“EBRD plans further support for foreign investors in 2016”
FIAA: How do you see the outlook for Albania in 2016?
Mr. Denk: We think that the economic outlook for Albania will continue to improve steadily in 2016. Overall we expect the economy to grow by around 3.3% in 2016, up from 2.2% in 2015.
What is behind that expected improvement?
Internally, in Albania, there are a few things that give rise to more optimism. One of the more concrete things is the Trans Adriatic Pipeline, where more and more works will take place in the course of this coming year, boosting for example construction.
We also think that the external environment is improving. For example, the Italian economy has had a couple of very difficult years but is now recovering well. The composite purchasing managers index in Italy came in at 56 in December 2015, which is a really good sign; above 50 we say the economy is expanding. That will be good for Albania as well because of its close economic ties to Italy.
What is Albania’s exposure to a potential slowdown in China?
There are a number of linkages. One is through commodity prices. Demand for commodities has been very much driven by China where a large chunk of the world’s growth is coming from. And since China has slowed down a bit, this has had an impact on commodity prices, including oil, metals, and other commodities. And that has an impact on Albanian exports as well.
Most countries in the western Balkans are oil importers so they benefit from cheaper oil: Consumers have more money in their pockets because they don’t have to spend it at the gas station. But Albania is also a significant oil producer and the lower oil price has an impact, including on fiscal revenue. So lower oil prices are very much a mixed blessing for Albania.
What is your impression of the current business environment in Albania?
Albania is interesting as a place to do business. It has maintained macroeconomic and financial stability despite deep financial crisis across the world; it has no ethnic or religious tensions whatsoever; it is integrated into the Euro-Atlantic Partnership and is an EU candidate country; labour costs are low and the labour force is well-educated; and the government is eager to implement reforms.
Furthermore, the leaders in the country, and also in the wider region, are increasingly talking about the region as a whole as an investment destination rather than talking about specific countries in isolation. Understanding that the countries of the Western Balkans are small and that they need to pull together is a very positive development.
What are some of the challenges that lie ahead?
One challenge is competition from the informal sector. It’s difficult to do business in a formal and honest way if your competitor does not. Another challenge is that capacity in the public administration is very limited, which sometimes makes it more difficult to do business.
The government has tackled some difficult challenges and that includes for example payment of electricity bills and the clearance of arrears. Now, the government is tackling informality and illegal construction. I think the government deserves a lot of credit for addressing these difficult issues.
To maintain that momentum, there is a case for trying to keep regulation straightforward and simple, given that there’s not enough capacity to deal with complex policies, neither in the public sector nor in the private sector. So that speaks for simplicity and consistency.
What more do you think can be done to improve business conditions?
It is important that Albania treats existing investors well those who have taken the risk and have invested in the country, those who have something at stake, those who have fixed assets. These investors can be the country’s best ambassadors. We should not forget that potential new investors rely on advice from those who are already here.
Furthermore, I think some new initiatives and regulations would probably benefit from a bit of more consultation with stakeholders, including with the business community. The Investment Council that the EBRD helped establish with funding from Italy provides one way for that consultation to take place.
Has the Investment Council started well?
Yes, it has. For example, it focused on informality even before the government started its campaign. It then came up with a constructive and balanced assessment of the government’s campaign. One of its key recommendations was to develop an overarching strategy to tackle informality. Sometimes it’s not only what you do but how you do it.
What else is the EBRD doing in Albania?
One promising project we are launching this year is the Albania Agribusiness Support Facility. Agribusiness — the whole value chain from primary agriculture to processing and logistics — is important for the Albanian economy, but receives little financing: Agribusiness is 20% of GDP and between 40% and 50% of the labour market, but it receives only 2% of all bank financing.
What we are trying to do, together with the Albanian government, is encourage banks to accelerate lending to the agribusiness sector. We are doing this through an innovative risk sharing product where the risk of a portfolio of investments is shared between the partner bank, the EBRD, and the government. This is being rolled out this year and we are optimistic about it.
To further support foreign investors in the coming year, we are also looking at how investor grievances can be best addressed. Can we do anything to improve the way that individual grievances are dealt with before they escalate to courts in Albania or to international arbitration? Is there a way to solve problems before they become too big? This is an area that we will be looking into in 2016, in close consultation with the World Bank Group.