TIRANA, June 1 – Albania’s business climate perception has received another blow, this time by the American Chamber of Commerce, which has been critical of the government’s tax policy and publicly criticized the deteriorating business environment and the departure of top North American investors.
The latest AmCham Business Index shows Albania’s business climate hit a four-year low in 2015 despite government efforts to tackle massive tax evasion and reform the energy sector. High taxes, unfair competition, government bureaucracy, the tough business climate and the informal economy were listed as the top five concerns for foreign and Albanian businesses represented by the AmCham. Expectations for 2016 are more optimistic as the business index is expected to climb to 40.61, up from 37.94 in 2015 on better performance of the Albanian economy.
About two-thirds of AmCham members perceived the business climate as unfavorable and relations with tax authorities as deteriorated in 2015.
U.S. Ambassador to Albania, Donald Lu, said he was disappointed by the index results but is optimistic the approval of the long-awaited justice reform and the fight against corruption are on track to improve Albania’s business climate.
“I was disappointed to note the significant drop in the ABI (AmCham Business Index) in 2015 from 42.77 to 37.94, but the report is not all bad news. I am encouraged that AmCham members are optimistic for 2016 with expectations that the ABI will rebound to 40.61,” Lu wrote in a comment about the report.
“I believe that with the successful passage and implementation of judicial reform, a commitment to a stable and predictable regulatory regime, and a strong fight against informality and corruption, we could see the ABI rebound even higher than predicted in next year’s report,” he added.
Senior U.S. embassy officials have warned Albania was losing millions of dollars in potential foreign investment each year due to its failed judicial system. The long-awaited approval and implementation of the justice reform is now considered a precondition for the improvement of the business climate and attraction of much-needed foreign direct investment in Albania.
“The justice reform remains critical and we expect a quick approval because this is also related to the business climate. Of course, this reform ‘would have a direct impact on the creation of a safer environment and the fight against corruption,” said David Muniz, the Charge D’Affaires of the U.S. embassy in Tirana.
“U.S. investors avoid the justice system in Albania because they have lost faith in it. That is not a very encouraging sign. In the past year alone, we have spoken with multiple companies — one seeking to invest up to $250 million. These companies have opted to invest elsewhere out of fear that they would not be able to get a fair trial in Albanian courts,” Muniz had earlier noted in a government meeting with investors.
Prime Minister Edi Rama has downplayed deteriorating business climate perceptions, saying no investors are leaving Albania and big investors such as Canada-based Bankers Petroleum or the airport concessionaire are simply switching hands.
Albania has been losing pace in the regional competitiveness race for foreign direct investment in the past couple of years as its business climate deteriorates mainly due to an increase in the tax burden and continued lack of rule of law.
The latest survey by the German Association of Industry and Trade in Albania, the ranking in the 2016 Doing Business report but also concerns by other foreign and local business representatives confirm the deteriorated situation.
Albanian and foreign business associations have appealed for measures needed to improve the country’s business environment after the country lost 35 places to rank 97th out of 189 countries in the latest Doing Business report published by the World Bank.
Business associations have continuously appealed for a review downward of taxes on profit, dividend and personal income and a return to a flat tax regime of 10 percent as an incentive giving the business community more room to develop and increase registration numbers.
Since 2014, the corporate income tax and the withholding tax on dividends, rents and capital gains have increased by 5 percent to 15 percent, making the tax burden in Albania one of the region’s highest.
The Albanian economy has grown between 1 to 3 percent since 2009 compared to a pre-crisis decade of 6 percent.
