We believe that the Montenegrin economy will continue to be strongly influenced by investments in the coming years. It is therefore of particular importance for the new government to continue implementing measures in the areas of the rule of law and the efficiency of legal protection, as well as improving economic conditions and the business climate
The Coronavirus pandemic has hit the economy of the entire world, putting a significant number of companies at risk of being forced to close their businesses. The crisis has had a particularly severe impact on small and mediumsized enterprises and their employees. On the other hand, the crisis has created potential opportunities for companies to use technology to support the further development of operations. Here we discuss the effects of the pandemic and the overall economic prospects of Montenegro with Christoph Schoen, president of the Montenegrin Foreign Investors Council and CEO of Addiko Bank.
What are the most pressing issues for foreign investors in Montenegro when it comes to the current economic situation and COVID-19?
– When we talk about the most challenging preconditions for the development of business, we can say that the rule of law has been recognised by all of our members as the most challenging prerequisite for the development of business operations. We believe that a predictable business environment, which implies the transparency of the administration’s activities, is of crucial importance.
While Montenegro has taken steps to make the country more open to foreign investment, further improvements need to be made. Legal institutions need to be further developed in order to reduce corruption and strengthen control over conflicts of interest. The judicial system needs to improve its efficiency, while court decisions need to be consistently reasoned or enforced. Moreover, the further suppression of the grey economy will impact positively on the open market and business operations.
How would you assess the overall macroeconomic situation, both in general and in terms of new investments?
– The second quarter of the year was characterised by economic and social closures, aimed at preventing the spread of COVID-19, and the implementation of numerous epidemiological measures to protect public health. In such an environment, a major economic decline of 20.2% was recorded.
The prolonged duration of the health crisis led to a great economic contraction in the summer months, when most of the tourist traffic is usually conducted and generates significant private and public revenue in the country. According to the Economic Reform Programme Implementation Report, real GDP decline in the first half of 2020 stood at 10.3%, while revenue from tourism in the first half of 2020 was down by 78.5% compared to the same period of 2019, with a high decline of 95.3% in the second quarter alone. On the other side, the net inflow of foreign direct investments in the January-July 2020 period amounted to €285.8 million, which is up 18.4% compared to the same period of 2019.
We believe that the Montenegrin economy will continue to be strongly influenced by investments in the coming years. The implementation of public finance consolidation measures will also impact positively on the development of economic activities, as will measures aimed at optimising the public sector. The government should continue the fight against the grey economy, which requires a decisive reaction from relevant institutions and is an important factor in ensuring fair market competition. We also would like to emphasise the importance of a predictable and transparent business environment for the further successful implementation of new investments. On the other side, a limiting factor could be a lack of diversification of the Montenegrin economy, which could reduce the full positive impact of foreign investments.
We are very active interlocutors and partners of the government in the field of improving the business environment.
How do you view your collaboration with the EU Delegation in Montenegro?
– The Montenegrin Foreign Investors Council and the EU Delegation in Montenegro have traditionally enjoyed good cooperation. The EU Delegation and MFIC exchange views on the economic development of the country on a continuous basis, so in that sense we coordinate our activities and initiatives towards decision makers in the direction of improving the business climate. We meet on a regular basis with TAIEX and EU Commission representatives during their review missions regarding the preparation and implementation of the Economic Reform Programme of Montenegro, but also to share our experiences regarding the improvement of the business environment. During our most recent meeting with EU Ambassador to Montenegro H.E. Oana Cristina Popa, we agreed to intensify cooperation in the areas of business environment improvement, strengthening the rule of law and the EU integration process.
As a member of the Competitiveness Council and other inter-ministerial working groups, which initiatives have you supported and how well were they received?
– We are very active interlocutors and partners of the government in the field of improving the business environment. As a very active member of the Competitiveness Council in the previous period, we were focused on ensuring the implementation of recommendations provided by our members through the annual White Book, as well as through the work of our committees.
Through the initiative submitted to the Competitiveness Council, and with the support of the Ministry of Finance and the Secretariat of the Competitiveness Council, we are working intensively on the implementation of defined proposals for measures to eliminate barriers hindering the development of electronic services in the banking and telecommunications sectors.
An interdepartmental working group comprising representatives of the Montenegrin Foreign Investors Council, the Ministry of Finance, the Central Bank of Montenegro, the Interior Ministry, the Tax Administration, the Police Administration, the Association of Banks and MFIC member companies prepared an Action Plan with established dynamics for the implementation of submitted recommendations. Of a total of nine activities, two have already been implemented, while the implementation of the others is underway.
We have also launched talks with the Government on forming a “digital coalition”, in cooperation with our partners from the American Chamber of Commerce, the Montenegrin Chamber of Commerce and the Association of Managers, bearing in mind that the digital transformation of business processes in public administration is key to improving the business environment.
Rule of law has been recognised by all of our members as the most challenging prerequisite for the development of business operations.
What are the most important messages of the 2019 White Book?
– Last year was marked by the improvement of the business environment, which is reflected in the growth of the overall MFIC Ease of Doing Business Index, pointing to the implementation of reforms aimed at improving economic conditions and the business climate. The MFIC Index for 2019 amounts to 6.9, on a scale of 1 to 10, and that rating indicates an improvement compared to 2017 and 2018, when the Index stood at 6.5, which was its highest result since this kind of evaluation was introduced.
When it comes to assessing key sectors in 2019, the telecommunications and ICT sectors have the highest index (7.6). The tourism, banking/finance and transportation/logistics sectors all registered growth compared to 2018, while the production/energy sectors remained at the same level as in the previous year. Telecommunications and ICT (+0.8) and banking and finance (+0.6) recorded the highest growth compared to 2018. Despite growth in five out of six sectors, it was only the banking and finance sector that recorded the highest index for 2019 compared to all previous years.
In order to evaluate individual significant categories, members analysed the extent to which the following categories impact positively or negatively on their operations: the labour market and employment, property development, taxation, corporate governance and the rule of law. In general, all individual ratings for 2019 recorded growth, which explains the overall growth of the MFIC Index.
Taking into account the priorities of the Council’s members, and in order to analyse the business environment in more detail, six categories have been introduced since 2016 that were recognised by Council members in the previous period as being areas that line institutions should pay attention to, given that they represent existing or potential barriers to business operations. These are: human capital, the grey market and inspections, regulations on public-private partnerships, public procurement, the digitalisation of public services and regulations on personal data protection.
Of the six analysed areas, we have seen an increase in three of them and a decrease in the ratings of the other three for 2019 compared to 2018. Minimum growth was observed in areas related to public procurement and the grey market and inspections, while growth of 0.2 was recorded for human capital. A decrease was observed in areas related to public-private partnerships (-0.5), the digitalisation of public services (-0.1) and regulations on personal data protection (-0.2).
We will continue to be an active member of the government’s Competitiveness Council and the Commission for the Suppression of the Grey Economy.
How would you assess your collaboration with the EBRD Secretariat in terms of promoting competitiveness?
– The MFIC and the Secretariat of the Competitiveness Council have worked together on several projects. The previous period was characterised by intensive work and the implementation of the activities of the Competitiveness Council, primarily through the number of sessions held, materials submitted by the MFIC and supported initiatives, but also through the work of numerous active working bodies. Nevertheless, I would like to commend the Secretariat’s engagement in the Working Group for defining measures to eliminate barriers hindering the development of electronic services, which was established at our initiative and aims – through direct cooperation between MFIC representatives and responsible state institutions – to contribute to improving the existing situation by proposing new measures and amending existing legislation. The Secretariat recognises private sector initiatives and provides strong support in their implementation.
What are your priorities for the period ahead?
We are now in the process of preparing the next White Book: Investment Climate in Montenegro 2020, which will provide recommendations by MFIC members in different areas orientated towards the further improvement of the business environment and which will be presented to public by the end of the first quarter of 2021.
Our Committees (Banking, ICT, Insurance and Regulatory Policy) will closely follow up o changes to the regulatory framework in their sectors and propose initiatives for improvements in areas relevant to the business operations of our member companies.
We will continue to be an active member of the government’s Competitiveness Council and the Commission for the Suppression of the Grey Economy, as well as continuing to cooperate closely with the EBRD Secretariat to the Competitiveness Council with the aim of achieving our common goals and promoting our shared interests.
The further implementation of established fiscal policy measures, coupled with support for strengthening economic activity and fostering competitiveness, will ensure long-term and inclusive growth.
Our future priorities will be to promote Montenegro’s investment potential and advance the interests of the international business community in Montenegro.
The MFIC will continue to fully support the country’s reform process and its accession to the European Union.