Spinning wheels in a Wild West

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A year ago, the British construction company MacRae International began work on a 1,200-house residential estate on the outskirts of the Albanian capital, Tirana. The company had signed a contract with the government. It even had buyers lined up for its solid timber-frame houses.

Sounds watertight enough, right? Wrong. Albania may be one of Europe's fastest-growing economies, but it was also its wildest, and in one fell swoop everything went to hell.

Because of the government's land privatisation programme, MacRae suddenly found that instead of one business partner - the state - it was dealing with several hundred private landowners. Several months and $700,000 (pounds 450,000) of wasted investment later, the project came to a grinding halt.

"I'm discovering I have something in common with George Soros," joked MacRae's stoical director for Albania, Martin Stent. "I now have a bunch of foundations to my name."

Four years after the collapse of one of the world's most repressive communist regimes, Albania is still a Wild West for the investor.The opportunities are undeniable - rich resources in minerals and oil, a stunningly beautiful and totally unspoilt coastline ripe for tourism, cheap labour, and above all a consumer-crazy population itching to earn and spend after nearly half a century spent cut off from the outside world.

But the challenges are also daunting. Laws on such basic issues as land ownership either do not exist or are not respected. There are no private banks and credit is effectively non-existent. There are no more than five miles of decent road in the whole country; telephones are scarce; electricity has a habit of cutting out, especially in winter; water is unsafe to drink and available for only a few hours a day, and so on.

Ask any Albanian how to make investments work, and you will be told the real trick is not signing contracts but knowing which public official to pay off.. Although denied by the ruling Democratic Party, corruption is a big political issue.

Thus it is that just 3,000 houses have been built with official consent by the national housing agency, but another 42,000 have sprung up illegally. The construction companies involved almost certainly circumvented the bureaucracy by coming to a private agreement with a senior civil servant. Likewise, the boulevards of central Tirana are lined with technically illegal cafes and small shops. You can be sure someone in some ministry is doing very well out of them.

"Privatisation has turned into a racket, and the government is raking off the benefits," said Prec Zogaj, a political commentator and member of the centrist Social Democrat party. "Why aren't the banks privatised, for example? Because a private bank can't be relied on to do favours for the government's friends."

Some foreign companies fare remarkably well - for example Coca Cola, which has built a $9.5m bottling plant outside Tirana - while others have been blown away. One Italian firm that signed a contract in the first few months of democracy in Albania found its plans for an agribusiness venture blocked after the Democratic Party came to power. Company chiefs returned to Italy $5m out of pocket.

Foreign investment has kept on coming - around $200m is believed to be committed to projects in Albania - but the unstable and unpredictable conditions have created an uneven, almost surreal, kind of economic development.

You can't drink the water out of the taps, but Italian mineral water is available everywhere. Albanian buildings arecrumbling visibly, but covered in state-of-the-art television satellite dishes. The roads are packed with Mercedes and BMWs, many stolen in Italy or Greece, but they face a non-stop obstacle course of potholes, puddles and stray rocks.

Government priorities are often more about prestige than practicality. The health ministry recently ordered its third and fourth helicopters for emergency medical rescues, but hospitals still face hygiene problems and supply of basic medicines. Siemens has won a $30m contract to modernise the airport, though basic improvements could probably have been carried out for one-third of the price.

"One mistake the Albanians make is to assume all foreigners are filthy rich, and try to rip them off," said Mr Stent. "One mistake foreigners make is to think they can impose their standards in such an environment."

"We need to make life easier for foreign investors," said Ilir Meta of the opposition Socialist Party. But, he conceded in endearingly disjointed English, "it is difficult to have a `soon' perspective."