The basic prerequisites for sustainable growth in the period ahead are the stabilising of political conditions and the improving of the investment environment. The business community needs to be actively engaged in decision-making processes regarding economic policy
Following numerous challenges – from the pandemic and energy and food crises, to rampant inflation and the ongoing war in Ukraine – the global economy is experiencing a phase of mild recovery, with some developing countries achieving very good results by taking advantage of circumstances on the global market. The biggest geopolitical risk to recovery currently comes from the Middle East, where increased tensions could cause a significant rise in energy prices, which would ultimately cause global inflation to once again intensify.
Chamber of Commerce of Montenegro President Nina Drakić says that, despite unfavourable external factors, the Montenegrin economy continued its recovery in 2023, surpassing pre-pandemic levels in some segments. After last year’s growth of 6%, which was among the highest in Europe, the country’s recovery continued in the first quarter of 2024, reflected in a growth rate of 4.4%.
“Positive trends have also been recorded on the labour market, where the number of employees increased by 6.5% over the first five months of this year, while the unemployment rate fell to 12.1%. Additionally, the same period saw an 11.6% increase in retail trade turnover and a 9.7% increase in the value of net FDI,” says our interlocutor.
According to the expectations of businesspeople, conditions for doing business will be better and at a more satisfactory level in 2025 than they are currently
Due to the country’s significant dependence on foreign goods, increased imports have been accompanied by a reduction in exports, leading to a 17% increase in the trade deficit, once again confirming the unfavourable structure of the Montenegrin economy, which still relies predominantly on tourism. Preliminary forecasts indicate a slowdown in real economic growth, with projected 2024 growth rates of 3.4% (World Bank) and 3.7% (International Monetary Fund), while the Ministry of Finance expects a growth rate of 3.8%.
Growth projections are based on further growth in the tourism sector, continued high private consumption and the recovery of FDI. “The basic prerequisites for sustainable growth in the coming period are the stabilisation of political conditions and the improvement of the investment environment, accompanied by structural reforms, i.e., the diversification of the economy, along with the intensive implementation of capital infrastructure projects,” says Dr Drakić.
Considering political changes, how consistent and adapted to the needs of businesspeople is the economic policy that’s been led by progressive governments of Montenegro?
— Given that Montenegrin governments have changed four times since 2020, with the fifth being formed through the reconstructing of the previous one, it is challenging to maintain a high level of consistency in the implementing of economic policy. The issue isn’t just programmatic differences of political parties, but also the relatively short periods that the administration, which has undergone significant changes, had to implement certain economic programmes/measures.
Additionally, there have also been some changes in the institutional framework, which – regardless of whether they will prove positive or negative – require some adjustment time for both businesspeople and the administration.
What do surveys and contacts with businesspeople tell you about how they evaluate the business climate?
— In order to determine the state of the business climate and the expectations of the economy for the coming year, as well as to identify the biggest business barriers, the Chamber of Commerce conducted a survey on the business environment in the second quarter of this year. Instability at the global level, as well as in our country, has caused a decline in the assessment of the business environment, which stood at the satisfactory level of 3.05 prior to the Covid-19 pandemic. The current overall assessment of the business environment is 2.37 – moderately unfavourable, which is almost the same level as last year (2.41). Representatives of companies from central Montenegro and small businesses are least satisfied with the business environment.
The survey covered eight areas: tax system, public procurement, labour market, infrastructure, administration, rule of law, digitalisation and digital transformation, and access to finance. All areas received below-satisfactory average scores (3), indicating a wide range of business environment segments that can be improved. Businesspeople gave the lowest rating to access to finance, while the best-rated area was public procurement.
If a consensus around priority measures that the Government of Montenegro should take were to be sought within the business community, both among foreign investors and domestic companies, what measures would those be?
— Based on the survey conducted, businesspeople identified the grey economy, the lack of personnel with appropriate knowledge and skills, inefficient public administration, slow collection of receivables – liquidity issues, and high fiscal and parafiscal levies as the biggest barriers to doing business. In last year’s survey, conducted using the same methodology, there was only a difference in one barrier. Specifically, instead of inadequate legal solutions and their implementation in practice, this year saw high fiscal and parafiscal levies rank among the top five barriers. I therefore believe that the measures with which the business community would fully agree are precisely those that address overcoming these challenges. Given that companies gave the lowest rating to the area of “access to finance”, and that as many as 98% of respondents agreed on the establishment of a guarantee fund, state intervention is necessary to improve financing for the real sector.
I have no doubt that the business community, and the economy as a whole, will contribute to the implementation of the EU Growth Plan for the Western Balkans
Moreover, changes to the business environment had a significant impact leading to sharp decline in net foreign investments last year, by as much as 45%. Investors, both domestic and foreign, expect an attractive investment environment, in addition to an adequate legislative and institutional framework, which includes a stimulating tax policy, efficient public administration and judiciary, the availability of a workforce with appropriate knowledge and skills, and accessible sources of financing. Montenegro should pay significant attention to this issue, considering that most countries of the region have exceptionally well-designed incentive measures that align with the characteristics of their economic systems.
How successfully is Montenegro taking advantage of the opportunities provided by the EU’s Growth Plan for the Western Balkans?
— The European plan for the Western Balkans is simultaneously a political, economic and financial plan, and we see it as a document of the utmost importance. This means that the opportunities available to Montenegro, as well as to each country of the region, are both significant and substantial. Apart from the financial support provided by this plan, the reform measures intended to improve business conditions and lay the foundations for accelerated economic development and easier EU integration are particularly important for the economy. Montenegro has set priorities in managing its obligations under the European plan, and their implementation will depend on many factors, most of which lie with decision-makers and the administration. I have no doubt that the business community, and the economy as a whole, will provide its own contribution in the best possible way.
In which areas is the region best networked, and what does this bring to businesspeople?
— I believe that, especially through the strengthening of regional initiatives, new and stronger networking can be achieved – primarily in terms of interconnections and transport links, and subsequently through the establishment of economic interdependence, particularly through the component of increasing production capabilities that will find their market in neighbouring countries.
How successful are the chambers of commerce of the region when it comes to initiating various initiatives aimed at reducing barriers to business within the region, and which of your initiatives would you highlight as being the most important?
— The chambers of commerce are doing this well, efficiently and continuously. In many situations, even under some circumstances that bordered on the extraordinary, chamber cooperation has passed the test of maturity.
It is perhaps in this context that I would highlight the Western Balkans 6 Chamber Investment Forum (WB6 CIF), where the chambers of commerce of Bosnia and Herzegovina, Serbia, Albania, North Macedonia, Kosovo and Montenegro work together on all issues of economic interest to the region, recognising the EU accession perspective as a goal without an alternative. The WB6 CIF is also an important promoter of the idea of a Regional Economic Area (REA), as it articulates the needs and suggestions of the business community through the broad network of the economy of the region it represents.
We are simultaneously building other channels to connect and cooperate with the region’s business communities.
INITIATIVE State intervention is necessary to improve financing for the real sector. As many as 98% of surveyed companies supported the establishment of a guarantee fund | IMPERATIVE It is crucial that the business environment be as predictable and consistent as possible in the future | CHALLENGES Instability at the global level, as well as in our country, has led to a decline in the rating of the business environment from moderately favourable to moderately unfavourable |
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Photo by Dejan Kalezić