After spending the first half of a $20 million investment to drill for gold, silver and zinc in Albania, Canada's Tirex Resources suffered the fate all emerging market investors fear: the unexpected legal curveball. Two years into the project, a man appeared, claiming ownership of part of the land at their mountain top base camp. "It is a minor issue as it doesn't impact our operations, but it is a nuisance nonetheless. To attract more foreign investment, these types of nuisance claims need to stop," Bryan Slusarchuk, the CEO of Tirex Resources, told Reuters.
Complications are common in the Western Balkans, a relatively poor area of 20 million people that wants to join the European Union. Unclear property laws, a slow-moving judiciary, ethnic divisions and corruption continue to be major obstacles. Some countries have a growing pile of legal disputes, and some firms say the rules can appear stacked against, or at least at times unfavourable to, foreign investors. Only Serbia and Croatia on average attract more than 1 billion euros of foreign direct investment a year. Albania's FDI has reached 400 million euros this year, according to the prime minister; in Bosnia, before the crisis in 2008, it was 637 million euros before a sharp fall in 2009.
The wheels of justice often move slowly, exacerbating issues such as unpaid debt worsened by the economic downturn. "In the financial crisis you obviously had the problem of escalating debt in all kinds of businesses," said Kjell-Morten Johnsen, president of the Foreign Investors Council in Serbia and CEO of Telenor there.
"You can easily look at 12 to 24 months before a (court) case like that can be finished, and that becomes a big obstacle if you have a lot of customers who are not paying their bills." Administrative red tape is another obstacle in Serbia, the largest regional economy, and other Yugoslav successor states. "Some investors probably get discouraged when they see how long it will take to complete (the paperwork) and adapt to the legislative requirements," said Aleksandar Radosavljevic, CEO of Carlsberg in Serbia.
In Croatia, the emerging Balkan country likeliest to join the EU in the next few years, investors complain about issues similar to its poorer neighbours on the slower EU approach lane. A backlog of almost one million cases sits in its courts. "Many (foreign investors ) are still involved in ongoing trials and would be afraid to speak out because of the fear of repercussions," a senior EU business official in Zagreb said.
In Bosnia, comprising two largely autonomous halves, the fragmented legal system and different levels of administration and decision-making make life even harder for investors. "There are two separate legal systems, two bourses that conduct the trade and two different sets of rules that regulate that sphere," Sead Miljkovic, a lawyer with Wolf Theiss in Sarajevo and a Foreign Investment Council board member. "If you have to enforce some provisional measure, you must wait for the court's decision for six months, you are simply paralysed," he said.
In Albania, where outsiders, let alone their investment, were unwelcome in the Communist era, the government late last month passed a law to protect foreigners by offering to represent them in court and compensate for any losses due to any blocking of their activities in land disputes.The passage of the new law came after two dozen firms were embroiled in issues such as faced by Tirex.
Such opportunism by trickters has cost Albania 8 million euros in fines in several cases in the last three years from the Paris-based International Court of Arbitration. Sokol Nako, a managing partner of the Wolf Theiss law firm, blamed loopholes and inaccuracies in the Albanian system, corruption at local and central government and the mess of several property codes for the problems investors faced. "I think the (new) law will discourage anyone bent on playing such games," said Nako, a former justice and EU affairs minister, referring to problems like those Tirex had. Yet a bill to create an administrative court in Albania fell victim to a row between the government and the opposition over last year's election. The law, which would have ruled on some 5,000 cases stuck in other courts since 2005, was due to pass last Thursday but failed.
News source: Balkans.com link: article
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