Albania had its poorest ranking, the 113th, in the depth of capital market due to the inactive Tirana stock exchange.
TIRANA, May 7 – Albania lost nine places in the 2013 Venture Capital and Private Equity Country Attractiveness Index published by the IESE Business School, ranking worse than its regional peers. The 2013 report ranked Albania 108th among 118 countries, down from 99th in 2011 and 102nd in 2009.
Albania had its poorest ranking, the 113th in the depth of capital market due to the inactive Tirana stock exchange. Almost a decade after its establishment, the Tirana stock exchange remains inactive due to the small number of listed companies currently counted on the fingers of one hand and lack of interest because of the high informality of Albanian businesses. However, at a time when the banking system has almost frozen lending, experts consider the activation of the Tirana stock exchange another opportunity to increase efficient investments.
The report ranks the Albanian economic activity 102nd due to the small size of the economy, moderate expected GDP growth and high unemployment rate.
Albania ranks 98th on taxation on poor entrepreneurial tax incentives and administrative burdens. The report ranks Albania’s entrepreneurial culture and deal opportunities 95th on poor innovation and corporate R&D but quite well on the ease of starting and running a business and the simplicity of closing a business.
Human and social environment ranks Albania 89th on poor education and human capital and labour market rigidities while bribing and corruption ranks 75th.
Albania has its best ranking in investor protection and corporate governance at 65th with the quality of legal enforcement ranking 77th, security of property rights 74th and quality of corporate governance 29th.
Venture Capital (VC) and Private Equity (PE) have a key objective to get access to transactions with satisfying risk and return ratios. They look globally to achieve their goals, and often set their sights on emerging regions. To find prime investment opportunities, investors generally look several years down the road and focus on specific factors like: economic activity (GDP, inflation, unemployment rate); size and liquidity of capital markets; taxation; investor protection and corporate governance; the human and social environment (including human capital, labor market policies and crime); and entrepreneurial culture and opportunities (including innovation capacity, the ease of doing business and the development of high-tech industries). The idea of the VC/PE Country Attractiveness Index is to take into account all of these factors across different nations and to determine the relative positioning of particular economies and regions as they stand in relation with respect to their attractiveness for investment in VC/PE assets.
FDI at historic high levels
Double digit growth rates in foreign direct investment and exports were Albania’s key drivers of growth in 2013 when the economy registered its poorest growth rate in more than a decade.
Boosted by investments in hydropower plants and privatization revenue, foreign direct investment registered a record high for the past decade in 2013. Central bank data show FDI in Albania rose to a historic high of 923 million euros in 2013, up from 666 million euros in 2012 and a previous record of 793 million euros in 2010.
Since the outbreak of the global financial crisis, FDI has been constantly growing from Euro 665 million in 2008 to Euro 923 million 2013.
The growth rate in times of crisis is related to several privatizations and concessions especially in the energy sector. The application of a 10 percent flat tax regime in force from 2008 to 2013 has also helped attract foreign direct investment.
Experts and representatives of business associations have warned Albania’s shift to progressive taxation and a 15 percent corporate income tax since January 2014 will have negative impacts on the attraction of FDI and the country’s competitiveness considering that regional countries apply flat tax regimes of 10 percent. However, government is confident the reduction of bureaucracy and corruption will help increase the confidence of foreign investors.
A UN report shows Albania attracted USD 957 million in foreign direct investment in 2012, down 7.6 percent compared to 2011, but remained the second largest FDI recipient among six transition economies of the South-East Europe after Croatia.
