on investment potentials and priority sectors
TRANSCRIPT
ON INVESTMENT POTENTIALS AND
PRIORITY SECTORS
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SECRETARIAT OF INVESTMENT COUNCIL
Tirana, 4 October 2019
11/4/2019
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CONTENT
I. Object and Methodology
II. Context
III. Findings & Suggestions
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Stimulate the debate on sustainable growth options and potentialresources based on:
Recent dynamics of economic growth in the country, opportunities and constraints, unutilized resources (UNCTAD Reports, OECD, WB, etc.)
Private sector perceptions on the development of a market where sustainability principles must be ensured:
o Economic growth
o optimum in using natural resources, manpower, financial capital
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Objective
• Strategies and approved documents from consecutive governments
• Consultation and analysis of laws and by-laws
Desk-research
• Direct consultations (Tirana, Korça, Shkodër) of the Secretariat with representatives of business associations/chambers, public institutions, private companies and embassies
• Selected businesses– representatives from priority sectors contributing to the growth (trade, manifacture, energy, electronic communications, Fintech, agri-tourism, tourism, insurance, construction, facon, etc.);
• Pre-structured questionnaire;
• Investment Climate Surveys 2015-2018 (2019 under process);
• Focus Group in technical level (24 September 2019)
Consultations & Focus Group Meeting
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I. METHODOLOGY
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MEETINGS
40 PEOPLE
17
CEO
II. CONTEXT: COMMENTS FROM THE BUSINES
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o Business goes well, it could go better, but country lacks of infrastructure to enable more
investment.
o The focus in the ICT - sector is a revolution. Innovation and entrepreneurship are the key
words. Are we going to digitize the economy of just administration services? The context is
how do you fit in with what the world has to offer.
o The government should have a clear vision for the next 10 years. Vision of the people -
Albania, where we should go.
o Natural Resources - It is better to have large investors in this sector and not many small
investors who are not able to invest in processing these resources.
o The image of the country - needs to be improved. Albania is a small market to be considered
as a separate potential - it should be seen in the regional context.
o Tourism-potentials for development - we will definitely find manpower and invest.
II. Context: Growth dynamics and economy profile – from Industry to Services
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Until 1990s – Industryaccounted for 58% of GDP
Today – Services account for 50% of GDP
GDP increased 2.4 times
2.7%
average
growth
7.8%
average
growth
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Economic Freedom, Challenge: Rule of Law
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52.0
54.0
56.0
58.0
60.0
62.0
64.0
66.0
68.0
70.0
2016 2017 2018 2019
Economic Freedom
Montenegro Bosnia & Herzegovina Serbia Albania Kosovo
69.3
52.7
81.5
69.1
50.4
82.4
0.0
20.0
40.0
60.0
80.0
100.0
business freedom labour freedom monetary freedom
Regulatory Efficiency
2019 2018
86.373.9
80.685.172.7
67.5
0.0
20.0
40.0
60.0
80.0
100.0
tax burdon government spending fiscal health
Government Size
2019 2018
87.8
70.0 70.0
87.8
70.0 70.0
0.0
20.0
40.0
60.0
80.0
100.0
Trade freedom Investment freedom Financial freedom
Open Markets
2019 2018
54.8
40.4
30.6
54.1
39.9
25.4
0
10
20
30
40
50
60
property rights government integrity judicial efectiveness
Rule of Law
2019 2018
The 2019 Index covers data until the second half of 2018
Western Balkans will be vulnerable to external risks such as low global economic growth
811/4/2019Source: WEO, April 2019
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Albania Bosnia and Herzegovina Kosovo Macedonia, FYR Montenegro Serbia
Growth perspective in Western Balkans
2018e 2019f 2020f
2.21.8
0
0.5
1
1.5
2
2.5
2018e 2019f
advanced markets
4.5
4.4
4.35
4.4
4.45
4.5
4.55
2018e 2019f
emerging markets
Investment contribution to growth – Public vs. Private
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Orientation, efficiency and well-management of public investment in function ofcountry’s competitiveness by improving infrastructure, institutions and services tobusiness would strengthen the impact of legislative reforms on the investmentclimate.
Foreign Direct Investment- TAP & Devoll toward completion
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Years 2013 2014 2015 2016 2017 2018 T2-2019
Reinvestment ofearnings
(million Euro) -62 38 59 42 137 224 183
0 20 40 60 80 100 120 140 160 180
Albania
Bosnia & Herzegovina
Montenegro
North Macedonia
Serbia
Announced greenfield FDI projects, by destination in No.
2018 2017 2016 2015 2014 2013 2012 2011 2010
II. Business Perceptions
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69%
8% 8% 8% 8%
What is the future challenge of the business in Albania?
14%
7%
16%
27%
2%
2%
2%
30%
0% 5% 10% 15% 20% 25% 30% 35%
Natural resources
Digitalism
Energy
Agro processing
Logistics
Services
Financial services
Tourism
Can you mention 3 potential sectors for growth?
INCENTIVES & FISCAL POLICIES
•Trend - progressive tax on personal incomes
•Different VAT rates depending on sectors (20%, 6%, 0%)
•Albania aggressive for fiscal incentives & measures that support tourism & agrotourism
•North Macedonia and Serbia more aggressive targeting investors through national and regional economic free zones and direct remuneration for any new jobs.
MATRIX
ALBANIA vs REGION
•Apply a reduced dividend tax rate from 15% to 8%
• Implements the lower minimum turnover limit for VAT purposes of 2 Million ALL
•Different VAT rates (e.g: 6% for accommodation in tourism)
•Different Tax Rate on Profits (e.g: 5% for Software)
LATEST FISCAL INSTRUMENTS IN
ALBANIA
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III. MOMENT FOR REFLECTION
• Contraction of the growth rate of investments in the economy– what challenges to be expected?
• Close to the finalization of 2 major projects (TAP+Devoll) with considerable impact in the economic growth–need for diversification?
• Some of the most important strategies for economic development under expiration - what will be the next strategies...?
• Regional strategies IRAP and REA Map-regional context requires intensification of efforts.
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III. FINDINGS – INVESTMENT CLIMATE CHALLENGES
• Difficulties in focusing policies in line with the declared vision, lack ofsustainability and supporting projects
• Lack of data and lack of strategies’ impact evaluationSTRATEGIC
• Although the low cost, still a problem availability and scarce quality for labour market
• Restructuring of skills according to the labour market needs
• Emigration of professionals and employees
HUMAN RESOURCES
• Property – e.g: Investments Support Fund still non-established
• Non-functional judiciary system
• Cases of legal uncertainty
• High frequency changes of laws and administration causing lack of institutional memory
LAWS AND INSTITUTIONS
• High competition in the region
• Difficulties in materialization of legislation in concrete examples (TEDA, Strategic Investments)
OTHERS14
Agro-processing
• Fruits-vegetables
• Made in Albania
• Medicinal herbs
• Promotes the merger and creation of farms and value added in the country
Tourism• Direct contribution 8,5% of
GDP
• 7,7% of labour force in Albania,
• 7,5% of investments in the country, number of companies increased with 26%.
• 11% of all enterprises in Albania
• Sector with incentives and focus
• Still unused resources
Natural Resources
Renewable Energy Sources (New regulatory framework
- opportunities for diversification of resources,
market)
Hidrocarbons
(still unoptimized resources, new area development research, budget impact of “renta minerare”)
TEDAComplete legal framework and
incentives
Need to target investors and for investments in
infrastructure by the State
DIGITALIZATION
Liberalized market, expanding use of internet, upgrading to electronic public services and
MAP REA
Regulatory institutions
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III. POTENTIALS – PRIORITIES AND FOCUS
IV. SUGGESTIONS - STRATEGIC
ECONOMIC MODEL
• Initiating the debate on Albania’s economic model
• Priority sectors for the coming 10-15 years
• Focuss on SME support and fiscal administration
• Monitoring, good administration and transparency of public investments coordination (central and legal)
VISION
• Strategic approach on FDI attraction
• Create an experts platform, with a concrete plan of action to identify missing data, enable detailed analysis of Investment Impact
• Identification of concrete targeting opportunities
REGULATOR/BUSINESS COMPONENT
• Institution consolidation
• Preparation and Publication of the State Real Estate Fund
• Business cooperation at the sectoral level to enable applications in innovation and information technology funds, research and development
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IV. SUGGESTION- SECTORIAL
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Completion of the legal framework on the renewable energy sector
Implementation of concrete incentives for BRE sector
Making effective the liberalization of the energy market and the Energy Stock Market/ joint MIE-MFE-BusinessWorking Groups for the sector challenges (Energy Strategy 2018-2030)
TEDA
Incentive measures on the de-fragmentation of agricultural land and promoting the competitiveness ofdomestic production
Transparency on information and progress on donor support policies for the agro-processing sector andperformance of investments under public-private contracts in the sector
Establishment of a central policy-making institution to enable cross-sectoral coordination and to push forward the digital agenda,
Creating regulatory conditions for quality services in the field of electronic communications (broadband/5G).
Completing the regulatory framework and promoting FINTECH
IV. SUGGESTION- SECTORIAL, Education & Employment
Sectoral approach to Adapt Employment Policies and Improving Workforce Skills inPriority Sectors.
Creating a systematic collaboration platform between schools and businesses.
Government to enable the leasing of state-owned buildings to support the creationof training centers to re-dimensionate the workforce skills as per marketrequirements.
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DISCUSSIONS
• Is it a unique moment to discuss on the adaptation of a new development economic model for Albania?
• Is there a need for re-prioritization in the context of positioning in regional, European and wider markets?
• Where should policies and institutions focus on addressing key challenges (such as EU integration, regional competitiveness, or labor shortages) to reach the potential of the country's economy?
• Do we need a strategy for attracting foreign capital by priority sectors in the country?
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THANK YOU!www.investment.com.al
2011/4/2019