TIRANA, Jan. 9 – Albanian producers say the EU-backed Regional Economic Area initiative that the six Western Balkan leaders agreed to last July at the Trieste Summit will put ‘Made in Albania’ products at a disadvantage unless the Albanian government provides tax and subsidy incentives to make them more competitive regionally.
“When the regional economic area is put in place, normally it’s the prices that rule markets. Albanian products will not be able to survive more than six months and the local market is expected to be fully captured as the same quality of imported products will be cheaper,” Arben Shkodra of the Union of Albanian Producers association has warned.
“The first effects will be felt by factories which in the best case will be acquired by regional plants or go bankrupt,” says Mr. Shkodra, the secretary general of the Union of Albanian Producers, a new association defending the Albanian producers’ interests.
According to him, Albania is still unprepared to compete with regional EU aspirant players on a single market as regional countries, especially Serbia, the Western Balkans’ largest economy, are already at an advantage.
“While we have not been formally acquainted with this plan, Serbia has been working on this direction for three years and is the sole country to have made the greatest progress with the regional free market approach. Macedonia has also been very aggressive with the tax incentives it has provided on foreign investment. Even Kosovo has made a lot of steps forward by proving local producers facilities within the Parliament building so that their concerns are examined in time by lawmakers,” Mr. Shkodra says as quoted in an interview published on the association’s website.
Back in mid-2016, Western Balkan leaders agreed to develop an EU-backed regional economic area where goods, services, investments and skilled workers can move without obstacles.
The July 12 Trieste Summit was the fourth annual summit of Western Balkan leaders held as part of the Berlin Process initiative on Western Balkans EU integration initiated in 2014 with the Conference of Western Balkan States.
Bulgaria, which has taken over the rotating presidency of the Council of the EU, will host a Western Balkans Summit in May 2018 before regional leaders gather few months later in London where the U.K, is expected to affirm its commitment to the Western Balkans despite its Brexit.
“The situation is alarming. The regional economic area is the EU’s anteroom. If we don’t analyze and promote domestic production and the segment that can be competitive, the consequences will be severe. But this process does not only mean tax incentives, but identification, branding and promotion of the ‘Made in Albania’ products,” says Mr. Shkodra.
The Union of Producers has identified the garment manufacturing sector, olive oil, water, fish and minerals as Albania’s competitive products which the Albanian government can support to boost their regional competitiveness.
Producers complain the high tax burden and lack of subsidies already make some products such as flour and beer less competitive compared to imports from Serbia and Kosovo.
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 and a key concern for foreign and local investors.
Based on the principles of non-discrimination and creating a level playing field for all within the region, the Western Balkan regional economic area will enable unobstructed flow of goods, services, capital and highly skilled labour, making the six regional economies more attractive for investment and commerce, accelerating convergence with the EU and bringing prosperity to all its citizens, says the Italian Foreign Affairs Ministry. The regional economic area initiative foresees implementation of actions at all levels in the period between 2017 and 2020 with some actions extending until 2023.
Prime Minister Edi Rama has earlier described a Western Balkan market of 20 million as more attractive to investors and trade than an Albanian market of less than 4 million, saying that would benefit Albania and the whole region a lot.
However, some local Albanian experts say the project’s implementation will be tough considering the current obstacles holding back regional economic cooperation among Western Balkan countries aspiring to join the EU.
“I would not prefer the idea of a unique market in the Western Balkans as we are not ready and friction can arise. Peace has been achieved in the Balkans, but it’s not that the crisis doesn’t have an impact on the region. I don’t think the Western Balkan region can create a unique common market,” economist Arben Malaj has earlier said.
Ardian Civici, another Albanian economist has said the “the idea of first uniting within ourselves and later inside Europe, can create difficulty and the ‘positive dependency’ that Commissioner Hahn requires can be prevented by developments within the Western Balkans countries themselves.”
Albania’s current cooperation with CEFTA member countries that includes six Western Balkan member countries and Moldova is currently poor and already hurt by frequent trade disputes and barriers.
Albania’s exports to CEFTA countries account for only about 14 percent of the total while imports for only less than 7 percent, compared to about three-quarters of exports and two thirds of imports to and from EU member countries.
The Western Balkan region is Europe’s most underdeveloped suffering huge gaps in terms of economic development, rule of law and unemployment compared to Western Europe. Ethnic tensions are frequent especially in Bosnia and Herzegovina, Macedonia and Kosovo.
Only Serbia and Montenegro have currently launched accession talks. Enlargement prospects remain pessimistic in the short and medium-run considering internal developments in the bloc with the Brexit, the migrant and financial crises as well as rising populism high on the agenda.
Catching up with the average EU income could take Albania and other EU aspirant Western Balkan economies about six decades unless current sluggish GDP growth doubles to 5 or 6 percent, the World Bank has warned in a recent report.
