Albania extends incentives, considers new investment law to handle expected FDI slowdown

Tirana Times
By Tirana Times September 5, 2018 11:24

Albania extends incentives, considers new investment law to handle expected FDI slowdown

TIRANA, Sept. 5 – Albania has extended for another year incentives on strategic investment to both foreign and domestic investors as it prepares to draft a new comprehensive law that will provide the same protection to both Albanian and foreign investors and specify the country’s strategic sectors.

The one-year extension until December 2019 comes as a late 2015 law on strategic investment offering incentives to investors is set to expire by the end of this year and the ruling Socialist Party majority prepares to draft a new investment law by 2019 in a bid to improve the legal framework and attract much needed foreign direct investment and know-how.

The late 2015 law on strategic investment offered investors simplified and accelerated procedures for strategic investment in energy, mining, transport, telecommunication, infrastructure, urban waste, tourism, agriculture and fishing and special economic zones in a bid to lift barriers such as red-tape and lack of transparency which have prevented FDI inflows in key sectors.

The new legal changes which have already been submitted to Parliament for approval delay the deadline on the submission of investor applications to take advantage of the easier procedures until December 31, 2019.

The extension also comes at a time when foreign investor interest to benefit of such incentives has been vague amid concerns of corruption, one of the key doing business barriers for current and potential investors in the country.

The new legal framework also targets giving a boost to foreign direct investment which is set to significantly slow down starting 2019 following the completion of the investment stage for the Trans Adriatic Pipeline and the Devoll Hydropower plant, the two major energy-related projects that drove FDI and economic growth in the past four years.

Concern over FDI and the investment climate in the country has mounted as long as no major project is set to replace the two major energy-related projects, already in their final stage, except for some controversial public private partnership projects which international financial institutions have described as risky for the country’s public debt reduction agenda.

Under the current legislation set to expire by the end of 2018, investors will have to invest a minimum of €30 million to gain the status of strategic investor with an ‘assisted procedure’ and a minimum of €50 million for the ‘special procedure’ status in order to benefit of special regulations for investments with an impact on economy, employment, industry, technology or regional development with the target of easing and accelerating investments.

The investment thresholds in tourism, agriculture, special economic zones, and special priority zones range from €1 million to €5 million for the assisted procedure status.

Investors can also gain a special status for investments of more than €100 million in projects not envisaged by the strategic investment law.

Recent incentives have focused on the emerging tourism and agritourism industry, significantly reducing VAT on accommodation services to 6 percent compared to a previous standard 20 percent, although the easier tax burden has not been reflected on lower prices and accommodations units continue avoiding tax receipts.

In a bid to promote elite tourism investment, Albania has been offering incentives for a 10-year period  on luxury accommodation units for investments ranging from €8 million to €15 million for four and five-star units that will have to be carried out by internationally renowned chained-brand hotels or local companies under management or franchise contracts with them.

Investment in tourism accommodation in the country are being mainly carried out by Albanian investors at a time when the long-standing unclear property titles remains the main concern for foreign investors.

 

New investment law

The government says it is drafting a new comprehensive law on investment that will also provide the same protection to domestic investment and also incorporate strategic investment.

“The drafting of the investment law has emerged as a necessity as legislation in force provides extra protection to foreign investment, but not local ones, and new separate legal framework has been drafted on strategic investment. The unified law that provides the same protection to domestic and foreign investment with a special treatment on strategic investment is based on the principles of transparency, equality and non-discriminatory treatment of investors and will increase investor guarantees,” says the government, adding that the approval of this law will be made within 2019.

The Albania Investment Council, a government advisory body, says a new investment law is a necessity for Albania as the current investment law is obsolete and dates back to 1993 soon after the hardline communist regime collapsed and the country switched to a multi-party system and a market economy and considering that the current law on strategic investment is set to expire.

“A comprehensive law on investment for domestic and foreign, regular and strategic investments is more powerful and further alignment with domestic and regional policies as well as Albania’s international bilateral agreements is needed. The new law would state commitment to key investor rights and protection,” says the Albania Investment Council,  an advisory body serving as a linking bridge between the business community and the government set up in 2015 with support by London-based European Bank for Reconstruction and Development.

“The primary objective of the new legal frame should be to set up the premises for attracting high value-added investments that will produce longer-term positive effects in the economy. Recent growth recovery was also driven by investment, and the alignment of the legal framework with international good practices could bring a new impetus to investments in the country,” says Diana Leka of the Investment Council.

 

FDI challenge

Two-thirds of foreign direct investment that flowed into Albania in the first quarter of this year came from two major energy-related projects, already in their final stage of investment, signaling of tough times ahead starting next year unless new major investment replaces them.

Tax incentives in the tourism sector for luxury accommodation units, a controversial €1 billion public private partnership program and an apparent engagement of Shell oil giant in Albania production following years of oil and gas exploration operations in the country are the only hopes Albania could compensate for expected FDI decline after TAP and the Devoll Hydropower projects complete their five years of contribution by the end of this year.

Albania has attracted an average of about $1 million of FDI annually since 2010 when it emerged as the second largest FDI recipient among five transition Western Balkan economies, a position it has maintained for eight years in a row, trailing only Serbia, the region’s largest economy.

FDI in the country is mainly focused on low value added energy products such as oil and mining, a major part of which is exported as raw material.

Tirana Times
By Tirana Times September 5, 2018 11:24