Tuesday, October 03, 2006

Albania's new investment strategies

Albania's new investment strategies


As political turmoil wanes in the Balkans, countries are focusing their attention on the next major challenge: attracting more foreign direct investment. In Albania, the government of Prime Minister Sali Berisha is taking some innovative approaches.

By Robert C. Austin for Southeast European Times – 02/09/06


Albanian Prime Minister Sali Berisha (left) and Austrian Foreign Minister Ursula Plassnik exchange documents after the signing of a Stabilisation and Association Agreement between Albania and the EU in June 2006. [Getty Images]

If there is one trend in the region, it's the intensifying battle for much-needed foreign direct investment. Countries across Southeast Europe are looking for innovative ways to attract it. Meanwhile, political stability -- a precursor to investment -- is likely to increase following resolution of the Kosovo status issue, expected in the coming months.

The recent independence referendum in Montenegro was a welcome harbinger for the future. Despite worries and uncertainties ahead of the vote, it came off without a hitch. The dreaded grey zone -- a pro-independence vote exceeding 50% but falling short of the 55% threshold -- was averted. The EU and other observers gave a sigh of relief and went home happy. The recent election campaign there was, in the best possible sense, dull. Politicians were forced to think beyond the independence issue and deal with real, nuts-and-bolts issues. After so many fraught years, this is a welcome trend. While Serbia's fate is still tied to the capture of Ratko Mladic, the rest of the region is poised to push ahead aggressively.

Albania's Democratic Party government, led by Sali Berisha, knows full well that a battle for foreign investment looms and that Albania has some catching up to do. What strikes visitors the most when visiting the country is the near total absence of international brand names. The local capital has done a lot, especially with so much coming in from remittances, but Albania’s key industries will need more than that. Tirana and Durres, along with the highway that links them, are growing fast. However, investment is uneven and Albania is not only Tirana. Outlying regions, where poverty is highest, need investment.

The low level of foreign interest is largely due to the fact that Albania's international image is poor -- wrongly so. Certainly visitors to Albania leave with a far better impression than they arrived with. But much still needs to be done to make outsiders aware that the country has achieved significant progress. A start would be to showcase the already successful international investors operating there.

Growth, ranging between 5% and 6%, is respectable. The signing of the Stability and Association Agreement with the EU makes it clear that, after fits and starts, Albania is on the right track. Political life still too often resembles a circus but the stakes are no longer so high. The party state mentality dies slowly -- both Democrats and Socialists along with smaller parties still publish their own dailies. Nobody reads them, but that does not seem to matter. The battle between Socialist leader Edi Rama and Berisha is still on and with former Socialist leader Fatos Nano offering up his own party within a party, the word on the street is that politics like this is yesterday's news.

On the positive side, the two big parties did reach an agreement on electoral procedures for the upcoming local vote that averted the all too ubiquitous boycott of parliament by those out of power.


Albania's tourism potential remains untapped. [Getty Images]

Berisha is taking some very bold steps and he has some excellent people around him. A few minutes with Lulzim Basha, the very youthful and energetic Minister for Public Works, Transport and Telecommunications, are telling. A map in his office outlines the vision for massive improvement in Albania's transportation network -- improvements that will shrink travel times, make the country more accessible and maximize Albania's strategic ports. Montenegro, with already fairly diverse international investment, seems so far to be the big winner in tourism investment but Albania should be next in line. The completion of the highway along the coast from Dubrovnik through to Saranda in Albania's south will transform the country. This is critical if Albania is to make the most of its incredible potential for tourism on its lengthy coast.

Albania's service sector, especially its restaurants and hotels, already offers exceptional things. The hospitality is great and Albanians are an outward-looking people. They are ready for an influx of tourists and people will leave impressed. Albania is also rich in natural resources, such as oil, gas, copper, chrome and hydroelectric potential.

By far the biggest step is Berisha's new program of "Albania for one euro". Although still in its infancy, the plan ultimately aims to offer extremely good terms to investors interested in strategic sectors like mining, agriculture, import reduction and energy -- areas that are crying out for big money. Government ministries are determining what assets they have and then will offer long-term leases for one euro per year. In essence, you can get a chromium mine for one euro provided the government is satisfied with your long-term development strategy.

There are still huge details to be worked out, like how to choose amongst competing bids and penalties for non-fulfillment of investment pledges. Implementation will likely fall to the country's economy minister, Genc Ruli, and he is certainly up to the job. The idea is an innovative one, albeit not without substantial risks: the political fallout would be heavy is things were practically given away and investors failed to live up to expectations.

The government is also moving towards a flat tax and other incentives to bring in foreigners. Business registration times have been shrunk to eight days from over forty. Berisha pledges to decrease it even further. The government was especially pleased with the reduction in the size of government, tax reductions and other measures that reduced overall expenditures. For ordinary Albanians, there is now a chance to be a whistle-blower and this has meant less and less bribery. This is also good news for foreigners.

Albania’s key ministers are now highly visible outside the country in conferences as they spread the word. They are leaving a good impression. Berisha also hired former US Homeland Security Secretary Tom Ridge to advise him on security issues, including organised crime and corruption, along with NATO integration and investment. The policies are in place – now it's time to see who grabs the bait.

Robert C. Austin teaches the history and politics of Southeastern Europe at the Munk Centre for International Studies, University of Toronto.


WARchild said...

I will join the author in believing that tourism developing in Montenegro will spill over into Albania.

Regarding the investment climate: we'll have to wait until next year to see the ratings. Last year's weren't very good, not because Albania is not progressing but because it is competing with other countries aiming for the same money.

bytycci said...

well Albania will have to compete with other countries in the region for investment. Let's see what will happen.