Remon Zakaria, EBRD Head Of Office For Montenegro

Increasing Economy’s Competitiveness Key To Resilience

The EBRD stands ready to support Montenegro in its transition to a more resilient, greener and more digitalised economy. In doing so, it focuses strongly on providing support to the SME sector, which was hit hard by the crisis and needs to strengthen its operations

Montenegro’s economy is heavily dependent on tourism. This renders the economy particularly vulnerable to external shocks, as we saw last year – when the pandemic led to a strong contraction in economic growth. Today, the EBRD is focused strongly on helping Montenegro diversify its economy and profit from its natural resources.

By strengthening private sector competitiveness, the EBRD is helping to diversify the country’s economy and thus reduce its reliance on seasonal tourism while improving the business environment.

“We stand ready to support companies, especially small and medium-sized enterprises (SMEs), with measures that promote strengthened capacity, commercialisation and improved governance,” says Remon Zakaria, EBRD Head of Office for Montenegro.

Our interlocutor adds that one possible way to help diversify the economy is by extending the tourist offer beyond the confines of summer coastal tourism to include nature-orientated, rural, culinary, health and sports-related tourism. “This alternative offer could attract interest to the central and northern parts of the country that are rich in cultural and nature-based heritage sites, and could enhance the country’s attractiveness during typically off-peak seasons. This, in turn, would also help mitigate environmental and social risks caused by the high concentration of tourists in a short window of time in one area of the country,” suggests Zakaria.

How does the overall macroeconomic and fiscal position of Montenegro influence the dynamics of implementing the envisaged goals?

– The macroeconomic and fiscal position of Montenegro creates specific conditions for the private sector and, hence, for our work. Last year’s strong contraction exposed the vulnerabilities of Montenegro’s economic model, while the recovery that’s currently underway creates opportunities for the private sector to again start growing and addressing those vulnerabilities. We are happy to support companies in this process.

At the same time, fiscal space remains quite limited, though the ratio of public debt to GDP has declined somewhat since last year. This calls for innovative solutions in the public space and higher private sector participation, the careful prioritising of public sector investments and fiscal reforms to ensure lasting public debt sustainability.

Given the challenges confronting the SME sector in Montenegro during the pandemic, do they have the strength required to push for such a dramatic change as shifting to value added products across industry?

– The coronavirus pandemic exposed the vulnerabilities of small businesses and is testing their resilience like never before. Helping SMEs access know-how that addresses their immediate business needs and strengthens their operations has never been a bigger priority for private sector development. But, of course, these adjustments don’t happen overnight; they take time. In the aftermath of the COVID-19 pandemic, it is important for Montenegro to tackle long-term goals for increasing the economy’s competitiveness.

We have joined forces with the European Union and Montenegro’s Ministry of Economic Development to help SMEs in the country access know-how that will help them develop their competitiveness.

Increasing the inclusion of local communities in the tourism value chain can boost the local economy and reduce poverty, while helping to build a sustainable and inclusive tourism industry in Montenegro

The initiative consists of two components. First, it aims to harness the opportunities of consulting and advisory services to advance an enabling environment for entrepreneurship. SMEs are important contributors to jobs and value-added, and they have a fundamental role to play in fostering a sustainable and resilient economy in Montenegro.

Second, the initiative aims to advance structural reforms that enhance Montenegro’s attractiveness as an investment destination. Under the Investment Climate and Governance Initiative, we will focus on strengthening the capacity of the Ministry of Economic Development to better serve SMEs through policy development and enhancing SME support programmes, while the project also aims to set up a digital one-stop-shop web portal that will have all relevant information for SMEs and enable them to apply for incentives online.

Are companies in Montenegro well equipped to traverse the digital transition process? Where would EBRD support prove crucial in that endeavour?

– Companies in Montenegro stand ready to go digital and transform their business in order to adapt to the needs of the market. The pandemic has accelerated this digital transformation process, given that it was necessary to overcome physical lockdowns and still reach customers.

On average, companies in Montenegro spend more on computer software and a significantly higher number of the country’s companies use customer relations management software compared to their Western Balkan peers. However, a smaller share of Montenegrin firms has a website and fewer individuals do online shopping – pointing to opportunities to enhance e-commerce.

Enhancing digital outcomes of businesses requires enhancing the drivers of digital transformation, namely infrastructure, affordability, skills and a regulatory framework.

The EBRD stands ready to support Montenegrin companies’ digital transition. Some of these measures include the deployment and upgrade of physical broadband infrastructure across the country, as well as tailored advisory services coupled with potential investments in selected ICT companies, in order to enhance access to digital technologies countrywide. We’re also helping develop skills with webinars to boost entrepreneurial and management skills for women in business in the area of digital transformation, with support from donors like Sweden.

What investments are needed in the areas of connectivity and broadband coverage?

– Boosting connectivity and broadband infrastructure is one of the EBRD’s key priorities in Montenegro.

With the support of the Western Balkan Investment Framework (WBIF), we continue to support initiatives to enhance countrywide access to information and communication technologies, including to under-served populations. The Bank is ready to support investments for the deployment of broadband infrastructure in selected white areas (areas without operators) and grey areas (areas with only a single operator) with a high socioeconomic impact, and to provide related legal and regulatory advisory services (e.g., shared use of infrastructure and licencing).

How does the transition to the green economy fit into the bigger picture of diversifying the economy?

– The transition to a green economy is a lengthy process that requires clear goals and steps to reach those goals. According to the International Labour Organization (ILO), shifting to a greener economy could create 24 million new jobs globally by 2030, provided the right policies are put in place.

Montenegro has huge potential to decarbonise the economy through targeted policy reforms and investments. On the energy supply side, investments in renewable energy sources and upgrading the country’s transmission network could decarbonise the sector significantly while creating employment opportunities and know-how.

On the demand side, energy efficiency in buildings is key for Montenegro. Increasing the pace of the comprehensive energy efficiency renovations of residential and public buildings could reduce energy use significantly while creating jobs in the construction industry and the SME sector, throughout the entire value chain of green technologies and materials.

A green economy also implies investments to protect the environment. Montenegro possesses huge potential for such environmental infrastructure – from waste management to water and wastewater supplies. All these economic activities will enable the economy’s sustainable diversification.

We have joined forces with the European Union and Montenegro’s Ministry of Economic Development to help Montenegrin SMEs access know-how in order to develop their competitiveness

Which areas are in your focus in that respect?

-The EBRD is involved in delivering green financing in multiple economic sectors in Montenegro.

In the energy sector, we are focusing on accelerating the decarbonisation of the region by financing renewables, coupled with advisory services to support the implementation of best market practices and environmental and social standards. For example, the EBRD has offered support to the Government in designing site-specific competitive auctions, as is done in neighbouring countries like Serbia and Albania. The auction system could encourage competition and attract a reputable international investor able to offer very competitive prices. In addition, we have supported the establishing of a renewable energy business association in Serbia to enhance public-private dialogue and contribute to Serbia’s faster green transition.

We are looking into replicating this successful initiative in other countries of the region, including Montenegro. We are also looking to help increase energy, resource efficiency and climate resilience through the rehabilitation and upgrade of energy generation and distribution capacities, as well as financial and advisory support for green investments in the private sector.

To what extent do the national goals of the Green Agenda correspond to overall efforts being exerted within the Western Balkans?

– The leaders of the Western Balkan countries gathered in Sofia on 10th November 2020 at the Western Balkans Summit to endorse the green agenda for the region and express their commitment to implementing actions to address the pillars of climate, energy and mobility; circular economy; depollution; sustainable agriculture and food production, and biodiversity.

This declaration was followed by concrete actions from each government in the region and supported by the European Commission through the adoption of a comprehensive Economic and Investment Plan for the Western Balkans. The plan aims to spur the long-term economic recovery of the region, support a green and digital transition, and foster regional integration and alignment with the European Union.

The EBRD is engaging directly in green financing in the region and partnering with other IFIs and the European Commission as part of the Western Balkan Investment Framework (WBIF) to help Western Balkan countries deliver on their commitments and support a sustainable transition to a greener economy.

Are you satisfied with the attention the Montenegrin government is paying to the circular economy and environmental policies?

– Montenegro has huge potential to scale up waste recycling and the circular economy. The issues faced by Montenegro are similar to those witnessed in other Western Balkan countries. These issues need to be addressed through a careful combination of policy reforms and investments.

The EBRD is working towards supporting the circular economy and environmental investments in Montenegro.

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