Golubović: Foreign investors have invested over €9bn in Montenegro
Montenegro has proved to be an interesting investment destination, which has been confirmed by the data that over nine billion euro has been invested in our country since the restoration of its independence to date. The investments came from over 125 countries, President of the Montenegrin Chamber of Commerce, Vlastimir Golubović, told in an interview with CdM. Ever since Montenegro has become a full NATO member state, investments from the Alliance countries in 2018 went up by 64.1% compared to 2017.
CdM: How do you see the economic situation in 2019 and what would be the greatest risks when it comes to the Montenegrin economy of 2019?
Golubović: In 2018, Montenegro recorded growth in GDP, employment, salaries, providing services (especially in tourism, construction and retail) and FDI, but the level of unemployment is still pretty high, and we also have high deficit of the international trade in goods and services.
Montenegrin economy achieved an average growth of 4.9% in 2018.
Growth in economy is a consequence of growth in almost all sectors, i.e. tourism – the number of arrivals has increased, as well as the number of overnight stays and revenues from tourism, and as for the construction sector, the overall activities increased by 24.9%. The industrial production increased by 22.4% in 2018, while one of its sectors – mining and quarrying recorded a 21.3% drop in production, electricity, gas and water supply sector recorded growth of 62.1% and the sector of manufacturing eyed a 12.1% growth.
The economic growth contributed to new jobs in the private sector. In 2018, the employment rate rose by 4.3% compared to 2017, especially in the sector of production, construction and tourism.
Fiscal consolidation, which started in 2017, has provided positive results in terms of boosting budget revenues, decreasing costs for social reimbursements and slowing down growth in the salaries fund in the public sector.
Risks that might have negative impact on growth in the coming years are the slowdown in growth in the EU, possible tightening of the conditions for financing, regional political situation, potential weather disasters that might have impact on growth in tourism, agriculture and energy sector.
Tightening financial conditions at the international market would require undertaking activities related to the reduction of public debt and foreign deficit.
In addition, if we want to reduce the aforementioned risks, ensure further growth and bolster the general conditions in the market, we need to accelerate the process of structural reforms, attract private investments and export, continue with the implementation of the measures for fiscal consolidation and maintain the stability of financial sector, as it represents a precondition for sustainable mid-term stability of the overall system.
CdM: Having in mind that tax debt represents one of the biggest problems of the Montenegrin economy, how should we improve tax discipline?
Golubović: Tax debt is decreasing thanks to the collection of claims through the tax debt rescheduling, extension of the deadline for settling tax liabilities and claim write-off for companies that went into liquidation. However, in order to ensure tax discipline and improve the process of collection of tax debt, it is necessary to conduct regular controls over all taxpayers, prevent and uncover all irregularities in business and control whether the deadlines for settling tax liabilities are respected.
CdM: What do you think, what could have been done better?
Golubović: the Government of Montenegro and Montenegro’s Chamber of Commerce are the institutional partners, and our joint activities towards improving business environment and boosting competitiveness of the Montenegrin companies have been additionally strengthened by the last year’s adoption of the Law on Chamber of Commerce. The implementation of this Law is contributing to even stronger and more effective dialogue between the industry and creators of economic policies.
The Chamber of Commerce has been performing affairs in order to remove business barriers, which has been its main mission. In 2018, this organization launched an initiative for amending a great number of regulations, all with the aim of unburdening the industry and improving the overall business environment. The initiative resulted in the significant benefits for business environment and it contributed to strengthening of competitiveness of domestic economy.
One of the priority activities of the Chamber of Commerce is to organize fairs and business forums, in-country and abroad, and thus provide support for the internationalization of economy and promotion of Montenegro as an investment destination.
The Chamber of Commerce takes part in the development of dual education system, and it organizes various training, specialized courses, lectures, workshops and other forms of education, for the needs of economy.
We believe that the improvement of the efficiency in administration, as well as the digitalization – introduction of the electronic services by joint forces of the Chamber and govt – would contribute to the more dynamic economic growth in the coming period.
CdM: Do you think Montenegro is attractive to foreign investors? Who are the biggest investors and what do you think – where are the opportunities for further investments?
Golubović: Montenegro is an attractive destination for foreign and domestic investors as well. It’s attractive due to the obvious potentials for the development of tourism, agriculture, road infrastructure and energy, as well as for the numerous possibilities for investments in other sectors, especially in the underdeveloped parts of the country.
It has proved to be an interesting investment destination, and this has been confirmed by the data that over €9 billion has been invested in Montenegro since it restored its independence. The investments came from over 125 countries.
In 2017, Montenegro became a full NATO member state, which surely represents an additional signal to foreign investors that our country is a safe investment destination. In 2018, direct foreign investments from NATO member countries rose by 64.1% compared to 2017. The EU negotiation talks mean we must accept new rules, i.e. we have to align domestic legislation with the EU acquis. The reforms in this process contribute to the improvement of the overall business environment and reinforce the position of Montenegro as a desirable investment destination.
What makes Montenegro even more attractive is a competitive tax system, as well as a whole range of encouraging measures for domestic and foreign investors. I’d like to mention the Decree on Direct Investment Incentives which allows the Government of Montenegro to allocate financial incentives for investments that bring new jobs, especially in less developed parts of the country, as well as financial incentives for improving innovation, introduction of the international standards, modernization of manufacturing sector, then incentives in business zones such as reliefs in the payments of municipal and other reimbursements, favorable prices for renting/purchasing the land, reduction or exemption from payments of surtaxes levied upon an income tax, etc…
CdM: What would be the main obstacle for the development of economy and in which ways we should deal with it?
Golubović: Montenegro’s commitment to the EU membership is an opportunity to seriously re-examine the state of play and circumstances in the market, primarily for analysis of business environment, business barriers and other limitations that affect the sustainability and development of domestic economic entities.
The most common barriers that businessmen are pointing out to are: grey economy and unfair competition, lack of professional and qualified work force, massive costs stemming from work relations, labor legislation, insufficient efficiency of state administration, as well as numerous and complex procedures.
Grey economy and unfair competition still impose the greatest obstacles to increasing the level of competitiveness of domestic industry. The most efficient way for suppressing grey economy would be to improve the tax system so that it’s based on simple legal solutions, unique and low tax rates and a slightly smaller number of tax exemptions. By respecting the principle of predictability, business conditions and by the consistent implementation of regulations, this issue would be much better resolved, which would have the positive impact on the overall economy.
Labor Law is among the first regulations that we recognize as a heavy burden. Beside fundamental rights of employees that need to be observed, employers also expect their interests to be protected in order to adequately run a business and acquire greater productivity and profit. In addition, there are the unemployed as well, and it is in their interest to have a competitive labor market. Therefore, the Labor Law has to define simpler procedures for concluding and terminating the contract for employment and thus ensure higher employment rate, more successful business and speedy development of companies.
Montenegrin economy recorded tremendous growth in 2017-18 despite the implementation of the mid-term fiscal strategy. The continuation of positive economic trends requires further strengthening of competitive advantages of domestic economy, which is possible to achieve through the removal of business barriers, reduction of tax and other burden. Therefore, it’s expected that the Government would decrease tax liabilities when it comes to the income taxes and contributions of employees, and then through reliefs in certain fiscal positions at the local level and their alignment with the local self-government level.
Through the encouraging tax policy, elimination of administrative burden and improved access to sources of financing, Montenegro will reinforce the ability of the local companies to deal with the competition.
CdM: How to overcome a huge gap between import and export?
Golubović: A key component for boosting economic growth and the reduction of imbalances in foreign trade is the improvement of competitiveness. In this sense, it is necessary to undertake activities aimed at improving the competitiveness of individual entrepreneurs and products, as well as the competitiveness of the overall economic system.
In order to swap imported goods for domestic products and increase export, it is necessary to work on strengthening the quality of domestic offer, continue activities on promotion and affirmation of domestic production, better positioning of domestic products, linking agriculture and tourism through projects such as ‘Dobro iz Crne Gore’, ‘Kupujmo domaće’, ‘Domaći ukusi’…
Also, further growth in exports requires more intense activities of producers oriented towards marketing, association of domestic companies due to limited quantities of products, as well as financial resources. Creation of clusters and / or other forms of association eliminates the problem of fragmentation of production and insufficient production capacities, and contributes to the strengthening of competitiveness.
Furthermore, it is necessary to increase financial support for export-oriented production, increase the productivity of small and medium-sized enterprises through investments and modernization of equipment and production processes so that those enterprises can successfully participate in the global value chain, establish a system of education and mutual support of businessmen in terms of implementation of the international quality standards, and keep a predictable, competitive and consistent tax environment in order to encourage foreign investors to continue investing, particularly in production sectors.