Thursday, October 4, 2007

High risk

by Athena Kalaitzoglou
If in the other Balkan countries, business development faces many hurdles, in Albania it is a high-risk adventure. The complete lack of a legal and institutional framework for the attraction and implementation of business plans in the neighboring country allows the Albanian government to engage in all sorts of arbitrary actions at the expense of the unsuspecting investors. As a direct result, the initial cost of investment balloons.

The businessmen who wish to expand their activities face conditions of opaqueness and under-the-table dealings that cannot be imagined by any sort of business planning. The reason for this is that the Albanian states coffers are empty and, thus, the only way to get some revenue is through heavy fines imposed on foreign investors who find reality is a lot different than agreements on paper, or regulations.Giorgos Mylonas, chairman and CEO of the Alumil group has a significant experience from the Albanian market, where he has been actively trading over the past eight year and is now developing a vertically integrated aluminum profile factory at Tirana.

He is, therefore, one of the very few Greece businesspeople who had the chance to closely follow developments in Albania and, of course, the evolution of the business climate there.I dont know if the Albanian government wants people to investment in the country.Why I say this? Because the legal framework is nonexistent. Therefore, to push your investment you either pay under the table or you undertake the costs incurred by delay and lack of organization. This way, however, the cost of investment multiplies, he says.Officially, the prospective Greek investor in Albania has two outlets to get information: the commercial attaché at the Albanian embassy in Athens and our own commercial attaché at Tirana.(The investor) will only get some rough information. If he decides on the basis of this information, he will make a mistake.

Things dont operate as on paper. Take property, for example. If the investor buys a piece of real estate, someone may emerge at any moment and claim ownership on the basis of some past titles.The investor will then have to expend a lot of energy to clear up the ownership. In this case, the piece of property may end up costing him three times as much.Moreover, he may believe he has electricity supply and find at some point that this is far from certain. So, he must find ways to produce energy himself. Albania has a very big energy problem, quantity- and quality-wise.If you want to make an investment which involves automation, which means uninterrupted power supply is important, youll have problems. Another thing that will stretch your budget.Given that in Albania things are a bit anarchic, you do not, for example, take any biological treatment or waste disposal measures, because no one does. You will suddenly, however, realize that you are in danger of paying fines as high as any company operating in, say, Germany, discharging heavy industrial waste.

The Albanian agencies, Mr. Mylonas remarks, are constantly looking for excuses to obtain revenue.The Albanian state administration has an enormous cash flow problem. As a result, it even violates its contractual obligations, such as VAT refunds. So, you are forced to go to the courts, win the case and decisions are not enforced because you cannot claim you money from the state. Is this the reason why Greek business activity in Albania is so limited?The market is not organized. Transactions, to a great extent, take place in the black market. Sales take place without invoices, no one monitors anything, no one controls anything. This may be an advantage for people who operate this way, but not for the serious investor.Italian businessmen dominate the Albanian market. This is easy to explain. Italian products arriving at the port of Durres do not go through any customs inspection. Therefore, the Italians have greater access. In our case, in both border crossings at Kakavia and Kastoria inspections are very tough.Why, then, should a foreigner or undertake the risk of investing in Albania?The market exists. It has a certain size. Moreover, Albania has the best access to Kosovo, where we forecast great construction activity. Also, the Albanian economy is a protected one, there are import tariffs, which means a producer there has a very serious cost advantage over imported goods.In any case, things are improving compared to, say, a couple of years ago and I am certain it will be even better in two years time.What is Mr. Mylonass advice to prospective investors in Albania?

They should first acquire a commercial presence to see how the market operates and then invest productively.Alumil Albania is the groups subsidiary in the country. The factory under construction is expected to begin operating towards the end of summer next year; 50% of production will be absorbed by the local market and the rest will be exported to south Serbia and Kosovo. The total cost of the investment is estimated at _6 million.In order to ascertain ownership of the piece of real estate Alumil acquired in the Albanian capital, it had to take the case to courts.We even found the original owners great-grandfather before he found us. That was very important, Mylonas says.

1 comment:

Nick @ Propertastic! said...

Thank you very much for a very informative and educational piece of the current state of the market in Albania.

I run a website that offerins information on real este across Eastern Europe:

There s currently some debate in the real estate business as to whether Albania is 'the next big thing'.

I recently covered this question in a blog entry that can be read at:

My thoughts that I point out in the article is that it is too early to invest in Albania - mainly because I don't see any great potential for mass-tourism to Albania any time soon.

I was aware of problems with corruption on Albania which I touch upon in my article, but I had no idea that things were that bad.

I will definitely be suggesting that anyone considering investing in Albania reads this article before they start spending money!