2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012

Openness to Foreign Investment

Albania has put in place a liberal foreign investment regime and increasing FDI is a top priority for the GOA. The government has taken measures to improve the overall business climate in the country by streamlining business procedures through e-government reforms and undertaking comprehensive structural reforms to both improve relevant legislation in a variety of sectors and lower fiscal burdens for companies. Despite progress in these reforms, major challenges remain with investors citing widespread corruption, weak law enforcement, insufficiently defined property rights, government bureaucracy, lack of developed infrastructure, and frequent changes in the legal framework.

Legal Framework

The 'Law on Foreign Investment' is designed to create a favorable investment climate for foreign investors in the country and stipulates the following:

- No prior government authorization is needed for an initial investment and no sector is closed to foreign investment;
- 100 percent foreign ownership of companies is permissible;
- Foreign investment may not be expropriated or nationalized directly or indirectly, except for in designated special cases, in the interest of public use and defined by law;
- Foreign investors enjoy the right to expatriate all funds and contributions in kind of their investments; and
- Foreign investors receive ‘most favorable treatment’ according to international agreements and Albanian law.

Additionally, in September 2010, the parliament approved several amendments to this law that provide special protection for foreign investment in the tourism, energy and agriculture sectors. This state special protection is not granted a priori but is granted only after occurrence of the dispute through a decision of the Council of Ministers following a request presented by the respective minister and the foreign investor.

According to Law 10316 “On Some Amendments To The Law On Foreign Investments,” special state protection is granted to investments related to a concession agreement based on the Albanian Concession Law; or an immovable property, made available to the foreign investor by the Albanian state or an immovable property over which the foreign investor has rights based on a valid, legal, public document or act issued by a competent state-entity or public authority, where such investment exceeds or is foreseen to exceed the value of EUR 10 million. Under the special state protection, the foreign investor is substituted in the judiciary process by the Albanian state and any injunction order issued by the court shall be executed over state properties.

The Law on Protection of Competition governs incoming foreign investment whether it is through acquisitions, mergers, takeovers, or green field investments. The competition law applies to all mergers irrespective of the industry or sector. In the case of particular share transfers in insurance and banking industries, additional regulatory approvals, are needed. Also, transactions between parties outside Albania, "foreign to foreign" transactions are covered by the competition law which explicitly states that it applies to all undertakings, whether domestic or foreign, whose activities have a direct or indirect effect on the Albanian market.

There are limited exceptions to this liberal investment regime - most of which apply the purchase of real estate: agricultural land cannot be purchased by foreigners, but may be rented for up to 99 years; and commercial property may be purchased, but only if the proposed investment is worth three times the price of the land. There are no restrictions on the purchase of private residential property.

Investors in Albania are entitled to judicial protection of legal rights related to their investments. Foreign investors have the right to submit disputes to an Albanian court. In addition, parties to a dispute may agree to arbitration. Provisions regarding domestic and international commercial arbitration are incorporated into the Albanian Code of Civil Procedure. However, many companies complain about the sluggishness of the courts and the corruption in the judiciary is endemic. The delay in the establishment of the Administrative Court is another factor that lengthens the time of court proceedings.

Albania's tax system does not discriminate against foreign investors and no distinction is made between foreign and domestic investors. Reforms are ongoing to increase the efficiency of tax administration and reduce corruption.

The Law On Entrepreneurs and Commercial Companies sets guidelines on the activities of companies and the legal structure under which they operate. The law was updated in 2008 and brings Albanian legislation in line with the European Unions's acquis communitaire. The most common type of organization for foreign investors is a limited liability company. Other forms of business entities include joint stock companies, joint ventures, unlimited partnership, limited partnership, and sole entrepreneur enterprises.

The National Business Registration Center, founded in September 2007, serves as a one-stop-shop for business registration. Starting a business is now easier with online publishing of forms and procedures, reduction of registration costs, and the consolidation of tax, health insurance, and labor registration into a single application. Licensing for businesses has also been streamlined with the opening of the Business Licensing Center in July 2009. As a result, many licenses were abolished and a broad simplification of licensing procedures has been implemented across several sectors.

Albania improved public procurement procedures by approving a new law in 2006 which introduced e-procurement. Direct tendering has been abolished (excluding defense procurements) and criteria to identify abnormally low bids have been introduced (although not fully in line with the acquis.) The 2010 amendments of the law established the Public Procurement Commission (PPC) transferring the claims-reviewing function from the Public Procurement Agency (PPA) to the Commission. (Previously the PPA was responsible for both policymaking and implementation of the law as well as with the reviewing of the claims.) The Public Procurement Advocate, established in 2008 performs functions similar to an ombudsman by safeguarding the rights and interests of bidders against acts or omissions by contracting authorities. Regardless of legal improvements, companies confront a nontransparent process when competing for public tenders whether it is ‘fixed’ technical specifications designed to lock out a potential bidder or a lack of clear communication with the relevant ministries. A lack of enforcement of existing legislation is also common theme foreign companies also grapple with when considering entering the Albanian market.

The Law “On Concessions,” No. 9663, dated December 18, 2006, established the framework for promoting and facilitating the implementation of privately financed concessionary projects. The statute aims to enhance transparency, fairness, efficiency and long-term sustainability in the development of infrastructure and public service projects. One of its major amendments includes improved regulation for unsolicited proposals and of public-private partnerships in general. The law applies to the following sectors:

a) transport (railway system, rail transport, ports, airports, roads, tunnels, bridges, parking facilities, public transport);
b) generation and distribution of electricity and heating;
c) production and distribution of water, treatment, collection distribution and administration of waste water, irrigation, drainage, cleaning of canals, dams;
d) collection, transfer, processing and administration of solid waste;
e) telecommunication;
f) education and sport;
g) health;
h) tourism and culture;
i) prison infrastructure;
j) recycling projects, rehabilitation of land and forests, in industrial parks, housing, governmental buildings, service of maintenance of IT and data base infrastructure;
k) natural gas distribution; and
l) management contracts or provision of public services including those related to sectors specified above.

In order to promote investment in priority sectors, the GOA may offer concessions to local or international investors for the symbolic price of one Euro. The GOA, with the approval of the Minister of Economy, authorizes concessions in other sectors besides those listed above. The law does not apply to concessions that require a separate operating license unless that is included in the framework of the concession agreement.

Albania has completed most privatizations of state-owned companies with only a few left outstanding. These privatizations are carried out by open international tender or auction. Outstanding privatizations include: state-owned insurer INSIG, state-owned oil company Albpetrol, telecom operator Albtelecom and its constituent Eagle Mobile, and the privatization of real estate owned by the military. The GOA is also considering privatizing four existing Hydropower Plants (HPPs).

The GOA does not screen foreign investment and the United States is extremely popular with both the GOA and ordinary citizens; American firms and their products are welcomed. Companies interested in entering the Albanian market should contact the Albanian Investment and Development Agency (AIDA.) AIDA provides direct assistance to investors, promotes SMEs, Albanian exports, and FDI.

AIDA Albanian Investment and Development Agency (former ALBINVEST)

Blv Gjergj Fishta, Pall. Shallvare Tirane
Tel: +355 (0) 42251001
e-mail: info@aida.gov.al
web: www.aida.gov.al

Corruption Perception Index, Doing Business 2011, Heritage Economic Freedom Scorecard by MCC and Moody evaluation

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

2012

2011

2010

2009

2008

2007

TI Corruption Index

n/a

3.1

3.3

3.20

3.40

2.90

Heritage Economic Freedom

n/a

64

66

63.70

63.30

61.38

World Bank - Ease of Doing Business (rank)

82

77

81

86

135

120

MCC Government Effectiveness

n/a

n/a

0.08

0.00

-0.15

-0.33

MCC Rule of Law

n/a

n/a

-0.24

-0.22

-0.20

-0.47

MCC Control of Corruption

n/a

n/a

0.09

-0.12

-0.30

-0.34

MCC Fiscal Policy

n/a

n/a

-4.20

-3.60

-3.98

-4.41

MCC Trade Policy

n/a

n/a

85.80

75.80

63.20

57.40

MCC Regulatory Quality

n/a

n/a

0.60

0.24

0.01

-0.01

MCC Business Start Up

n/a

n/a

0.98

0.97

0.97

0.39

MCC Lands Rights Access

n/a

n/a

0.87

0.81

0.73

n/a

MCC Natural Resource Management

n/a

n/a

97.29

79.65

79.43

n/a

Moody’s Investors Service assigned Albania its first-ever sovereign rating of 'Ba1' for foreign-currency bonds and an issuer rating of 'B1' for debt obligations of the government. At the end of 2010, Moody’s rated GOA debt for both foreign and domestic currency as B1 and forecasted a stable outlook for the future. In late 2010, Albania successfully issued a five year term 300 million Eurobond with an interest rate of 7.5% and it managed to preserve its B1 rating by Moody’s in December 2011.

Conversion and Transfer Policies

The Bank of Albania (BOA) formulates, adopts and implements the foreign exchange policy of Albania and maintains a supervisory role in foreign exchange activities in accordance with the Law On the Bank of Albania No. 8269 dated 1997 amended in July 2002, the Banking Law No. 9662 of December 2006 which regulates the operation of commercial banks, and the Regulation on Foreign Exchange Activities (FX Regulation) recently amended in September 2009.

As a general rule, the Banking Law does not impose any restrictions on the purchase, sale, holding, or transfer of monetary foreign exchanges. However, the Law on the Bank of Albania authorizes the bank to temporarily restrict the purchase, sale, holding, or transfer of foreign exchanges if the BOA so decides, in order to preserve the foreign exchange rate or its official reserves. In practice, the BOA has not used such measures excessively. In 2009, the BOA temporarily tightened supervision rules over liquidity transfers by domestic banks to their foreign mother banks due to the widespread lack of liquidity in international financial markets and its negative effects on the domestic sector. It also asked that banks not distribute their dividends but instead use it to increase shareholders’ capital. The restriction was lifted in 2010.

The Albanian currency the lek follows a floating free regime and is convertible at banks and exchange bureaus. The Albanian foreign investment law guarantees the right to transfer and repatriate any funds associated with an investment from Albania into a freely usable currency, at a market-clearing rate.

Foreign exchange transfers abroad can only be carried out by licensed entities (domestic banks, foreign bank branches and foreign exchange offices) that are required to report their foreign exchange activities to the BOA regularly. These entities are also obliged to complete and keep all documentation required for transfers abroad. Foreign exchange can be easily obtained despite the fact that the exchange market in Albania remains small and daily transactions amount to less than USD 20 million.

Although the Foreign Exchange Regulation provides that residents and non-residents may transfer capital within and into Albania without any restrictions, capital transfers out of Albania are subject to certain documentation requirements. Physical persons must submit a request indicating the reasons for the capital transfer, the amount of capital transferred outside the territory of Albania, and the address to which the capital is to be transferred. Such persons must also submit a declaration on the source of the funds to be transferred.

Average delays for remitting investments returns are those defined by banks themselves and in general do not pose a problem to the investors. However, a serious issue for both domestic and foreign investors remains VAT reimbursement from the tax department as delays can exceed 60 days and go up to several months.

Both Albanian and foreign citizens entering or leaving the country must declare assets in excess of lek 1,000,000 (approximately USD 10,000) in hard currency and/or precious items. Failure to declare such assets is considered a criminal act and punishable by confiscation of the assets and detention.

Expropriation and Compensation

The Albanian Constitution guarantees the right of private property. According to Article 41 of the Albanian Constitution, expropriation or limitation in the exercise of a property right can be done only in the public interest and with fair compensation. In the post-communist period, expropriation has been limited to land needed for projects in the public interest, mainly infrastructure projects including, but not limited to roads, energy infrastructure, water works, airports, etc. However, compensation has generally been below market value and some owners have complained publicly about the compensation process being slow and unfair.

There are many on-going disputes for properties confiscated during the communist regime. The restitution and compensation process that started in 1993 has been slow and marred by corruption. The process is still on-going and many U.S. citizens of Albanian origin have long-running disputes with the government regarding restitution of property. Court cases tend to drag on for years without a final decision, forcing many to take the case to the Strasburg Human Rights Court.

The GOA has presented three methods of compensation for expropriation claims: restitution; compensation of property with similarly valued land in a different location; and cash settlement/financial compensation. However, the process is not expected to be completed in the near term due to the large number of requests, the large financial cost associated with the process and the slow pace of compensation with similarly valued property.

Dispute Settlement

The effective settlement of disputes is rare in Albania with some U.S. companies being involved in investment disputes. The judicial system is viewed by the business community to be slow and inefficient and lack of transparency and endemic corruption remain challenges to any settlement process. Court cases are lengthy and costly for businesses and, as a result, there is a preference to resolve disputes without seeking a judicial remedy.

Legal System: Albania has a civil law system similar to that of most other European countries. The Albanian Constitution provides for a clear separation of legislative, executive and judicial branches, thus sanctioning the independence of the judiciary. Civil Procedure in Albania is governed by the Civil Procedure Code enacted in 1996. The civil court system consists of District Courts as the first instance courts, appellate courts as the second instance courts, and the Supreme Court as the third instance court. Outside of the court system, there is another special court, namely the Constitutional Court which, upon request, reviews whether laws or subsidiary legislation are in compliance with the Constitution and also protects and enforces the constitutional rights of citizens and legal entities. The District Courts are organized in special sections for adjudication- family disputes, commercial disputes and administrative disputes. Parties may appeal the judgment of the first instance courts within 15 days while the Appellate Court judgments may be appealed within 30 days to the Supreme Court.

As Albania does not have a commercial code, legislation is encapsulated in a series of commercial laws. Relevant laws include: Foreign Investment Law; Commercial Companies Law; Bankruptcy Law; Environmental Law; Corporate and Municipal Bonds; Transport Law; Maritime Code; Secured Transactions Law; Employment Law; Taxation Procedures Law; Banking Law; Insurance and Reinsurance Law; Concessions Law; Mining Law; Energy Law; Water Resources Law; Waste Management Law; Excise Law; Oil and Gas Law; Gambling Law; Telecommunications Law; Value Added Law; and Sports Law.

Albania has enacted and introduced laws and subsidiary legislation in respect to property rights and contract rights. The courts and the court bailiffs are the authorities empowered by law to respectively issue the writ of execution and enforce the claims of parties described in the writ of execution. According to the Albanian Civil Procedure Code, foreign court judgments are recognized and enforced by the Court of Appeal in a summary proceeding.

Bankruptcy: Bankruptcy is governed by Law 8901, dated May 23, 2002, "On Bankruptcy" amended in May 2008. It is similar in organization to the German bankruptcy law. The Bankruptcy Law, as amended, aims at finding a proper solution through the reorganization or liquidation of insolvent businesses. It sets out non-discriminatory and mandatory rules for the repayment of the obligations by a debtor in a bankruptcy procedure. The new insolvency law established time limits during insolvency, professional qualifications for insolvency administrators, and an Agency of Insolvency Supervision to regulate insolvency administrators. A simplified insolvency procedure for small businesses is also in place. Nonetheless, the law on the bankruptcy has reportedly never been utilized and there have been no bankruptcy procedures to date vice a voluntary liquidation procedure.

Arbitration: The possible methods of dispute resolution in Albania are mediation, arbitration, and the Court system. The Government of Albania accepts binding international arbitration clauses in specific investment agreements, and in many cases it has been a party to arbitration disputes in foreign or international arbitration tribunals, as agreed to in these investment agreements. Albania has signed and ratified the New York Convention. In order to have a settlement recognized, a case must be brought before the Court of Appeals.

A new law on commercial arbitration is still in draft form and aims at regulating all domestic and international arbitration procedures and transposes the provisions of United Nations Commission on International Trade Law (UNCITRAL), which in turn incorporates the New York Convention provisions. This means that to date international proceedings arbitration can be conducted based on the aforementioned ratified international conventions. Domestic arbitration continues to be governed by the provisions on the Civil Code Procedure which is more or less in line with UNCITRAL arbitration. There is a private arbitration center known as the Albanian Commercial Mediation and Arbitration center (MEDART), which is a service center established under a World Bank funded legal and judicial reform project in 2001.

An alternative to the dispute settlement via the courts is private arbitration or mediation. Parties can engage in arbitration when they have agreed to such a provision in the original agreement, when there is a separate arbitration agreement or by mutual agreement at any time when the dispute arises. Legislation distinguishes arbitration of international disputes from arbitration of domestic disputes in that the parties involved in an international dispute may agree to settle through either a domestic or foreign arbitration tribunal.

Under the Albanian Constitution, ratified international agreements prevail over domestic legislation. Albania has signed and ratified the 1966 Convention “On the Settlement of Investment Disputes” between States and Nationals of Other States (Washington Convention) as well as the Convention of 1958 “On the Recognition and Enforcement of Foreign Arbitral Awards” (New York Convention). It has also ratified the 1927 Convention and the European Convention on Arbitration (Geneva Convention).

Performance Requirements and Incentives

There are no requirements that are inconsistent with the WTO Trade-Related Investment Measures (TRIMs) obligations.

Albanian law does not generally establish performance requirements or detailed incentives for foreign investors minus a few exceptions. One important exception is a requirement for the purchase of commercial property by foreigners. Such a purchase can be made only if the investor plans to improve the value of the property by three times the purchase price.

The GOA applies a liberal foreign investment regime offering equal treatment of foreign and domestic investors. Albania has also signed bilateral agreements for the promotion and protection of reciprocal investments and has signed double taxation treaties with many countries. Some other incentives include tax exemption of dividends designated for investments; importers of machinery and equipment are eligible for VAT deferral if the machinery and equipment will solely serve its taxable economic activity; apparel producers are exempt from VAT on raw materials as long as the finished product is exported; in 2011, the GOA also removed customs tariffs for imported apparel and raw materials in textile and shoe industry; subsidized leases of state-owned premises. In a case by case basis, investors are eligible to lease state-owned property such as land or buildings at rents below market rates. In the case of production activities, the extent of rent reduction charged will be commensurate with the level of investment made and the number of new jobs created. This is based on the decree of the Council of Ministers, No. 315, dated April 24, 2006 “On the Leasing of State Enterprises and Institution’s Property.”

Over the last two years, Albania has reduced corporate income tax from 20% to 10% and has reduced the fiscal burden of social security contributions paid by employers to 15%. Incentives are regulated by Law 9374, dated April 21, 2005, “On State Aid,” for the implementation of important projects, to facilitate the development of specific economic activities, and to promote national culture and heritage conservation. “On State Aid” applies to all sectors of manufacturing and services and all measures undertaken by central and local government, as well as other entities acting on behalf of the state that confer benefits to particular enterprises, except those acting in the agriculture and fisheries sectors.

Energy Sector Incentives: The government ensures the sale of electricity generated from new hydro power plants with less than 15MW installed capacity for a period of 15 years with favorable prices approved annually by the Energy Regulator. The law on concessions establishes the necessary framework for promoting and facilitating the implementation of privately financed concessionary projects. The law also regulates unsolicited proposals and public-private partnerships.

Requirement procedures to obtain for visas, residence or work permit requirements are straightforward and do not pose an undue burden on potential investors. There are no discriminatory or preferential export policies and import policies affecting foreign investors. There are no requirements in Albania for foreign investors to purchase from local sources or to export a certain percentage of their output.

A major concern for the business community is reference prices (alternately called market prices) that customs officials use to calculate dues on imported goods, although the GOA claims the use of reference prices is limited. Reference prices are also used by tax authorities to determine salaries (for the purpose of calculating personal income tax, social and health contributions) as well as real estate transactions.

Albania has a flat personal income and corporate income tax of 10% and VAT of 20%. Employers currently contribute 15% and 1.7% respectively of employees’ salary for state social security and health programs.

Right to Private Ownership and Establishment

Albanian law permits private ownership and establishment of enterprises and property. Foreign investors do not need additional permission or authorization to do so over and above that required of domestic investors. Albania applies restrictions only on the purchase of real estate. Agricultural land cannot be purchased by foreigners, but may be rented for up to 99 years. Commercial property may be purchased, but only if the proposed investment is worth three times the price of the land. There are no restrictions on the purchase of private residential property. Both foreign and domestic investors continue to experience significant issues in resolving property disputes arising from unclear or incomplete documentation.

Foreigners can acquire concession rights on natural resources and on resources of the common interest, as defined by the Law on Concessions. For some business operations, licenses are needed. The National Licensing Center (NLC) became operational in July 2009 and the center serves as a one-stop-shop for business licenses. More information on the types of licenses and application procedures can be found at www.qkl.gov.al

Based on the Law No. 9723, dated March 5, 2007, “National Registration Center” and following the opening of the National Registration Center for Businesses (NRC) in September 2007, business entities can be registered in a single place, in one day, for one Euro. More information on NCR can be found at www.qkr.gov.al . Both NLC and NRC were established with assistance from the Millennium Challenge Corporation Albania Threshold Program, as e-government initiatives, and save investors valuable time in establishing and carrying out business operations, while also increasing transparency and reducing opportunities for corruption.

Foreign and domestic investors have numerous options available for organizing business operations in Albania. According to the new Law No. 9901, dated April 14, 2008 “On Entrepreneurs and Commercial Companies” (Commercial Law) and Law No. 9723, dated March 5, 2007, “On National Registration Center,” the legal types of business entities that can be registered with NRC are as follows: Sole Entrepreneur; Unlimited Partnership; Limited Partnership; Limited Liability Company (Shpk); Joint Stock Company; Branches and Representative Offices; and Joint Ventures. More details can be found by visiting NLC at www.qkl.gov.al

Protection of Property Rights

Albanian law protects copyrights, patents, trademarks, stamps, mark of origin, and industrial designs. But there remains a significant gap between the law’s intent and how it is enforced. IPR rules are poorly enforced in Albania. Albania has ratified the following international treaties and conventions:

On Copyright

  • Berne Convention on the Protection of Literary and Artistic Works (since 1994);
  • Universal Copyright Convention (since 2003);
  • Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations (since 2000);
  • Convention for the Protection of Producers of Phonograms Against Unauthorized Duplication of Their Phonograms (since 2001);
  • WTO TRIPS Agreement on Trade Related Aspects of Intellectual Property Rights(since 2002);
  • WIPO Copyright Treaty (WCT) (since 2005);
  • WIPO Performances and Phonograms Treaty (WPPT) (since 2002);

On intellectual property

  • Convention Establishing the World Intellectual Property Organization (WIPO Convention) (since 1992);
  • Paris Convention for the Protection of Industrial Property (since 1995);
  • Madrid Agreement Concerning the International Registration of Marks, since 1995, and the Protocol relating to that Agreement (since 2003);
  • Patent Corporation Treaties (PCT) (since 1970);
  • Extension Agreement between the Government of Albania and the European Patent Organization on the cooperation in the field of Patents (since 1995);
  • Nice Agreement Concerning the International Classification of Goods and Services for the purposes of the registration of Marks (since 2003);
  • Budapest Treaties on the International Recognition of the Deposit of Microorganisms for the purposes of patent procedure (since 2003);
  • Hague Agreement and Geneva Act Concerning the International deposit of Industrial Design (since 2007);
  • Strasbourg Agreement Concerning the International Patent Classification (since 2007);
  • Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement (since 1994);

In 2010, Albania became a contracting party to the WIPO Patent Law Treaty and a full member of the European Patent Organization.

Albania has been updating its legal framework for the protection of Copyrights and Intellectual and Industrial Property Rights and the main institutions responsible for IPR enforcement include the Albanian Copyright Office (ACO), the General Directorate of Patents and Trademarks (GDPT), the General Directorate for Customs, Tax Inspectorate, Prosecutor’s Office, police, and the courts.

The Albanian Copyright Office, established in 2006, is the main institution responsible for monitoring and implementing the law on copyright approved in 2005. However, the ACO lacks administrative and institutional capacity and law enforcement on copyrights remains incomplete and violations of copyrights are rampant. The number of cases of violation of copyright law brought to court remains small. The ACO sanctions are not effective and the low fines it levies do not serve as an adequate deterrent. In 2010, a law on administrative contraventions was adopted aiming to improve collection of fines for infringement of copyrights. But enforcement of this law, like many others, is uneven.

The Directorate General for Patents and Trademarks (GDPT) is responsible for the registration and administration of patents, commercial trademarks and service marks, industrial designs and geographical indications. In 2008, the Albanian government approved the Industrial Property Law and a number of by-laws and implementing regulation are already in place. Further capacity strengthening and additional human resources are needed for GDPT. The General Directorate of Customs includes a directorate for the protection of the IPR and has the powers to act ex officio.

Overall, the copyright and IPR protection are weak and the effects of the national strategy for the enforcement of copyrights and intellectual and industrial property rights approved in 2010 remain to be seen. The strategy aims to strengthen administrative capacity, improve inter-institutional coordination, and raise awareness of the benefits of IPR. Meanwhile, U.S. companies are advised to consult an attorney experienced in IPR issues and potential risk by establishing solid commercial relationships and drafting tight contracts.

Property Rights: Real estate is registered at the Real Estate Registration Office or Registrars Office. The procedures are cumbersome and there are frequent issues regarding claims to property titles. Nonetheless, recent changes in the legislation will allow a notary public to have access to real estate registers and confirm the legal ownership of property. For large transactions, it is still advisable to hire an attorney to properly check documents and follow up procedures for the registration of the property.

Property disputes are problematic in Albania. In 1990, following the fall of communism, the GOA undertook reforms to acknowledge ownership rights for property that had been expropriated during the communist regime. The property restitution and compensation process started in 1993 and is uneven and ongoing to this day. More lucrative land in high value coastal areas has not yet been fully registered due to existing disputes over titles. The legalization process to address large scale illegal construction started in 2006 and is also ongoing. Illegal construction is a major impediment to securing property titles. The number of informal buildings is estimated to be 350,000 and comprises a surface area of 320,000 hectares.

Despite some progress, immovable property rights (land rights) are still far from well defined. Property legislation has developed in a piecemeal and uncoordinated way resulting in overlapping property titles and lengthy legal disputes. The uncoordinated and haphazard government response has aggravated this already complex property issue. The improper functioning of the land registry system, the large presence of illegal construction and widespread corruption all contribute to the most daunting and pressing challenge the GOA faces: fair and open property restitution.

Currently, enforcement of property rights is pursued in the civil court system. An overwhelmingly large number of civil cases in the Albanian courts involve property issues while many property disputes linger for years before reaching a final ruling. This has resulted in a backlog of property issues. The lack of enforcement of court decisions is another issue of concern. This has led to an increasing number of Albanian citizens filing suit with the European Court for Human Rights in Strasbourg against the GOA over property claims.

These unresolved property issues have undermined efforts to develop a functional land market and have hindered FDI into the country. To address the negative impact, the Albanian government approved a law in 2010 that grants special protection to investments related to a concession agreement based on the Albanian Concession Law, or an immovable property, made available to the foreign investor by the Albanian state; or an immovable property over which the foreign investor has rights based on a valid, legal, public document or act issued by a competent state-entity or public authority, where such investment exceeds or is foreseen to exceed the value of EUR 10 million. Under this special state protection, the foreign investor is substituted in the judiciary process by the Albanian state and any injunction order issued by the court shall be executed over state properties.

Transparency of Regulatory System

Albania’s regulatory system has improved in recent years but still faces many challenges. Improper enforcement of legislation, entrenched bureaucracy, frequent changes to legislation, and lack of transparency in developing legislation and regulations are all a burden for the business community. Foreign investors often note that lack of proper law enforcement and bureaucracy that leads to the prevalence of corrupt procedures and practices.

Albania has adopted legislation and established the agencies that on the surface should provide transparent rules and regulations to foster competition and attract investment. The law on Protection of Competition was approved in 2003 and amended several times with the Agency for the Protection of Competition becoming functional in 2004. The law seeks to secure “clear game rules.” However, the legislation is unevenly enforced and the lack of proper law enforcement is reported to be one of the major reasons for distorting competition in the market. The operational independence and administrative capacity of the Competition Authority also needs to be strengthened so it can serve as an able watchdog.

Other independent agencies and bodies, including Energy Regulator, Telecom Regulator, and other major institutions operate to ensure transparency in different sectors. New legislation on public procurement introduced e-procurement and resulted in improved transparency in public procurements. However, as in many other areas the proper enforcement of the law remains a challenge and problems with the tender procedures are frequent. Business registration and licensing are streamlined through the once stop shop centers for registration and licensing. While business registration is an easy step, licensing still remains cumbersome in some sectors. A new Company Law approved in 2008 includes rules on disclosure requirements, formation, maintenance and alteration of capital, mergers and divisions, takeover bids and shareholders' rights, as well as corporate governance principles. The Law on Accounting and Financial Statements includes reporting provisions according to which large companies will apply International Financial Reporting Standards, while small and medium businesses will apply National Financial Reporting Standards.

Proposed laws and regulations are sometimes not published in draft form for public comment and are not discussed thoroughly with stakeholders. Businesses have difficulty obtaining copies of laws and regulations especially in their draft form. Even when there is a public consultation on certain legal initiatives, the stakeholders input is rarely incorporated into the final version. Although Albania has taken some steps forward to improve business advocacy by establishing the Business Advisory Council, business participation in the legislative processes remains limited. Frequent changes to legislation are also a concern for the business community.

Efficient Capital Markets and Portfolio Investment

In the absence of a stock market, the banking sector remains the main channel for business financing. It consists of 16 banks, mostly owned by foreign investors. The Austrian Raiffeisen Bank is the predominant bank with approximately 30% of the all banking sector assets followed by a pool of Greek banks with 23%, one Turkish bank with 19%, and two Italian banks with 15%. Two banks with Albanian shareholders hold about 10% of sector assets. In addition to Raiffeisen, Intesa San Paolo, Societe General, and Alfa bank are the most internationally recognized banks.

The banking sector in Albania remains sound, profitable, and enjoys good liquidity. It has been mainly spared from the global financial crisis due to the low amount of loans relative to total deposits and a lack of a domestic housing/real estate bubble. The sector initially experienced a 15% reduction of deposits in 2008, but it quickly recovered and by the end of 2009 deposits reached their pre-crisis level.

GOA has adopted policies and regulations promoting the free flow of financial resources into the country as a mechanism to promote foreign investment in Albania. The credit market is quite competitive but interest rates can be high, currently between 10% and 13%. However most mortgage and commercial loans are denominated in Euros as rate differentials between local and foreign currency is about average 5%. There are no additional conditions foreign investors have to meet to receive credit from the banks operating in Albania. In 2011, BOA twice lowered the key interest rate, now at 4.75%, in the attempt to boost economic activity.

Commercial banks have improved the quality of services they offer. The private sector has widely benefited from the expansion of these instruments, but businesses report that high interest rates, distrust of the banking system and high operating costs of banks remain concerns for investors looking for access to credit.

The BOA has the flexibility to intervene in the currency market to protect exchange rates and official reserves, but only for a period not exceeding 12 months. In 2009, following the global financial crisis, the BOA restricted the distribution of the domestic banking sector profits in order to maintain sufficient liquidity in the sector. The restriction was lifted in July 2010.

While portfolio investments remain limited mostly to company shares, government bonds, and real estate, the government has undertaken different measures to attract foreign investment. It has adopted a 10% flat rate on both corporate and personal income taxes. In 2010, the GOA successfully launched its debut Eurobond in international markets with an attractive interest rate of 7.5%.

In October 2011, total assets of the banking sector were estimated at USD 11 billion, consisting mostly of bank deposits. Over the last couple of years deposits have increased annually by 16%, ensuring sufficient liquidity in the system. The degree of market concentration remains fairly high as the largest five largest banks dominate the market with about 80% of total assets. As of September 2011, there were 548 banking branches in the country, an increase from 127 in 2005. Also the number of debit/credit cards, ATM, and Point-of-Sales terminals is growing rapidly.

Nonetheless, commercial banks have tightened lending standards due to the rise of nonperforming loans. By October 2011, an estimated 19.0% of all private loans were considered to be nonperforming, compared to 4.3% before the financial crisis.

Competition from State Owned Enterprises

The privatization process of State Owned Enterprises (SOEs) in Albania is nearly complete and SOEs are active only in a few sectors (mainly utilities). SOEs are present is energy generation (KESH), water supply, ports, railway, insurance (INSIG), and extraction and sale of oil (Albpetrol.)

In general, there is no discrimination between public and private companies operating in the same sector but there have allegations by businesses that believe state-owned companies were granted preferential treatment in government contracts. SOEs operate as commercial companies in compliance with the law on “Entrepreneurs and Commercial Companies.” SOEs have the executive director and a supervisory board whose members are one third from the Ministry of Finance, one third from the Ministry of Economy, Trade and Energy and one third by the ministry or institution to which the company reports. For water supply and sewage companies, the proposal is made based on their statute. Under procedure, the SOE supervisory board reports directly to the government. SOEs are required to submit annual reports and are also required to undergo independent audits. Albania doesn’t have a major sovereign wealth fund.

Corporate Social Responsibility

There is little domestic awareness of corporate social responsibility (CSR), and CSR initiatives are usually started by foreign companies. CSR legislation remains ‘on the books’ in Albania, but it has not been fully implemented. Academic instruction on CSR in Albania is in a very early stage of development. Corporate governance courses, environmental engineering and business ethics curricula have been introduced recently and only at a few universities. The UNDP Global Compact and Corporate Social Responsibility project launched in 2007, has organized a number of educational events aimed at informing all stakeholders, government, and media in particular, on their role in raising overall awareness of CSR in Albania, and in increasing knowledge and engagement of business communities in CSR practices.

Political Violence

Overall levels of political violence are low. However, a political demonstration led by the opposition Socialist Party (SP) turned violent on January 21, 2011. Four protesters were shot and killed with many injured, including police, protesters and bystanders. An investigation into the events surrounding the violence is ongoing.

Albania held its most recent parliamentary elections on June 28, 2009. The new government was formed with a coalition between the ruling Democratic Party (DP) and the Movement for Socialist Integration (LSI). The SP returned to Parliament in September 2011, ending a two year boycott resulting from alleged electoral fraud in the 2009 elections.

Small crime, specifically incidents of extortion, theft, and robbery are continuing concerns for the business community. Recent crime statistics also indicate an increase in violent crimes since 2009. Albania is a steady source of stability in the region and has friendly relations with all neighboring countries.

Corruption

Corruption remains pervasive in Albania and affects all aspects of Albanian society. Ordinary citizens and foreign investors alike can point to the judiciary, uneven enforcement of property rights, a weak regulatory environment, and opaque government procurement as symbols of endemic corruption. Although the number of corruption cases investigated and prosecuted is increasing, the conviction rates remains very low. Furthermore, high level corruption cases of politicians or affluent business leaders rarely end in conviction. Perception of corruption continues to be high and Albania’s score in 2011 TI Corruption Perception Index slid down to 3.1 from 3.3 in 2010 ranking.

Legislation exists: Albanian legislation has been amended and changed frequently in recent years to strengthen the framework dealing with corruption and organized crime in order to bring Albanian legislation in line with the civil and criminal conventions of the European Union. Under the Albanian criminal code both active and passive corruption, abuse of office, and undue influence are considered criminal offenses. In addition to basic corruption offenses, there are specific criminal provisions addressing active and passive corruption by persons exercising public functions, high state officials and locally elected persons, judges, prosecutors, and employees of the judicial bodies and the private sector. There are also provisions addressing trading in influence.

However, gaps exist and cases of bribery by foreign public officials are not covered by the Criminal Code. Based on the Group of States Against Corruption (GRECO) recommendations, the GOA has prepared the necessary amendments to the Criminal Code addressing cases of active and passive corruption by foreign public officials, of a judge or official of international courts, local and foreign arbitrator, and member of a foreign jury. Also, based on GRECO recommendations, the Criminal Code amendments foresee an increase in the penalties for corruption in the private sector. The amendments are awaiting parliamentary approval.

Albania has ratified several international treaties and conventions relating to corruption and is member of some of the major international organizations and programs dealing with corruption and/or organized crime. Albania has ratified the Civil Law Convention on Corruption (Council of Europe), the Criminal Law Convention on Corruption (Council of Europe), the Additional Protocol to Criminal Law Convention on Corruption (Council of Europe), and the United Nations Convention Against Corruption (UNCAC). Albania has also ratified a number of key conventions in the broader field of economic crime, including the Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime (2001) and Convention on Cybercrime (2002). Albania has been a member of the Group of States Against Corruption (GRECO) since the ratification of the Criminal Law Convention on Corruption in 2001 and is also a member of the Stability Pact Anti-Corruption Network (SPAI). Albania is not a party to Organization for Economic Cooperation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Police authorities and the Prosecutor General’s Office are in charge of criminal investigations and law enforcement, while the State Audit Commission and internal auditing units within different state institutions, inspect, assess, and report alleged cases of corruption. A Joint Investigative Unit against corruption and economic crime was established in 2007 in the Tirana District Prosecution Office. The unit is a multi-agency taskforce composed of police staff from the prosecutor’s offices, the state, customs and tax police and other relevant institutions, working together on specific investigations. Based on the first unit model, six more units were established in regions throughout Albania to prosecute corruption and economic crimes outside Tirana. The High Inspectorate for the Declaration and Audit of Assets (HIDAA), established in 2003, collects and audits the annual declaration of assets and properties of mid-high level public officials in central and local executive agencies as well as politicians, and supervises the prevention of conflicts of interest situations.

The High State Control is the highest institution of economic and financial control. It supervises the economic activity of state institutions and other state juridical persons as well as the use and preservation of state funds by the central and local government institutions and state owned companies. It is subject only to the Constitution and laws, and the Head of the High State Control is appointed and dismissed by the Assembly upon proposal of the President.

Another institution involved in combating corruption is the Inter-Ministerial Anti-Corruption Task Force headed by the Prime Minister. This structure serves as a coordinating body for anti-corruption initiatives, namely anti-corruption strategy which is drafted every year. The Anti-Corruption Task Force is supported by the Department of Internal Administrative Control and Anti-Corruption (DIACA) which has relatively wide-ranging powers to investigate allegations of irregularities by public officials. DIACA serves as an Inspectorate for all central executive public institutions and is mandated to investigate allegations of procedural irregularities and irregularities in the handling of public finances. It reports to the Prime Minister. In the Judiciary, the High Council of Justice is in charge of appointment and removal of judges and prosecutors in the first and second instances. Specialized inspectors investigate allegations of misconduct of judges and the High Council of Justice then takes the relevant disciplinary measures.

Transparency International Albania is the main international non-governmental watchdog organization in Albania. There are also other non-governmental organizations that perform watchdog functions regarding corruption but in general the role of the civil society in denouncing corruption is weak.

Bilateral Investment Agreements

A bilateral investment treaty between the United States and Albania was signed in 1995 and entered into force on January 3, 1998. This treaty, inter alia, ensures that U.S. investors receive national or most-favored-nation treatment and provides for dispute settlement. As of December 2011, Albania has concluded bilateral investment protection agreements with the following countries:

Agreements in force:

Austria, Belgium, Bosnia and Herzegovina, Bulgaria, China, Croatia, Czech Republic, Denmark, Egypt, Lithuania, Finland, France, Germany, Greece, Hungary, Israel, Italy, Kosovo, Kuwait, Macedonia, Malaysia, Moldova, Montenegro, Netherland Antilles, Netherlands, OPEC Fund for International Development, Poland, Portugal, South Korea, Romania, Russia, Serbia, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, United Kingdom, and USA.

Signed Agreements:

Albania has also signed agreements for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital with several countries, which have priority over Albanian domestic laws. The following are countries with which Albania has signed and ratified treaties for the avoidance of double taxation:

Poland, Romania, Malaysia, Hungary, Turkey, Czech Republic, Russia, Macedonia, Croatia, Italy, Bulgaria, Sweden, Norway, Greece, Malta, Switzerland, Moldava, Belgium, China, France, Egypt, Netherlands, Kosovo, Serbia, Montenegro, Austria, Slovenia, Latvia, South Korea, Bosnia and Herzegovina, Ireland, Luxemburg, Spain, Tunisia, and Kuwait.

Agreements negotiated, awaiting signature: Slovakia, Germany, Estonia, Lebanon, Ukraine, Singapore, Kuwait, Spain and India.

Agreements in process: Qatar, Pakistan, Thailand, Singapore, Mexico, Indonesia, Australia, Morocco, Vietnam, United Arab Emirates and Syria.

OPIC and Other Investment Insurance Programs

The U.S. Overseas Private Investment Corporation (OPIC) and Albania signed a bilateral agreement on November 19, 1991. Albania has also ratified Multilateral Investment Guarantees Agency (MIGA) Convention. MIGA provides investment guarantees against certain non-commercial risks (i.e., political risk insurance) to eligible foreign investors for qualified investments in developing member countries. MIGA's coverage is against the following risks: currency transfer restriction; expropriation; breach of contract; war; terrorism; civil disturbance; and non-honoring of sovereign financial obligations. It provides insurance against risks similar to that offered by OPI; MIGA and OPIC can work together on projects.

In 1998, OPIC supported the Southeast Europe Equity Investment Fund (SEEF), which invested heavily in southeastern Europe. OPIC supported its successor, SEEF II managed by Bedminster Capital. SEEF II has invested in the Albanian health sector and IT. For more information on OPIC, please visit http://www.opic.gov

Overseas Private Investment Corporation
1100 New York Ave., NW Washington, DC 20527
Tel: 202-336-8400
Email for general business inquiries to: info@opic.gov

Labor

Labor relations between employee and employer are regulated by individual employment contracts pursuant to Law “On the Status of the Civil Employee and the Labor Code. Albania was an International Labor Organization (ILO) member from 1920-1967 and has been an ILO member from 1991 onwards and adheres to all basic ILO conventions protecting worker rights. The GOA has established the National Council of Labor, composed of government officials, trade unions and employers associations. Its major goal is to improve social dialogue between the government, management and employees. The institutions that deal with the labor market are: Ministry of Labor and Social Affairs, National Employment Service, State Labor Inspectorate and other private actors like Private Employment Agencies, and Private Vocational Training Centers.

Employers and employees have the right to form trade unions (Labor Code, article 176). Trade unions are organized at the national level (according to industrial sector) and at the company level. The right to strike is sanctioned by Law no. 7458 (January 12, 1991) and by the Labor Code. Trade unions have the right to negotiate wages, working conditions, etc., and the employment contracts are applicable both to union and to non-union workers. The two main national-level trade unions, both affiliated with the International Trade Union Confederation (ITUC) are the Confederation of Trade Unions (KSSH) and the Union of the Independent Trade Unions of Albania (BSPSH). Employment contracts can be for a limited or an unlimited period, but as a general rule, employment contracts are signed for an unlimited period if the duration is not specified properly in the contract.

The labor force in Albania is about 1.06 million people and the official unemployment rate during the third quarter of 2011 stood at 13.26%. Almost 55% of the population is considered self-employed in the agricultural sector. Almost 1.2 million Albanians have emigrated to Italy and Greece since 1991 and a majority of young Albanians speak English, Italian, or Greek as a second language.

While some members of the labor force are highly skilled, many work in low-skill industries or have outdated skill sets. Albania has a tradition of a strong secondary educational system while vocational schools are less prevalent. University education remains uneven and studying abroad remains the best option for qualified students.

The average salary in public administration during 2010 amounted to 43,600 lek (about USD 440) monthly. In July 2011, the GOA raised the minimum monthly wage applicable for both public administration and the private sector to 20,000 lek (about USD 200), which is still among the lowest in the region.

Foreign-Trade Zones/Free Ports

The GOA approved Law 9789, dated July 19, 2007, “On the Establishment and Functioning of Economic Zones,” abolishing Law 8636, dated July 6, 2000, "On Free Zones." The current legislation regulates the establishment of economic zones and related matters and makes the establishment and the functioning of such zones more efficient. It anticipates the establishment of free trade zones and industrial parks near ports, airports, or at the crossroads of international transport. Economic zones are proposed by the Ministry of Economy and approved by the Council of Ministers on a case-by-case basis. The latter has the power to define the status of the zone (either a free zone or an industrial park), areas and boundaries, the economic activities to be performed within the zones, the period of the zone functioning, the method of granting the permission (lease, concession, etc.), and the procedures for the selection of the “developer.” The selection of the "developer" of the economic zones is based on the criteria defined in the law 9663, dated December 18, 2006, “On Concessions.”

Following the approval of the new law in 2007, the GOA approved the construction of several industrial parks: Shengjin, Koplik, Vlore, Elbasan, Lezhe, Shkoder and the industrial and energy park in Spitalle, Durres (the largest, with 850 hectares). Four of these parks are located near the main ports of Albania - Durres, Vlore, Shengjin, and Lezhe. Industrial zones may be used for production, manufacturing, agro-processing, export-import and supporting activities.

In 2009, the GOA approved the first free economic zone adjacent to the approved container port in Vlore. On March 2010, following an open international tender, the GOA selected Zumax AG as the developer of the zone (Zumax AG has also the concession for the container port in Vlore.) To date, none of these projects have moved significantly forward.

Foreign Direct Investment Statistics

While Foreign Direct Investment (FDI) flows to neighboring countries declined in 2010, Albania’s FDI rose to more than USD 1 billion (8.9% of the GDP) for the first time in 2010, making it the second largest FDI recipient country in the region after Serbia. Significant FDI inflows started only after the year 2000, when the country finally overcame the fallout of the collapsed pyramid schemes of 1997-1998. FDI rose drastically after 2007, fueled initially in good part by large privatizations and later by projects in several sectors including financial services, telecommunications, construction, manufacturing, oil, mining, hydro, retail, etc. Cumulative FDI for the period 2007-2010 amounted to USD 3.5 billion or 64% of cumulative FDI for the period 1993-2010. The drastic growth in FDI in the last three years has put Albania’s FDI on par with countries in the region.

The Bank of Albania reports the following figures for foreign direct investment in Albania. FDI during the first three quarters of 2011 dropped slightly from USD 768 million in 2010 to USD 615 million in 2011. Albania’s foreign direct investments abroad are insignificant.

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

Years

2004

2005

2006

2007

2008

2009

2010

2011*

FDI in million USD

324

258

315

639

874

925

1091

615

Source: Bank of Albania – historical data
*BoA estimate for the first three quarters of 2011

The latest FDI breakdown by country of origin, industry destination or by company dates back to 2008.

Leading investor nations in Albania include: Greece, Turkey, Austria, Italy, Czech Republic, US, Canada, Germany and Spain. Foreign investment focuses on financial sector, telecommunications, oil, mining, metallurgy, hydro energy, manufacturing and cement production.

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