The ordeal of the law of strategic investments and the effect on the economy

Blog Albanian government, economy, fiscal initiatives, government, strategic investments, strategic investor 0 Comments

In 2015, the “Rama 1” government, in cooperation with its political allies, approved by majority the law “On strategic investments”.

In relation to the adoption of the law, the focus was precisely on the fact that the Government was aiming to attract foreign investors to Albania, who would find it easy to spend money in important sectors, in energy, infrastructure, mining, agriculture, fishing, tourism and others[1].

Eight years after the adoption of this law, “strategic investors” are mainly oriented towards tourism in the southern area of the country and their minority in other non-coastal areas, in agriculture. Most of them are local businessmen, known for their closeness to the governments of the last decade, but also a large part are the main beneficiaries of public funds for transport infrastructure and infrastructure related to the program of the three governments led by Edi Rama[2], but also businesses whose beneficial owner originates from areas of fiscal havens or otherwise “offshore”.

This map of beneficial owners who are directly connected to the benefits it provides without competition and easily outside the framework of fiscal equality is seen to have a big problem with transparency, which is one of the most powerful columns that must maintain the function of interest public.

According to the data presented recently in the relation[3] for the amendment of the law, it is mentioned that from 2016 until now, 88 investment projects have been handled, of which:

– 40 have gained strategic status

– 14 projects were rejected

– 34 projects are in the evaluation phase

Most of their projects are in the tourism sector or integrated tourism.

According to the latest data from AIDA[4], the value of the investments is 4.4 billion Euros, increasing by 77% the income of tourism and an additional employee of 25,040 individuals. However, the AIDA indicators do not really clarify whether this is the calculated value of the investments or their actual value.
Meanwhile, our still unanswered question is how much comes from direct influence only from strategic investors and for the activities related to the permitted investment and not all the activity of “strategic” companies that mainly operate in infrastructure?.

From the provisions of the law, it can be seen that it has given the status of strategic investor in tourism to any project that has invested more than 5 million euros and employed 80 workers.

Based on the data of the law relation at the end of January 2024, a preliminary calculation presents the average indicator of 110 million Euros per investment and 625 employees per investment. For the last 7 years, it seems that the average annual investment is up to 630 million euros per year and an influx in the market of over 3,570 new employees every year.

But, if we start from the World Bank’s sectoral analysis of the effect that investments have on the creation of new jobs, it results that for every 10 million Euros invested in tourism, up to 130 direct and 60 indirect jobs are created. If we compare this calculation with Albania, then if 4.4 billion Euro investments have been invested to date, the economy would benefit from them at least 57 thousand new jobs directly from investments and 36 thousand jobs indirectly from sectors related to tourism (agriculture, transport, culture, etc.) Normally this test should be the first to accept strategic investors in favor of the general interest.

Meanwhile, the effect on tax revenues is still indecipherable, since there is a total lack of analysis by the MFE regarding the fiscal effectiveness of tax-facilitated investments and the impact it has had on additional taxes. From our calculations, it is not more than 100 million ALL per year, while the facilities are to the same extent beneficial as the fiscal contributions of the investing companies.

But what is required of investors who have passed the filters of the law on strategic investments?

The minimum limit of financial guarantees required for investors is not less than 10% of the total value of the investment[5].

The Committee of Strategic Investments (CSI), depending on the characteristics, size and complexity of the project, the experience and capacities of the investor as well as depending on the public interest, should in fact request higher levels of the percentage of financial capacities required, up to to 20% of the total value of the investment, since the facilities it gives you directly and indirectly enable applicants for investors great opportunities for development and outside of any competition.

In relation to this very important condition for the public and for the entire public interest, there is a total lack of transparency, since we cannot find any report of the institutions (AIDA, MFE) etc. to confirm that the financial conditions have been proven. This approach is mandatory in the circumstances when the reports of HSA on strategic investments have raised concerns that can be considered as a “red flag” for the risks they present, but also for the reason that the financial statements of Albanian companies are still under the pressure of the informal economy. and informal money, which from time to time is also visible from checks of institutions.

On the other hand, the feasibility report, which is the document that tells us how much money and resources this business or project will require to be successful, is completely missing for each of the investors who have applied to invest in strategic sectors. By understanding the costs and resources required to execute these projects, there is naturally little room for failure and excuses while serving a more mature decision on behalf of the citizens and making it clear to them whether or not it is worth giving them. of many favors that are given by the inherited national wealth and several billions of lek that follow destinations through budget resources.

However, according to the decisions approved by the CSI, headed by Prime Minister Rama, the government has offered investors over 5.8 km² of agricultural land and land mainly in the precious southern coastal area, as well as local investors in areas and facilities within the country through lease contracts 1 euro.

Investors who have qualified for making investments in strategic sectors for the development of the country’s economy have not only benefited from the land in the coastal areas, but the government has also guaranteed the provision of budget funds for direct infrastructure in the destinations as well as auxiliary infrastructure, such as the supply of water and sewerage, investments in power generation permits and investments in energy distribution by adapting the amortized network, as well as other benefits[6].

From the calculations of our experts, it is established that every year in the last decade, up to 400 million Euros have been directly invested from the state budget (with internal funds) to ease the costs and businesses of investors in the resort sector in tourist areas.

But if we compare this level of strategic investments with the added value or the GDP level in the southern part of the country, it can be seen that in 2016 the GDP is 426.4 billion ALL[7] and in 2021 it is 504.56 billion ALL[8], or an increase in the economy of the south for 6 years with 78.2 billion ALL.

This increase in the economy of the southern area comes mainly from agriculture, construction and real estate activities, and hotels and bars and restaurants are also in fourth place for contribution. In 2021, the trade, hotel and restaurant sector has a slight increase compared to 2016.

Based on the data above and in order to clarify for the public, it can be seen that the impact of the development of these investments on their everyday life is still at low levels, where even though under the status of a strategic investor, a good part of the permits granted do not prove for a strong impact on Albanian tourism, since it seems that the form of business organization is more important for the profit of businesses and individuals who have bought real estate, keeping the effect that these permits that have received investor status should have.

So, it can be seen that maintaining a law, where an investor who does not exhaustively guarantee the purity and sufficiency of the funds for the investment, as well as the business model that he declares that he will carry out, has a negative impact on the well-being of the residents of the area that they can be real owners or beneficiaries of law No. 7501[9] on the use of lands where strategic investment has been allowed. The negative impact on the income of the residents of the area is the loss of significant monetary values due to the expropriation of the land with the intervention of the government (up to 500 million Euros), which was bought here at a reference price, which favors the company or group of investing companies.

However, this logic, in addition to the economic degradation of the residents of the areas where investments are made in the name of the strategic sector, “corrupts the investment logic and is not at all friendly to foreign investors,” as stated by the State Department in the annual report on foreign investments in Albania [10].

Despite the supporting legislation, very few foreign investors have benefited from the “Strategic Investor” status and almost all projects have been awarded to domestic companies operating in the tourism sector.

Based on this influence on foreign investments, it can be seen that in recent years more than 1/3 of their total has been added from the areas of fiscal havens and that in fact they are not addressed in tourism, but in real estate that probably are also located in resort areas that were built according to the strategic investment model.

This whole climate of the implementation of the law of strategic investments has broken the principles of free competition and the law placed in unequal conditions de facto Albanian citizens and contrary to the Constitution of the country

But why has the deadline for the implementation of the strategic investment law been postponed when it did not meet the 3-year political objective?

Since 2018, in the relations of the proposals for postponing the term of operation of the facilitations for investments in strategic sectors, it is mentioned by the legislators of the majority with insistence that the work started in 2017 by the MFE on the drafting of a new law “On investments”[11],, which would replace the strategic investment law and other laws related to sustainable investment strategy and the equality of investment competition for domestic investors as well.

In fact, local investors are the ones who have obtained permits in 97% of all permits granted. However, the law has been amended 5 times, where 4 times it was done to extend the deadline and once to exclude from the benefit of the permits the convicted, incriminated persons and in general all the undesirables of the legislation in force. In an initial analysis of the 7-year ordeal of law changes, the opinion is created that this political initiative has lacked in-depth analysis and connection with the Albanian economic and social reality. On the other hand, it seems to have also lacked the instruments of integrity, as long as it is forced to adopt a change only to directly hinder the tendencies of laundering the money of organized crime and in general dirty and criminal money, possibly from intelligence information.

The damage from the lack of consultation and the preparation of the law in a hurry is visible in the amendment in October 2018[12]:

“Based on the legislation on strategic investments in force, any investor who seeks to acquire the status of a strategic investment entity, benefiting from support and ease, in the sense of the law, must fulfill, in advance, some conditions which are divided into legal, economic conditions -financial and technical.

Considering the sensitivity of the government to fight criminality in the country, avoiding in any case and by any means the provision of support and the creation of facilities for criminally convicted investment entities, this legal initiative was undertaken.

Such a provision, where it is excluded from the possibility of providing support and creating facilities, not only to the investment entity that has a criminal conviction as a legal entity but also when the representative individuals of the entity have such a conviction, will avoid any possibility that receive support and facilities, in terms of this law. This special regulation will make not only more serious but also more concrete the fight, by all means, against crime in Albania.”

However, if we briefly look below at the reasons mentioned in the reports of the majority rapporteurs for changing the law, it seems that they are not related to massive investment developments, since the economic reasons and the facts that should have accompanied the reports to engage the Parliament of Albania for changes in the law

Relation to change the law of 2018[13]

“With this change, it is intended to extend the deadline for submission of requests by interested investment entities for inclusion in the procedures for the benefit of the status “Investment/strategic investor, assisted/special procedure”, pursuant to this law, until the date December 31, 2019.

On the part of the Ministry of Finance and Economy, the drafting of the draft law “On Investments”, which arose as a necessity, since the legislation in force in the Republic of Albania gave additional protection to foreign investments, but not to local ones, while a a separate new body of law was created for strategic investments. Under these conditions, it was thought that the drafting of a unified investment law that protects domestic investments as well as foreign ones, and with a treatment as a separate part of it for strategic investments, the entire law being permeated by the principles of transparency, equality and non-discriminatory treatment of investors, would increase the guarantee of investors. The approval of this law will be done within the year 2019[14].”

Meanwhile, the Economy and Finance Commission reports that[15]:

“I want to emphasize the fact that it was precisely this law, from 2015, which, based on the principle of transparency, equality and non-discrimination, enabled, through a complete legal framework, the same protection for both foreign and domestic investments , which were not previously protected.”

So the contradiction of the main reason for a new investment law is clearly seen.

The new draft law for investments from 2018 has not yet been completed and the postponement of the deadline from 2019 to 2020[16] has been requested by MP I. Beqja.

In 2020, another postponement is requested until the end of 2021 by M. Ekonomi and E. Bushati, due to the dysfunction of the economy due to the pandemic[17].

At the end of 2021[18] another postponement is requested by A. Pëllumbi until the end of 2023, but with the same arguments of the past. This indicates, at a minimum, insufficient reasons and unjustified costs to engage the legislative mechanism to engage in a change. The reasons mentioned in the relation are the following:

“The postponement of this deadline has been approved before as the Ministry of Finance and Economy is in the process of drafting a draft law “On Investments”, which was born as a necessity, since the legislation in force in the Republic of Albania gave it a protection in addition to foreign investment, but no

domestic ones, while a new separate legal corpus was created for strategic investments. Due to the COVID 19 pandemic, it has been impossible to finalize this new draft law “On Investments”.

At the end of 2022, the opposition MP, Ms. J. Tabaku[19] that the deadline for applying the law be closed for new applications until January 1, 2023, as a violation of competition and Article 71 and 74 of the SAA[20]. Her political arguments are as follows:

“The purpose of the law has been to promote some specific sectors, from the analysis that I have collected from AIDA and from the Committee of Strategic Investments, all decisions for strategic investors, to the extent of 95%, have been in the field of tourism; only two in the field of agriculture, 2 in the field of energy and all others were in the field of tourism. For the most part, decisions on strategic investors have been abusive and corrupt.

The law, from the moment it was created, in 2015, had a three-year term. The report stated that the law on strategic investments would be temporary, because the Albanian government was working on a framework law for investments, a law that would regulate all foreign and domestic investments, and that this law would not to be used forever.

Meanwhile, today we are in 2023, and at least 8 years have passed since 2015, and the law on strategic investments, which should have been an exception to the rule, has become the rule. The law has been postponed at least 3 times.

In our judgment, this law, apart from the fact that it grants public assets without competition, in a selective manner, has not had the impact it should have had in certain areas.

We have done an analysis of the companies and I assure you that, out of 35 strategic investment decisions, there are at least 10 people who have benefited, while this should not be a privilege offered to only 10 people.

The law on strategic investments, on the other hand, makes it possible for the strategic investor to expropriate the property and the state to interfere without right in a relationship between the legal owner of the property and the investor, by imposing prices, which are market prices (decision of the Council of Ministers), while the legal owner can expropriate this property for the strategic investor at market prices. This is a very important point, which also affects the right to property, which, for me and for the Democratic Party, is extremely important.

This has severely damaged the open competition process, competition. It has been stated in at least two international reports, in the Department of State report and in progress the EU report, that this law violates the right of companies to operate in the market.

Why should an Albanian company not have the right to be a “strategic investor”?

Why should a company in an open competition not have the right not to be a “strategic investor”?

In my judgment, but I believe that other colleagues can also agree, in only very few cases can there really be strategic investments, which have influenced the economy; in the majority of cases, they have been granting abusive permits, perhaps even in the South of the country, in areas where it should not be built, in areas where there are old legal owners, who have been unfairly favored by the government.

The temporary law has become a permanent law, and I believe that we must stop the effects of this law, we must simultaneously stop the benefits that companies have from being granted “strategic investor” status.

I can take you the case of the port of Durrës, where in the same relation presented by the government, it was once said that the status of strategic investor would be granted for 3 years, then it was postponed to 7 years, then to 15 years without any reason and without any justification; a right and a favor given to a company simply by a decision of the Committee of Strategic Investments, with a drop of the pencil, without making any calculations, while competition, competition could do better for the sector.

I think that in the situation where the business and the economy are, it does no harm if there is competition, free competition and the market is opened for many companies.”

MFE says about these political arguments of the opposition that:

“We currently have a new project in the drafting process. The proposal made by Ms. Tabaku is against time, so it is an ongoing process, so it is unnecessary.

If we strip it of the political part, I believe that the law of strategic investments has been efficient. As for investments with foreign capital, we discussed it in this commission only a month ago, when the last strategic investment was 2 billion euros.

In case we will agree on the fact that the absorption of foreign investments is very difficult, it has been proven that this law has given legal certainty to some investors regarding the inherited problems that property institutions have in Albania, and also has given the right incentive to invest.

I believe that we will be able to discuss the next law, or I am merging both, the law “On the protection of foreign investors” and the law “On strategic investments” in the committee. So, from our point of view, the proposal for suspension from January 1, 2023 until the end of this year is unnecessary, as the new law is in the process of being drafted, which we will inform you about very soon.”

At the end of January 2024, the deputy and Chairman of the Economy and Finance Committee, Mr. E. Shalsi[21] relates the request with the arguments for postponing the operation of the law until 2027, which is actually at odds with the above arguments only 1 year ago by the government.

“Given that the interest of the subjects is still very high for this legal package and the flow and stock of foreign investments in the country are at the highest figures compared to the last 10 years, in order to avoid the creation of this legal gap, as and the consequences that can be created by it, it is intended to extend the deadline for submitting requests until December 31, 2027”

However, now the law with almost no consultation with the public and no political debate was approved at the beginning of March 2024 to be postponed until the end of 2024. This withdrawal from the initial proposal is politically motivated by the fact that:

“The law on strategic investments will be postponed until the end of 2024. The proposals of the socialist deputy Eduard Shalsi have been rejected by the parliamentary committees, passing only the article related to the postponement of the deadline not until the end of 2027, but until the end of this year because a new integral law for strategic investments is being prepared.

All the arguments to politically motivate the changes to extend the operation of the law have a common approach as the paragraph below:

“Given that it turns out that a number of projects are still in the evaluation phase by the institutions and at the same time it is observed that the interest of the subjects is still very high for this legal package, with the aim of avoiding the creation of a legal gap and the consequences that may be created from him, it is proposed to extend the deadline for submission of requests until the date…”

At the end of our entire summary related to strategic investments, as well as illustrating the effectiveness of foreign investments in Albania[22], the analysis guides us to the argument that valuable and sustainable investments for citizens and in favor of the public interest are those that go through a clear transparency process, completed with all the necessary requirements and to be assessed as valid for the public interest. The lack of monitoring reports gives us an incomplete analysis of how and how much investments have been implemented according to what is required by the permit. The lack of correctness in the implementation of permits is a strong argument for clientelism, as it has been ascertained from the reports of the last years by the High State Control, but also from all the anti-corruption reports.

[1] The initiative from 2015 aims to encourage and attract strategic investments, in key sectors of the economy, through favorable, facilitating or accelerating procedures of support and services to investors.
The status of strategic investor can be given to any project in energy, transport, tourism and agriculture that invests 30 million euros, or 50 million euros for projects with a special procedure.
The status “Strategic investment/investor, special procedure” also benefits projects in sectors that are not defined by law, provided that the value of the investment was 100 million euros.

[2] https://boldnews.al/2022/03/28/investime-strategjike-rama-premtoi-te-huaj-por-thithi-samirin-dulaket-carapulin-e-gaz-pajen-lista/

[3] https://kuvendiwebfiles.blob.core.windows.net/webfiles/202401241421454828Relacion.pdf

[4] https://aida.gov.al/

[5] The value of the financial capacities required for the realization of the investment can be proven through the investor’s own financial capacities, proven and as they result from the financial statements audited and filed with the tax administration of the last 3 years.

[6] https://www.reporter.al/2024/01/08/balluku-pranon-se-ligji-i-investimeve-strategjike-ka-pasur-edhe-efekte-negative/

[7] https://www.instat.gov.al/media/4342/pbb-rajonale-2016-shqip-njoftim-për-media.pdf

[8] https://www.instat.gov.al/media/11570/pbb-rajonale-2021-shqip_njoftim-për-media.pdf

[9] https://www.scribd.com/doc/56014162/Ligji-nr-7501

[10] https://dosja.al/investitoret-strategjike/

[11]https://konsultimipublik.gov.al/documents/RENJK_160_Relacion%20i%20projektligjit%20per%20%20investimet_30_Prill_2019.doc

[12] https://kuvendiwebfiles.blob.core.windows.net/webfiles/20181030104557RELACION%20-%20SHTESA%2055-2015.pdf

[13] https://kuvendiwebfiles.blob.core.windows.net/webfiles/20180831100140RELACION%20-%20NDRYSHIM%2055-2015%20-%20INVESTIMET%20STRATEGJIKE.pdf

[14] This law is still not part of the Parliament’s calendar at the beginning of 2024

[15]https://kuvendiwebfiles.blob.core.windows.net/webfiles/20181001112354Raporti%20i%20Komisionit%20për%20Ekonominë%20dhe%20Financat.pdf

[16] https://kuvendiwebfiles.blob.core.windows.net/webfiles/20191115140855relacion%20shpjegues%20ilir%20beqja.pdf

[17]https://kuvendiwebfiles.blob.core.windows.net/webfiles/20201015092619Relacioni%20Investimet%20strategjike%2C%20nisma%20M%20Ekonomi%20dhe%20E%20Bushati.pdf