country report - 2009

This publication is product ofthe Montenegrin Investment Promotion Agency (MIPA)

Country Report

ContentsIntroduction............................................................................................................................... 1

1..At.a.Glance............................................................................................................................ 4

2..Climate.-.Diversity.on.a.Small.Surface.Area...................................................................... 8

3..Population.-.Open Society With Diversified Ethnic Structure.......................................... 9

4..A.Short.Walk.Through.the.History.-.Epic Bravery Throughout the Centuries.............. 12

5..Culture.-Rich.Heritage.and.Unique.Wealth....................................................................... 14

6..Snapshot.on.the.Government.and.Politics.-.Stable and Secure Environment.............. 17

7. Economy.-.Ongoing.Development.and.Growth............................................................... 19Monetary and Banking System ................................................................................................ 21

Fiscal Policy ............................................................................................................................. 24

Capital Market ......................................................................................................................... 27

Real Estate Market .................................................................................................................. 30

Employment and Labour Market .............................................................................................. 32

International Trade................................................................................................................... 35

Economist Intelligence Unit - Economic Policy Outlook .......................................................... 38

8..Growth.Vehicles.................................................................................................................. 39Tourism .................................................................................................................................... 39

Telecommunications ................................................................................................................ 42

Transportation And Infrastructure ............................................................................................ 43

Industry .................................................................................................................................... 46

Wood Processing Industry And Forestry ................................................................................. 47

Agriculture .............................................................................................................................. 48

Economic Forecast of the Economist Intelligence Unit ............................................................ 50

Economic growth ..................................................................................................................... 50

Inflation .................................................................................................................................... 51

External sector ......................................................................................................................... 51

Forecast summary ................................................................................................................... 52

9..Privatization.and.Investments.-.Attractive Environment and Offer................................ 53Major Investors ........................................................................................................................ 57

Further privatization ................................................................................................................. 58

10..Quality.of.Life.-.Come.and.You.Will.Stay........................................................................ 60

11..Major.Investment.Opportunities...................................................................................... 6311.1 Tourism ............................................................................................................................ 63

11.2 Infrastructure.................................................................................................................... 65

11.3 Transportation And Logistics ........................................................................................... 65

11.4 Energy ............................................................................................................................. 66

11.5 Industry ............................................................................................................................ 66

Dear ReadersWe are pleased to offer you the second edition of “The Montenegro Country Report”. This report is witnessing the change our country is passing through. Indeed, Montenegro is changing significantly. And every change represents an opportunity for those who see a bit further into the future than others.

After a whole decade of internal and external political and economic shocks, in recent years Montenegro has undertaken an ambitious program of wide-reaching economic reforms in an effort to promote growth and raise living standards.

Where are we standing now? For several years in a row, the growth of gross domestic product has been significant, reaching 8.6% in 2006 and 10.7% in 2007 according to the Monstat. For two years in a row Montenegro has recorded the highest FDI per capita in Europe (1,100 euro). According to the Canadian Fraser Institute, Montenegro is the leader in economic freedoms in the region with a rank of 58 out of 141, while Croatia is 90, Mace-donia 84, Slovenia 88 and Bosnia and Hercegovina 105. Based on the Competetiveness Report released by the World Economic Forum, Montenegro is ranked 65 in the 2008 report based on the competetiveness index (improvement for 17 places), while Bulgaria was 76, Serbia 85, Macedonia 89 and Bosnia and Hercegovina 107. In the latest Standard and Poor’s report, Montenegro received the longterm BB+ and shorterm B sovereign rating as one of the rare countries that maintained the same mark from the previous year.

Montenegro is safe and stable, with a growing trend of foreign direct investments and economic freedoms, as well as dynamic economic development. As a consequence the business environment climate continues to improve. It is open and by its openness it compensates for the size of the local market. Free markets today are becoming more attractive for investments, especially when there are not any restrictions for remit profit, dividend or interest. Add a strong currency, as Montenegro is using the euro, and a favorable tax climate with the lowest corporate tax rate in Europe – 9%, personal income tax 12% and VAT of 7% and 17%. All rates are flat.

The trust we built had a significant impact on encouraging foreign firms to start business operations in Montenegro. Over 4,500 firms from 81 countries are doing business in Montenegro. The first mega marina on the Mediterranean is being built in Montenegro, in beautiful Kotor Bay. Hotel brands Kempinski, Four Seasons and Hilton signed contracts, the expression of interest by several strategic investors are assuring us that there are plans to attract 4 billion euro until the end of 2011 and 30 billion until the end of 2030.

Global financial crises is hiting us as well. We are not an isolated island. However, we would like to be a different and to turn the crises upsidedown and look at it not only as a challenge, but as an opportunity as well.

We do not pretend to know everything, and we do not have the best solution for all the problems that will arise from future economic development. However, we remain open and ready to cooperate with you and to search jointly for long term cooperation, particularly if you are looking at Montenegro as a regional business center.

1

Montenegro Country Report 2009 Montenegro Country Report 2009

Constitutional.name

Location

Time zone

Climate

Population

Area

Territorial division

Capital (population)

Old Royal Capital (population)

Political system

President of the Republic

Prime minister

President of the Parliament

GDP (mil €)

Real GDP Growth Rate

GDP per capita

FDI per capita

Unemployment rate

Corporate tax

Personal Income tax

VAT

Currency

Number of Airports

Main port

Visa regime

Montenegro

South Eastern Europe

GMT + 1

Continental, Mediterranean and Mountain

620,145 (Census, 2003)

13,812 km²

21 municipality

Podgorica (169,132)

Cetinje (18,482)

Parliamentary Democracy

Mr. Filip Vujanovic

Mr. Milo Djukanovic

Mr. Ranko Krivokapic

2,807.9 (2007)1 2,328.2 (I-IX 2008)2 3,338.0 (2008)3

10.7% (2007) 8.0% (I-IX 2008) 8.1% (2008)

4,484 € (2007)

1,093 € (2007)

11.92 (2007) 10.90 (2008)4

Flat - 9%

Flat – 12%

17% and 7% (tourism)

EUR

2 (Podgorica and Tivat)

Port of Bar

None

� Source: MONSTAT � Source: Secretariat for Development of Montenegro-estimation� Source: Economic Policy for �009, Govermennt of Montenegro –estimation based on 9 months of 2008� Source:Economic Policy for �009, Govermennt of Montenegro –estimation based on 9 months of 2008

Besides the above mentioned economic issues, Montenegro joined NATO’s Partnership for Peace program in December 2006 and hopes to achieve further integration at the next NATO summit. Montenegro signed the Stabilization and Association Agreement with the EU in October 2007 and submited an application for member country at the end of 2008.

We hope that in your search for more in-depth information about Montenegro, you will find this report useful. If we achieve only that goal, we would be happy in making another step in the right direction.

Dr Petar IvanovicCEO, Montenegrin Investment Promotion Agency

2 3


1...At.a.GlanceBeauty in the Heart of The MediterraneanMontenegro is a Mediterranean country, located in Southeastern Europe. It is bordered with Italy on the south (sea border), Croatia on the west, Bosnia and Herzegovina on the northwest, Serbia on the northeast, Kosovo on the east and Albania on the southeast. The capital and the largest city is Podgorica, while Cetinje represents the old royal capital and former seat of the throne.

Not only does Montenegro have excellent sea connectivity with all the Mediterranean countries, and with the rest of the World, but it is quite close to all major European centers.

Montenegro’s natural wealth is very diverse, offering a unique blend of mountain and sea splendor. On one side, the seaside of Montenegro is recognized for its beautiful fjord of Boka, attractive islands, numerous bays and pure water, while on the other side

you can find mountains with beautiful lakes, deep canyons with attractive scenery, wild rivers, undiscovered and mysterious caves, all that surrounded with untouched nature. That is the reason why we refer to Montenegro as a country of beauty, some say wild beauty. And that is not all: Montenegrin Sea and mountain beauties are situated very close to each other, enabling us to enjoy them almost simultaneously.

Being a country full of natural wealth, Montenegro has four national parks: Lovcen, Biogradska Gora, Durmitor and Skadar Lake and several regional nature parks. Further-more, it has to be pointed out that Prokletije Mountain Massif has an excellent chance to become a national park or even a “Park of peace” in the near future. Currently, with 6% of its territory under national parks Montenegro is the leader in the World.

Montenegro’s rich natural seaside offering includes the Bay of Kotor, St. Stefan and Ulcinj, each having its unique splendor and beauty, representing a trademark of Mon-tenegrin tourism.

The Bay of Kotor is the only fjord in this part of the world. It consists of four smaller bays: Herceg Novi, Kotor, Risan and Tivat. The uniqueness of the nature, along with huge cultural heritage of Kotor and Risan, make the Bay of Kotor a unique place to visit. In fact, Risan is the ancient capital of Queen Teuta, queen of Illyrs, and Kotor is an old town that, thanks to its historical and cultural significance, has been protected by UNESCO as a part of the world’s cultural heritage.

Sveti Stefan was inhabited in the 15th cen-tury as a fisherman’s village. In the 1950s, the last residents of the village were evicted, and Sveti Stefan was transformed into a luxury town-hotel. It is the most exclusive resort on Montenegro’s coast. Sveti Stefan is, in a way, a Montenegrin trade mark as probably the most photographed place in Montenegro.

Ulcinj is a city famous for its tradition and tales about pirates. There is a legend that even the famous Miguel Servantes was a pirate’s prisoner in Ulcinj. Maybe he even wrote some of his books there. Ulcinj com-

Unexplored Montenegro

“This is not without good reason. Montenegro’s long political isolation and extraordinarily rich ecological endowment have helped to make the tiny nation one of the most genuine, beautiful and best preserved in Europe. Among its bragging points are Europe’s deepest canyon, its largest bird sanctuary, its southernmost fjord and the last of its virgin forests. More than a third of Montenegro is forested, and much of the country’s mountainous surface is dotted with historical towns, fortresses, monasteries and Ottoman-era mosques. Added to all of this is the 290 kilometre stretch of Riviera along the Adriatic Sea. Montenegro’s coast is the undeniable draw for the majority of the tourists visiting the country. Located south of the same stretch of beachfront as the pricier and overcrowded Dalmatian coast in Croatia, the area has experienced a major spillover effect, as tourists and real estate prospectors have poured in looking for fresh new deals.”

The National, 4 June 2008

4 5


bines one of the most beautiful old towns and the longest beach on the Adriatic coast – Velika plaza, 13 km, in one place. Having in mind that Velika plaza, along with Ada Bojana, the island created by the river delta of Bojana River, has still to be developed in order to exploit its huge potential, it is likely to expect that Ulcinj will very soon become one of the hottest spots on the Mediterranean.

Having all this in mind, as well as the fact that along the Montenegrin seaside lie towns such as: Budva, the pearl of the Mediterranean, with its beautifull old town and splen-did sand beaches, along with a lot of ongoing and future investment projects; Tivat, which will very soon become the hot spot for mega yachts thanks to the project called Porto Montenegro; and other beautiful small towns and places, such as Petrovac and Buljarice, which have still to be fully exploited, it is clear that Montenegro has a very rich tourism offering.

The Mountain Lovćen rises from the borders of the Adriatic basin, closing the long and twisting bays of Boka Bay and making the hinterland to the coastal town of Kotor. The mountain has two imposing peaks, Štirovnik (1,749 m) and Jezerski vrh (1,657 m). There are 1,158 plant species on Lovćen, out of which four are endemic. The National Park Lovcen encompasses the central and the highest part of Lovcen mountain massif and covers an area of 62.20 km².

Biogradska gora. is located between the rivers Tara and Lim, in the middle of the mountain Bjelasica. The Park is 54 km² in area and surrounded with mountains whose tops are over 2,000 m high. The thing that makes Biogradska Gora unique is the 16 km² of virgin forest, Biogradska Gora, in whose very heart lies Biogradsko Lake, the largest glacier lake in this National park. Biogradska gora is one of three remaining such type of forests in Europe and it has the character of a closely protected area. In fact it is under UNESCO’s protection – “Men and biosphere” program. The Park is renowned as a unique geomorphological region and as such is very attractive for scientific research.

The Durmitor National Park includes the massif of Durmitor, the canyons of Tara, Sušica and Draga rivers and the higher part of the canyon plateau Komarnica, covering the area of 390 km². It was inscribed on the World Heritage List in 1980. One of the most prominent attractions of Durmitor mountain are 18 glacial lakes, called hills eyes, the best known being Crno Lake. Apart from that, National park Durmitor features the biggest mountain peak of Montenegro, Bobotov kuk with its 2,525 m height. Tara River Canyon constitutes an integral part of the National park Durmitor. It is 78 km long and 1,300m deep at its deepest point, being the second biggest canyon in the world, just after the Colorado canyon. Be-cause of its pureness it’s called the “tear of Europe”.

Skadar lake, with a surface area from 370 to 530 km² (depending on the water level) is the largest lake in the Balkan Peninsula and the second largest in Europe. Two thirds of the lake belongs to Montenegro. It is one of the largest bird reserves in Europe, hav-ing 270 bird species, among which are some of the last pelicans in Europe, and thus popular with birdwachers. In 1996, by the Ramsar Convention on Wetlands, Skadar lake was included in the Ramsar list of wetlands of international importance. In addition, the level of the lake is 6 m below the surface of the Adriatic sea.

6 7


2..ClimateDiversity on a small surface area

The geographical location of Montenegro, along with a diversity of natural wealth on a relatively small surface area, gave Montenegro various kinds of different climates with noticeable differences. Consequently, we have to distinguish the coast, the central plain and the mountain area with respect to their climate characteristics5.

The coast enjoys a Mediterranean climate, with long dry summers and short mild win-ters. Average July maximum temperatures are around 28ºC with a high approaching 30ºC; average annual sunshine is over 2,500 hours with a summer average of 300+ hours per month, or 10 hours a day. Winter averages are 12.5ºC and 5.5ºC. November is generally the wettest month.

The central plain is colder in the winter and warmer in the summer compared to the coast. Podgorica averages a January temperature of 5ºC and a July temperature of 26.5ºC. The maximum can reach up to 43ºC and the minimum -10ºC.

The mountain climate is sub-alpine with cold snowy winters, and moderate summers averaging 270 hours of sunshine per month. Winter maximum temperatures are around 3ºC and minimums around -6ºC. In the summer months it goes from 23ºC to 9ºC.

Montenegro is indexed on the Koppen scale (based on temperature and precipitation) as a Bs Climate. The B refers to a hot dry climate and the little S refers to dry seasons in the summer with more then 70% of the precipitation that falls in the winter. Montenegro has on average 180 sunny days.

It is worth mentioning that Cetinje and Krivosije represent the city and the settlement with the highest level of rain in Europe on average.

5 www.discover-montenegro.com

3..PopulationOpen Society With Diversified Ethnic Structure

Based on 2003 census Montenegro has 620,145 citizens. The most populated cities in Montenegro are: Podgorica (169,132 citizens), Niksic (75,289) and Bijelo Polje (50,284). As presented data shows, 27% of the total population lives in Podgorica. Furthermore this situation is a result of a high level of migration into the capital city of Montenegro, which is evidenced based on official statistics and this process still continues.

The most important figures of population are given in the following table:

Total.population 620,145

• Male 305,225

• Female 314,920

Number of females per 1000 males 1,031.76

Number of households 180,517

Number of person per 1 household 3.43

Population per 1 km2 44.9

Natural increase 1,563

Average age of population 35.9

Population in abroad (%) 7.86

Life expectancy at birth 73.1

Literacy rate 97.5

Source: MONSTAT

The key dynamic characteristic of the Montenegrin population from 1991 to 2003 are the changes in the age structure, which is driving the Montenegrin population to further ageing of the overall population.

0

5

10

15

20

25

30

jan feb mar apr may jun jul aug sep oct nov dec

Average temperatures in Montenegro

Hours of Sunshine Sea Temperature CAir Temperature Max C Air Temperature Min C

8 9


Comparing the two last censuses, the share of population aged over 65 increased from 8.23% (1991) to 11.96% (2003), the share of the working age population (from 15 to 64 years) increased from 65.48% (1991) to 66.59% in 2003, while the share of population below 14 years of age decreased from 25.28% (1991) to 20.55% (2003). Analogous with that, the index of dependency of older persons increased to 17.966. This situation is especially met in the north region of Montenegro, which is the result of the migration of the working age population.

The Index of dependency enables an analysis of the age structure of the population with a specific emphasis on the relative ratio of “dependent-non-productive” groups and “productive” groups. Indicators are based on the division of population into three age categories: children (0-14), working age population (15-64) and the elderly population (65+). Shares of these categories according to census 1991 and 2003 are given on the following graphs.

Source: MONSTAT,census 1991 and 2003

One of the most important characteristics of the Montenegrin population is the diversi-fied ethnic structure. Major ethnic groups who live in Montenegro, according to the 2003 census are: Montenegrins, Serbs, Bosniacs, Albanians, Muslims and Croats. Their structure is given on the following graph:

Source: MONSTAT

With the new 2007 Constitution, the Montenegrin language became Montenegro’s 6 Index of dependency of elderly represents the number of elderly population to thousand working age population.

Age structure 1991

0-14 years 25.28%

Unknown 1.01%

65 and over 8.23%

15-64 years 65.48%

Age structure 2003

0-14 years 20.55%

Unknown 0.89%

65 and over 11.96%

15-64 years 66.59%

primary official language. Next to it, Serbian, Albanian, Bosnian and Croatian are rec-ognized in usage. Citizens who speak Montenegrin, Serbian, Bosnian, or Croatian can easy understand each others.

Most Montenegrin inhabitants are Orthodox Christians. Apart from them, there is a size-able number of Sunni Muslims that maintain their own Islamic Community of Montenegro and also a small Roman Catholic population.

Croats, 1.10%

Muslims, 3.97%

Albanians, 5.03%

Bosnians, 7.77%

Serbs, 31.99%

Montenegrins,43.16%

Others, 6.26%

Romany, 0.42%

Yugoslavs, 0.30%

Etnich groups

10 11


4..A.short.walk.through.the.historyEpic Bravery Throughout the Centuries

The first recorded settlers of present-day Montenegro were the Illyrians. In the 9th cen-tury AD the Romans conquered the region of present-day Montenegro, while the Slavs massively colonized the area in the 5th and 6th centuries, forming a semi-independent principality, Doclea.

By the end of the 12th century, Montenegro, under the name Zeta, was governed by the Nemanjic dynasty. After the Serbian Empire collapsed in the second half of the 14th

century, Balsics came to prominence by expanding their power in the region.

In the second half of the 15th century, Montenegro was ruled by another noble family from Zeta, the Crnojevic, under whose reign Montenegro became the last free monarchy of the Balkans, finally falling to the Ottomans in 1499, who annexed it to the „sanjak“ of Skadar.

In the 16th century, Montenegro developed a form of special and unique autonomy within the Ottoman Empire. Neverthe-less the Montenegrins refused to accept Ottoman reign and in the 17th century raised numerous rebellions, culminating with the Ottoman defeat in the Great Turkish War at the end of that century. In the 18th century, Montenegro became a theocracy, led by the dynasty Petrovic established by Danilo Petrovic (1697-1735). The first step towards establishment of the modern state institutions was made in 1713 through establishment of the 12 member Council.

Under Nicholas I, Montenegro vastly advanced and enlarged several times during the wars with Turks and achieved recogni-tion of independence in 1878. It happened on July, 13th 1878 at the Peace Congress in Berlin, where Montenegro became the 27th internationally accepted country of the world.

Modernization of the state followed, culminating with the draft of a Constitution in 1905, while in 1910 Montenegro be-came a Kingdom. During the Balkan wars in 1912 and 1913 Ottomans lost all lands in the Balkans. During World War I in 1914, Montenegro sided with Serbia against the Central

Powers, suffering a full scale defeat to Austria-Hungary in early 1916. In 1918 the Allies liberated Montenegro.

In 1922, Montenegro formally became the Zeta Area of the Kingdom of Serbs, Croats and Slovenes, and in 1929 it became a part of a larger Zeta Banate of the Kingdom of Yugoslavia.

In World War II, Yugoslavia was invaded by the Axis forces in 1941. Montenegro was liberated by partisans in 1944 and became a constituent republic of the Socialist Federal Republic of Yugoslavia (SFRY). Its capital renamed to Titograd in honor of Partisan leader and SFRY president Josip Broz Tito. More and more autonomy was established, until the Socialist Republic of Montenegro ratified a new constitution in 1974. After the dissolution of the SFRY in 1992, Montenegro remained part of a smaller Federal Re-public of Yugoslavia along with Serbia.

In 1996, the Government of Montenegro led by Milo Djukanovic severed ties between Montenegro and the Serbian regime, which was at that time under Milošević. Monte-negro formed its own economic policy and adopted the German Mark as its currency (November 1999). It has since adopted the Euro (in 2002), though it is not formally part of the Eurozone currency union. Subsequent governments of Montenegro carried out pro-independence policies.

In 2002, Serbia and Montenegro came to a new agreement regarding continued coop-eration and entered into negotiations regarding the future status of the Federal Republic of Yugoslavia. In 2003, the Yugoslav federation was replaced by a union named Serbia and Montenegro. A possible referendum on Montenegrin independence was postponed for a minimum of three years. However, that only postponed the inevitable and Monte-negro regained its independence on 21st May 2006.

Revival of independency gave a strong impulse to the democratic and economic de-velopment of Montenegro. After a very short period our country has become a member of international organisations and institutions, created diplomatic relations with many countries and made important steps on its way toward euroatlantic integrations. Positive results on that plan as well as activities on the process of strenghtening institutional capacities have achieved satisfaction both through the signing of the Stabilisation and Association Agreement and involving Montenegro in intensive dialog with NATO. Also, Montengro submitted application for EU membership.

12 13


5..CultureRich Heritage and Unique Wealth

The culture of Montenegro is as fascinating as its history and geographical position suggests. It has been shaped by a variety of influences throughout history. The Ortho-dox, Slavonic, Central European, Islamic, and seafaring Adriatic cultures, such as the Republic of Venice, have been the most important influences in recent centuries.

As a result of those influences, Montenegro has many significant cultural and historical sites, including heritage sites from the pre-Romanesque, Gothic and Baroque periods. The Byzantine influence in architecture and in religious artwork is especially apparent in the country’s interior. Byzantines, Romans and Turks have left a significant heritage in architecture because their cultural influence was strong even after they were gone from this area. As a result many beautiful cultural monuments were made under their influence, Ostrog Monastery, Cetinje Monastery, Cathedral of Saint Tryphon, Gospa od Skrpjela (Our Lady of the Rocks) and Mosque of Hussein-pasha, being only some of them.

Montenegro’s capital Podgorica and the former royal capital of Cetinje are the two most important centers of culture and the arts in the country. Additionally, the ancient city of Kotor is listed on the UNESCO World Heritage sites. In fact, the Montenegrin coastal region is especially well known for its cultural and religious monuments.

It is worth pointing out that the first state-owned printing press (Printing House of Crnojevići) was located in Cetinje in 1494, where the first South Slavic book was print-ed in the same year (Oktoih). Moreover, it is very interesting that many Montenegrin rulers were writers and poets, especially those from Petrovic dynasty – Petar I, Petar II and king Nikola. The most famous among them was Petar II Petrović Njegoš.

On the substratum of traditional oral folk epic poetry, Petar II Petrovic Njegos cre-ated his own expression. His epic Gorski Vijenac (The Mountain Wreath), written in the Montenegrin vernacular, presents the central point of the Montenegrin cul-ture, for many even surpassing the bible in importance. However, Petar II Petrovic Njegos’ masterpiece was Luca mikrokozma, a philosophic book in which he presented all the geniality of his mind.

Besides the review of the cultural treasures of Montenegro, it is very important to men-tion current cultural events.

The cultural offering of Montenegro in the last year was equally present in all cultural and art segments: literature, fine arts, theatre, music. The most important events that marked the previous year are: the Exibition of Petar Lubarda on Cetinje, the Festival of International Alternative Theatre (FIAT), the establishment of the Montenegrin Sym-phony Orcestra, etc.

Among the most significant cultural events in the last year is the founding of Montenegrin Theatre Festival. Montenegro has nine theatres. Last year in Montenegro were performed 275 professional plays and 252 plays as a part of a children’s repertoire.

Apart from theatre performances, the significant cultural events take different manifestations:

Bokeljska night - which for citizens of Kotor and guests represents a significant celebration, an opportunity to present local cuisine and to enjoy a fiesta under masks until late in the night.

The Mimosa Festival is a celebration honoring flow-ers, a tradition for over 40 years. It is a celebration which was founded and continues to live on the principles of carnival traditions, once very typical for this region, and which is accentuated by young Herceg Novi majorettes and the city band. There are many tourist, entertainment, cultural, sports and other programs within the Festival.

International music festival Suncane skale.(Sunny.Stairs).in Herceg Novi is the most important music festival in Montenegro – an entertainment-musi-cal festival gathering national and international performers.

Budva Music Festival.–.The Song of the Mediterranean is a festival where.for several nights Montenegrin and foreign performers present their compositions to the audience. In the entertainment part of the festival the biggest stars from the region and also the European scene perform..

International fashion festival in Kotor lasts for several days and it gathers fashion design-ers from Montenegro, from the surrounding region and from abroad. The most frequent however are distinguished Italian and French designers and their newest creations (Dior, D&G, Pal Zileri, Prada, Armani, Ferre, Versace, etc.).

14 15


It is also necessary to mention the following events: Tivat Cultural Summer, the Book Fair, The Book Square – Herceg Novi, Boka night, the Guitar Art Summer Fest (GASF) – Herceg Novi, the Festival.of.the.international.alternative.theaters.(FIAT.is.a the-ater spectacle which attracts alternative troupes mostly from the region.) - Podgorica, Theater.city - Budva, Cetinje.biennial.(manifestation has turned into an International biennial of modern fine art.), the Herceg Novi.Film.Festival (one of the biggest and most appreciated domestic film festivals during which the achievements from the domain of domestic films are displayed).

The next table shows some important indicators of the cultural life in Montenegro:

INDICATOR 2007

Books published 1,231

Number of performances (professional theatre) 275

Number of performances (theatre for children) 252

Number of performances (amateur theater) 15

Scientifically and professionally libraries 20

Public libraries 23

Number of museum 22

Number of cinemas 11

Newspapers 87

Television stations 22

Radio stations 55

Source: Central National Library of Montenegro, Ministry of Culture, Sports and Media, MONSTAT

6..Snapshot.on.the.government.and.politicsStable and Secure Environment

Montenegro is an independent and sovereign country, defined as a “Civic, democratic, ecological state and state of social justice, based on the reign of Law” . It proclaimed its new Constitution on 22nd October 2007. The ruling party in Montenegro, ever since the multi-party system was introduced, is the Democratic Party of Socialists of Montenegro (DPS), in coalition with the smaller Social Democratic Party of Montenegro (SDP).

The Montenegrin Parliament passes all laws in Montenegro, ratifies international trea-ties, appoints the Prime Minister, ministers, and justices of all courts, adopts the budget and performs other duties as established by the Constitution. The Parliament can pass a vote of no-confidence on the Government by a majority of the members. It contains 81 seats. The current president of the Parliament is Ranko Krivokapić (SDP).

The Government of the Republic of Montenegro is composed of the Prime Minister, the Deputy Prime

Minister for European Integration, Deputy Prime Minister for Economic Policy and Minister of Informatics society, Deputy Prime Minister and Minister of Finance.as well as the following ministers:

• The Minister of Maritime Affairs , Transportation and Telecommunications,• The Minister of Tourism and Environmental Protection• The Minister of Foreign Affairs• The Minister of Culture, Sports and Media• The Minister of Defense • The Minister of Agriculture, Forestry and Water Management• The Minister of Justice• The Minister of Education and Science• The Minister of Interior Affairs and Public Administration • The Minister for Economic Development• The Minister for Human and Minority Rights Protection • The Minister of Health, Labour and Social Welfare

The current Prime Minister of Montenegro is Milo Đukanović (DPS).

According to the Montenegrin Constitution the President of Montenegro is elected for a period of five years through direct elections. The President represents the republic in the country and abroad, promulgates laws by ordinance, calls elections for the Parliament, proposes candidates for the Prime Minister, president and justices of the Constitutional Court to the Parliament, proposes to the Parliament calling of a referendum, grants amnesty for criminal offences prescribed by the national law, confers decoration and

16 17


7. EconomyOngoing Development and Growth

The economy continued to expand in 2008. The major trends: high GDP growth, budget surplus, a record inflow of foreign direct investments, an increase in the number of persons employed as well as the very dynamic development of the banking system. Montenegro became a full member of the International Monetary Fund and the World Bank in 2007.

Thanks to all the positive institutional and structural changes, the overall economic ac-tivity has been growing since 2003. Significantly high GDP growth rates were achieved in 2006 and 2007 of (8.6% in 2006 and 10.7% in 2007). According to the assessment of the Secretariat for the Development of Montenegro, in the first nine months of 2008 the GDP achived a value of EUR 2,328.27 million, which represents a real growth of 8% in comparison with the same period of the previous year. Next year will be a challenge, since after five years of high growth, it is expected to slow down. According to the Ministry of Finance, there are two scenarios which relate to growth of the economy during 2009. The first, is a „realistic“ scenario predicting a growth of GDP at 5% and the second, a „crisis“ scenario predicting growth of about 2.5%.

Source: MONSTAT, Secretariat for Development of Montenegro

Evidenced GDP growth, as well as the amount of GDP per capita, is one of the highest in region that is presented on the following graph8:

Source: MONSTAT, Statistical Office of the Rebublic of Slovenia,Croatian National Bank, Statistical Office of the Rebublic of Serbia, FIPA

� Estimation of Secretariat for Development of Montenegro8 GDP growth and GDP per capita are for 2007. Data for Serbia and Bosnia & Herzegovina are preliminary data.

awards, and performs all other duties in accordance with the Constitution. He is also a member of the Supreme Defence Council. The current President of Montenegro is Filip Vujanović (DPS). The latest parliamentary elections were held on September 10th

2006, while the new pre-term election for members of the Parliament of Montenegro is scheduled for March 29th 2009.

Political outlook

The government has the overriding goal of advancing EU and NATO integration ... The government will probably submit its EU membership application before the end of the year. If it does so, Montenegro might be awarded candidate status during the forecast period. However, progress on formal EU membership negotiations could be delayed by a number of factors, not least the souring of the overall mood within the EU regarding further enlargement following Irish voters’ rejection of the Lisbon treaty in June 2008.

Economist Intelligence Unit, September 2008

2007

2.5

4.4 4.2

8.6

10.7

8

0

2

4

6

8

10

12

2003 2004 2005 2006 I-IX 2008

17076

8452

4484 3945 3412

0

5000

10000

15000

20000

Sloven

ia

Croatia

Monten

egro

Serbia

Bosnia

& H

erzeg

ovina

GDP per capita (€)10,7

8,78

6,85,6

0

2

4

6

8

10

12

Montenegro Serbia Bosnia &Herzegovina

Slovenia Croatia

GDP growth (%)

18 19


SWOT analysis presented a description of the Montenegrin economic environment:

Strengths: Weaknesses:

• Safety and stability (political and macroeconomic);

• Euro as official currency;• Tax regime;• National treatment of foreign investors;• Regionally competitive financial risk;• Developed telecommunication infrastructure;• Relatively high-educated young labour force;• Free access to EU markets, FTA zones as well

as to Russian market (only 1% of the custom evidence);

• Achieved level of privatization (80%), economic reforms and newly-created institutions;

• Accelerated development of the capital market and restructured and privatized banking sector;

• The shortest period in the region for company registration;

• Free transfer of reinvested profit and payments abroad;

• Utilization of tax reliefs and concessions;• Customs exemptions for investments in goods

imported as investors’ deposits;

• Insufficiently developed infrastructure; • Implementation gap while enforcing key laws in

the area of investment policy, property relations and spatial planning documents;

• Regional development gaps particularly in the road infrastructure;

• Size of the local market (if seen as an independent market);

• Inflexible labour market; • Relatively expensive general labour force

(benchmark SEE region); • Administrative barriers - long-lasting procedures

at the local level for obtaining construction permits, procedure for land use change, undefined offer of industrial land;

• Insufficiently developed sectoral technological basis;

• Inadequate level of new technology in different industry sectors;

Opportunities: Challenge:

• Montenegro as a platform for regional business.• Commitment of the Government to push for

further economic development;• Reform of education in accordance with the

needs of developing sectors in Montenegro;• Further improvement of the labour legislation;• Planned development of the infrastructure;• Further liberalization of the fiscal system;• Further strengthening of the banking sector and

financial intermediaries; • Avoidance of double taxation;• Free trade zones in the Port of Bar (firms are

exempted from paying corporate taxes).• Exemptions from paying profit tax (in the three-

year period) for establishment of legal entities in the less-developed municipalities (manufacture);

• Speedy privatization of the energy sector and its further development;

• “War in fiscal incentive measures” among countries in the SEE region;

• Implementation gap; • Level of transparency and efficiency of the

administrative system;• Slow-pace reforms in the area labour legislation; • Low level of reinvestments and potential outflow

of foreign capital through transfer prices and repatriation of profit;

• Inflexibility of the labour market (slow pre-qualification, additional education programmes, compliance of education programmes with investors’ needs).

Monetary and Banking SystemThe annual inflation rate amounted to 7.2%, measured by the cost-of-living index (aver-age January-December 2008 in comparison to January-December 2008). The reasons for this high inflation are both internal and external. The most important external reasons are connected with the increase in oil and food prices on the world markets. On the one hand, the internal reasons are the result of removing price disparities (increases in electric power prices and fixed telephone service charges), and on the other, the im-mediate consequence of significantly increased aggregate demand. It should be also taken into account that anti-monopolistic policy still does not function satisfactorily. However, it should be also borne in mind that the inflation rate was on the increase in almost all countries in 2008, both developed and in transition.

Source: MONSTAT, EBRD

I have visited every municipality in Montenegro and have met literally thousands of people. I have dis-covered that there is a wealth of investment opportunity here. . .These include the development of very attractive and unique sites such as Ada Bojana, Velika Plaza, Valdanos and so on. Additionally there are several important state-owned companies that have yet to be privatized which also will serve as opportunities to bring foreign investors to Montenegro. I also see the possibility that many large inter-national companies that are looking to expand their business interests into the Western Balkan region

could find Montenegro attractive because of its competitive corporate tax structure.

Roderick Moore, Ambassador of USA to Montenegro,Montenegro Business Outlook #26, September, 2008

Strong performance in recent years, but slowdown aheadMontenegro has made significant progress in overhauling its economy. The last five years have seen inflation performance improved through the adoption of the euro as sole legal tender; banking sector restructuring; significant privatization; strengthened market infrastructure; and progress in fiscal con-solidation. These efforts have been rewarded by strong foreign investor interest, particularly in tourism, construction, and banking. Credit growth has soared, stimulated by surging deposits and keen competition in the largely foreign owned banking sector. Demand has boomed, supported by credit, increased wealth from real estate sales to foreign investors, and expectations of continued strong economic growth. As a result, GDP, employment and wages have grown strongly, while the registered unemployment rate has halved from 20 percent in 2005 to under 11 percent recently.

A sharp deceleration in growth is expected in the near term as the global outlook dims. With limited bank financing from parents because of global financial turmoil and a reduced risk appetite, credit growth is expected to decline to low single digits at best in 2009. Global recession is also likely to have an adverse impact on tourism, FDI, and confidence. In addition, falling aluminum prices have depressed production and generated losses in the aluminum company. Thus, we project that GDP growth will decline to around 2 percent in both 2009 and 2010, albeit with a substantial margin of uncertainty around this forecast. Downside risks include the possibility of sharp increases in bad loans-particularly those related to the real estate sector-and disruption in banks foreign financing. On the other hand, upside risks include the possibility of larger than expected FDI, as in a small economy like Montenegro a few large projects can make a significant difference.

International Monetary Fund, 2008 Article IV Consultation, Preliminary Conclusions of the Mission, December 16, 2008

Annual Inflation Rate (%)

4,55,4 5,6

4,6

8,1

6,2

1,52,4 2,8

7,7

5,3

7,2

0,01,02,03,04,05,06,07,08,09,0

2003 2004 2005 2006 2007 2008

South-Eastern Europe Montenegro

20 21


According to Monstat, annual inflation was 6.9% in 2008, calculated based on the CPI index. The first inflation rate measured by CPI was published in July of 2008. This is the internationality comparable index used by the Europen Union, which will also be used in the forthcoming period as the main inflation indicator.

Monetary development in 2008 took place during the financial world crises. The three quarters of 2008 was characterized by:

• More moderate credit activities according to the limits predicted by measurements of the Central Bank;

• In additional to the slowing down of credit growth, deposits increased slower than credits during the eight months of 2008

• Insignificant oscillation of the interest rate. Stagnation or mild growth of the lend-ing interest rates are expected, contributed to by the pressure on the increase of the reference interest rate by the European Central Bank. In regard to the deposit interest rate, a mild growth is expected primarily due to an increase in competitiveness on the banking sector.

The following table shows some other significant monetary indicators of the Montenegrin banking system:

Description/Period2007 IX 2007 IX 2008

IX 2008XII 2007

IX 2008IX 2007

EUR million in.% in.%Money supply M21 2,728.2 2,500.4 2,968.0 +8.8 +18.7Banks` assets 2,976.4 2,532.2 3,515.3 +18.0 +38.7Total loans 2,246.6 1,811.0 2,852.3 +27.0 +57.5Corporate loans 1,364.4 1,085.8 1,687.4 +23.7 +55.4Household loans 795.0 651.0 1,049.4 +32.1 +61.2Total deposits 2,091.1 1,820.0 2,326.0 +11.2 +27.8Corporate deposits 643.5 551.7 641.6 -3.3 +16.3Household deposits 1,019.3 923.0 1,114.1 +9.9 +20.7

Allocated reserve requirements 259 256.5 287.5 +11.0 +12.1

Source: Central Bank

At the end of the third quarter, the banks` assets amounted to almost EUR 3,509.7 mil-lion, which is 38.7% higher than in the same period or 18% higher compared with eight months of last year. Deposits exceeded the amount of EUR 2,325.9 million, which is 27.9 % higher than in same period last year.

In addition to an unsatisfactory loan/deposit ratio and maturity mismatch, the banking sector is characterized by liquidity and safety, as well as a high level of performing as-sets. The maturity structure of deposits improved but it is still not satisfactory.

Total money in circulation (Monetary aggregate M21) amounted to EUR 2,968 million at the end of September. For the first eight months, it increased by 8.8%, while the an-nual growth amounted to 18.7%.

According to the main liquidity indicators, during the first eight months of 2008 the banks regularly settled their current liabilities and maintained their liquidity above the prescribed minimum..Total banks’ assets available for payments were EUR 453 million, while the average realized payment was EUR 46.4 million. On the basis of development in available funds and effected payments, which were constantly lower than the avail-able funds for payments, the average surplus was EUR 406.6 million.

The three quarters of 2008 were characterized by a more moderate growth in all bank loans as a result of the Central Bank credit limits measures. At the end of September total loans amounted to EUR 2,852.3, which is 27% higher than at the previous year-end, while the annual amount increased to 81%.

Credit growth slowed in the eight months of 2008. compared to the same period of the previous one, affecting all sector. The following graph shows the structure of loans by activities and percents at the end of September 2008:


22 23


The most important part of the Montenegrin Fiscal Policy is the development of a tax system based on low tax rates, a broad tax base and a minimum of tax excluding entities. In that sense a lot of effort has been given to developing such a tax system, which is in line with a fully operational market economy. These efforts started in 2001, and since then Montenegro has made an important step to-ward meeting the EU standards in this field,

as well as becoming competitive with other regional markets. In fact, all major tax rates in Montenegro are very competitive with respect to other countries in the region, and in many aspects Montenegro is working to make its tax system even more attractive.

The Corporate Income Tax, which is equal to 9%, is the lowest in the region. That can be seen by looking the following graph:

Source: MIPA based on IPA countries statistics

Moreover, the VAT rate amounts to 17%, with the implementation of the rate of 7% on some categories of products and services. Again, it can be argued that Montenegrin VAT is very competitive with respect to other regional countries as can be seen from the following graph:

Finally, according to gov-ernment projections the planned personal income tax rate for 2010 should be equal to the corporate in-come tax rate, or 9%, which is lower than on any other regional market. In 2008 the personal income tax rate was 15% but in 2009 it was reduced to 12% and it will be 9% in 2010.

Source: worldwide-tax.com

Total bank deposits amounted to EUR 2,325.9 million at the end September, reach-ing an amount which is 11.2% higher than end of previous year, while 27.8% higher than same period of previous year. Of the total amount on deposit, 8.3% related to non-interest deposits, while 91.7% referred to interest bearing deposits. In additional to the reduction in credit growth, deposits

increased slower than credits during the eight months of 2008. Observed by sector more deposits are from households – 47.9% and it is not satisfactory as it indicates less diversification, and thus larger exposure of banks to certain sectors.

The following graph shows the structure of deposits by activities at the end of Sep-tember 2008:


Fiscal policyFiscal policy in 2007 was implemented in accordance with the Economic policy objec-tives and represents a continuation of the policy from previous years. High growth in current budgetary revenues was recorded every month as a result of enhanced indus-trial and economic activity, efficient payment of tax obligations, as well as improved financial discipline. All of this produced a budgetary surplus and enabled the financing of budgetary expenditure from real sources. Furthermore, satisfying all obligations to international financial institutions on a regular basis was made possible, as well. This trend continued in 2008.

9 10 10 10 10

16 16

20 2022

0

5

10

15

20

25

Monten

egro

Maced

onia

Serbia

Bosnia

& H

erzeg

ovina

Bulgari

a

Roman

ia

Hunga

ry

Croatia

Albania

Sloven

ia

Corporate Income Tax (%)

24 25


2. Dependence on a movement to the world aluminum market.3. International marketing of tourist services, and Montenegro as a touristic destina-

tion, is very exposed to external influences.4. Additional funding for infrastructure projects, especially the highway Bar-Boljare.5. Increasing pressure on the state budget for a download of obligation in the EU

process.

The Ministry of Finance, working with the Central Bank, developed two macroeconomic scenarios in accordance with two fiscal scenarios. Depending on the varients in growth rates, the scenarios provide a different estimation of the sustainable budget deficit and the financing of consumption. Based on the “realistic” scenario, the deficit in 2009 will be 2.40% of GDP, in 2010 1.2% of GDP and 2011, the budget deficit will be 0.6%. Based on the “crisis” scenario, the deficit in 2009 will be 2.44%, in 2010 1.64% of GDP and 2011, the budget deficit will be 0.71%.

Capital MarketThe year 2008 has been the hardest year in the short history of the Montenegrin capital market. This is more obvious if we compare it with the previous year, which was the most prosperous. This situation is a consequence of the simultaneous influences of political and economic factors. The first half of 2008 was predominantly characterized by political influence whilst the global financial crisis affected the second half of year.

The turnover of the Montenegrin exchanges in 2008 amounted to EUR 160 million, which is 4.5 time lower than the turnover seen during 2007. During the last year, 83,348 transactions were concluded. The average monthly turnover amounted to EUR 13.3 million, while on average 6,945 transactions were carried out on a monthly basis.

In the total turnover structure, compa-nies’ shares accounted for 70.4% of the total turnover, followed by Invest-ment Funds shares at 17.3%, while turnover in various bonds amounted to 12.3%. Compared to the previous years, Investment Funds shares and shares turnover decreased, while the number of bonds increased. As a matter of fact, Investment Funds shares trading recorded a decline of 80.3%, while the trading of bonds increased by 18.5% in comparison with the previous year. Shares turn-over amounted to EUR 112.9 million and was 30.5% lower than in the previous year.

According to the data from the Ministry of Finance, the current total budgetary revenues amounted to EUR 1,340.02 million in 2007, or 47.72% of the estimated GDP for 2007. Public spending in 2007 amounted to EUR 1,161.77 million, or 41.37% of GDP. The total participation of the current public expenditure in 2007 was EUR 974.51 million, which was 37.70% of GDP for 2007.

The period 2007-2008 was characterized by a high level of budget and public revenue, the service of all legal and budgetary commitments, the surplus over the established public expenses and an increase in public sector deposits. At the same time, there was a significant increase in public sector expenditures caused by increased costs for pensions, significant investment in the infrastructure and increased earnings in the public sector.

The summary of planned and realized budgetary revenues and expenditures of the public sector in the period 2007-2008 is shown in the following table:

Description Actual.2007 Plan.2008 Projection.2008

mill %GDP mill %GDP mill %GDP

Curent revenues 1,340.02 47.72% 1,374.00 41.16% 1,533.11 45.93%

Consolidated public consuption 1,161.77 41.73% 1,373.64 41.15% 1,485.35 44.50%

Curent public consuption 974.51 34.70% 1,103.64 33.06% 1,178.18 35.30%

Surplus/deficit 178.25 6.35% 0.37 0.01% 47.76 1.43%

Increase/Decrease of deposit 124.57 4.4% 100 3% 103.69 3.11%

Source: Ministry of Finance

The budget surplus in the first six months of 2008 was EUR 78.1 million. Despite this sustainable surplus, we should be careful since any more significant reduction in imports might have an adverse effect on the budget in the upcoming period. The public debt remains sustainable for a long period. The total public debt amounted to 31.6% of GDP and the external debt was some 16.3% of GDP.

It can be observed that the primary budget achieved a surplus of EUR 178.3 million in 2007. The budget surplus/deficit for the period 2002-2008, as well as the projected surplus for 2008 is shown in the following table:

Description/Period 2003 2004 2005 2006 2007 Projection.2008

Budget Deficit/Surplus (mil euros) -45.9 -32.8 -30.1 85.1 168.4 47.76

% Participation in GDP -3.04 -1.96 -1.66 4.50 7.35 1.43

Source: Ministry of Finance

Montenegro faced the same fiscal risks as in the previous period, with increased signifi-cance because of the deepening financial crisis. Several of the most important are:

1. Overindulgent dependence on budget revenues from source that rely on imports – to the valued added tax, excise, taxes in international taxes and custom. Source: Montenegro Stock Exchange, Nex Montenegro

26 27


Source: Montenegro Stock Exchange, Nex Montengro

At year-end, the capitalization of the Nex Montenegro stock exchange amounted to EUR 1.42 billion, while the Montenegro stock exchange capitalization was EUR 2.25 billion. In comparison with the previous year-end, capitalization decrease of 60.3% was recorded on the Nex Montenegro stock exchange, and 39.0% on the Montenegro stock exchange.

The Montenegro capital market experienced a huge growth in the period from September 2005 – September 2007. In fact, all regional markets experienced growth, but Montenegro was the market with the highest growth rate (595.63%)

However, even though the Mon-tenegrin capital market suffered losses starting from the last quar-

ter of 2007, as most other countries in the world did thanks to the financial crisis that is ongoing for some time now, it has a huge potential for development.



Changes in turnover structure (2008, 2007, 2006 and 2005)

Turnover.structure

Year Shares Investment.Fund’s.shares Bonds

2008 70.4% 17.3% 12.3%

2007 78.4% 19.2% 2.3%

2006 81.0% 13.9% 5.1%

2005 82.4% 9.5% 8.1%

Source: Montenegro Stock Exchange, Nex Monteengro

All three indexes

Name of the index MOSTE NEX20 NEX PIF

As of December 31, 2008 469.53 10,002.93 5,844.64

Absolute change in 2008 -1,00 -146.72 331.80

Percentage change (comparing to December 12, 2007) 77,1% -70.7% -85.1%

Max. Value 1,613.0 33,210.71 37,667.18

Min. Value 305.6 7,052.32 3,736.10

Source: Montenegro Stock Exchange, Nex Monteengro

NEX20 and NEX PIF recorded significant growth in 2007. The MOSTE index increased by 77.1%, the NEX20 index by 89.3%, while the NEX PIF index increased by 120.8% compared to the end of the previous year. From the beginning of 2008 all three indices (MOSTE, NEX20, NEX PIF), which represent both stock exchanges, went down by 71.1%, 70.7% and 85.1%.

28 29


Operational conditions on the Montenegrin exchanges significantly improved at the end of 2007 and beginning of 2008. Some earlier identified shortcomings were eliminated. For example, in order to provide confidentiality and better protection of clients from frauds, the Central Depository Agency introduced PIN codes in 2007. The exchanges enabled investors to have access to the current price of any particular security via SMS. For the purpose of reaching a higher degree of operational transparency, the data on web-sites of exchanges started to be updated regularly, their quality improved and an overview of „real time“- trade is made possible. Greater competition among the brokerage houses led to an improvement in their services and of their standards of operations. A high degree of access to historical data (prices and turnover) is now possible for all users. Important clients can now obtain various analyses of companies’ operations (technical and functional) as well. The balance sheets and cash flows of companies are analyzed in more detail for the first time. On the basis of these analyses, investors are now able to make better decisions on whether a certain share is under or overvalued, and to protect themselves from various risks.

Several indicators show that interest in the Montenegrin capital market has good pros-pects in the upcoming period. These indicators are:

• Establishment of the open investment funds and analysis of the possibilities for the transformation of the existing closed investment funds into open investment funds.

• Development of custody affairs in order to make our market visible for foreign investors.• Development of pension funds and channeling private savings into the capital market.

Real Estate MarketIn the period after obtaining independence, Montenegro has become a very attractive real estate market for both domestic and foreign investors. This is confirmed by a significant influx in the real estate market. A stable macroeconomic situation, continued improvement of credit ratings, favorable tax systems, simplification of business procedures, and progress in processes of integration (EU and NATO), additionally strengthens the attractiveness of the Montenegrin real estate market. This is especially significant for investors who regard Montenegro as a possible starting point for future activities in the region.

Growth prices in the real estate market and the attractiveness of this sector are evi-denced also in the region. The real estate market in the area of southeastern Europe

is expanding and represents a profitable venture. The presence of foreign invest-ment funds that recognize this region as an attractive destination for investments is growing stronger. The real estate market of Montenegro, Croatia, Macedonia, Serbia, Bulgaria, Romania and other countries in the region has been the focus of foreign investors’ attention in recent years. Char-acteristic of countries such as Bulgaria and Romania is that investment funds do not

often invest directly in real estate but in the stocks of enterprises that are constructing them, and which are in demand on the local stock markets. Regional attractiveness for foreign investors began as the result of a number of different factors including popula-tion, as more than one hundred million people live in this region. For countries such as Montenegro and Croatia, their attractive coastal and mountain areas have great influ-ence. On the other hand, in less developed countries of the region, a great percentage of people live in inadequate buildings and need to move to apartments, which leads to a growth of demand in the market. However, it should be kept in mind that despite the strong development of the real estate market, it is still not stable9.

Analysis of the historical data of real estate prices for the Montenegrin coast shows that immediately after independence was achieved (May 2006), in relation to 2005, real estate prices grew by about 130% on average per square meter (flats, houses, land and business real estates)10. In this period, the most interesting growth was in the southern part of Montenegro, while in the following period the greater scope of real estate trade is expected to occur in the north of the state. The real estate offering in Montenegro is available on-line

and via printed publications of numerous foreign agencies, where the results of their research can be found, analysis and advice for investments as well as a prognosis for the following year. In that sense, for example, the British real estate agency „For you property partners” rates Montenegro among the five destinations with the most inter-esting real estate. For example, if we look at the trend of real estate price increases, take the situation in the smallest town in Boka – Tivat – we will see that there is a real estate price increase of over 98% over a one year period, and that currently 1m2 of a flat is sold for 2.500 to 4.000 EUR11.

The next table shows the prices on the Montenegrin real estate market in some of the largest towns:

Podgorica Plot €/m2 Flat €/m2 Business premises €/ m2

Podgorica 50-1000 1400-3500 2000-5000

Niksic 30-250 600-1200 800-2000

Bijelo Polje 10-30 400-1000

Bar 200-500 2500-3500 3000-4500

Budva 500-1200 4500-7000 4000-8000

Source: Research of CEED Consulting, December of 2007

9 Source: Real estate market in Montenegro: Trends and expectations by CEED10 Source: Real estate market in Montenegro: Trends and expectations by CEED 11 Source: Real estate market in Montenegro: Trends and expectations by CEED, May �00�.

30 31


According to data from the state Real Estate Agency, foreigners own only 1.393% land in Montenegro, despite the recent expansion of the real estate trade. If we exclude owners from the former republics of SFRJ from that category, this percentage is only 0.047. The largest amount of real estate owned by foreign persons is in Budva, Tivat, Herceg-Novi and Kotor. Besides the coastal municipalities, foreigners own real estate in Kolašin, Cetinje and Žabljak. Foreigners are owners of 8.49% of condominium proper-ties, from which 7.18% relate to citizens from the former republics of SFRY. Most foreign owners have condominium properties in Budva, and statistics indicate that within that municipality, foreigners own one in four flats.

The value of construction works completed in the three quarters of 2008 amounted to EUR 209.8 million, being 62.5% higher in relation to the same period. According to the Monstat data, the value of new contracts on buildings amounted to EUR 66.7 million, being 100.4% higher in relation to the same period. A new law was adopted on spatial planning and buildings which included the Law on Land Construction, the Law on Spatial Planning and Spatial Planning Building Inspection. This new law provides the stability of conditions for construction and a simplification of procedures related to construction of objects that should encourage new investment.

The new situation regarding the financial market and world crisis will have a negative impact on the real estate market in Montenegro:

1. Decreased trend of credit offers for real estate projects;2. Observing the large number of construction objects already underway and the

fact that most construction companies are highly indebted, some companies could have problems with the repayments of their loans;

3. Lower number of foreigners interested in real estate;4. Lower availability of housing loans.

Employment and Labour MarketIn comparison to the countries in the region Montenegro has a highly educated labor force, which was described by foreign experts as an important strategic advantage (depending on the proper adaptation of the current school system to the future needs of the economic structure of Montenegro, this advantage can be recognized by foreign investors as part of the image of Montenegro)12.

Education structure of the active population is as follows13:

Without education 4.30%

Has not completed primary school 9.64%

Primary school 22.95%

High school 48.22%

Associate college (two years) 5.04%

Faculty 7.51%

Postgraduate, doctoral studies 0.23%

Unknown 2.11%

Source: Ministry of Education and Science

12 Source: Foreign direct investment incentives strategy of Montenegro, p. �5, 13 Data from 2006.

In order to improve its education system, Montenegro signed the Bologna Declaration. By signing the Bologna Declaration, Montenegro undertook the obligation to become a member of the uniform European system of higher education. The first generation of students enrolled in accordance with the Bologna system in the academic year 2004/2005. The main point of this reform is to improve the educational and qualifica-tion structure of the labor force and to systematically increase the percentage of young people with higher education.

The second characteristic that attracts special attention is the price competitiveness of labor in Montenegro. Observing the total operational costs of wages in the region14, Montenegro has a relatively cheaper labor force in comparison with Slovenia and Croatia but also more expensive in comparison with Serbia, Bosnia and Hercegovina and Macedonia. If we make a comparison with the countries in the European Union, Montenegro is very cheap and it is one of the most important advantages of the invest-ment ambient of Montenegro. However, the labor market in Montenegro is competitive from the aspect of the level of education and price competitiveness.

Source: Statistical offices and central banks of the above mentioned countries

The increase in economic activities in the last several years had a positive impact on the labor market flows. The unemployment rate (percentage share of unemployed persons in the active population) is decreasing continuously and fairly fast: from 2003, which was 22.59%, to 11.92% in 200715.

In the first nine months of 2008 the number of employees was 165,314 on average, which is 6.1% higher compared to the average number of employees in the same period of the previous year. The largest growth was registered in the construction sector at 34.1%, ho-tels and restaurants at 30%, fishery at 16.2%, financial intermediation at 11.9%, transport, warehousing and communications at 11.8%, production of electricity, gas and water supply at 8.8%. A decline in the number of employees was registered in the manufacturing industry sector by 5.9% and the mining and quarrying sector by 1.6%.

The number of registered unemployed persons in the first nine months of 2008 was 29,861 on average, or 15.5% less than in the same period of the previous year. According to data of

14 Average wages in the former Yugoslav countries, August 200815 Source:Employment Bureau

32 33


the Employment Agency, in September 28,276 persons looking for employment were regis-tered, while in October there were 28,666 registered. The lowest unemployment rate of 10.6% was recorded in August of the current year. On the records of the Employment Agency there were 27,954 registered unemployed persons. In October the rate of 10.85% was recorded. The constant decline in the number of unemployed persons or the increase in the number of employees is the consequence of the positive developments on the labour market.

The following graphs show the decreasing trend in the unemployment rate and the comparison of unemployment rates in the region16:

Some main characteristics of unemployment which present current situation and trends are as follows:

• The youth unemployment rate is rap-idly decreasing from 40.0% in 2003, to 30.1% in 2004, 28.4% in 2005, 20.3% in 2006, while on March 14, 2007 youth un-employment rate amounted to 19.3%17. The problem of unemployment among youth in Montenegro is not so significant and dominating. The share of youth unemploy-ment is decreasing. Young people are easily finding jobs, since the employers are more prone to employing younger than older workers.

• The share of females among the unemployed is constantly decreasing: from 56.83%18 in 2003, to 45.6% in 2006 and to 36.7% in 2007.

• The structure of the unemployed by age is as follows: 38.7% of unemployed persons are up to 24 years of age, while 18.7% are those aged between 25 and 49, 10.0% makes age group 50-64, and 0.0% is in the group over 65 years.

• The incidence of long-term unemployment is 55.7%, the National Employment Strategy for Montenegro anticipates a decrease of long-term unemployment to 45% up to 2010.

• The labor market in Montenegro is characterized by an increased engagement of nonresi-dent persons. In 2008 in Montenegro, 57,208 nonresident workers were engaged, which is an increase of 45.73% in comparison with the same period of the previous year.

• Besides the economic growth, an active policy of employment, implemented by the Government of Montenegro and Employment Agency of Montenegro in the last

16 Data for the projection of unemployment rates in �008 is based on nine months of �008; Source: Economic Policy of Montenegro for 2009, Government of Montenegro. Data for comparison of unemployment rates in the region is from 2007.17 EAM: Statistical reports, �00�18 Source: Goverement of Montenegro: National Employment Strategy for Montenegro 2007-2010, Podgorica 2007.

several years, also had a positive impact on the decrease of unemployment. It has been implemented through various programs such as: the program of support to entrepreneurship and self-employment, the program for employment of apprentices, the program of chances for young people, various public works, co-financing of exist-ing jobs19 etc.

The new Labor Law was adopted in August 2008, and it presents a more improved version than the previous Law. The new Labor Law will enable greater freedom to employers in negotiating employment relations and greater flexibility of the labor market in general but while on the other hand, facilitate the loss of security for employees by a better provision of unemployment benefits and effective assistance in seeking new employment. The new Labor Law will provide: hire and dismissal of employees according to market request; de-creased protection of employees, which has an influence on the increase of labor market flexibility; introduction of the concept of a minimum wage; the creation of a different rela-tionship toward the work and business obligation.

International tradeThe main characteristics of the balance of payments in the first nine months of 2008 were a high inflow of direct foreign investments, record inflows of revenues from tour-ism, high imports and a current account deficit. According to the preliminary data, in first nine months of 2008, the current account deficit amounted to EUR 640.4 million or 27.5% of GDP. The coverage of the foreign trade deficit by surpluses in other current account sub-balances was 40.9%, some 24 percentage points less than in the same period of 2007.

Structure of visible export by products in the period January-September 2008, EUR thousand

Description Value Share in %

Aluminium and product of aluminium 155,025.49 39.90

Iron and steel 70,095.96 18.04

Mineral fuels, mineral oils and product of their distillation, bitumen material, mineral waxes 31,272.81 8.05

Beverages and vinegar 16,182.57 4.16

Product of iron and steel 16,126.66 4.15

Pharmaceutical product 14,251.15 3.67

Wood and related products; wood coal 11,053.32 2.84

Fruits, including granular fruits, citrus fruit or cantaloupe and watermelon 10,178.07 2.62

Nuclear reactors, boilers, machines and mehanic devices and their components 9,029.20 2.32

Source: MONSTAT

19 Assistance of the government to employers for preservation of existing jobs.

34 35


Structure of visible import by products in the period January-September 2008,EUR thousand

Description Value Share.in.%

Reactors, boilers, machines and mechanical equipment and theirs com-ponets

160,801.46 10.85

Vehicles, excluding rail and tram vehicles and theirs components and equipment

152,779.32 10.31

Electrical machines and equipment and their components; machines for recording and reproducing, TV apparatus for recording and reproduction picture and sound

109,144.57 7.37

Mineral fuels, mineral oils and products of their distillation, bitumen mate-rial, mineral waxes

85,212.27 5.75

Iron and steel 78,634.65 5.31

Products of iron and steel 75,267.56 5.08

Furniture, linen, mattresses, pillows and related products, lamps and other fluorescent items, etc

66,320.83 4.48

Source: MONSTAT

A very successful tourist sea-son and accelerated growth in turnover in the area of telecommunications contrib-uted to a surplus amount-ing to EUR 399.3 million. The total volume of services amounted to EUR 931.4 mil-lion, or 24.2% more than in the same period of 2007. Examined by quarters, the volume of services relied on the tourist season and the largest growth was re-corded in the third quarter.

Revenues from services in first nine months of 2008 amounted to EUR 665.3 million and increased by 12% compared to the same period the previous year. The largest revenues were recorded in the travel sector - EUR 492.5 million, then transport - EUR 67.7 million, construction services - EUR 40.3 million and other business services - EUR 30.2 million. Expenditures from services amounted to EUR 266 million, which is an increase of 70.9% compared to 2007 and is the result of increases in expenditures in the area of other business services, transport, construction services and personal, cultural and recreational services. Observing the structure, the largest expenditures were recorded in the field of other business services, amounting to EUR 72.1 million20.

20 Source: Chief Economist Quartely Report (Third quarter 2008)

In addition, Montenegro signed a trade agreement with the Russia Federation according to which all exports from Montenegro to Russia are subject to 1% customs evidence and no taxes or duties.

Free Trade Agreement in the South-East European Region (CEFTA)

CEFTA is the trade agreement signed between Albania, Bosnia and Herzegovina, Macedonia, Moldavia, Croatia, Serbia, UNMIK- on behalf of Kosovo, and Metohija and Montenegro. The agreement came into force on 22 November 2007 in all signatory countries. The main objectives of the agreement are the consolidation of trade liberalisation within the unique system, an improvement in investments and direct investments conditions, visible and services and trade liberalisation, the provision of equal conditions for competitiveness and the protection of intellectual property. The Free Trade Agreement defines this unique free trade zone in South-East Europe and is based on the European Union rules and the provisions of the World Trade Organization.

36 37


Economist Intelligence Unit- Economic policy outlook Policy.trends -The immediate policy challenge is to try to control rising inflationary pres-sures, or at least to lessen the impact of higher food and fuel prices. This goal could lead the government to consider targeted subsidies for certain consumers, or restrictions on agricultural exports. Other measures could include the running of larger than planned budget surpluses, and more urgent structural reforms to boost export competitiveness amid rising labour costs. The pace of privatization will be an important indicator of the authorities’ willingness to carry out reforms over the forecast period.

The government will also focus on upgrading the transport infrastructure, improving electricity supplies and encouraging further investment in tourism, which will be an important source of economic growth and foreign exchange over the forecast period. Montenegro has recently liberalized its already relatively open foreign-trade regime by joining the Central European Free Trade Agreement (CEFTA) in 2007 and implement-ing the trade-related provisions of the SAA with the EU from January 1st 2008. Foreign trade will become more free still in 2009-10 as a result of the country’s efforts to join the World Trade Organization (WTO).

Fiscal.policy.-. In 2007 the budget. recorded a much larger than forecast surplus, equivalent to an estimated 8.1% of GDP, as strong economic expansion led to higher than expected tax receipts. This trend continued in the first half of 2008, as strong retail sales led to buoyant revenue from the value-added tax (VAT), the single largest source of budget income. We expect that the budget will continue to show sizeable annual surpluses in 2009-10. The authorities plan a further reduction in the rate of personal income tax, from 15% currently to 12% in 2009; another cut, to 9%, in 2010 will equalize the rate with the rate levied on corporate income.

Monetary.policy.- The adaptation of the euro as legal tender in Montenegro means that the Central Bank of Montenegro cannot influence the money supply, which is deter-mined by flows on the balance of payments. This puts a greater burden on fiscal policy in responding to economic shocks. The Central Bank will focus primarily on supervising rapid growth in commercial bank lending, which is raising concerns about the banks’ ability to assess risk. The Central Bank introduced a range of measures, with effect from January 1st 2008, aimed at slowing year-on-year credit growth, which exceeded 180% in October 2007. These measures include limits on banks’ annual credit growth, higher solvency ratios and a tighter loan classification. Lending growth is slowing, but was still 75% year-on-year in July, and the Central Bank may consider further tightening measures should the current-account deficit fail to narrow significantly during 2008.

8..Growth.Vechicles

Montenegro is a country of diversified possibilities and thanks to that one of the newest hot spots in Europe. A key reason for growth possibilities is a very competitive institu-tional framework. Today’s comparative advantage does not rely on natural resources but first of all on the institutional and business environment framework and knowledge. Although no one knows and can’t predict which sector will be attractive for investments, some of them have already been singled out. Tourism, agriculture, energy, and the wood processing industry are sectors with significant growth potential in Montenegro.

TourismIn the relatively small area of Montenegro, nature has produced unique contrasts: the quality and diversity of its natural and anthropological values makes Montenegro one of the most attractive regions in the Mediterranean. Over a span of only 100 km in a straight line, three natural environments are distinguishable: the seaside, the karts field zone and the high mountain region.

Thus, the tourist has the possibility of taking a swim in the lakes or in the sea, rafting down the river and skiing on the mountain slopes - all in one day. The tourist accom-modation capacities are 150,000 beds, of which 37,000 are in basic-type facilities (hotels, motels, pensions, tourist village). On Montenegro’s seaside (the coastline of 293 km) there are numerous sand and pebble beaches – 117 in total, 73 km length of which sand beaches make 33 km.

38 39


Tourism remains the branch with the most dynamic development and it also affects the accelerated growth of other related branches. Tourism development is very important, for it largely influences the development of transportation, telecommunication, food-processing and the furniture industry, as well as a whole set of other branches. The tourism industry in Montenegro recorded of increase for the fifth year in a row, and a positive trend is certainly the fact that the average number of tourist overnight stays increased. The number of tourists who visited Montenegro in 2008 and the number of recorded overnights were respectively 4.8% and 6.8% higher than in 2007. For the first time since 1989, more than a million tourists (1.13 million) visited Montenegro in 2007, while a record number since 1989 were recorded in 2008. In comparison with the previous year the number of foreign tourists increased by 4.7%, while the number of domestic tourists increased by 4.9%. Foreign tourists represented 86.8%, while domestic tourists represented 13.2% of the tourism total.

Source: MONSTAT

According to the economic policy for 200821, anticipated revenues from tourism will be approximately EUR 613 million, which is 5% more than in the year 2007. Having in mind the expected impact of the financial crisis in the region, it is predicted that the physical parameter of turnover in tourism will be at the previous year’s level.

In 2009, activities in the area of tourism will be directed toward the creation of a rec-ognizable Montenegro as a Mediterranean destination, whereby the key importance will be the increase of a quality tourism offering in the littoral area by developing high quality tourism resorts and improving the quality of existing ones. At the same time activities are being carried out within the overall sustainable development concept, based on the nature oriented tourism that represents a development opportunity, in particular in the segment of valorization of tourism potentials of the hinterlands and the mountain region.

21 Source: Economic Policy of Montenegro for 2009, Government of Montenegro

“Montenegro is small in area, but its comparative natural advantages, its richness in cultural and historical sights and others features, make it one of the most attractive receptive tourist destinations.”

“A marked disproportion in the physical distribution of the accommodation results in that numerous, highly attractive, ecologically appealing and very demanded tour-ist potentials be on the margins of development and present a good ground for international investments.”

The United Stated Agency for International Development (USAID)

40 41


TelecommunicationsDevelopment of the telecommunication market in Montenegro is very similar to other developing countries in the region. The most important indicators show positive trends in comparison with previous years.

• The population is more knowledgeable about ICT implementation;• Usage of PCs among companies in Montenegro is increasing;• Number of PCs in households is increasing;• Number of households with Internet connection is increasing;• 3G system is developed in the area of mobile telephones;• Competition among operators of mobile telephones is growing.

The telecommunication sector is 100% private. There are two fixed phone providers (T-Mobile and M:tel, Serbian-Dutch Consortium) as well as three mobile phone opera-tors (Norwegian Telenor, German T-Com and M:tel).

The network is 100% digitized, with a fiber-optic base. There are two international switches that have been working as transit switches. These are used for the transition of traffic from the local switches that are placed in other Montenegrin municipalities. Complete communication between switching capacities is organized by using solely fiber-optic cable that guarantees high quality communication.

Data which demonstrated the high level of development in the telecommunication sec-tor is showed on next table:

INDICATOR

Telecommunication network: Number of fixed-line users (000) 176

Fixed lines penetration (%) 28.4

ADSL Providers 2

Number of WIMAX licensed providers 4

Mobile phone providers 3

Mobile phone penetration ( %) 168.7

Mobile phone users 1,045,981

Households with PC (% of homes) 47

Internet penetration (%) 38.31

Licensed Internet providers 13

Licensed Internet providers (active) 5

Source: ISSP, Agency for Telecommunication

Montenegro has a significant potential for ICT sector investments. This is especially true for the Internet service area, which will be developing very fast with the increase of the educational level of Montenegrin citizens.

At this point there are fifteen licensed Internet Service Providers in Montenegro, only four of which are currently operating and those are: T-Com Montenegro, MontSky, M-tel and MNNews. The largest two are: T-Com Montenegro and Montsky.

Transportation and Infrastructure

Montenegro is connected to the world through road, railway, maritime and air transpor-tation. In recent years, Montenegro has invested significantly in the road infrastructure, in order to enable faster, safer and more pleasant travel into the country.

The network of roads in Montenegro is around 7,000 km, out of which 1,850 km relate to main and regional roads, whereas 5,150 km relate to local and non-categorized roads. About 92% of the regional and main roads are paved with asphalt, as well as around 50% of local and non-categorized roads. The density of the main and regional roads is 13km/100km2. There are 312 bridges and 136 tunnels thereon. More than 2/3 of the regional and main roads are more than 25 years old. The main problem of Montenegro

42 43


road network is the non-existence of highways. Therefore the Ministry of Transportation launched a tender for the construction of the South-North corridor of the highway and is currently preparing the necessary documentation for the West-East corridor.

Montenegro has two airports in Podgorica (the capital city) and in Tivat (the city on the sea side). The Airport in Podgorica was fully reconstructed in 2006. The air-ports’ modernizations improved the quality of services for passengers and planes, as well as the level of security and safety at the Podgorica and Tivat airports.

The Montenegro railway network is 250 km long and is single track, electrified and normal gauge. The track links the Port of Bar to Podgorica then Bijelo-Polje (and then up to Belgrade, the capital of Serbia) and Podgorica to Nikšić, with a link to Albania via Tuzi. Both tracks are for passengers and cargo transport (currently the Podgorica to Nikisic track is in the process of restructuring).

In Montenegro there are 4 passengers and cargo transports ports, namely Bar, Herceg Novi, Tivat, and Zelenika. The most important port is the port of Bar with 95% of the share in passenger and freight transport. Its capacity is from 14 to 20 boats depending on the both type and size. The Zelenika harbor (with 270 m and 92 m in depth) is used only for cargo transport, with selling and warehousing the main activities. The Kotor harbour consists of the Kotor bay with the operative coast of 216m in length and 3 to 12.8 m in depth, Lipici terminal with a 75 m long operative coast and the small harbour of Bigovo, located on the open sea.

In the first nine months of 2008 an increase in the transport of passengers was recorded, air transport by 10.2% and railway transport by 9.5% (measured by passengers’ kilo-meters). Road transport showed a decline at 13.7% in comparison to the same period of 2007. The most important reason for the increased frequency in air transport is the establishment of new regular air routes (Zagreb and London) and a successful summer tourist season. On the other hand, the increase in railway and decrease in road transport

can be explained as the reorientation of passengers away from road transport, due to the unfinished works on reconstruction of certain roads and the recovery of damaged parts on certain routes until the summer season.

The scope of operations in the Montenegrin transportation sectors is shown in the next table:

INDICATOR 2007RAILWAY TRANSPORT

Passengers (in thousands) 1,188.2

Passenger kilometres (in thousands) 124,500

Goods in thousands tones 1,761.3

Tonne-kilometres in thousands 184,957

Length of railway network (lines in operation, km, 000)22 0.250

LOCAL TRANSPORT

Passengers in thousands 1,491

AIR TRANSPORT

Transport of passengers 1,034,031

Air plane traffic 8996

Transport of goods in tonnes 1,320

ROAD TRANSPORT

Passengers in thousands 5,738

Passenger kilometres in thousands 141,247

Bus kilometres in thousands 17630

Goods in thousands tonnes 2,131

Tonne-kilometres in thousands 91,786

Truck kilometres in thousands 16,269

MARINE TRANSPORT – transport of goods

Transport of goods in thousands tonnes 785

Tonne miles in millions 409

MARINE TRANSPORT

Total turnover (tonnes) 2,071,310

Internal turnover (tonnes) 1,825

Export (tonnes) 791,509

Import (tonnes) 1,280,327

Source: MONSTAT, Railways of Montenegro

The condition of the transportation infrastructure cannot be assessed as satisfactory. Since the transportation infrastructure and its organization contribute to the effective use of the economic potential in Montenegro, and transportation itself has a significant share of total GDP, a set of activities were undertaken in order to improve the relevant segments of the overall transportation. Namely, a cooperation agreement was signed with the World Bank and the approach of implementing the projects for motorway con-struction in three stages in Montenegro was accepted.

44 45


The planned improvement of the Road Infrastructure for 2009 are shown in next table as a Capital budget for 2009 through the Directorate of Transportation22

Description million EUR

Directorate of Transportation 94,6

Road Risan-Grahovo-Žabljak 5,5

Mantainance of State Roads 22,0

Reconstruction of Road Boan-Bukovica 1,5

Projecting the Adriatic-Ionian highway 1,0

Salvation of bottlenecks in transportation network 23,4

Third bar on the main roads 7,0

Project preparation of Highway Bar - Boljare, part Mateševo -Andrijevica 23,5

Mantainance of railway infrastructure 9,7

Recategorisation of roads and building crossroads 1,0

The primary planned investments in infrastructure for the next period as defined by Ministry for Martime Affairs, Transportation and Telecommunication are:

Project Time.of.realization Value.of.investment

Reconstruction of railway Bar-Boljare 4 years 33.000.000

Reconstruction of railway Podgorica-Niksic 3.5 years 57.000.000€

Reconstruction of infrastructural objects in the Port of Bar 8 years 34.700.000€

Construction of the highway Podgorica-Matesevo 5 years 235.000.000€

Start function of the airport in Berane 2.5 years 22.000.000

Source: Ministry for Martime Affairs, Transportation and Telecommunicatio

IndustryOver the last 50 years, the industry has been the chief carrier of the economic development of Montenegro. In that period, the growth of the power industry, metallurgy (steel and aluminum), and transportation infrastructure became the basis for the overall development.

Three major industrial sectors are the manufac-turing sector, the utilities sector (electricity, gas and water), and the mining sector. Production within the “manufacturing sector” represents 76.4%23 of the total industrial production.

22 Source:Economic and Fiscal Programme of Montenegro for 2008-20��, Ministry of Finance23 Data is for �00�; Source: MONSTAT

Industrial production in Montenegro decreased by 2% for the period of January – De-cember 2008 compared to the same period the previous year. Observed by sector, there was an increase of 31.9% in the electricity, gas and water sector and 17.7% in the mining and quarrying sector, while the manufacturing industry registered a production fall by 11.3%. Production decline was largely due to the decline of the manufacture of basic metals and metal products by 12.9%, which has an overall production share of 48.9%. The decrease in overall industry production is due to a great extent to the decreased production of the Aluminium Plant of Podgorica, as it holds 45% of the total Montene-grin industry output, which is primarily caused by the global economic problems and a dramatic decline in the price of aluminum on the international steel market.

The energy system of Montenegro represents a small system with 285,000 users, with demand of around 4500 GWh. From year to year a deficit of electricity is evidenced in Montenegro and this problem should be solved with the privatization of The Power Company of Montenegro. One of the most important industrial producers - The Power Company of Montenegro, produces approximately 20% of the total industrial production in Montenegro. The majority of electricity in Montenegro is produced in: Pljevlja Thermo Power Plant, Perucica Hydro Plant and Piva Hydro Plant. The total actual production of the three plants was 20% above the planned level. The total actual production of the two hydro plants was 715,043 MWh, or 71.2% of the total executed electricity produc-tion. The remaining production came from the thermal plant Pljevlja.24

Montenegro has good preconditions for the development of hydro and thermal-electrical plants, as well as the potential for some new types of production such as solar energy and wind energy. Only 17% of Montenegro’s potential has been developed, while the consump-tion of electricity is at a higher level than production, which means that there are great opportunities for new energy sources. In addition, an important factor for the development of this sector is Montenegro’s highly developed transmission and distribution network.

Wood Processing Industry and ForestryThe wood processing industry, together with forestry, represents a significant economic activity in Montenegro, though more as a potential than by the current performance. The raw materi-als and considerable capacities constitute a good basis for a much larger level of production, as well as a greater share in the total domestic product, export and employment.

24 Data is from the first quarter of �006; Source: MONET �� Institute for Strategic Studies and Prognoses

46 47


Forests are one of the most significant potentials of Montenegro, and they have 620,871 hectares. From the point of distri-bution and a variety of species, Montenegro can be divided into three zones: coastal - Mediterranean, hills, and the mountain - continental zone. Real economic forests lie in the third area. Out of the total area of land categorized as forest, only one-third of it could be used as raw production materials. The high wood (privately and state owned) covers an area of 257,857 hectares, which represents 41.53% of the total area of Montenegro that are under for-est. National parks with 12,457 hectares of forest represent 2.00% of the total forests of Montenegro.25 Forests owned by the state cover an area of 500,041 hectare, which represents 67.25% of total forest-land, while privately owned forests cover 243,568 hectares, or 32.75%26.

Even though it has a significant place in all the strategic and development projects, as an economic industry, forestry still does not have the place it should have in the overall national economic development. The wood industry production in the first nine months of 2008 amounted to 189,900 m³ of the forestry industry, which was 2.4% less than in the same period of the previous year. The reason for such low production lies with the delay in signing a concession agreement with the enterprises in this industry, thus cutting started much later than usual.

Agriculture Agricultural land accounts for 38% (518.067 ha) of the total territory of Montenegro. The greatest share in the agricultural land resources consists of pastures and grassland (88%), which are used extensively. Covering a relatively small area, the Montenegrin agriculture is very diversified – from growing olives and citrus fruits along the coast, to the cultivation of early season vegetables and tobacco in the central region to extensive livestock breeding 25 Source: MONSTAT26 Source: Strategy of forestry development

in the Northern area. On the other hand, commercial production of wheat, maize, sugar beet and oil crops is practically non-existent, which essentially differentiates the Montenegrin agriculture even from countries in its closest surroundings.

The structural features are rather unfa-vorable: small family farms, fragmentized and plotted holdings with low productivity, resulting in low competitiveness for the majority of agricultural products. Monte-negrin agriculture has also its advantages, which are reflected in unexhausted land resources, low use of chemical agents – which offers an opportunity for organic production for the majority of products, specific and traditional products that can be marketed for consumption in tourism as well as an offering of specific and rec-ognizable Monenegrin products aimed at the international markets etc.

The transition process of the Montenegrin economy during the past two decades also included the agricultural sector. The most significant changes were made on multiple tracks:

• The introduction of market principles, abolishing state interventions and abandoning the former concept of agricultural policy which was pre-dominantly aimed at the develop-ment of the public industry.

• A re-direction of agricultural de-velopment support towards family farms and the improvement of living conditions in rural areas.

• Adjustment of the foreign trade protection policy to the development needs of the ag-ricultural and processing industry by its gradual harmonization with WTO principles.

• The introduction of technological innovations in the production, increase of the producers’ level of qualification and education as well as of the administrative and technical service authorities in agriculture.

• The strengthening of institutional support to the agricultural sector by: establishing administrative and technical services, modernization of existing and establish-ment of new laboratories, reform of the veterinary service and general human resource development, etc.

48 49


Economic Forecast of the Economist Intelligence UnitThe main global risk for Montenegro remains a severe international credit crisis, which would cut off financial flows to the country and could precipitate a balance-of-payments crisis. The collapse of Lehman Brothers, a large US investment bank, on September 15th has made it clear that the financial crisis is far from over, and the chance of the collapse of large institutions is high. Credit conditions will be tightened further in the US, the euro area and the UK, as well as in many emerging markets that are heavily dependent on foreign capital.

The outlook for Montenegro’s export markets over the forecast period is mixed. Fol-lowing the weaker than expected second-quarter GDP data, we have cut our forecast for the euro zone in 2009 to 0.8% from the previous 0.9%. We expect a relatively mod-est recovery to 1,6%, in 2010. However, rapid expansion elsewhere in south-eastern Europe should boost important demand in several of Montenegro’s main regional export markets.

World prices for aluminium, which generates almost one-half of Montenegro’s merchan-dise export recipients, will remain at historically high levels over the forecast period. We maintain our forecast for the average prices of dated Brent Blend crude oil to fall back to US$91/barrel in 2009 as a consequence of the weaker global demand and the above noted deleveraging. A stronger US dollar will also contribute to the fall, easing the risk to Montenegro’s external balance and the inflation. However, a stronger global growth picture will help to lift oil prices by nearly 10% in 2010.

Economic growthReal GDP grew by a faster than expected 8% year-on-year in the first half of 2008, driven by the further strong growth in tourism and construction, as well as by a rebound in industry. Economic expansion was also underpinned by a strong growth in domestic demand, fueled by the rapid growth of wages and credit. We continue to estimate a strong growth of 7% for 2008 as a whole. Growth will decelerate during the forecast period as bank lending increases slowly, especially if the authorities are forced to tighten policy further to address the soaring current-account deficit. We forecast the average annual growth of 5.25% in 2009-2010.

There are serious risks to our growth outlook, owing to the huge current-account deficit, which is forecast to average about 30% of GDP a year in 2009-10. Such a deficit is unsustainable, especially as the expected leveling off of foreign direct investment (FDI) inflows will make Montenegro much more dependent on foreign borrowing at a time of global financial turmoil. However, the authorities have a few tools at their disposal to narrow the deficit, as the euro is the sole currency and the budget is already heavily in surplus. There is thus a strong risk of a Baltic-style crash,

with a sharp slowdown in GDP growth over the forecast period. This risk of a hard landing has increased, owing to the recent intensification of the problems in global financial markets, which is likely to cause a further tightening of credit conditions in emerging markets.

InflationConsumer price inflation, as measured by the cost-of-living index (CLI), has continued to accelerate, hitting 11.4% in July. This reflects higher prices of food and electric-ity, rising international oil prices, and strong domestic demand pressures fuelled by rapid wage and credit growth. The use of the euro, along with the base-year effects of energy price increases and drought-induced food inflation during 2007, may exert a modest restraining influence on the price growth for the remainder of 2008. Never-theless, we estimate a sharp rise in average inflation in 2008 to 9% from about 4% in 2007. Looking ahead, our baseline forecast is for disinflation, owing to the strong base-period effects in 2009 and a deceleration of economic growth over the forecast period. However, uncertainty regarding global oil and food prices presents a significant risk to this forecast.

External sectorThe already large current-account deficit reached a new high in 2007, equal to an estimated 34% of GDP, according to recently revised figures from the Central Bank (the 2007 deficit was previously estimated at 42% of GDP). The current-account deficit expanded by a further 78% year-on-year in euro terms in the first half of 2008, owing to an import-driven widening of trade deficit. This in turn reflects on the rapid growth of wages and commercial bank lending, the construction boom in Montenegro, and higher global oil and food prices. Montenegro will continue to run large trade deficits over the forecast period as strong growth in consumer demands, high international oil prices and the need for further upgrades of the country’s capital stock keep import costs high. Increasing tourism revenue, and recurring surpluses on the income and transfer balances, will only partly offset these trade deficits. The current-account deficit will therefore remain very large as a percentage of GDO, raising serious doubts as to its sustainability and increasing the likelihood of severe corrections to the current economic boom.

50 51


Forecast summary

2007b 2008b 2009c 2010c

Real GDP growth 7.0 7.0 5.5 5.0

Industrial production growth 0.1 3.0 3.0 2.5

Consumer price (av) 4.3a 9.0 6.1 4.2

Consumer prices (end-period) 7.7 a 7.5 4.5 4.0

Government balance (% of GDP) 8.1 5.0 4.0 3.0

Exports of goods fob (US$ m) 902.9a 907.4 939.7 1,002.4

Imports of goods fob (US$ m) -2,739.2a -3,500.7 -3,526.6 -3,659.5

Current-account balance (US$ m) -1,129.3a -1,599.2 -1,404.6 -1,353.5

Current-account balance (% of GDP) -34.4 -38.3 -31.9 -29.0

External debt (year-end; US$ m) 1,731.6 2,507.4 2,862.2 3,269.8a Actual. b Economics Intelligence Unit estimates. c Economics Intelligence Unit forecasts

9..Privatization.and.InvestmentsAttractive Environment and OfferThe Montenegrin Law on Foreign Investment is based on the national treatment prin-ciple. Foreign investors can establish a company and invest in it in the manner and under the conditions which are the same as for domestic persons. This means that the same regulations are applied to domestic and foreign investors; there are no other regulations which might deprive foreign investor of any rights or limit such rights. With the recent changes and amendments from July 2007, the Law of Foreign Investments is fully harmonized with the World Trade Organization rules. The law on Free Zones, whose recent changes and amendments also make it fully compatible with the World Trade Organisation rules, assures additional advantages to investors investing in the free zones.

During recent years the business environment in Montenegro significantly improved. Political and macroeconomic stability, regionally competitive financial risk, accelerated development of the capital market and a restructured and privatized banking sector, developed telecommunication infrastructure, relatively high-educated labour force, low custom rate and a favourable taxation system are some of many reasons for investing in Montenegro.

The institutional framework for the implementation of the Foreign Direct Investment Incentives Strategy, as well as the development of FDI policy and its promotion are defined by the programmes of the following institutions: Montenegrin Investment Pro-motion Agency (MIPA) and Foreign Investors’ Council.

In March 2005, the Montenegrin Investment Promotion Agency (MIPA) has begun op-erations. Along the lines of typical investment promotion agencies, the scope of MIPA’s activity is threefold: the promotion of the advantages of Montenegro as an investment location, attracting FDI by direct promotion, and service for foreign investors. Most precisely, the activities of MIPA primarily refers to the coordination and implementation of the Foreign Direct Investment Incentives Strategy, but also to the development of specific strategies, or programmes for particular sectors and countries, the conducting of activities aimed at improving the image of Montenegro as an investment location, establishing contacts and provision of professional services to foreign investors, the presentation of characteristic sectors and of the specific advantages Montenegro has to offer to investors, conducting promotional activities, establishing public and private partnership, development of databases on target companies and on potential invest-ment locations, etc.

In February 2007, the Foreign Investors’ Council was created. Its task is to have an active role in the creation of investment policy, in particular by giving proposals and suggestions for the improvement of the business environment, the elimination of barri-ers, and for more efficient implementation of measures as defined by the Foreign Direct Investment Incentives Strategy.

52 53


Privatization began in Montenegro with the adoption of the federal Law on the Trans-formation of Ownership and Management of Socially Owned Capital in 1992 (amended in 1994 and 1996) and carried on with the enactment of the Privatization Law in Febru-ary 1999. According to the above-mentioned laws, there are three phases (and three concepts) of Privatization: an insider Privatization phase based on worker shareholding (until 1991), the transformation of industries and Privatization of small and medium enterprises phase (from 1992 to the beginning of 1999) and the phase of Privatization based on the mass sale of vouchers and sale to strategic partners (from 1999 onwards). The process of mass voucher privatization was especially successful in Montenegro.

The Government of Montenegro is the main institution responsible for the privatization pro-cess. In order to manage, control and implement the privatization process, the Government established the Privatization Council27 which is in charge of defining goals, methods and ways of privatization. The responsibility of this council is defined by the Law on economic privatization. The Privatization Council announces every year the plan for privatization which defines which companies will be privatized and the methods for their privatization.

At the moment, more than 85% of the total value of capital in Montenegrin companies is privatized. Around 400,000 citizens held the shares of companies or Privatization funds. There is no single company without private capital in its capital structure.

Major results of the process of the privatization:• Telecommunication – 100% private ownership; • Banking sector – 100% privatized;• Capital market – 100% ownership (including stock exchange companies, brokerage houses etc);• Agriculture – 100% private ownership;• Services – 100% private ownership;• Oil import and distribution – 100% private ownership;• Tourism – mostly private ownership.

27 For further information look at web of Privatization Council; www.savjet.org

“Areas in which the company expressed satisfaction includes a legal system estab-lished to EU standards, tax and currency policies that also conform to EU standards, and an excellent labor force. The Government of Montenegro has had a long term desire to be integrated to the EU and therefore public policy and laws - business and general - follow EU guidelines. Monetary and tax system is compliant to EU regulation, and the Montenegro official currency is Euro.”

All of the people we dealt with were very capable and have high integrity. The Gov-ernment is big enough to have the necessary stable bureaucracy but small enough that necessary requirements could happen quickly.”

“Generally, the Government has already enacted laws in line with EU law (mainly copied from Italian law). Therefore we don’t see a lot of socialistic thinking in the Government. The Prime Minister, President and other top people in the Government are pretty western minded.”

Mr. Ikawa, Head of the department, DaidoMetal Ltd

According to EBRD assessments, the process of privatization in Montenegro are evaluated as very successful, which is presented in the following table. The measurement scale for the indicators ranges from 1 to 4+, where 1 represents little or no change from a rigid, centrally planned economy and 4+ represents the standards of an industrialized market economy. The reform scores reflect the assessments of EBRD country economists.

Country EBRD index of small-scale privatisation

EBRD index of large-scale privatisation

Montenegro 3.7 3.3

Serbia 3.7 2.7

Albania 4.0 3.0

Macedonia 4.0 3.3

Bosnia & Herzegovina 3.0 3.0

Croatia 4.3 3.3

Slovenia 4.3 3.0

Source: Europe Bank for Reconstruction and Development

Foreign investments show a growth trend from year to year. The following figure shows detailed information about the growth of FDI in Montenegro.

The net direct investments inflow (inflow minus outflow) in the first nine months of 2008 amounted to EUR 434 million, which is 15.4% more compared to the same period of 2007, while the total FDI inflow in this period amount-ed to EUR 668.5 million. In 2008, foreign direct invest-

ments coming from the Russian Federation, Hungary, Great Britain, Switzerland, Cyprus, and Austria amounted to around 60% of the total inflow. According to EBRD (IMF) for 2007, by calculating the FDI into the percentage of GDP, Montenegro is ranked as a leader among the European economies in transition.

Observing the inflow structure, EUR 492.2 million was realized in the form of owners equity, while EUR 172.6 million was realized in the form of intercompany debt. Compared to the same period of 2007, the FDI inflow realized in the form of intercompany debt increased by 79.2%. Of the total inflow, some EUR 266.9 million

54 55


EXPRESSEXPRESS

Major Investors:or 40% related to real estate, which is 33.2% less. The investment of foreign capital in local companies and banks amounted to EUR 266.3 million, or 9.8% less in comparison with the same period of 2007 of the total FDI inflow.

The outflow from total FDI investments in the first nine months of 2008 amounted to EUR 234.4 million, which is 36.8% less compared to the same period in 2007. Observing the outflow structure, real estate accounted for some EUR 151.1 million or 64.5% of the total outflow. Residents have spent EUR 27.2 million in the period observed for the purchase of real estate abroad or 28.9% less than in the same period of time in 2007. FDI outflow, as a withdrawal of the share of foreign capital in domestic banks and firms, equaled EUR 25.2 million. Investments in foreign banks and firms from Montenegro residents totaled EUR 41.6 million, which is 6.7% less than in the same period last year. Outflow on a basis of intercompany debt and a withdrawal of the share of foreign capital invested in the other domestic firm amounted to EUR 16.4 million.

56 57


Further privatizationThe privatization process in Montenegro is in the final phase. The majority of companies that have not been privatized are of strategic importance for the Montenegrin economy in the field of energy, transport, tourism etc. Further privatization of state-owned com-panies should contribute to achieving better economic performance, increasing the competitiveness of the country and should enable the Government of Montenegro to generate higher revenues that will enhance capital investments and reduce debts.

The privatizations of larger companies expected in the next few years are given in the following table. The total share of state-owned assets in those companies amounts to EUR 1,078 million or 64% of their total nominal value. Each of the companies is under the majority ownership of the State.

Company Nominal value State-owned.share

State-owned.capital.value

Electrical Power Company 907,036,354 67.00% 607,714,357

Zeljeznice Crne Gore 319,533,049 65.00% 207,696,482

Jadran’s shipyard Bijela 31,612,218 62.00% 19,559,575

AD Plantaze 68,704,284 54.00% 37,100,313

AD Luka Bar 133,958,143 54.00% 72,337,397

Duvanski kombinat 19,781,558 51.10% 10,088,595

Institute “Dr Simo Milosevic” 59,240,278 56.00% 33,174,556

HTP Budvanska rivijera 69,681,231 58.73% 40,886,787

HTP Ulcinjska rivijera 81,529,344 60.73% 49,512,771

Total value of capital 1,691,013,459 63.76% 1,078,110,833

Source: Agency of Montenegro for Economic Restructuring and Foreign Investment and Montenegro Stock Exchange

In 2009, according to the annual Privatisation Plan, determined by the Privatisation Council, the following specific activities in the domain of privatisation process have been stipulated28:

• Continuation of activities on realisation of the announced public tenders for privatisation of majority stakes in following companies: „Adriatic Shipyard” AD Bijela (joint stock company), Public press publishing and printing company “Pobjeda” AD Podgorica (joint stock company), „Montepranzo-Bokaprodukt“ AD Tivat (joint stock company), Institut „Dr Simo Milošević“ AD Igalo (joint stock company) and “Zora” AD Berane (joint stock company).

• Continuation and realisation of activities on preparation of public tenders for the sale of majority stakes in the companies: „Duvanski kombinat“ AD Podgorica (joint stock company), AD „Marina“ Bar (joint stock company) and „Barska plovidba“ AD Bar (joint

28 Source: Economic and Fiscal Programme of Montenegro for 2008-20��, Ministry of Finance

stock company), and also on preparation of the public tender for the sale of five small hydropower plants owned by company “Elektroprivreda Crne Gore” AD Nikšić (joint stock company).

• Continuation of activities on preparation and realisation of the procedure for the capital increase in the company „Elektroprivreda Crne Gore“ AD Nikšić.

• Realisation of activities on preparation of the public tenders on sale of majority owner-ship stakes in following companies: Hotel and Tourist company „Budvanska rivijera“ AD Budva, Hotel and Tourist company „Ulcinjska rivijera“ AD Ulcinj, and „Institut crne metalurgije“ AD Nikšić.

• Initiation of the privatisation process, in accordance with the adopted restructuring programmes, in the companies: „Luka Bar“ AD Bar (joint stock company), „Željeznice Crne Gore“ AD Podgorica (joint stock company), „Montenegro airlines“ AD Podgorica, and „Pošta Crne Gore“ DOO Podgorica.

• Continuation of the initiated activities on realisation of the public tenders for valori-sation of the military-tourist complexes in following locations: „Mediteran“, Žabljak, “Bigovo – Trašte”, Kotor, „Valdanos“, Ulcinj, “Mamula” island, warehouse Rakita and barracks “Orjenski bataljion”, Kumbor.

• Continuation of the initiated activities and preparation and realisation of the public procedures for selection of investors for implementation of valorisation projects refereeing to the exclusive tourist locations: „Ada Bojana“, „Velika plaža“, „Njivice“, „Utjeha“, „Buljarica“ and „Jaz“.

58 59


10..Quality.of.lifeCome and you will stay

Montenegro offers a diversified life style: “In one day, the curious traveler can have a coffee on one of the numerous beaches of the Budva Riviera, eat lunch with the song of the birds on Skardar Lake and dine next to a fireplace on the slopes of the Durmitor Mountain”.

Within a small area, you can mix with urbanites in a city with a modern lifestyle and night life, and with nature in an atmosphere of total untouched natural beauty. It is, simply, Montenegro.

World-standard Quality of LifeMontenegrins are well-know for their hospitality. They will certainly make a great effort to insure that their friends, relatives, partners, and guests experience the most in the country, see the most beautiful places and feel at home. This is because Montenegrins themselves are very demanding in terms of the contents and quality of life. The Mon-tenegrin people themselves want their country to be a convenient place to work and a fascinating place to explore, and spend their lives. Therefore, in Montenegro there is space for any activity to meet every need or wish, and a place to suit every taste. The index of human development in Montenegro is 0.79929.

Place to Go to See and RelaxMontenegro is a land of exceptional scenic beauty with the sea, hundreds of lakes, rivers and ancient woodlands. The possibilities of where to get away and what to see are endless. Four UNESCO World Heritage sites can be visited: the old town of Kotor, one of the largest „living old town“ in Eastern Europe, the deepest canyon in Europe, and a beautiful coastal zone.

Sports Orientated NationThe number of registered sports clubs in Montenegro is 99030. The most popular sports are football, basketball, handball, vollyball, waterpool, and tennis. During 2008, the Montenegrin waterpolo team became one of the best in the world. In 2008 Montenegro became the European Champion in Malaga. The same team reached fourth place in the Olympic games.

All is AffordableSkiing, swimming, climbing, yachting, cycling, bowling, skating, golf and para-gliding are popular leisure activities in the country. A variety of modern shopping stores, casi-nos, world-standard restaurants and hotels with offerings from the four corners of the world will witness a way of life that is deeply rooted in Montenegro. Skiing centers are in Durmitor and the Bjelasica Mountains and the resorts of Zabljak and Kolasin. The skiing season lasts 3-4 months.

29 UNDP and ISSP30 Source: MONSTAT, data from 2006

Fishing is popular on Skadar Lake and on the rivers Moraca, Tara, Bojana and Zeta - and of course on the Adriatic Sea. Freshwater fish include trout, chub, carp and bleak. Saltwater fish include mullet, St Pierre, sea bass, gilthead perch and porgies.

Exciting rafting by boat or wooden raft is well organized in the Tara Canyon along 100 km of the Tara River. Tara Canyon is the largest canyon in Europe and the second one in the world right after the Colorado Canyon.

The best-know hunting grounds are Skadar Lake, Mountain Durmitor, the Bjelopavlicka valley, Crmnica and Ulcinj (at Sas). Hunting is allowed with a permit for bears and wild boar, and without one for wolves.

If you are an adventurer you can get your adrenalin pumping by paragliding over the beautiful Montenegrin coast, bungee jumping right over the sea surface and riding fast water scooters.

Musical spectacles Montenegro became famous because of musical spectacles. One of them is the big-gest world’s rock and roll band of all time, the Rolling Stones, who had a concert on the Jaz beach. This spectacle has awakened the passion of all rock fans, not just in Montenegro, but also in the surrounding countries. More than 30.000 people enjoyed this evergreen English band.

On August 5th, 2008, Jaz beach hosted 20.000 visitors on its first evening concert by Lenny Kravitz, the famous American singer. His two-hour funk-rock lecture was enjoyed by people of all ages.

The Queen of Pop, Madonna, attracted a record number of visitors – more than 50.000 people, making this concert a very important musical event in Montenegro’s history. Madonna held a concert in Montenegro, on Jaz beach and in the two-hours spectacular music and dance show, the famous star showed prime-time talent and a great connec-tion with the audience.

Easy Communications and ConnectionIn Montenegro English is widely spoken, Italian is also popular, Spanish is becoming more and more popular, and knowledge of the Russian languages is widespread.

Mobile telecommunications services are provided throughout the country, and the mo-bile Internet is also widely available. Electricity, water and gas utilities are completely reliable. Roads are good with increasing improvements and major towns also have inexpensive public transportation services.

Accessible Social ServicesFamilies from abroad may apply to a couple of schools and faculty specializing in education based on international standards, as access to an international school is an important family-life consideration. “QSI International School of Montenegro” located in Podgorica, is a private non-profit institution which opened in January of 2006. It offers

60 61


a quality education in the English language for elementary students from five to thir-teen years of age and secondary students to age seventeen. Montenegrin universities are welcoming foreign students eager to enrich their knowledge. Furthermore, private healthcare services are available for Montenegrin’s visitors in all cities and towns.

“More and more international tourists are coming to Montenegro. It used to be a very popular tourist destination before 1991, and now it’s regaining the position of regional economic, political, cultural and tourism leader.”

Tomorrow People Organization, study abroad programs,‘Intercultural Encounters’

11..Major.Investment.Opportunities

Montenegro offers a wide range of investment opportunities. Some of them are very much unique (like the 13 km long sand beach in Ulcinj or Flower Island), some are challenging from a construction point of view (like highways or the railroad system) and some are quite complex (like investments in the energy sector). However, we are ready to hear your suggestions and ideas about the ways to transform society, transfer the newest technology and improve the business environment.

The main purpose of this publication is not to present all the investment opportunities, but just to tickle your mind a bit and awaken your interest in one of the most beautiful countries in the world.

Also, we would like to refer to our publication titled “111 Frequently Asked Questions” where you can find lots of additional information about establishing and doing business in Montenegro.

Here is a snap-shot of possible investment projects.

11.1 TourismVELIKA PLAZA – Located between the city of Ulcinj and the Island Ada Bojana, Velika plaza (a 13 km long sand beach with an unobstructed view of the Adriatic Sea) repre-sents the southern tip of Montenegro. It is 87 km away from Tivat International Airport and around 70 km from the capital Podgorica. Plans and issues for the gradual develop-ment include: (I) the development of a high level touristic area; (II) the construction of a small VIP airport; (III) upgrading telecommunication, efficient energy and water supply; and (IV) coastal area protection (allowing up to 100 square meters of green surface per bed in order to provide high luxury tourism accommodations). Tender documentation has been submitted by four companies: Greek American Proofrock investments, Hydra properties and Bloom International properties (all from the United Arab Emirates) and Trigranit from Hungary.

MAMULA.Island.-.Mamula presents a very popular one–day trip destination accessible by boat. The island has a circular shape (200m in diameter) and coastline which consists of a rocky surface with a small beach section. The fortress located on Mamula has no accommodations, food, beverage or boutique services. The developmental concept includes a luxury hotel with exclusive leisure, food service and wellness facilities, and berths for small and medium size yachts. The Government of Montenegro prefers a Public-Private Partnership and announced a Call for Expression of Interest.

JAZ - Situated in the central part of the Montenegrin coast, Jaz belongs to the cities of Budva and Tivat. Plans for the gradual development consists of an urban development concept, including a village complex offering accommodations, pensions, a water sport

62 63


center, wellness facilities, food & beverage services, etc. The fields and hillside of Jaz must be surveyed in order to get a picture of the exact available area. The Rolling Stones, Madonna and Lenny Kravitz performed concerts on the beach of Jaz in 2007 and 2008.

BULJARICA - is located between the cities of Bar and Budva. It has the greatest devel-opment potential on the Montenegrin coast. The land is mostly private. The majority of owners are members of a local landowners association, which is interested in creating a joint venture with the potential strategic partners participating as share holder partners. The developmental concept includes high quality residential accommodations, 4 -5 star hotels and a tourist village (all of it totaling up to 6500 beds). A marina is also planned, as are a business center and 18-hole golf course.

BIGOVO - The Bigovo cove is situated between the cities Budva and Tivat and adjacent to the historic fisherman’s village. There is easy air access to the property via Tivat’s international airport (20 kilometers from the site). In addition, the international airports at Podgorica (90 minutes) and Dubrovnik (90 minutes) provide two additional accesses. The site is located on a peninsula, and extends from the seacoast inland, almost fully across the peninsula to the bay side. The site encompasses 38,940 square meters of land area, with leisure facilities currently on 2,873 square meters. Plans and issues for the gradual development include a leisure asset of the highest quality utilizing – and maintaining – the beautiful natural surroundings.

KUMBOR - Kumbor is located at the shores of Boka Kotorska Bay, 6 km from Herceg Novi. Kumbor is known as a tourism resort belonging to Herceg Novi Riviera. There are many small beaches and nice restaurants on the seafront. Plans and issues for the gradual development include the construction of a world class, unique multifunctional upscale tourism resort, 4-5 star nautical and commercial amenities with leisure facilities.

VALDANOS - Valdanos is located close to Ulcinj, southeast of Bar. It is one of the most beautiful locations along the Montenegrin coastline. This former military vacation camp, surrounded by olive trees, offers an unobstructed ocean-front view with exclusive privacy, a Mediterranean climate and an average of over 240 sunny days. Airports are 68 km (Podgorica) and 86 km (Tivat) away. Valdanos bay covers 4km2, which includes a pebble beach of approximately 100 meters in length and various low rise camp and general public service facilities, i.e. tennis courts and parking areas. The conceptual framework includes a five star resort, protection of the coastal area allowing up to 100 m2 of green surface per bed, luxury tourism accommodations of a maximum of 4 floors, and the protection of its ecological structure. Montenegro is primarily interested in Pub-lic-Private Partnership properties. MEDITERAN - This asset is located within a national park in Žabljak at 1,456 meters above sea level. While it has direct access by paved road, the location evokes a feeling of almost wondrous isolation and connection with nature. It is adjacent to and walking distance from the famous Black Lake, and is completely surrounded by towering pines. Views from the site are of nature’s wonders – soaring pines and towering mountains – unencumbered by man-made intrusions. The intention is to create a world-class resort that is intimate in feel, as well as conceptually, aesthetically, functionally and ecologically in harmony with the incredible natural beauty and striking physical position of this property.

11.2 InfrastructureHIGHWAYS.-.The Ministry of Transport, Maritime Affairs and Telecommunications of Montenegro announced a prequalification tender for prospective bidders for the execution and implementation of a Public-Private Partnership (PPP) contract involving the design, financing, construction, operation and maintenance of a new motorway running from Bar to Boljare. The PPP contract will be awarded through a transparent and competitive tender process, in application of the best international practice and in accordance with the Decree dated May 29 2008, passed by the Government of Montenegro approving the project..Prospective bidders who meet the criteria set forth in the Prequalification Document shall be invited to participate in an international competitive tender process for the Project. In addition, the Government of Montenegro is planning to develop the necessary documenta-tion for the Adriatic-Ionic highway (so called west-east corridor) around 105 km long, that should connect the Croatian and Albanian side of the same highway.

RAILWAY – The Government of Montenegro adopted a restructuring plan which accord-ing to the company will be split into two separate: (i) that will be in charge of developing and maintaining the railroad infrastructure and traffic regulation and (ii) the second one in charge of operations (freight and passenger transport and maintenance of rolling stocks). Infrastructure management and traffic regulation will remain state owned, while joint investments with a strategic partner will be sought for Infrastructure maintenance on the basis of a long-term contract with the state. Privatization is planned for operations.

11.3 Transportation and LogisticsMontenegro.Airlines.-.was founded fourteen years ago. It is registered for domestic and international passenger and charter traffic, as well as for the carriage of cargo and mail. Over the last 10 years, Montenegro Airlines linked Montenegro with the largest European cities: Frankfurt, Zurich, Paris, Rome, Vienna, Ljubljana, Moscow, London, Milan and Belgrade. Three million passengers have been transported so far. At the Shareholders meeting held in July this year, it was decided to move from a LLC to Joint Stock Company and to proceed with the new issue of shares, representing 30% of the current company value. Out of these 30%, five percent will be offered on the stock market, while the remaining 25% will be offered to a strategic partner. The consulting firm SH&E was selected as the advisor for privatization. Companies from Russia, Great Britain and Israel had shown interest in the privatization of Montenegro Airlines. The representatives of Montenegro Airlines have said that the European Bank for Restruc-turing and Development is also interested in privatization of this company.

LUKA BAR - The Port of Bar spreads over 200 hectares. The total length of the op-erational coast is 3.5 kilometers, aquatorium maximum depth of 14 meters, and 120 thousand square meters are closed warehouses. In the port, there are five specialized terminals: for Ro-Ro and passenger traffic, general cargo, containers, solid and liquid bulk. Maximum capacity is about 5 million tons. The State posses 54.05% of total shares, while the remaining proportion is divided between: privatization funds (15.54%),

64 65


workers (11.03%), citizens (18.33%) and other legal entities (1.05%). The port employs 1,371 workers. The average age of workers is 45. In accordance with a decision of the Government of Montenegro on the privatization plan, the sale of the state package of shares in the port shall be done on the basis of restructuring.

ADRIATIC SHIPYARD BIJELA - The shipyard is the largest ship-repairing yard in the Southern Adriatic. It was established in 1927 and nowadays it has a large experience and extraordinary human expertise and technical capacities. The shipyard offers its services at the international maritime market, and therefore the services it provides have almost exclusively the character of export. The main activity of the company includes ship repair and reconstruction. A Public Invitation is currently opened for submission of bids for the participation in the Tender for sale of 61, 5749% of the total equity.

66

Montenegro Country Report 2009

11.4 EnergyGreenfield in hydropower plants on the River Morača - The Government of Montenegro intends to develop the country’s untapped hydropower potential through Public-Private Partnerships. As a priority, the Government wants to develop the Morača River potential through a series of four hydroelectric-power plants for a total installed of 238 megawatts (MW) and an annual production of 693 gigawatt hours (GWh). Extensive geotechnical and hydrological investigations have already been performed for the preparation of the techni-cal documents. Legal Due Diligence, Detailed Spatial Plan and Strategic Environmental Assessments are expected to be completed by the end of February 2009. Interested parties may be requested to comment on the data from the existing technical documents, and to produce improved design proposals for the development of the Project.

ELECTRICAL POWER COMPANY - is a state-owned company carrying out activities in the area of electricity generation, transmission, distribution and supply. Pursuant to its statute, the Electrical Power Company is organized as a company whose core activity is electricity generation, transmission, distribution and supply. The Privatization Council has decided to start the procedure of recapitalization of the Electrical Power Company of Montenegro. It is estimated that by conducting this process, around 22% of the company will be privatized. Having in mind the current involvement of the private owners, that would lead to 45% of the total capital in private hands, while the state will keep the remaining 55%. The Council has formed a Tender Commission which will supervise and fulfill the process with the operative team.

11.5 IndustryDUVANSKI KOMBINAT PODGORICA - owns a network of retail stores and warehouses. It employs 406 employees. The subject of sale is 100% of the company shares.

CIP – Каталогизација у публикацијиЦентрална народна библиотека Црне Горе, Цетиње

908 (497.16 Црна Гора)

MONTENEGRO Country Report / [authors PetarIvanovic ... et al.]. – Podgorica : MIPAMontenegrin Investment Promotion Agency, 2009(Podgorica : Montcarton). – 68 str. : ilustr. ; 27 cm

Kor nasl. – Podatak o autorima preuzet iz kolofona.- Tiraž 2000. – Bilješke uz tekst.

ISBN 978-9940-9011-3-41. Ivanović, Petar [аутор]a) Црна ГораCOBISS.CG-ID 13758224

Montenegro Country ReportEdition 2009.

Authors:Dr Petar Ivanovic, Sandra Tinaj, Ivana Begovic, Nina RadovicBlagota Radulovic, Dragisa Dragnic, i Milena Jovovic.

Publisher:Montenegrin Investment Promotion Agency

Graphic design and layout:Marko Mihailovic, M studio

Print:Montcarton, Podgorica

Number of copies: 2,000

March 2009

country report - 2009

Business

economic growth

montenegro country report

economic forecast

labour market

capital market

growth vehicles

major investment opportunities

real estate market