Albania’s business climate has once again come under scrutiny as the U.S. Department of State’s Investment Climate Report highlights several persistent issues. The report identifies corruption, money laundering, frequent tax changes, and weak contract enforcement as significant challenges faced by businesses in the country.
One of the major concerns raised by the business community is the influx of illegal revenues stemming from drug trafficking, contraband, tax evasion, and corruption. These illicit activities distort fair competition in the market, making it difficult for legitimate businesses to thrive.
While Albania offers large untapped economic potential and a robust legal framework, foreign investors perceive it as a difficult place to do business. Ongoing corruption, prevalent in the public sector, judiciary, and public procurements, hamper investors’ confidence in the country. Furthermore, the economy’s large informal sector, money laundering activities, frequent changes in fiscal legislation, and weak contract enforcement further add to the complexity of conducting business in Albania.
Albania’s performance in international indices also raises concerns. The country continues to struggle in Transparency International’s Corruption Perception Index, ranking 101 out of 180 countries in 2022. While this represents a slight improvement from the previous year, it remains far from its best ranking in 2016 when it held the 83rd position out of 176 economies. Additionally, in the Global Innovation Index, Albania lags behind, occupying the 84th position out of 132 countries in the 2022 ranking.
The issue of money laundering is another area that requires attention. The Financial Action Task Force’s inclusion of Albania on its grey list in 2020 and its continuation on the list for 2023 due to strategic deficiencies in addressing money laundering concerns underscore the need for effective measures to combat this menace. The business community reports that the significant influx of illegal revenues from drug trafficking, smuggling, tax evasion, and corruption distorts competition in the market. Accusations of corruption are common, and investors often report becoming targets of extortion, not only by public administration but also by the media and criminal groups.
The government’s handling of public-private partnership (PPP) contracts also raises concerns. Investors report reduced opportunities for competition, including those from foreign entities, in sectors like infrastructure, as PPP contracts are continually used. Weak cost-benefit analyses and a lack of technical expertise in designing and monitoring PPP contracts further exacerbate these concerns.
American investors, in particular, face unique challenges, such as corruption and informal business practices that hinder their operations. Contentious trade disputes involving American companies and various public and private entities, some of which have escalated to international arbitration, further highlight the need for an environment that promotes transparency and fair play.
To improve the business climate and attract much-needed investment, Albania must tackle corruption head-on and implement comprehensive measures to combat money laundering. Strengthening the rule of law, ensuring transparency in procurement processes, and fostering a competitive environment are essential steps towards fostering a business-friendly atmosphere.
You can read the full United States Department of State report on the 2023 Investment Climate Statement on Albania here.
