Corruption remains top concern for potential U.S. investors to Albania, report shows
Story Highlights
- In its 2018 investment climate statement for Albania, the State Department's Bureau of Economic and Business Affairs says foreign investors cite corruption, particularly in the judiciary, lack of transparency in public procurement and poor enforcement of contracts as continuing problems in Albania
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TIRANA, July 31 - The U.S. State Department says Albania continues to remain a difficult place to do business with endemic corruption as the top concern that keeps potential American investors away from the country.
In its 2018 investment climate statement for Albania, the State Department's Bureau of Economic and Business Affairs says foreign investors cite corruption, particularly in the judiciary, lack of transparency in public procurement and poor enforcement of contracts as continuing problems in Albania.
"The implementation of judicial reform is underway, including the vetting of judges and prosecutors for unexplained wealth, but foreign investors perceive the investment climate as problematic and say Albania remains a difficult place to do business," says the report.
U.S. investors to Albania, whom the State Departments advises to include binding international arbitration clauses in agreements with Albanian counterparts, report ongoing concerns that Albanian regulators use difficult-to-interpret or inconsistent legislation and regulations as tools to dissuade foreign investors and favor politically connected companies.
“Despite hospitable legislation, U.S. investors are challenged by rampant corruption and the perpetuation of informal business practices. Several major U.S. investors have left the country in recent years after contentious commercial disputes, including several that were brought before international arbitration,” says the report.
The U.S. State Department says major foreign investors in Albania report pressure to hire specific, politically connected subcontractors and express concern about compliance with the U.S. Foreign Corrupt Practices Act while operating in the country.
The rising concern came after two major North American oil companies, former Canadian-owned Bankers Petroleum and U.S.-based TransAtlantic Petroleum left the country in 2016 following disputes with tax authorities in the country and a slump in international oil prices.
Public private partnership, which are commonly being awarded through unsolicited proposals favoring proposing companies through bonuses that make them eventual winners in tenders, are also cited as a concern.
“The increasing use of public private partnership 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 PPP contracts are ongoing concerns,” says the report.
The U.S. Bureau of Economic and Business Affairs also expresses concern over the long-standing issue of unclear property titles and uneven enforcement of legislation as barriers to doing business in the country.
“Property rights remain another challenge in Albania, as clear title is difficult to obtain. Some factors include unscrupulous actors who manipulate the corrupt court system to obtain title to land not their own. Uneven enforcement of legislation, cumbersome bureaucracy, and a lack of transparency are all hindrances to the business community,” says the report.
The high tax burden, government bureaucracy and monopoly and unfair competition have been the main barriers to doing business in the country for the past few years, according to annual surveys conducted by the American Chamber of Commerce representing some of the key foreign and local investors in the country.
Albania lost seven places to rank 65th among 190 economies in the 2018 Doing Business report, lagging behind almost all regional competitors, according to a World Bank report.
Potential investment sectors
Despite the considerable number of doing business barriers identified, the State Department says 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.
The identified sectors have also been included in the strategic investment law that the Albanian government approved in 2015 offering tax incentives and state protection and assistance. However, as the December 2018 deadline for application to receive the status of strategic investment/investor is approaching, no major foreign investors have taken advantage of the law and it’s only several projects proposed by domestic companies or consortiums of local and foreign partners that have been designated as strategic investments, mostly in the tourism sector, says the U.S. State Department report.
The critical investment climate report comes at a time when the modest investment and trade ties have failed to make progress in the past few years.
The stock of U.S. foreign direct in Albania has been on downward trend in the past three years, dropping to €74 million in early 2018, down from a peak €97 million in early 2015, according to Bank of Albania of data, ranking the U.S. out of the top 10 largest investors in Albania.
Trade exchanges between the U.S. and Albania are at a modest of about 12 billion lek (€95 mln, $111 mln) annually, accounting for only 1.5 percent of Albania’s trade volume, according to Albania’s statistical institute, INSTAT.
The trade exchanges are overwhelming dominated by machinery and equipment Albania imports while medicinal plants lead the country’s exports to the U.S.
Some 200,000 Americans of Albanian descent live in the U.S. while the number of Albanian-Americans who permanently live in Albania is estimated at 20,000, making it a huge potential for investment at home.
