There was bad news on the economic front this week, as Albania took a dive an in important index that measures the ease of doing business worldwide and is seen as a key reference point by potential foreign investors.
Albania’s rapid decline in ranking in the latest World Bank Doing Business report is troubling, particularly because it comes only a year after the country reached its best ranking ever.
Albania’s 35-spot decline, from a revised 62nd last year to 97th out of 189, was primarily due to a memorandum on all construction permits in the country, higher and more complicated taxes and troubles getting access to electricity. Most of the indicators saw negative numbers compared to last year, however.
The government wants to waive off the decline as “a technicality.” The opposition says the report is now a “black passport” to the road of economic ruin set by the government. But beyond the political posturing, recent government actions are having predicted costs on Albania’s competitiveness as a place to do business. This is also the first report to fully measure the performance of the current government, as such it is a negative mark on the government’s performance thus far.
One does not need an international report to see the signs of economic malaise in the Albanian economy, which remains anemic. It has stalled, still in low positive numbers but negative relative to the country’s needs. It is precisely the wrong time to go on an aggressive campaign to raise taxes and threaten businesses with bankruptcy-inducing fines and prison over tax enforcement, which this government has done.
The government says its reforms will show their results in the years to come. If so, we will give it credit when the time comes, but many experts also believe that will not happen – the reforms will fail to produce more tax revenue because there won’t be growth and new businesses from which to collect.
That’s the case particularly because Albania is now at the bottom of the regional list in the ease of doing business index. That’s the real news in the report – Albania is losing its edge in the region, especially when it has to compete with the likes of Macedonia, which has been so aggressive at courting foreign investors and making it easy to do business there, it jumped to the 12th spot internationally.
In the past year, Macedonia and Montenegro have already either taken in companies which moved their production from Albania or which were thinking about coming into Albania but chose the neighboring countries instead. These have direct costs for the Albanian economy and state coffers with less tax revenue and fewer new jobs.
This country needs to make investors feel welcome – in law and in practice. It does not need empty words and excuses.
As economic experts meeting in Tirana this week put it: Albania needs fewer taxes, lower taxes and more fiscal predictability.
The government appears to be going in the opposite direction. Punitive measures passing for reforms won’t do the trick.
In a region becoming fiercely competitive in attracting foreign investment, the government’s current actions, if not rethought, could have costly consequences on economic growth and the country’s future development.
