Mr. Les Nemethy, Managing Director of Euro-Phoenix Financial Advisors Ltd. (www.europhoenix.com), who is also author of “Business Exit Planning” published by John Wiley & Sons available on amazon.com, but also published in Albanian and eight other languages in the world, dwells at length on his experience in Albania, which he considers as one of the best.

"Thanks to many friends in Albania, the book and I were very warmly received.  I am very grateful," Mr. Les Nemethy confessed in an exclusive interview with Albanian Daily News, which he visited on November 21, 2012, and published great parts of his book on it before its appearance in the market. 

"I would love to have projects in Albania," said Mr. Nemethy, having a career spanning almost three decades and involved in the sale of hundreds of businesses, large and small, in more than 40 countries worldwide.

"Albania has made enormous strides since the Communist regime.  There is still plenty of room for progress. Throughout Central Europe, we have not overcome the transition period - we are not past the transition period - we are still in the middle of it," said Managing Director of Euro-Phoenix Financial Advisors Ltd. Les Nemethy in the following interview:

- Mr. Nemethy, your well- known book "Unlocking Your Company's Value, the Keys to a Successful Business Exit" (In Albanian - Çmimi i Vlerës - Çelësi për një dalje të suksesshme nga biznesi) was published in Albanian in 2012. The newspaper 'Albanian Daily News' is proud of having had the opportunity to publish pieces of your contributions before the publishing of the book for some time. Now, in the year 2017, how would you assess that experience?

- I am pleased to say that the book has been published in nine languages. My publisher in the US, John Wiley & Sons, tells me that to qualify as an international bestseller, a business book of this nature must sell 5,000 copies. I am pleased to say that the level has been easily surpassed. My experience in Albania was one of the best.  Thanks to many friends in Albania, the book and I were very warmly received.  I am very grateful.

- In a career spanning almost three decades, you have been involved in the sale of hundreds of businesses, large and small, in more than 40 countries worldwide. With a rich experience in Albania and its economy and finance and banking system on top of which stands the fact that you have given advise to the Albanian government on managing its national privatisation programmes, have you ever had any case in the sale of any business in this Balkan country, especially after becoming well- known following the publishing of the above- mentioned book in the Albanian language?

- We have sold a number of businesses in former Yugoslavia and Romania, not yet in Albania. First, there are not so many privately owned businesses in Albania in the size range that we typically serve (revenues of 10 to 100 million euros).

Second, Albanian business owners tend to look at their businesses as “their baby”. There is an emotional attachment which makes it difficult for them to sell.

Third, a frequent phenomenon in formerly Communist Balkan countries there is a reluctance to pay for expertise.  Under the old regime, it was physical goods that had value, not intellectual property or expertise.  This reluctance to pay for something as intangible as expertise has improved only very gradually in the Balkans, despite the fact that it may make the difference between a company being saleable or non-saleable, or make a difference of many millions of euros in transaction proceeds.

I would love to have projects in Albania!

- Mr. Nemethy do you think that the Albanian economy, the banking system and finance, the society in general in that former communist country, has overcome the transition period turning into one where all the law of capitalism function, including what you have dwelt on in your book and other contributions?

- Markets never function perfectly, not even in the so-called developed countries.  Albania has made enormous strides since the Communist regime.  There is still plenty of room for progress.  Throughout Central Europe, we have not overcome the transition period - we are not past the transition period - we are still in the middle of it.  Per capita income is still much lower than in Western Europe.  Institutions, laws and regulations are still evolving, and are generally less predictable.

I come back to the importance of expertise and knowledge. We live in a “knowledge economy” and the level of well-being in a country is very much co-related with the degree of knowledge.  For example, a single entrepreneur - an exceptional individual who develops a product or company that serves a global market - can provide a livelihood and income for hundreds or thousands of people.

- It is spoken much on the issue of non-performing loans in Albania, and it is supposed that the Bank of Albania (BoA) should play its role. Which might be the limitations that Albania's Central Bank has not succeeded to carry out that role in the right direction?

- I am not an expert on the Albanian banking sector.  What I can say is that in Europe, banks have been slow to write off non-performing loans.  Regulators share responsibility for this.  In Central Europe, the writing off of loans has been even slower than in Europe.  Ultimately, this ties up the limited capital of the banks in non-performing loans, constraining their ability to grow capital and even more importantly - constraining the ability of the economy to grow.  Japan over the past 20 years has been the perfect example of this:  it has been referred to as the “zombie economy” - precisely because non-performing loans have constrained growth.

After the Lehman crisis, US banks did a much better job of “biting the bullet” than European banks.  If a bank takes a “haircut” on a non-performing loan, it can than reinvest the proceeds of the sale of a non-performing bank loan into a performing one, once again reigniting a process of growth. Short-term pain for long-term gain. Many banks and regulators are afraid of short-term pain.

- The current level of inflation in Albania is estimated to be 2.2 percent, which means that there has been a dropping trend during the last years.  Likewise, the key interest rate has dropped to 1.25% and as you are aware interest rate decisions are taken by the Bank of Albania. Do you think that these decreasing trends are healthy for the economy of a country?

- This ties in with your earlier question.  In order for the 1.25% interest rate to have an effect on the economy, banks serve as a transmission channel, to let businesses borrow at low rates.  If the banks are clogged with non-performing loans, they lose the ability to act as the transmission channel. Enterprises that can use cheap loans for expansion are in a wonderful situation.  The problem is that there are relatively few good productive investments that require capital, projects that could grow GDP and employment.  Most of the cheap loans are used to buy real estate or equities- helping to fuel an asset bubble.

Given that banks make a spread, returns on savings must be lower than interest rates on loans.  In other words, returns on savings are almost non-existent.  A few examples of some of the possible negative effects:

1.  In the search for returns, it drives people to higher risk, more speculative investments (not the appropriate risk profile for pension funds or retirees!)

2.  Companies and individuals put their savings into real estate, equities, etc., once again fuelling the proverbial asset problem.

3.  If interest rates were to suddenly rise, whether in Albania or globally, the result could very well be a crash.

4.  The low interest rate environment creates problems for pension funds and individuals who wish to save (e.g. for retirement).  This will cause certain pension funds to default.  Many retirees will live in poverty.

Let’s say you set an objective to have EUR 1000 per month of retirement income.  In a low interest environment, you must set aside significantly more money every month to reach that objective, compared to a high interest environment.  At the micro level, this reduces your disposable income and standard of living; at the macro level it reduces consumption, which acts as a drag on economic growth.

While many people look at a low interest environment as a panacea, it is something of a mixed blessing.

- There is no stock exchange in Tirana despite much talk on that. Among your experiences in this field just to mention some you have led a number of Initial Public Offerings (IPOs) on the Budapest Stock Exchange; also you have been asked for Kuwait Investment Authority devise a programme to sell approximately US$6 billion of assets on the Kuwait Stock Exchange. Being well- known in Albanian financial and banking circles, have you ever been asked to give your expertise? And if such a contribution is asked, how would you consider it?

- I have not been asked, and my opinion might not be popular in certain circles.  I am not of the view that every country needs a stock exchange.  If one looks at smaller stock exchanges in the region, such as Macedonia, they are all struggling.  Many stock exchanges - even the large ones- are merging.  This is a business with enormous economies of scale.

In my opinion there is not a business case for a stock exchange in a very small, relatively low income country. A stock exchange requires an “equity culture” within at least a significant segment of the population.  Regulations and laws in areas such as governance, transparency, etc. are required to help foster this equity culture.  Furthermore, there are very few companies in Albania with the appropriate size, governance and risk profile that are appropriate for listing.

Typically, in any country, there are many more exits to strategic and financial investors than IPO’s, as the latter requires larger companies, with greater stability of cash flow and more sophisticated governance and reporting.  The fact that there are so few exits in Albania to financial and strategic investors suggests there are a few steps missing before IPO’s may be considered as a serious option- another illustration of the importance of exit planning.

- Seeing in Mr. Nemethy a friend of Albania and its people following your great number of trips there. Which are your impressions on ordinary people of that Balkan country, their history, traditions, customs, but they, unfortunately, still remain amongst the poorest in Europe and the gap between the rich and the poor keeps deepening at frightening speed?

-  I would like to finish on a positive note. We live in a day and age where even a relatively poor person in Albania can get online, and have a world of information at their fingertips. I come back yet again to the theme of knowledge. The opportunities are enormous.

Let me illustrate with an example. In the mid 1990’s, I was running a project for the World Bank in Cote d’Ivoire. I had a translator who over the course of a couple of years charged me $1 per page. Then all of a sudden she raised her rate to $10 per page. I of course demanded an explanation. She told me that she purchased a computer and got online, and rather than serving local clients, her clients are now mostly in Paris and New York, and that $10/page is still very reasonable by global standards.

So let’s not become victims of globalization.  Globalization creates a world of opportunity.  It’s just harder to be competitive in a global economy than in a local economy. Ultimately, it boils down to each individual, who has to take responsibility for his or her own future and make the effort to acquire expertise and knowledge. Education must become a lifelong process.

The issue in most Central European countries is Government. Government needs to play a role in creating the enabling environment. If politicians stuff their pockets rather than focusing on improving education, regulations, tax regime, etc., it becomes much harder to generate wealth and income disparities grow. Fewer people will break out of the poverty cycle.

But let’s put things in perspective. Your question creates an impression of doom and gloom. I have been coming to Albania regularly since 1993. If someone in 1993 had predicted the current state of affairs in Albania in 2017, that prediction would simply not have been credible! The transformation throughout Central Europe over the past 25 years has been absolutely breathtaking. 

*The author would like to thank Perparim Dervishi and Rinal Guri for providing comments and an Albanian perspective to this contribution