BizCLIR

The team did not review foreign direct investment, but several notable observations were made by respondents during the course of interviews.

First, several respondents noted that foreign investors are often discriminated against in the enforcement of laws. Although the law generally provides for equal treatment, international investors found themselves unequally treated in matters of tax enforcement, with what was described as "harassment" by tax authorities. One respondent explained this as a natural consequence of a system in which tax authorities are expected to meet a quota for revenues collected, and very few companies are keeping books that show profit, so that those with good books and good sales are subject to continual pressure to pay more. The team was not in a position to determine whether the system works as described, but would note that if this is the case, the tax authorities should be encouraged to amend their incentive system by changing their agents' collection requirements to include the number of companies paying taxes, not just the number of taxes paid by a company.

Another example given of discriminatory enforcement was in the courts, where several respondents felt that foreigners could not hope to win or enforce a suit against a local defendant. One respondent cited a case in which the judge expressly recognized that the law was in favor of the foreign plaintiff, but refused to enforce the law against an Albanian. On the other hand, the team spoke with people who had successfully prosecuted suits by foreigners against Albanians, suggesting that this unequal treatment may reflect the uneven quality of the judiciary as much as any anti-foreign discrimination. Hopefully, the Judicial Inspectorate and the Magistrates' School will begin to address these problems.

Second, several respondents noted that there are separate fee schedules for foreign and domestic companies, including the cost of various administrative filings and taxes on labor. The amounts mentioned were not prohibitive, but those commenting on this practice felt it violated the rules of equality under the law guaranteed by the Albanian constitution.

Third, and perhaps most important for the future of investment, foreigners are not permitted to purchase land outright. One respondent also noted an instance in which an Albanian company, owned by foreigners, was not permitted to purchase real property because the judge reviewing the case would not distinguish between the legal person of the company and the individual nationalities of the owners. In any event, there is sufficient literature already in the development library to establish that this practice will inhibit foreign investment. It may even inhibit local investment when the local investors need foreign partners to supply necessary capital. Changing this position is likely to require substantial education of the public and policymakers on the economic impact of such a law, while also addressing the fears of foreign domination, loss of sovereignty or other concerns that may support the existing law.

Local investors also commented on discrimination, but on discrimination against them in favor of foreigners. They noted that bidding on many of the privatized state assets had disallowed the Albanian participation by requiring that all bidders have 10, 15 or more years of experience to qualify. In a country that has only permitted private enterprise for nine years, this is a de facto elimination of all potential Albanian investors. Again, the team could not confirm whether the bids were in fact structured in this way, but noted that there is substantial resentment in some circles based on a perception that the playing field is not level.

Finally, foreign or local investors who produce or sell trademarked products must battle against a large amount of counterfeiting. In addition to a number of respondents who commented on this point, the team noted that even the local television station carried commercials regarding counterfeit vegetable oils. The newly enlivened Chamber of Trade and Industry noted that one of its functions is to help protect the copyrighted and trademarked property of its members, and related several cases in which they had successfully dealt with counterfeiters. Others, however, were not as positive, noting that even when counterfeiters have been identified and a case against them established, no meaningful sanctions are applied.

Albanian policy makers will need to understand and address the problems faced by investors before the situation changes. Respondents addressing the issue felt that policy makers did not generally understand that Albania had to compete with its neighbors and other developing countries for investment dollars. Significantly, one respondent who worked with foreign investors noted that more were now leaving Albania -- withdrawing their investments -- than coming in.

If policy makers decide to address these issues, it might be useful for someone to sponsor an "Investors' Roadmap" assessment, in which the costs of starting, setting up and running a business are benchmarked against international best practices and comparable economies. If followed by a program of eliminating unnecessary bureaucratic restraints, this can be a very effective tool for improving the investment environment.