Thank you for this invitation to talk to you today. I have been asked to talk to you about British investment in Albania. The basic issue is that there is not enough British investment in this country. Those of us who live here know that there is potential for growth and profit in Albania. We can see some of the successes of our EU and Turkish competitors. Our flagship British investor, Vodafone, has proved that in Albania it is possible to successfully provide services to the community and growth to the shareholders. Our energy giants Shell and British Gas are examining with great seriousness the opportunities for development of natural resources here. The London architects Grimshaws have won the competition to design the Tirana boulevard extension. Several British universities are looking at the possibility of tapping into demand in the higher education sector. But as a general rule we are less present here than the Italians, Germans and Austrians, and even the French.
Part of the reason for this lies in economic problems back home. You will be familiar with the story of the two bankers who are walking in the forest when they encounter an angry bear. One of them starts to run. “Why are you running”, says the other, “You can’t run faster than a bear”. The first banker replies, “I don’t need to run faster than the bear. I just need to run faster than you”. At the moment the United Kingdom is running a bit faster than most of our European competitors. But we face huge challenges. As the Governor of the Bank of England said recently, we have not faced “a normal recession, and it won’t be a normal recovery”. We have faced the biggest financial crisis of our lifetimes, and undoing the damage of a decade of spiralling public and private sector debt will take longer than we initially thought. We are dealing with tough global economic conditions, especially in the eurozone, and the damaging effect this has had on the UK and every other economy. The eurozone is in recession, with all of its major economies posting negative numbers for the end of last year.
The coalition government in London is getting results. The deficit is down by a quarter since 2010. A million new private sector jobs have been created, with the latest figures showing the strongest jobs growth in more than twenty years. The British Government is taking action to ensure we win the global race, including delivering the most competitive tax system among major economies, investing in infrastructure and creating the Funding for Lending scheme. All major forecasters predict UK growth this year and next, with the European Commission pointing to “prospects improving” and Britain outperforming France, Germany and the EU as a whole in 2013. But money in London is tight, and this means that the banks and the investors are particularly cautious in looking at new and unfamiliar markets.
In the past, Albania suffered from reputational problems linked to old stereotypes or based on the events of the late 1990s. This has reduced recently as the country continues to move into the European mainstream. A series of positive reports in the British media have pointed to the potential of Albania as a tourist destination. The fact that Albania, thanks to the wise and prudent policies of the Central Bank, has managed to minimise the impact of the Greek financial crisis and of economic problems in major regional trading partners has been noticed favourably by economic commentators.
But there are still genuine problems in the business climate here, concerns shared by all actual and potential investors. To be fair, these are also acknowledged by the Albanian leadership. As we approach the June elections, there is a debate going on between the political parties over the respective merits of flat tax versus progressive tax systems. But in fact predictability of taxation levels and procedures is as important for investors as the actual rate of tax. Businessmen need to know where they stand with the tax authorities. Time spent dealing with unpredictable demands or tax fines is time that could be better spent growing the business. Then there is the question of property rights. While we all appreciate that this is just part of the country’s legacy of communist dictatorship, the fact that uncertainties persist in this area is a real disincentive to investment, particularly in tourism development. Enforcement of contracts and execution of collateral remain problem areas. There is also the wider issue of the rule of law. I know that there is a certain amount of mythology surrounding the issue of corruption in the judiciary, and many senior judges think that a lot of the criticism they get is unfair. But there are still chronic problems with inordinate delays and unpredictable and questionable court decisions. This is an area that worries new investors and discourages existing investors from increasing their stake. Lastly there is the notorious issue of VAT refunds, where the government is effectively sitting on sums of companies’ money for far too long. This needs to be sorted out as a matter of urgency.
But to end on a more positive note, my Embassy team have been working with the Ministry of Finance to conclude a Double Taxation Agreement. We have successfully got this agreement to a point where it will soon be signed. The UK has double taxation treaties with over a hundred countries. But more importantly this one is the first between our two countries. So it represents an important step in the developing relationship between Albania and the United Kingdom. This is a very business-friendly treaty that follows the OECD Model Convention in many respects. In particular it sets limits on the amounts of tax that can be charged when dividends, interest and royalties are transferred from one country to the other. We hope that businesses will welcome that. Of course, the treaty also contains important safeguards to prevent tax avoidance and evasion. We hope that that this treaty will serve to encourage bilateral trade and investment. Indeed early indications from some contacts and potential investors are that it certainly will.
We all know that Albania has a lot to offer the determined and imaginative investor. There are still plenty of unexploited niches in the market, in tourism, energy, agriculture, retail and financial services. The recent successes of Italian companies in the call centre industry have underlined that Albania has a young, energetic and talented workforce ready to work at very competitive rates. My embassy is seeing a slow but definite growth in interest in the Albanian market from potential British investors. We are looking to see more of this in the future.