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Albania: Market Profile

Picture: Albania factsheet
Picture: Albania factsheet

1. Overview

Albania has been transformed from one of the poorest countries in Europe, to an upper-middle-income country. The country is implementing important reforms to revitalise growth and job creation, while advancing the European Union integration agenda.

Source: World Bank, Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

June 2014
The European Commission recommended Albania as a candidate for European Union membership.

March 2015
The ruling government announced a plan to privatise state oil company Albpetrol.

July 2016
The governing Socialist Party and the opposition Democratic Party agreed sweeping judicial reforms needed to move towards accession talks with the EU.

Source: BBC Country Profile – Timeline, Fitch Solutions Political Risk Analysis

3. Major Economic Indicators

Graph: Albania real GDP and inflation
Graph: Albania real GDP and inflation
Graph: Albania GDP by sector (2017)
Graph: Albania GDP by sector (2017)
Graph: Albania unemployment rate
Graph: Albania unemployment rate
Graph: Albania current account balance
Graph: Albania current account balance

e = estimate, f = forecast
Source: International Monetary Fund, World Bank, Fitch Solutions
Date last reviewed: August 21, 2018

4. External Trade

4.1 Merchandise Trade

Graph: Albania merchandise trade
Graph: Albania merchandise trade

Source: WTO
Date last reviewed: August 21, 2018

Graph: Albania major export commodities (2017)
Graph: Albania major export commodities (2017)
Graph: Albania major export markets (2017)
Graph: Albania major export markets (2017)
Graph: Albania major import commodities (2017)
Graph: Albania major import commodities (2017)
Graph: Albania major import markets (2017)
Graph: Albania major import markets (2017)

Source: Trade Map, Fitch Solutions
Date last reviewed: August 21, 2018

4.2 Trade in Services

Graph: Albania trade in services
Graph: Albania trade in services

Source: WTO
Date last reviewed: August 21, 2018

5. Trade Policies

  • Albania joined the WTO in September 2000 and it grants at least Most Favoured Nation (MFN) treatment to all its trading partners.
  • Albania's average tariff rate is 1.1%, the lowest in the South East Europe region (out of 12 states) and the third-lowest in the wider Emerging Europe region (out of 31 states).
  • Albania has no significant non-tariff trade barriers. However, administrative bureaucracy, such as the use of sanitary or phytosanitary measures (SPS), can delay the movement of goods and increase costs. Furthermore, the application of market prices, often referred to as “reference prices” in calculating customs duties and other customs taxes, has become a concern, and is a potential barrier for businesses involved in trading activities.
  • In January 2015, Albania eliminated import tariffs on products, such as live bovine animals and swine, live poultry, eggs, wheat or flour, and petroleum oils. The government also reduced import tariffs on new pneumatic tyres of rubber, from 15% to 10%.
  • Albania's Business and Investment Development Strategy 2014-2020 stipulates that its trade policy objectives are guided by WTO principles, and guarantees the absence of quantitative restrictions on imports and exports (except in cases of environmental protection or assistance to fragile industries, cultural heritage, forestry and arms and ammunitions), export subsidies, any kind of tax on exports and export bans.
  • Trade flows in Turkey have been facilitated by the removal of trade barriers and lowering of tariffs alongside membership of a number of Free Trade Agreements (FTAs). Turkey has established highly beneficial FTAs with some key trade partners, including a customs agreement with the EU whereby its trade tariffs and duties are aligned with the EU's common external tariff and no customs duties are paid on goods traded with the bloc. This agreement helps to ensure access to the EU's huge market for Turkish goods, and reduces the costs of imports from key partners such as Germany and Italy. The country has also signed numerous other FTAs, while others are in the pipeline, including a potential deal with Russia which has been mooted following an improvement in diplomatic relations between the two countries in H216.
  • The large number of FTAs signed by Turkey has significantly reduced the average tariff rate faced by importers, which now stands at 2.8%, above the average in EU member states (1.5%) but among the lowest on a global comparison. Nevertheless, companies importing from countries outside of Turkey's FTAs face tariffs which are potentially much higher, as Turkey has not set final bound tariffs for a large number of product categories, and there are often significant differences between MFN applied tariff rates and final bound tariff rates. This means that Turkey has considerable leeway to increase tariffs in order to protect certain sectors from competition, increasing costs for importers and distorting the playing field. The higher tariff rates normally apply to agricultural products rather than industrial goods, but this nonetheless constitutes a trade barrier for some firms. Technical and customs barriers on imports also remain in some sectors, though this mainly affects exporters to Turkey rather than businesses based within the country.
  • To harmonise with the relevant EU directives, the Turkish version of the RoHS directive entered into force in June 2009, while the Turkish version of the WEEE directive was published in the Turkish Official Journal on May 22, 2012 and implemented starting from January 2013 onwards.

Source: WTO - Trade Policy Review, Fitch Solutions

6. Trade Agreement

6.1 Trade Updates

Representatives of Durres Port Authority in Albania, and the Croatian Rijeka Port Authority, signed a Memorandum of Understanding in May 2018 to widen bilateral cooperation in the field of maritime transport and port industry. The two states also agreed to co-operate on issues related to economic promotion and cooperation, in order to boost trade exchange.

6.2 Multinational Trade Agreements

Active

  1. The Central European Free Trade Agreement (CEFTA): CEFTA, which consists of Albania, Bosnia and Herzegovina, Serbia, Moldova, Montenegro, Former Yugoslav Republic of Macedonia (FYROM), and UNMIK/Kosovo, came into force in May 2007 and helps increase trade between regional counterparts and fosters non-EU bilateral relations.

  2. Albania and the European Free Trade Association (EFTA): EFTA consists of Switzerland, Norway, Iceland and Liechtenstein - the main focus of the EFTA-Albania FTA (where the agreements with Liechtenstein and Switzerland entered into force in 2010, and the agreements with Iceland and Norway entered into force in 2011), is on the liberalisation of trade in goods.

  3. The Free Trade Agreement and Economic Integration Agreement between Albania and the EU: The Agreement entered into force in December 2006 (for goods trade) and April 2009 (for services trade). The Agreements stimulate Albania's already large export and import volumes with EU member states, including Germany, Italy and Greece.

  4. The bilateral Free Trade Agreement between Albania and Turkey: The Agreement covers trade in goods and entered into force in May 2008. Turkey is Albania's third-largest supplying market as of 2017, with imports from Turkey accounting for 7.4% of Albania's total imports, of which articles of apparel and clothing accessories (knitted or crocheted) made up the highest percentage.

Source: WTO Regional Trade Agreements database, Fitch Solutions

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Albania FDI stock
Graph: Albania FDI stock
Graph: Albania FDI flow
Graph: Albania FDI flow

Source: UNCTAD
Date last reviewed: August 21, 2018

7.2 Foreign Direct Investment Policy

  1. The Albanian government approved a new Law on Strategic Investments in 2015 to attract FDI. This law outlines investment incentives and offers fast-track administrative procedures to foreign and domestic investors, depending on the size of the investment and number of jobs created.

  2. The Albanian Investment Development Agency (AIDA) is in charge of promoting foreign investments in the country. The Law on Strategic Investments states that AIDA, as the Secretariat of the Strategic Investment Council, serves as a one-stop shop for foreign investors, from filing of the application form, to granting the status of strategic investment/investor.

  3. The Law on Foreign Investment outlines specific protections for foreign investors and Albanian law does not distinguish between domestic and foreign investments. There are no restrictions on foreign ownership or control of domestic corporations in Albania. 100% foreign ownership of companies is allowed in almost all sectors. A few exceptions include: international air passenger transport (foreign interest in airline companies is limited to 49% ownership for investors outside the Common European Aviation Zone); electric power transmission (must be 100% state owned); and television broadcasting (no entity may own more than 40% of a television company).

  4. Even though Albania advocates hospitable legislation, foreign investors are challenged by rampant corruption and the perpetuation of informal business practices.

Sources: WTO - Trade Policy Review, The International Trade Administration (ITA), US Department of Commerce, Fitch Solutions

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
Albania currently has no functional duty free import zones, although legislation exists for the creation of such zones.In May 2015, amendments to the Law on the Establishment and Operation of Technical and Economic Development Areas (TEDA) established the legal framework for the creation of TEDAs, similar to free trade zones, and defined the incentives for players investing in the development of these zones, as well as businesses operating within the zones. That said, the tender to develop the first TEDA failed, and the process stalled. The tender has reopened again for the third time.

The Ministry of Economic Development has announced three investment opportunities seeking private sector investors/developers to obtain, develop, and operate three fully serviced areas, located in Koplik (61 ha) and Spitalla (100 ha).
General incentivesEnergy and Mining, Transport, Electronic Communication Infrastructure, and Urban Waste Industry: Investments greater than EUR30 million enjoy the status of assisted procedure, while EUR50 million or more enjoys special procedure status.

Tourism and Economic Areas: Investments equal or greater than EUR5 million enjoy the status of assisted procedure; and greater than EUR50 million enjoy the status of special procedure.

Agriculture (large agricultural farms) and Fishing: Investments greater than EUR3 million and which create at least 50 new jobs, enjoy the status of assisted procedure; and higher than EUR50 million enjoy the status of special procedure.

Development Priority Areas: Investments greater than EUR1 million that creates at least 150 new jobs, enjoy the status of assisted procedure. Investments greater than EUR10 million that create at least 600 new jobs, enjoy the status of special procedure.

Energy sector: Some machinery and equipment imported for the construction of hydropower plants is VAT exempt.

Manufacturing: Manufacturing activities are exempt from VAT on machinery and equipment; the employer is exempt from the social security tax payment for one year for all new employees; and the state pays the salaries for four months for new employees, and offers various financing incentives for job training.

8. Taxation – 2018

  • Value Added Tax: 20%
  • Corporate Income Tax: 15%

Source: PwC Tax Summaries 2018

8.1 Important Updates to Taxation Information

  • The VAT rate for the supply of accommodation in hotels and other tourism facilities has been lowered from 20% to 6%.
  • The minimum and maximum salary for social and health contribution purposes have increased from ALL22,000 to ALL24,000, and from ALL97,030 to ALL105,850, respectively.

8.2 Business Taxes

Type of TaxTax Rate and Base
Corporate Income Tax
15% on taxable profits for companies with annual turnover exceeding ALL8 million
Withholding Tax Rate15% on interest, royalties, dividends and technical service fees
Social security contributions15% on total gross salary for social contributions

1.7% on total gross salary for health contributions (both paid by the employer)
VAT/GST
20% (standard rate)

6% (reduced rate which applies to the supply of accommodation services and the supply of all types of service provided in four- and five-star hotels)
Customs DutiesVaries: 0%-15%

Source: PwC Tax Summaries 2018
Date last reviewed: September 18, 2018

9. Foreign Worker Requirements

9.1 Foreign Worker Quotas

Even though visa, residence, and work permit requirements are simple in Albania and do not pose a burden on potential investors, the Law on Foreigners requires foreign businesses to prove that foreign employees are less than 10% of the total workforce before the government can grant work permits.

9.2 Visa/Travel Restrictions

Foreign nationals from 85 jurisdictions from Europe, North America, South America and some parts of Asia (including Hong Kong) can enter Albania without a visa for a maximum stay of 90 days.

9.3 Language/Skills Barriers

While some workers in the Albanian labour force are highly skilled, many work in low-skill jobs or have outdated skills. The education level of the workforce is low, constricting economic prospects and access to high quality jobs. The government provides fiscal incentives for labour force training for the inward processing industry, which includes the shoe and textile sectors. The majority of young Albanians can speak English, Italian or Greek as a second language. Other foreign language skills are common, too.

Source: Government websites, Fitch Solutions

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody's
B1 (Stable)
04/08/2017
Standard & Poor's B+ (Stable)
05/02/2016
Fitch Ratings
Not Rated
Not Rated

Source: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201620172018
Ease of Doing Business Index
90/189
58/190
65/190
Ease of Paying Taxes Index
142/189
97/190125/190
Logistics Performance Index
34/160
N/A88/160
Corruption Perception Index
83/176
91/180N/A
IMD World CompetitivenessN/A
N/AN/A

Source: World Bank, Transparency International

10.3 Fitch Solutions Risk Indices


World ranking
201620172018
Economic Risk Index Rank109/202
Short-Term Economic Risk Score41.9
40.6
44.4
Long-Term Economic Risk Score44.64750.2
Political Risk Index Rank61/202
Short-Term Political Risk Score59.8
59.8
59.8
Long-Term Political Risk Score65.871.371.3
Operational Risk Index Rank93/201
Operational Risk Score48.751
50.8

Source: Fitch Solutions
Date last reviewed: August 21, 2018

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK
Albania's economic potential is unlikely to be unlocked unless the government can implement key structural reforms over the next few years namely, to improve labour market flexibility, make exports more competitive, and make more progress on eradicating corruption. Some progress is being made; however, reforms are unlikely to occur at a satisfactory pace in the coming years.

OPERATIONAL RISK
While Albania's gradually improving regulatory framework and streamlined business initiatives should help FDI recover gradually over the years ahead after declines during the global financial crisis, this alone will be insufficient to compensate for limited government spending on infrastructure projects and spending on new productive capacity from businesses.

Source: Fitch Solutions
Date last reviewed: September 18, 2018

Graph: Albania short term political risk index
Graph: Albania short term political risk index
Graph: Albania long term political risk index
Graph: Albania long term political risk index
Graph: Albania short term economic risk index
Graph: Albania short term economic risk index
Graph: Albania long term economic risk index
Graph: Albania long term economic risk index

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Economic and Political Risk Indices
Date last reviewed: August 21, 2018

10.5 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Albania Score50.849.047.649.856.8
Southeast Europe Average57.1
52.857.958.359.4
Southeast Europe Position (out of 12)11
101111
8
Emerging Europe Average56.754.158.457.456.8
Emerging Europe Position (out of 31)24
272624
17
Global Average49.7
49.850.049.349.9
Global Position (out of 201)93
10811396
79

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index

Graph: Albania vs global and regional averages
Graph: Albania vs global and regional averages
Country
Operational Risk Index
Labour Market Risk Index
Trade and Investment Risk IndexLogistics Risk IndexCrime and Secruity Risk Index
Slovenia
67.254.0
60.970.683.4
Croatia63.151.9
55.468.476.7
Romania62.157.162.160.768.5
Cyprus61.055.161.758.368.8
Bulgaria
60.255.563.660.661.1
Macedonia57.547.268.357.257.3
Montenegro
56.952.858.856.559.3
Serbia56.158.559.453.952.5
Turkey
52.952.055.861.942.0
Kosovo52.355.257.655.640.7
Albania50.849.047.649.856.8
Bosnia45.545.544.346.145.9
Regional Averages57.152.857.958.359.4
Emerging Markets Averages46.848.047.545.846.0
Global Markets Averages49.749.850.049.349.9

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: August 21, 2018

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Albania

Graph: Major export commodities to Albania (2017)
Graph: Major export commodities to Albania (2017)
Graph: Major import commodities from Albania (2017)
Graph: Major import commodities from Albania (2017)
Graph: Merchandise exports to Albania
Graph: Merchandise exports to Albania
Graph: Merchandise imports from Albania
Graph: Merchandise imports from Albania

Exchange Rate HK$/US$, average
7.76 (2013)
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
Source: Hong Kong Census and Statistics Department, Fitch Solutions


2017
Growth rate (%)
Number of Albanian residents visiting Hong Kong937
N/A

Source: Hong Kong Tourism Board


2017
Growth rate (%)
Number of European residents visiting Hong Kong1,929,824
-0.2

Source: Hong Kong Tourism Board, Fitch Solutions

11.2 Commercial Presence in Hong Kong


2017
Growth rate (%)
Number of Albanian companies in Hong Kong N/A
N/A
- Regional headquarters
- Regional offices
- Local offices


11.3 Treaties and Agreements between Hong Kong and Albania

  • Agreement between the government of The People's Republic of China and the government of The Republic of Albania concerning The Encouragement and Reciprocal Protection of Investments: the agreement entered into force in September 1995 and aims to encourage, protect and create favorable conditions for investment for investors from the two countries.

  • The Double Taxation Agreement (DTA) between China and Albania was signed on September 13, 2004 and entered into force in both countries on July 28, 2005. The DTA rate spreads across dividends, interest, royalties and capital gains taxes.

Source: Government Sources, Fitch Solutions

11.4 Chamber of Commerce (or Related Organisations) in Hong Kong

Consulate of Albania in Hong Kong
Address: 23/F, Admiralty Centre Tower II, 18 Harcourt Road, Admiralty, Hong Kong
Email: albania.consulate@gmail.com
Tel: (852) 2867 1362

Source: consulate-info.com

11.5 Visa Requirements for Hong Kong Residents

HKSAR passport holders do not need a visa for Albania for a stay of up to 14 days.

Source: Hong Kong Immigration Department
Date last reviewed: September 18, 2018

Content provided by Picture: Fitch Solutions – BMI Research
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