TIRANA, Nov. 6 – Albanian economy experts say the country has to speed up reforms so that it catches up with regional competitors in becoming a more attractive investment destination.
The suggestions come after Albania climbed only two steps to rank 63rd out of 190 global economies for the ease of doing business in the latest Doing Business report, continuing to lag behind most of its regional competitors that rank in the top 50 and having the highest tax burden among EU Western Balkan countries.
Zef Preà§i, the head of the Albanian Center for Economic Research, says the important thing about Albania’s ranking is how much the legal framework is applied and how it performs compared to regional countries.
“With this tax and licensing policy that Albania is following, favoring of oligarchs and current public investment policy, Albania is losing step by step its comparative advantages,” says Preà§i, who has earlier criticized the government’s €1 billion public private partnership program to upgrade road, health and waste management services as a scheme favoring oligarchs and money laundering.
The 2019 Doing Business report published by the World Bank, a reference point in foreign investors’ decision-making, shows Macedonia was the Western Balkans top performer for several years in a row as it climbed to the 10th best global destination for the ease of doing business, followed by Kosovo 44th, Serbia 48th, Montenegro 50th and Bosnia and Herzegovina 89th.
Paying taxes ranked Albania the world’s 122nd worst performer with medium-sized companies spending an average of 252 hours a year and having to pay about 37.3 percent of their profit in taxes and contributions, higher even compared to 36.6 percent in Serbia, the region’s largest economy.
Dealing with construction permits also remains a doing business barrier, although Albania having introduced an electronic platform making the application process easier since mid-2016 and the construction sector recovering following a long-ailing period due to a new boom in construction in Tirana.
Luigj Aleksi, the head of the Association of Albanian Developers, says obtaining construction permits has become more difficult as developers are required to carry out detailed local government plans on their own, something that he says must be conducted by local government units.
A construction tax at 8 percent of the sale price for housing facilities since 2017, up from a previous 4 percent of the construction costs has also raised construction costs in Tirana and developers want its payment divided into three instalments and that it is recognized as tax deductible expense due to road, water and electricity infrastructure costs they incur in the construction process.
The latest Doing Business report shows it takes 18 procedures, 299 days and 5.6 percent of warehouse value to obtain a construction permit in Albania, in much lengthier procedures and higher costs compared to last year.
Economy expert Besart Kadia says Albania’s risks lagging behind the region’s competitors for a long time due to high taxes, endemic corruption, undeveloped infrastructure and a labor force that is seeking to leave the country, suggesting that it is vital that pro-business reforms become primary in government policies.
“The 2019 Doing Business report shows that countries with a small population and not very competitive labor force can be more attractive in the global economy only through institutional incentives. But Albania seems to have lagged behind in the Ottoman era with political bureaucracy dominating and a belief that reforms can be carried out slowly and with no quality,” Kadia, an entrepreneurship secretary at the main opposition Democratic Party, has written in an op-ed published on local media.
Kadia says a competitive institutional infrastructure has made Macedonia a success story by managing to climb to the top 10 doing business destination compared to 69th in 2010.
“A small country with no access to ports and with strong ethnic tensions and open political conflicts with its southern neighbor Greece, Macedonia has managed to become innovative enough and now ranks the tenth best place for doing business, turning into a success story of reforming in tough times,” he adds.
The high tax burden, corruption and inefficient judiciary are the main concerns for local and foreign businesses who often complain of Albania being uncompetitive to other regional countries applying flat tax regimes of about 10 percent.
Finance minister Arben Ahmetaj says the 2019 fiscal package reducing some taxes and making procedures easier will further improve Albania’s business climate.
Albania has been the Western Balkans’ second largest foreign direct investment recipient for the past decade, but FDI has mainly focused on low value added energy sectors such as oil, mining and hydropower.
