Mediterranean Investments: the opportunities of Albania
Today Albania is a very different country from what it was twenty-three years ago, when ended the Socialist Republic of Albania. In recent times, in fact, the Land of the Eagles is pursuing economic development particularly intense, managing to attract a growing amount of foreign investment.
Undoubtedly, there are two positive factors that play in favour of the Albanian economy: the low level of taxation, and the low cost of labour. Other features that attract foreign workers are, on the one hand, the demand for skilled labour is still high, the other, the geographical location: the Albanian market is geographically close to Europe, this allows us to reduce costs related to transport of the products to commercialize throughout the area.
Today Albania is also a candidate as a member of the European Union, however, despite the progress has been significant, the path of reform is still long. The country, in fact, not only needs modernization, but also it needs concrete action to combat corruption (a plague that still marks this country), illegal construction (the government has knocked down dozens of buildings in the seaside resorts of the south) and the amount of common (which must be reduced from the current 300 to 60).
The issue of corruption is intersected, however, with a social structure where the family is central and the parental bond is sacred. There is a visceral relationship with the family, so it is unthinkable for an Albanian who holds an important role not hire a relative. In addition, an ancient code, called kanun, passed orally, provides that the tribe is governed by a council of elders, custodians of justice. This code represents the tradition of the Albanian people and, therefore, of parental ties remains important and reforms difficult to implement.
In its latest report, the European Commission has analyzed in detail the Albanian economy. The overall assessment is positive, although the Commission has suggested some strategies to be implemented to achieve the economic standards required.
Europe provides, in fact, a positive trend of growth of the Albanian economy (3% in 2015, 4% in 2016 and 4.5% in 2017) and a fall in unemployment. However, data on public debt are not positive: the values are high, even if you highlight an effort for its gradual reduction.
In the analysis of the Commission there was an improvement in the climate of economic confidence and good payment terms to businesses, thanks to the government’s decision to liquidate obligations arrears. As regards foreign investment, also, for the period 2015-2017 it is expected to grow, primarily in the energy sector. The banking system is a positive, although it emphasizes the need of solving the problems of bad loans. The report welcomes the efforts of the Albanian Government, as part of the program with the IMF; it also calls for further progress in structural reforms.
Noteworthy is also the new partnership program with the Albania that the Executive Committee of the World Bank has approved for the period 2015-2019, in which it is expected the provision of loans of up to $ 1.2 billion and which has as its objectives:
– Support for the improvement of fiscal sustainability
– Strengthen the capacity of public administration in the management of public investment in transport
– Increase financial stability
– Improvement of business climate
– Development of sustainable tourism
– Increase the quality and efficiency of electricity supply
– Digitization of registration of real estate
– Increase the productivity of land
– Increase the efficiency of public services
– Increase in equity and the provision of social protection services
– Increase the efficiency and delivery of health services
– Improving public services of aqueducts channelling.
Analyzed the different sectors of the Albanian economy it is possible to identify four areas where it should invest:
1. Energy and Gas
A major goal of the Albanian government is the development and modernization of the energy sector, which today is based in part on the investments made by the communist regime.
Albania can boast a huge hydroelectric potential, positioning in Europe behind only Norway and Switzerland.
This area offers great space for export to the country of know-how, machinery electromechanical energy production and electrical equipment and software for plant management. The Albanian government has also approved in 2014 the draft law providing for the inclusion of a fund for renewable energy, so as to increase investment in this area.
Albania is rich mainly chromium, copper, nickel and coal and has significant untapped deposits of bauxite, phosphate and significant reserves stone used in the construction industry.
Among the objectives of the Government to turn Albania into a producer of top-class also includes plans for the construction of nuclear power plants to generate energy.
The country has oil reserves (estimated at about 550 million tonnes) but not maximally exploited. Foreign investments in Albania should revitalize the capacity in the oil industry, in particular equipment and spare parts, as well as the modernization of industrial processes, communications, transport, environmental technologies and equipment.
Given the need to improve and modernize the sector in order to attract foreign investment and to ensure the country’s development.
The textile and clothing sector is one of the sectors most successful investments in Albania and the main source of employment in the manufacturing sector. Based on a strong tradition of post-war active in the production of garments, from the privatization of the 90’s many local companies have established a solid reputation while foreign companies have significantly increased their share of production in the sector, particularly in the processing for export.
The long tradition of manufacturing and textile manufacturing and the low cost of labour have given Albania a strong power of attraction for foreign investors.
More favourable factors are the exemption from VAT and customs duties to 100% of the re-exported products, the proximity to Italy, Greece and the Balkan countries, the presence of a flexible workforce and able to adapt to new technologies and international standards of quality, the ability to produce small orders in respect of short delivery times, lower transportation costs thanks to the privileged geographical position of Albania.
The relocation of manufacturing firms abroad in Albania began in the 90s and has since then always been on the rise. The import and export of semi-finished products have a key role in the trade balance of the country. Recently, however, this sector has suffered from the negative effects of the global economic crisis, a decrease in demand and the number of contracts, particularly for companies that operate in partnership with the Greek and Italian companies.
3. Tourist flows
The tourism sector is an important sector for economic development of the country. Albania has in fact parts of the coast still largely unspoiled and cultural sites of great importance as the sanctuary of Butrint and Apollonia. The city of Berat and Gjirokastra, already recognized as a world heritage by UNESCO, in the syllabuses of several European tour operators. Also the area of the North offers attractive growth potential for mountain tourism. Currently, the areas of greatest tourist development are primarily those on the coast around Durres in Albania and southern city of Vlora and Saranda. In addition, several critical issues continue to hamper sector development and foreign investment, so that today the service the tourist Albanians is much less than what a foreign tourist can find in neighbouring Greece and Montenegro and all tourist entrepreneurship facilities are handled privately outside of plans. Among the problems facing the sector they are cited those related to the certainty of property titles, the lack of infrastructure, the widespread illegal, inadequate treatment systems and water purification with serious environmental effects, particularly on the coast, but also the persistent problems related to the supply of electricity.
In the near future it is expected a sharp increase in requests for concessions on the part of foreign investors towards the coastal areas of Albania for the construction of “resorts and spas”, operating throughout the year and also for tourism elite. The sectors are the most attractive housing infrastructure, the increase and modernization of local residences based on the architecture, the resorts in the vicinity of residential areas, the external infrastructure such as swimming pools, gyms, etc. Albania may well take advantage of the opportunities offered by marine and recreational tourism.
Incentives in the tourism sector were introduced in 1993 with the Law “For the development of tourist areas” article 7, nr. 7665/1993. Such incentives are determined on the basis of a special status, designed for investors operating in the tourism sector -designate as “privileged subjects.” Investors who have this status are exempted from customs duties and excise duties on imported goods from taxes on profits for five years since completion of the development phase of the investment, and are also beneficiaries of a tax on profits up to 40% , provided that the profits are reinvested in Albania.
Improving physical infrastructure is one of the main objectives that the Albanian government will set us for the future. This sector has been given special attention by the assignment of most national and international funding for the achievement of objectives such as: the creation of an integrated road infrastructure in the national, regional and pan-European; the improvement of railway infrastructure and its integration into the regional and European network; improving the quality of services in sea ports by increasing infrastructure investment.
The road network of the country is about 18,000 km long and is particularly obsolete due to poor maintenance and the large increase in car traffic in recent years. Only 32% of the Albanian road network is paved. In this context, the Government has launched and completed in the many projects and initiatives planned or in progress in the road sector.
The Albanian government has provided promotional and study also in favour of the port sector for the benefit mainly of large retailers who, in Albania, is doing now by leaps and bounds. Finally, in the medium to long term, there may be investment opportunities in the context of the necessary work of modernization of the inadequate sewage system and aqueducts and the still more precarious state planning of various Albanian cities.
Another opportunity for foreign investors shall divide in July this year: Investors of free economic zones will have a series of fiscal and procedural. Who will invest in “Zone of technology and economic development” will be excluded for the first 5 years following payment of 50% of normal profit and 20% of the expenses they will be recognized as deductible expenses. The legislative amendments also provide for the exclusion from the tax impact of infrastructure, the tax of real estate for the first 5 years and set the transition of property rights for real estate.
In addition, the costs of salaries and contributions, will be recognized at 150% for the first fiscal year of the financial year. For the first ten years of starting the costs of training of employees in the areas of technology and economic development, following the calculation of the taxable profit will be recognized as expenses in the taxable period with twice the value. The costs of scientific research and development will be recognized as an expense with twice the value, also for the first ten years.