Governance and FDI in Albania

8/3/2019 Governance and FDI in Albania

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Governance and FDI in Albania

By: Engjell Skreli

Deputy minister of Economic

Co-operation and Trade and

Country Economic Team (CET)

Leader for Albania


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Resultsin improving governance

Progress in restoring law and order Very good results in the fight against corruption

Macro-economic stability The accession to WTO

Progress in improving road infrastructure


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Progress in privatization A package of fiscal incentive for the business

recently negotiated with IMF Institutionalization of a dialogue between

government and business community

Etc.

But...

Resultsin improving governance: Contd


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The problem

The stock of FDI in Albania is one ofthe lowest in the SEE region

The quality of governance is one of the mainexplaining reasons of such a low level


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Objectives

Identify governance problems

Explain the origin of governance problems Understand the links between governance

problems and FDI Propose policies to improve governance


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Governance concerns

High level of taxes

Lack of sufficient transparency and

consistency in tax and custom offices

Corruption in tax and custom offices

Unfair competition from the unofficialeconomy


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Governance concerns

Poor road infrastructure

Telecommunication problems

Energy

Policy instability Unfavorable exchange rate policy


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Governance concernsContd

.Law and order

Weak enforcement of legislation byjudiciary

Street crime and organized crime

Corruption


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SMEs Large enterprises

Micro Environment1. Finance

2. Taxes and

regulations3. Anti-competitivepractices

4. InfrastructureMacroEnvironment5. Policy instability6. Inflation7. Exchange rate

Law and order

8.Judiciary

9. Corruption10. Street Crime

11. Organized crime

Rating of Governance concerns


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High level of taxes

Evidence High fiscal start-up cost (VAT & Custom duties) Law rate of profitability due to high level of taxes and no tax incentives

Why does the problem exist? No real debate: No sufficient institutional business lobbying

The main objective (the only) of fiscal policy: budget revenue

Excessive dependence on IMF and EU

How does it affect the business? Competitiveness deterioration due to

high level of taxes, and

relatively high level of salaries and low level of productivity


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Insufficient transparency andinconsistency in tax and custom offices

Evidence It happens that business people dont even have access to rulesthey have to comply with

There is inconsistency in applying rules and regulations

Why does the problem exist? Culture of non compliance

Management and training problems

Tendency to extract illegal payments

How does it affect the business? Insecurity, and Time tax and bribe tax


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Corruptionin tax and custom offices

Evidence The tax and custom offices are the most preferred jobs in

Albania

Why does the problem exist? The poor quality of legislation and institutional framework

support the culture of non-compliance

The high level of taxes

How does it affect the business? Anti-competitive practices

Time tax and bribe tax


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Unfair competitionfrom the unofficial economy

Evidence Unfair game is due not only to unregistered firms but also to the

informal behavior of registered firms. Chart ...

Why does the problem exist? Corruption and bribery due to non compliance culture of both

government officials and business people

How does it affect the business? Unleveled playing field. Those who respect rules are punished


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Energy crisis

Evidence Important limitations of energy supply

Why does the problem exist? Unbalanced and asymmetric system

Poor management: Bill collection

How does it affect the business? Dramatic vital problems for a lot of businesses


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Policy instability

Evidence Frequent changes in tax system

Why does the problem exist? No real debate of the interested parties

Transplantation of western laws without considering enough theAlbanian conditions

How does it affect the business? Insecurity and lack of predictability for the business people


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Unfavorable exchange rate policy

Evidence Strong programmed link between Lek and USA$

Why does the problem exist? No real thinking on the effects of exchange rate policy on

business (export). This has resulted in a strong lek

How does it affect the business? Disincentives for the export oriented FDI translated in real loss


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Weak enforcement of legislationby judiciary

Evidence No reliable implementation of legislation in the courts It happens that court decisions are not enforced

Contracts are not enforced and property rights are not secured

Why does the problem exist? Corruption

Poor training

How does it affect the business? Insecurity

Time tax and bribe tax


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Street crime and organized crime

Evidence Even though there is substantial improvement, there is crime

and organized crime

Why does the problem exist? Improper functioning of judiciary

Regional Networks of organized crime

Political support

How does it affect the business? A perceived insecurity sometimes not justified


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Corruption

Evidence There is corruption in tax and custom offices, courts and

prosecution offices, public procurement, privatization, etc.

Two remarks Unjustified amplification of the phenomenon

The level of state capture is very low

Why does the problem exist? Improper legal framework and weak institutions: Non compliance

culture, high level of taxes, low motivation

How does it affect the business? Unleveled plying field, time tax, bribe tax, property insecurity,

etc


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Conclusions

Two groups of problems Law and order and infrastructure problems

Micro and macro economic problems

A niche for Investment Compact activities Changing the way of doing economic policy: Supporting the

production sectors

Instigating debate when laws are being discussed

Supporting the creation of institutional business lobbying

Establishing a professional negotiating team within thegovernment


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THANK YOU

Documents

Governance and FDI in Albania