Progress in Investment Reform for Albania INVESTMENT REFORM INDEX

1. Preliminary Results Progress in Investment Reform for Albania INVESTMENT REFORM INDEX 26 April 2006 Investment Compact Country Mission to Albania

2. Agenda Context and Objectives Approach, Process, Organisation and Differentiating Factors Results of Measurement for Albania Dimension specific results Next steps and Key Events

3. Context and Objectives

4. Context The Investment Reform Index and the Investment Compact Focus of Investment Compact Program A. Enterprise and SME Development B. Policy and Promotion Specific to FDI Investment Reform Index Enterprise Policy Performance Assessment (EPPA) Peer Review 1. Monitoring and Evaluation Country Investment Policy Analysis and Implementation Investor Forum Sector Specific Regional Investment Promotion Enterprise Forum 2. Implemen-tation Support 4 Areas Structured Public/Private Debate Regional Foreign Investors Council, White Book and “Reality Checks” Enterprise Policy Performance Assessment 3. Private Sector Support Annual Ministerial for SEE Region Programme for Parliamentary Support 4. Political Support

5. Objectives The IRI is guided by four key objectives: Regional Collab-oration and Peer Review Targeted Support in Imple-mentation Public and Private Sector Involvement Structured Evaluation ① ② ④ ③

6. Approach, Organisation and Process

7. Approach The IRI measures implementation of reform in 10 key dimensions Main focus of evaluation in 2006 *Part of a separate process conducted in cooperation with the EC in the framework of the European Charter for Small Enterprises

8. Approach Each dimension is broken down into main sub-dimensions Example: Tax Policy

9. Approach Each sub-dimension is broken down into core indicators Example: Tax Policy → Tax Administration

10. Approach Each indicator is broken down into levels of reform Example: Tax Policy → Tax Administration Note: This table has been simplified for presentation purposes: each level of reform is fully detailed in the actual IRI.

11. Process Gathering information for scores will follow a specific process Example: Anti-Corruption CET Investment Compact Private Sector

12. Organisation The Investment Reform Index is organised to involve all levels in the evaluation and input process • IC Core Team collects data and interviews OECD Experts to establish a preliminary level of progress for each country in each policy dimension • Local consultants build from the first measurement by collecting primary data in the countries and conducting interviews with local experts. The results analysed by the IC Core Team and incorporated into the level of progress • The Private Sector and the Country Economic Team evaluate the latest measure. This provides an opportunity to step back and analyse the measurements in a broader context. After consultation mechanisms are complete, all parties confirm a final measurement, which is published Local Consultants Country Economic Team IC Core Team Private Sector OECD Experts Local Experts

13. Differentiating Factors How the IRI is different from other indices The OECD Investment Compact IRI relative to other indices from international organisations • Main Differentiating factors of the IRI: • Focus on a very specific region where history, culture and geography allow for more relevant benchmarking between countries. • Tripartite participatory approach to evaluation and measurement including government, private sector, and the OECD. • Comprehensive evaluation of the investment environment structured along ten key dimensions in line with OECD standards. • Does not only measure but also provides guidance on how to improve through good practices. • “Meta – Index” which incorporates existing work already conducted by other organisations (e.g., World Bank’s Doing Business report). Process

14. Preliminary IRI Results for Albania

15. Preliminary IRI results for Albania Preliminary IRI Results for Albania Dimensions where policy reform is more advanced are: • Trade policy • Investment Policy • Competition Policy Dimensions where reforms have been slower are: • Regulatory Reform • Anti-corruption Policy • Human Capital • Tax Policy

16. Preliminary Findings Dimension Specific Results

17. Preliminary Findings Dimension specific results 1. Investment Policy and Investment Promotion • Investment policy • National Treatment of foreign investment is guaranteed by law and internationally accepted mechanisms for state-investor dispute settlement are generally in place. • Guarantees against unfair expropriation of property are also set in the Constitution and the foreign investments law. • Transfer of funds (current and capital account) by foreign investors is guaranteed. • Intellectual property rights legislation is generally in line with international standards, but enforcement of IPR legislation needs to be consolidated. • Land ownership is limited for foreign individuals but there are no limitations for foreign-owned companies that are registered in Albania. • Investment promotion • The current Investment Promotion Agency – ANIH – is operational since 2002, with main responsibilities in image building, investment generation and servicing potential and existing investors. • Albania plans to set up a National Business Agency to deal with foreign investment and export promotion and SME development. • However, a new national investment promotion strategy should be adopted and reflect government and private sector consensus on the country’s investment promotion priorities.

18. Preliminary Findings Dimension specific results Investment Policy Preliminary IRI evaluation: = No law or institution = Solid law or institution passed but little or no evidence of effective implementation = Law or institution in line with good practices and significant evidence of implementation

19. Preliminary Findings Dimension specific results Investment Promotion

20. Preliminary Findings Dimension specific results 2. Tax Policy • Albania has a competitive corporate tax rate. According to the World Bank, however, total tax payable is over 50%. • Tax legislation is generally well drafted, although much legislation is still pending approval. • Albania has made significant progress in aligning the corporate tax regime with international standards. However, transfer pricing rules are not well enforced and IAS/IFRS will not be fully implemented and enforced until January 2008. • Total number of tax payments and time to comply are both higher than the SEE average of 50 and 236 respectively, according to World Bank estimates. Online tax filing is not yet available. • VAT reimbursements are not monitored and often delayed, and corruption, especially by tax inspectors, is still considered a problem by the private sector. • Consultations between the public and private sectors occur regularly during the annual budget approval process.

21. Preliminary Findings Dimension specific results Tax Policy

22. Preliminary Findings Dimension specific results Tax Policy

23. Preliminary Findings Dimension-specific results 3. Anti-Corruption Policy • Like most SEE countries, Albania has signed and ratified key international conventions related to corruption and has adopted laws which criminalise corrupt acts such as active and passive bribery, money laundering, and trading in influence. • The government is currently developing a new anti-corruption strategy. • Concerning the Promotion of Good Governance and Reliable Public Administration, steps are being taken to improve: • conflict of interest policy • the professionalism of the civil service • public procurement • customs • training programmes for law enforcement and tax officials. • Oversight bodies, such as the Supreme Audit Institution, are functioning, however, other areas of policy transparency are rather underdeveloped.

24. Preliminary Findings Dimension-specific results Anti-Corruption Policy

25. Preliminary Findings Dimension specific results 4. Competition Policy • Albania has made progress in the competition area, the competition law and the existing bylaws for implementation following the international competition standards. However, further development of the legislative framework is needed. • While the drafting of a competition policy is part of the 2005 National Plan for the approximation of legislation and SAA implementation, a comprehensive competition policy strategy remains to be adopted. • In addition, the Competition Authority needs to strengthen its administrative capacity through adequate staffing, budget reinforcement and training of personnel. • Further consolidation of enforcement record is also needed, especially with regard to investigations of cartel agreements, abuses of dominance and merger control. • In parallel, state aid control should be consolidated through robust implementation of state aid law and the strengthening of administrative capacity of both the State Aid Commission and the State Aid Department within the Ministry of Economy. • Finally, the competition advocacy actions of the Competition Authority and the coordination with the sectoral regulators and the court system should be increased.

26. Preliminary Findings Dimension specific results Competition Policy

27. Preliminary Findings Dimension specific results Competition Policy

28. Preliminary Findings Dimension specific results 5. Trade Policy • Albania has signed FTAs with all SEE countries. The negotiations on the Stabilisation and Association Agreement were recently concluded and the Agreement was signed on 18 of February 2006. • Albania’s trade openness is generally good, but is hindered by important non-tariff barriers: • 54% of European standards have been adopted so far. • Sanitary and phytosanitary standards are slowly being brought into line with EU standards • Certification is voluntary and foreign certificates are accepted. • Finally, customs procedures are currently being upgraded, but corruption with customs officials continues to be an issue according to feedback from the private sector.

29. Preliminary Findings Dimension specific results Trade Policy

30. Preliminary Findings Dimension-specific results 6. Regulatory Reform • Albania has made good progress in drafting and implementing action plans for removal of the administrative barriers, improvements of the licensing system, and the reduction of the cash economy. • A Task Force on Regulatory Reform, led by the Prime Minister, has been established. It has drafted an action plan with short-term measures and long-term objectives for the removal of administrative barriers. • An Oversight Body is functional and an action plan has been developed. • No regulatory impact analysis programme has been set up so far. • Regarding transparency, ad hocpublic/private consultations exists and is further developed; no formal forward planning mechanism is in place, however ministers present to the Centre of Government a programme of the draft acts that they plan to propose for the coming year; the official gazette and websites inform parties of regulatory requirements. • According to the World Bank Governance Indicators and the FIAS report, regulatory quality is generally poor.

31. Preliminary Findings Dimension-specific results Regulatory Reform

32. Preliminary Findings Dimension-specific results Regulatory Reform

33. Preliminary Findings Dimension specific results 7. Human Capital • Education spending and enrolment rates have deteriorated in recent years. • Educational quality needs to be improved. • Albania has developed a pre-university education strategy, and implementation has begun. • Strategies for pre-school and higher education are now being developed with support from the World Bank. • The Ministry of Education and Science has finalised in 2006 a strategy on Vocational Educational Training. • A Training Institute of Public Administration was established to provide training for civil servants. • Finally, the labour market is considered flexible compared to other SEE countries. However, unfair competition by businesses operating in the grey economy remains a problem.

34. Preliminary Findings Dimension specific results Human Capital

35. Next Steps and Key Events

36. Key Events 2005-2006 Key Events for the Investment Reform Index

37. Preliminary Results • All of the results are preliminary. • Albania results will be finalised in June/July 2006. • For any comments or questions please contact Jennifer Brett at jennifer.brett@oecd.org or Jakob Fexer at jakob.fexer@oecd.org.