traffic chaos in summer, the peak of Albania's tourist season.

Authorities say the new 14.7 km extended road will make access to the Ionian Riviera easier through a wider road allowing drivers to travel twice faster at an average of 60 to 100 km/h and give a boost to future development in the area.

The new wider road will yet be a two-lane road that leaves open a future solution of crossing the Llogara Pass either through a costly tunnel or through the existing winding and panoramic but narrow road.

A local business portal described the project's cost at €3.4 million per km, in costs that also include maintenance for 13 years, as too high for a two-lane road considering the country’s previous experience with similar roads and even highways at construction costs of about €1 million/km.

Last month, the government also selected Albanian-owned “A.N.K.” company to build an 18-km highway that improves access to the northern region of Lezha and neighboring Montenegro through a similar PPP. The Milot-Balldren project will be a €161.5 million investment on a 6-lane highway on a completely new track that also includes 9.5 km of secondary roads, new bridges on the Drin and Mat rivers and an 850 meter long tunnel. The winning concessionaire will get taxpayer support for construction and maintenance costs for the next 13 years.

The new road is part of several key road segments, including a highway linking Albania to Macedonia that are being built as part of a €1 billion PPP program under which concessionaires complete the projects using their own funds and financing and the government pays them back in annual instalments for investment and maintenance costs for up to 13 years.

Taxpayer support to some controversial public private partnerships is expected to increase by around 50 percent to €100 million for 2019 as the government starts paying on three news public private partnerships, taking PPP spending to 3 percent of the previous year’s fiscal revenue, compared to 5 percent threshold that the government has set.

International financial institutions have already warned that local PPPs, most of which given the okay following controversial unsolicited proposals and without thorough cost-benefit analysis, could pose a threat to the public debt reduction agenda because of the risk of creating new arrears which if included in the public debt stock could increase it by 7 percent of the GDP considering an ambitious €1 billion PPP program.

Interest by foreign companies to participate in the €1 billion PPP projects has been vague amid allegations of pre-determined winners in tenders where Albanian companies submitting unsolicited proposals have been advantaged through pre-tender bonuses.

Both the International Monetary Fund and the World Bank have asked the Albanian government to give up the unsolicited proposal as a procedure that places bidders at unequal position and leads to controversial PPPs with no thorough cost-benefit analysis that could create new arrears undermining the public debt reduction agenda.

Albania’s public debt is already at around 70 percent of the GDP, a high level for the country’s stage of development that places at risk macro-economic stability and much-needed public investment due to high debt servicing costs. The authorities target is to bring public debt down to a more affordable 60 percent of the GDP by 2021.

 
                    [post_title] => Local company gets 'lucrative' €50 mln PPP for Albanian Riviera access road 
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                    [post_date] => 2018-11-12 11:37:03
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                    [post_content] => By Ervin Lisaku

TIRANA, Nov. 12 - Albania has selected an Asian consortium led by India Power Corporation Ltd to build the country's first major solar power plant in a bid to diversify current wholly hydro-dependent domestic electricity generation that often puts the country’s public finances in trouble in cases of prolonged droughts.

The country’s energy ministry says the 100 MW solar plant will be a private investment of €70 million in return for government commitment to buy electricity at a fixed price for a capacity of 50 MW for 15 years and allow investors to freely trade the remaining electricity in what would apparently pave the way for the Albanian energy market and the establishment of a long-awaited power exchange.

The winning consortium is led by India Power Corporation Ltd, one of the leading power generation and utility companies in India, which the Albanian government describes as guarantee for the project’s success. The project would also mark the first investment by India, Asia’s third largest economy at a time when Asian investment in the country has received a significant boost with China’s 2016 acquisition of two major assets such as Albania’s sole international airport and the country’s largest oil producer.

UAE-based Mining Resources FZE and Hong-Kong-based Midami Limited are also part of the winning consortium out of a mid-September tender when six bids were submitted, says the energy ministry.

Albanian authorities say the state-run distribution operator OSHEE will buy electricity at €59.9/MWh for 15 years for a capacity of 50MW and allow investors to freely trade production from the remaining 50MW capacity.

The energy ministry says the agreed €59.9/MWh fee for the next 15 years is one of the region's lowest for solar energy, “lower compared to Greece's €63/MWh and Turkey's €62/MWh and much lower compared to average fees for electricity imports,” in what authorities say “confirms confidence in the development of the Albanian electricity market.”

Once contract negotiations successfully conclude, the plant is expected to be built in 18 months at the Akerni salty lands of Vlora, some 130 km south of Tirana, where the Albanian government is also planning to build a new airport.

"The €70 million project will also create a lot of employment opportunities. This project will be an important step for the diversification of the electricity resources in Albania and pave the way for Albania turning into a solar energy hub in the region," says Energy Minister Damian Gjiknuri in a statement.

The Albanian energy regulator, ERE, has set a €100/MWh price on the electricity produced by small solar energy plants of up to 2 MW and €76/MWh tariff on wind energy plants with a capacity of up to 3 MW for projects initiated in 2017 as part of efforts to diversify domestic electricity generation, currently wholly hydro-dependent, with two-thirds generated by state-run hydropower plants in the northern Albanian Drin Cascade, built under communism in the 1970s and 80s.

The solar power project comes as hydropower continues to dominate electricity investment in Albania with the Devoll Hydropower project, a €535 million investment with a capacity of 256MW by Norway's Statkraft as the most important electricity generation investment in the past three decades. The project is already in its final construction stage with a new larger power plant under way after having already made operational its first plant.

The Albanian government already offers support to more than a 100 small and medium-sized hydropower plants built under concession contracts, purchasing electricity at regulated prices based on the Hungarian Power Exchange average prices.

State-run power utility KESH says it is also planning to build the country’s first floating solar power plant on the northern Drin River cascade where it generates about two-thirds of the country’s domestic electricity from three hydropower plants built in the 1970s and 80s under communism.

KESH says the more efficient plant will be an 118,000m2 floating system with a capacity of 12.9 MWp that will be built on the Vau i Dejes reservoir where the country’s third largest hydropower plant is situated.

Because of the country’s favorable geographical position and Mediterranean climate with plenty of sunshine, Albania’s is advantaged in solar energy production, but has no major such plant yet. However, solar panels are being increasingly used by households and businesses to meet part of their own needs and cut huge electricity costs.

“Due to the very good solar resource and relatively satisfactory wind speeds (3.3-9.6 m/s), there is high, untapped potential for the deployment of solar PV (up to 1.9 GW) and wind (987-2 153 MW),” says UAE-based International Renewable Energy Agency (IRENA) in a South East Europe report.

Much cheaper Caspian natural gas expected to flow by 2020 from the under construction Trans Adriatic Pipeline is another opportunity to diversify Albania’s domestic electricity generation and reactivate the Vlora thermal power plant, a costly World Bank-funded 2011 investment of $112 million that has been unavailable for use due to high costs of operating on fuel, problems in its cooling system and a legal dispute with an Italian company that built it.

A prolonged drought cost the Albanian government about €200 million in costly electricity imports in 2017 when Albania faced one of the worst droughts in decades, putting public finances at risk.

Access to electricity in the country has considerably improved in the past few years following nationwide campaigns to collect huge accumulated unpaid debts and cut off illegal connections, but losses in the distribution grid still remain high at about a quarter of electricity fed into grid and huge investment is needed to upgrade infrastructure often dating back to the 1960s and 1970s when the country was fully electrified.

Albania ranked 140th out of 190th countries in the latest World Bank Doing Business, worse than regional competitors, with poor reliability of supply and transparency of tariff index.

 
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                    [post_content] => molleTIRANA, Nov. 8 - Apple growers in the northern Albanian region of Dibra say thousands of metric tons of apples are destined to be sold below cost or go rotten because of overproduction and lack of refrigerated warehousing that could allow them to sell their top fruit at higher prices later in winter.

Apple growing has turned into the main business for farmers in Dibra, one of the country’s poorest regions where agriculture and mining are the main employers and migrant remittances play a key role for thousands of households to make ends meet.

More than 8,000 metric tons of apples are pending sale in Dibra with most of production destined to go rotten as farmers have no refrigeration infrastructure and have turned to archaic methods such as laying them on the ground and putting straw to preserve them, says the ‘Rruga e Arbrit’, a local monthly newspaper focused on developments in Dibra which is named after the under construction Arbri Highway linking Albania and the Dibra region to neighboring Macedonia.

A region of some 140,000 residents, Dibra has more than 500,000 apple trees planted in more than 460 hectares that include Golden, Starking and Granny Smith varieties, being one of the top two producers along with Korça, southeastern Albania, where overproduction has also led to prices that often don’t justify huge costs this season.

Local farmers in Dibra say they are being offered a mere 30 lek (€0.4) per kg by local warehouse collectors, in prices which they claim don’t even justify pesticide and irrigation costs not to mention their efforts.

Poor infrastructure in some isolated Dibra villages and high transportation costs to Tirana are also a key barrier, in addition to failure to get subsidies because of land fragmentation and the need of farmers to come together in agricultural cooperatives and enterprises in order to gain access to local and now EU funds under the newly launched IPARD II, the Instrument for Pre-accession for Rural Development programme.

"I have 4 to 5 metric tons of apples of various varieties at a good quality which are destined to go rotten because the prices we are being offered are not even enough to cover pesticide and irrigation costs. If we had better road access, we would go and sell them on our own to Tirana," says a local Dibra farmer.

Another farmer says local farmers should be more cooperative to join and benefit from subsidies and examine export opportunities.

"We farmers must necessarily cooperate and look at export opportunities. Support schemes give a priority to cooperatives rather than individual farmers and if farmers come together they can succeed," says Veip Sallaku, a Dibra farmer as quoted by the local newspaper.

Farmers in the southeastern region of Korça, the traditional largest apple producers, have also been facing problems with sales this year due to overproduction, but have better access to markets due to more established links and some of their apples already destined for exports.

Albania has more than 30 million apple trees, with an annual production of about 73,000 metric tons.

Agriculture is a key sector of the Albanian economy that employs about half of the country’s population but which due to its poor productivity provides only about a fifth of the national output.

Experts say unclear property titles for around half of the country’s agricultural land is a key barrier for the development of larger farms and access to local and EU subsidies that could make Albania’s products much more competitive.

In addition to land fragmentation, poor financing, lack of subsidies and key infrastructure such as irrigation as well as a high tax burden are a serious problem for Albania’s agriculture sector, with high costs often making local products uncompetitive.
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                    [post_content] => TIRANA, Nov. 7 - The Vienna Institute for International Economic Studies says it expects Albania's economy to grow by an average of 4 percent annually over the next couple of years, but warns of risks that public private partnerships and the implementation of a justice reform could pose to the country's public debt reduction agenda and EU integration prospects.

In its latest autumn forecast, wiiw, one of the top centers for research in Central, East and Southeast Europe, upgraded Albania’s 2018 growth prospects to 4.1 percent, but left unchanged the 2019 and 2020 forecast at 4 percent on the back of domestic and external demand and higher commodity prices giving a boost to the country’s oil industry.

“Our forecasts are largely unchanged from the spring, and we continue to expect the [Albanian] economy to remain strong and grow above 4 percent in the medium term. Both domestic and external demand will support growth. Higher international oil prices should mean higher investments and exports in this sector,” says the Vienna Institute.

The research center suggests the Albanian government’s public private partnership must be transparent and well monitored in order to continue the public debt reduction agenda.

“Public private partnership projects must be transparent and well monitored in order to avoid rises in public debt. Tangible progress of judicial system reform is critical for the start of EU membership talks,” says the Vienna Institute.

The warning comes as international financial institutions such as the IMF and the World Bank have asked the Albanian government to give up the unsolicited proposal as a procedure that places bidders at unequal position and leads to controversial PPPs with no thorough cost-benefit analysis that could create new arrears undermining the public debt reduction agenda.

The Albanian government is currently implementing an ambitious €1 billion PPP program to upgrade road, health, education and waste management infrastructure through taxpayer support in return from private investment and management.

Taxpayer support to 11 PPP contracts is expected to increase by around 50 percent to €100 million for 2019, taking PPP spending to 3 percent of the previous year’s fiscal revenue, compared to 5 percent threshold that the government has set.

Albania’s public debt is already at around 70 percent of the GDP, a high level for the country’s stage of development that places at risk macro-economic stability and much-needed public investment due to high debt servicing costs.

Albania is also implementing a long-awaited justice reform which is slowly progressing with a vetting process that is scanning judges and prosecutors over their wealth, moral integrity and professionalism and whose progress is considered key to the country’s hopes of launching EU accession talks next year.

Experts say that if properly implemented, the judiciary reform is also expected to give a boost to the country’s business climate by boosting rule of law and investor confidence in a sector perceived as highly corrupt.

The Vienna Institute has earlier noted the emerging tourism sector and new planned infrastructure investment will keep the Albanian economy growing at about 4 percent over 2019 and 2020 at a time when TAP and the Devoll Hydropower, the two major energy-related that drove growth in the past four years complete their investment stage by the end of 2018, leaving a huge gap of about €300 million unless other major projects replace them.

At an average of about 4 percent over the next couple of years, wiiw expects Albania to register the highest growth among the six EU aspirant Western Balkan countries where overall 2019-2020 is estimated at 3.35 percent, mainly because of a significant slowdown in Serbia, the region’s largest economy.

The Vienna Institute’s forecast are slightly higher compared to the World Bank and the IMF which expect Albania’s economy to slow down to 3.5 to 3.7 percent in 2019 on the back of lower FDI following the completion of two major energy-related investment, but yet lower compared to the Albanian government’s target of 4.3 percent for 2019 and growth gradually picking up to 4.5 percent by 2021 when Albania heads to general elections.
                    [post_title] => Vienna Institute warns of PPP, judiciary reform risks to Albania’s outlook
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                    [post_date] => 2018-11-07 13:15:36
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                    [post_content] => By Ervin Lisaku

TIRANA, Nov. 7 – Albania’s ruling Socialist Party majority has unveiled a series of legal changes aimed at fighting tax evasion among high income earners, local businesses and transactions involving foreign-owned assets starting next January, in addition to several tax incentives in a carrot and stick approach ahead of next year’s June 30 local elections.

In its 2019 fiscal package, the ruling Socialists have proposed legal changes that fight tax evasion among high-income professionals such as private hospital doctors, lawyers, consultants, engineers fictitiously registering as small businesses to avoid paying the 23 percent personal income tax for income of more than 130,000 lek (€1,017) a month, a threshold which under newly proposed legal changes is raised to monthly salaries of higher than 150,000 lek (€1,188).

Albania currently applies progressive taxation of up to 23 percent on personal income for monthly wages of more than 130,000 lek (€1,017) under a system that excludes the first 30,000 lek (€225) from taxation and a 13 percent rate on income from 30,000 to 130,000 lek.

Authorities say the new legal changes ease the tax burden for some 15,400 employees in the country but calculations show what high income earners benefit from hike in the personal income threshold taxed by 13 percent is a mere 2,000 lek (€16) a month.

Proposed legal changes allow tax authorities to use 'alternative assessment methods' that will re-categorize taxpayers in case of fictitiously operating as a business to escape personal income taxation.

Tax evasion with wages in Albania’s private sector is high and progressive taxation replacing the former 10 percent flat tax on personal income and corporate income is estimated to have contributed to businesses continuing the practice of ‘envelope wages’ to avoid paying higher taxes.

Another key sanction in the 2019 fiscal package involves making it compulsory for foreign investors to pay a capital gain tax of 15 percent in case of selling their Albania assets in a bid to avoid key transactions that bring nothing in income to the Albanian government.

Finance Minister Arben Ahmetaj says the legal changes are aimed at preventing tax-free transactions such as that of the country's largest oil producer, former Canada-owned Bankers Petroleum which in mid-2016 was acquired by China's Geo Jade for C$575 million (€390 mln) following a decade of operations in the country.

"When Bankers Petroleum was sold outside Albania, the country earned nothing from the sale operation. It couldn't manage to tax it because of the fiscal system and rules it has not adopted yet and which is adopting under this advanced OECD package," Ahmetaj said this week.

Several other major assets in Albania, including the country’s sole international airport and banks have changed hands in the past couple of years and shareholders in lucrative concession contracts sold their stakes for ridiculously low prices, reportedly escaping the 15 percent capital gain tax because of operating under offshore tax haven laws.

The 2019 fiscal package also makes it compulsory for businesses to initially pay off tax obligations before switching to passive status.

The move comes at a time when the number of businesses temporarily closing down has seen a sharp double-digit increase amid a hike in the tax burden on small businesses, already facing tougher competition from shopping chains and supermarkets as well as a decline in the purchasing power.

Another legal change proposed as part of the 2019 fiscal package is related to small family-run businesses registered as natural persons whose owners will not be allowed to obtain more than one tax ID number to avoid paying profit tax or pay at a lower rate by dividing their business into separate companies and keep the turnover low.

 

Tax incentives

The tighter sanctions against tax evasion come along with a series of tax incentives that the Albanian government is offering in bid to further improve the business climate by reducing the tax burden, which the latest Doing Business report described as the highest among Western Balkan countries.

Tax evasion in Albania is estimated at high levels of around 30 percent despite several nationwide campaigns in the past few years having formalized thousands of businesses and workers.

The major change in the upcoming fiscal package includes a reduction in the dividend tax to 8 percent, down from a current 15 percent in a measure that foreign business associations say is expected to provide a positive effect on boosting and diversifying investment and creating more favorable treatment for employees.

The government says the 8 percent dividend tax rate will also apply to undistributed profits in the pre-2018 period provided the tax is paid by Sept. 30 2019.

The year-end fiscal package follows a mid-2018 package when the ruling majority approved lower corporate income tax for mid-sized businesses and incentives on agribusinesses.

Proposed changes under the new fiscal package also increase the mining royalty on the key chromium exports to 9 percent, up from a current 6 percent in a move that discourages exports of raw chromium and gives a boost to local processing industry where major investment has been made.

Other proposed changes include cuts in the value added for imports of electric buses and VAT exclusions on imports of agricultural machinery and raw material for the pharmaceutical industry as well as cuts in the plastic and glass packaging to reduce local production costs at a time when imports have become much cheaper due to Europe’s single currency trading at a 10-year low against the Albanian lek.

Business representatives have called on the Albanian government to consider a fiscal package that would remain unchanged for at least a mid-term period so that they can plan their investments more accurately.

The current tax policy, changing almost on an annual basis, is rated as one of the top concerns for Albania’s foreign and local businesses, in addition to a high tax burden compared to regional competitors, widespread tax evasion, corruption and an inefficient judiciary.

The ruling Socialist Party majority expects the country’s economic growth to recover to 4.3 percent and public debt to drop to 65 percent of the GDP for 2018, in forecasts that are significantly much more optimistic compared to what international financial institutions such as the World Bank and the IMF predict for the Albanian economy in 2019 when contribution by two major energy-related projects that drove FDI growth over the past four years considerably wanes.

 

Opposition worried

The main opposition Democratic Party says the 2019 budget fails to bring development and welfare for the country’s households and businesses and what it mainly focuses on is favoring what it calls oligarchs who will get $100 million from taxpayer money next year to fund their ‘corruptive’ public private partnerships that the Albanian government has signed in road, health and waste management sectors.

"This is a budget that is accompanied with an extra $40 million in taxes for Albanians and an increase in the public debt, which according to the Supreme State Audit Institution, exceeds 72 percent of the country's GDP if the concessions' bill is included," says Jorida Tabaku, an opposition Democratic Party MP who is also the deputy chair of the parliamentary economy committee.

According to her, Albanians have paid an extra 5 billion lek (€40 mln) in taxes since 2014 after Edi Rama took over as the country's Prime Minister and currently pay a third of their income in taxes, making the cost of living in Albania the most expensive in the Balkans at a time when income remains one of the lowest.

The main opposition Democrats, who have been boycotting Parliament since last September over the ruling majority's alleged linked to gangs and rising corruption, says a flat tax, strict public debt rules and the right infrastructure investments can give the right impetus to the country's economy.

The Democrats say their proposed anti-mafia package will put an end once they assume power to what they call corruptive concessions, tenders and permits by seizing assets and making them available to improve access to education, healthcare, road infrastructure and create new jobs.
                    [post_title] => 2019 fiscal package: Albania tightens tax evasion rules, offers incentives
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            [post_content] => TIRANA, Nov. 14 - Insurance companies are paying less in claims as market growth is heading to a slowdown for the fifth year in a row.

A report by Albania’s Financial Supervisory Authority shows insurance premiums in the eight private companies operating in Albania grew by an annual 3.6 percent to 12.46 billion lek (around €100 million) in the first three quarters of this year as the market remained overwhelmingly non-life oriented and reliant on compulsory motor insurance accounting for two-thirds of the market income.

Meanwhile, spending on insurance claims dropped to 3.4 billion lek (€27 mln), down by 8.5 percent compared to the first three quarters of 2017, to account for only about a quarter of the insurers’ income over January-September 2018.

The decline in insurance claims paid for this year comes as the number of road accidents dropped by 12.3 percent to about 1,300 with a death toll of 152 and around 1,600 injured, in slightly lower figures compared to the first three quarters of 2017, according to state-run statistical institute, INSTAT.

Growth in the small insurance market of about 1 percent of the Albanian GDP slowed down to 5.4 percent in 2017 following double-digit growth rates in 2013-2016 and a moderate contraction in 2013, when it suffered its first blow following the 2008 global financial crisis.

The moderate 2017 growth reflects a 5 percent growth in the number of vehicles undergoing compulsory technical control and paying insurance last year. Some 421,573 vehicles underwent technical control last year, with the compulsory insurance accounting for 52 percent market share, according to the Institute of Transport and the Financial Supervisory Authority. Another 14 percent of the market's income also relies on cross-border compulsory vehicle insurance policies.

Meanwhile, claims paid out in the insurance market, the overwhelming majority of which belongs to vehicle insurance, continued their upward trend in 2017, increasing by 15.8 percent.

Insurance companies whose annual turnover is at about €112 million at a modest per capita insurance of about €35 million, see the proposed introduction of compulsory natural disaster insurance or channeling a portion of the mandatory social security contributions to the country’s nascent private pension funds as a golden opportunity to boost their income considering about 1 million home and businesses and more than 700,000 contributors to the pension system.
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