Global turmoil hasn’t only brought new challenges, but also made the resolving of long-standing systemic barriers an imperative – including the high levels of the grey economy, shortages of personnel who possess appropriate knowhow and skills, and the insufficient digital transformation of society, which is a precondition for the economy’s accelerated recovery
Montenegro has been hit by all the current global challenges – from supply chain disruptions and losses of traditional tourism markets, via the investment slowdown, to high inflation rates and general price hikes. It is almost impossible to evaluate the greater or lesser importance of these challenges. I would say that the biggest problem is that these challenges happen to coincide, says Nina Drakić Ph.D., President of the Chamber of Commerce of Montenegro.
These factors will all influence the country’s economic performance in 2023. “High import dependence, or a high deficit, has for years represented one of the biggest challenges to the Montenegrin economy, and it is a direct consequence of the low production levels in agriculture and industry. That’s why the country’s exposure to rising prices of goods imported to satisfy domestic demand is so extremely high and difficult to influence, which ensures it will also continue to hamper us during 2023,” explains our interlocutor, adding: “as a consequence of the war in Ukraine, during the previous year we saw a significant reduction in the number of tourists arriving from that country, but also from Belarus and Russia. In my opinion, this trend will unfortunately continue this year, so without the “conquering” of new markets, there will be consequences due to the loss of these traditional ones.”
Does the Government of Montenegro have room to take a proactive approach to creating an environment that’s conducive to economic growth in 2023?
– The business sector expects the Government to create a stable and predictable business environment, considering that it has the opportunity and can influence economic growth and development in 2023, but also in every subsequent year.
We are aware that it isn’t possible to solve all problems immediately, but the Government has a wide range of tools that it can use, especially when it comes to long-term effects. Viewed over the long run, preserving the substance of the economy and macroeconomic stability – and in parallel conducting structural reforms, while further developing and implementing infrastructure projects – will secure the required conditions for more dynamic growth and development.
During the previous period, the Government of Montenegro didn’t adopt numerous initiatives for amendments to the legislative framework governing the sectors of tourism, trade, health, and environmental protection to the extent that we expected. We will therefore continue to insist on regulatory changes that will enable an improved business environment
On the other hand, the Government can also take advantage of short-term measures that will create the conditions for faster economic growth in 2023. As such, an efficient administration could help a lot in overcoming numerous barriers or some significant problems that characterise our economic system, such as the illiquidity of the economy or the grey economy. Through the accelerated resolving of requests for VAT refunds alone, the administration would significantly ease the operations of businesses, while the more intense activity of inspection bodies would contribute significantly to combating the grey economy.
Alongside this, it is necessary to take measures to incentivise the tourism industry, particularly rural and health tourism, with the aim of creating a diverse, year-round offer; to increase allocations for agriculture, work on the introduction of new digital services in order to improve conditions for doing business etc.
Which of the proposals and initiatives of the Chamber of Commerce of Montenegro and its member companies would you highlight as being the most important to support the economy?
– Given that the economy is struggling with the burden of the current crisis, and that the period ahead is filled with uncertainties, the Chamber of Commerce of Montenegro (PKCG) proposed a set of activities and measures to the Government aimed at supporting the economy. Considering the energy crisis and broken or imperilled supply chains, we’ve initiated the granting of an additional 10% discount on the electricity bills of all enterprises that reduce their energy consumption in the period ahead compared to the same period of last year. By evaluating the extremely important exploiting of the potential for the construction of solar power plants, we’ve proposed the measure of introducing a VAT rate of zero on equipment for solar power plants. With this in mind, the VAT rate on equipment for these kinds of power plants has been reduced from 21% to 7% through amendments to the VAT Law.
With the aim of easing the negative financial ramifications for the agriculture sector and the food industry, we pointed out to the Government, among other things, the need to secure interest-free loans for industrial bakeries, the need to increase subsidies for bulk buying milk, and then to reduce the VAT rate on meat products, fish, fruits and vegetables to 7%.
To what extent has the Government of Montenegro shown appreciation for your initiatives related to regulatory changes that would ease the continued operations of enterprises?
– Through numerous initiatives targeting decision makers, we succeed in helping our members to resolve challenges and ease their operations in a large number of cases. However, numerous initiatives for amendments to the legislative framework governing the sectors of tourism, trade, health, and environmental protection have not been adopted to the extent that we expected. We will therefore continue to insist on regulatory changes that will provide for an improved business environment. Special attention was paid during the previous year to solving the problem of implementing public procurement contracts, which arose due to market circumstances having changed significantly, i.e., due to rising prices and costs for almost all inputs, primarily in the construction sector. The PKCG coordinated the development of the Guidelines for implementing procedures for determining price differences on the basis of construction contracts, and I hope that the Government will “make them operational” as soon as possible. Alongside this, the PKCG proposed that the Law on Public Procurement be amended in such a way that it enables the possibility of increasing a contracted value by up to 20% on contracts that are still in the implementation phase due to no fault of the bidder and that were concluded during the period of the applicability of the previous law, given that it did not stipulate this possibility.
Another subject of our attention was the Law on Amendments to the Law on Excise Duties, which if applied as such would lead to increased production costs for domestic producers that would reflect on retail prices. This prompted us to submit an initiative to the Ministry of Finance that was adopted and resulted in the abolishing of the provision on the payment of excise duties on plastic products. Apart from the aforementioned, we also participated in the drafting of numerous regulations that impact the business environment, amongst which I would mention the Law on Companies and the Labour Law.
What changes to the institutional environment do you expect in the period ahead?
– Improving the business environment, and thereby improving the competitiveness of domestic companies, requires that the institutions with which the Chamber cooperates continuously be stable and functional. Likewise, a stable political system and predictable business environment serve as a guarantee for real investments in the economy, and thus for the development of the economy as a whole.
Through the accelerated resolving of requests for VAT refunds alone, the administration would significantly ease the operations of businesses, while the more intense activity of inspection bodies would contribute significantly to combating the grey economy
I hope Montenegro will soon overcome the political and institutional crisis and that we will return to the EU integration path and continue to be recognised as a leader in this process.
We are concerned by the most recent messages of the European Commission over the possible halting of the negotiation process, which would also mean the freezing of funds available to support the economy with the aim of improving competitiveness, creating new jobs and increasing export opportunities, but also improving environmental protection and the transition to a green and circular economy.
The work of the PKCG in 2022 was focused, among other things, on the internationalisation of business operations and the implementation of international projects. Which of the Chamber’s successes would you single out here and what would you highlight among the priorities for 2023?
– During the previous year, the Chamber worked with dedication on the internationalisation of the operations of its member companies, as part of its regular and core activities, but also via projects financed through various programmes of the European Union and other donors. This implies wide ranging support from the provision of information on foreign markets, novelties in the world of marketing, linking up with foreign partners through the organisation of business meetings and appearances at trade fairs, which included the participation of more than 280 companies from Montenegro during the past year.
Thus, through the mediation of the Chamber, domestic businesspeople also expressed interest in cooperating with companies from other markets under the scope of the business meetings that we organised with the U.S., the UAE, Germany, Belgium, Luxembourg, San Marino, Turkey, Serbia, Romania, France, North Macedonia and many other countries.
All of this was also accompanied by a series of educational activities covering topics related to issues of export, the import policies of target markets, functioning within value chains and similar topics. The significantly altered market conditions caused by the COVID-19 pandemic further accentuated the need for accelerated digital transformation, as one of the basic preconditions for internationalisation. As such, this topic has been – and remains – in our focus.
Through the PKCG’s membership in the Enterprise European Network, the continent’s largest business network, we have an opportunity to present the offers of Montenegrin companies to potential foreign partners, as well as to convey their interest in cooperation to our members. Thanks to this network in particular, we were able to provide the opportunity to participate in numerous online business missions even at the peak of the pandemic and lockdowns.
When it comes to international projects, we have spent years endeavouring to utilise all the benefits of pre-accession assistance in order to raise our own capacities, and those of our members, in the areas of access to finance, through the green and blue economy, digitalisation and advancing the education system in the direction of adjusting labour market supply and demand. I’m glad that we’ve been recognised as a credible partner in this field by renowned institutions and organisations from EU countries that are happy to cooperate with us. Our intention is to be even better in this work, because the exchange of knowledge offered to us through these projects is important for raising the local economy’s level of competitiveness and preparedness to compete successfully on foreign markets.
Businesses expect the Government to create a stable and predictable business environment, considering that it also has the opportunity to influence economic growth and development in 2023
I hope Montenegro will soon overcome the political and institutional crisis and that we will return to the EU integration path and continue to be recognised as a leader in this process
Through numerous initiatives targeting decision makers, we succeed in helping our members to resolve challenges and ease their operations in a large number of cases