THE ENABLING ENVIRONMENT for SUSTAINABLE ENTERPRISES in MONTENEGRO Report CIP - Каталогизација У Публикацији Национална Библиотека Црне Горе, Цетиње

THE ENABLING ENVIRONMENT FOR SUSTAINABLE ENTERPRISES IN MONTENEGRO report CIP - Каталогизација у публикацији Национална библиотека Црне Горе, Цетиње

ISBN 978-9940-658-01-4 COBISS.CG-ID 23756304 The enabling environment for sustainable enterprises in Montenegro

- report -

Podgorica, December 2013. Montenegrin Employers Federation

Montenegrin Employers Federation (MEF) is an independent, non-governmental, non-political and not-for-profit organisation based on voluntary membership. MEF is founded on April 2nd 2002. On August 30th 2005 MEF was granted the status of representativity by the Ministry of Labour and Social Welfare which made them the umbrella employers’ organisation in Montenegro representing the independent voice of business on national and international level. Having signed the National Tripartite Agreement on December 28th 2006, Montenegrin Employers Federation became a social partner – an official representative of employers in relations with Government and trade unions.

MEF membership comprises entrepreneurs, small and medium enterprises, large economic entities, local and sector employers’ associations as well as NGOs. MEF members make 80% of total GDP in Montenegro and employ around 65% of the workforce.

MEF is recognised at national, regional and international level. MEF is a member of International Organisation of Employers, Businesseurope being one of the founders of Adriatic Region Employers Centre as well as the first organisation to sign UN Global Compact in Montenegro. MEF closely cooperate with International Labour Organisation, (the later also supported its founding) and act in accordance with its conventions and recommendations).

MEF established the Association of Business Women in Montenegro and helped founding of other employers associations at local and sector level. MEF signed cooperation agreements with umbrella employers organisations in the region and wider as well as with international institutions and organisations.

Montenegrin Employers Federation actively contributes to improvement of business environment and elimination of business barriers offering a wide range of services to its members. Along with representing the interests of employers in tripartite working groups and bodies at national level working on the development of legislation, strategies and action plans, MEF services comprise legal advices in all areas relevant for enterprise operations, economic studies and analyses, seminars and trainings organisation, implementation of EU funded projects and support to employers networking at national and international level.

This publication has been published with the (financial) support of the (Bureau for Employers` Activities of the) International Labour Organization.

The responsibility for the opinions expressed in this report rests solely with the author. The International Labour Organisation (ILO) takes no responsibility for the correctness, accuracy or reliability of any of the materials, information or opinions expressed in this report. Contents

Foreword ...... 5 Abbreviations and acronyms ...... 6 Executive summary ...... 7 Methodology ...... 10 1. Introduction ...... 11 2. Political elements ...... 13 2.1. Peace and political stability ...... 16 2.2. Good governance ...... 18 2.3. Social dialogue ...... 26 2.4. Respect for universal human rights and international labour standards ...... 28 3. Economic elements ...... 31 3.1. Sound and stable macroeconomic policy and good management of the economy ...... 36 3.2. Trade and sustainable economic integration ...... 45 3.3. Enabling legal and regulatory environment ...... 52 3.4. Rule of law and secure property rights ...... 58 3.5. Fair competition ...... 62 3.6. Information and communication technologies ...... 69 3.7. Access to financial services ...... 75 3.8. Physical infrastructure ...... 83 4. Social Elements ...... 87 4.1. Entrepreneurial culture ...... 90 4.2. Education, training and lifelong learning ...... 93 4.3. Social justice and social inclusion ...... 99 4.4. Adequate social protection ...... 103 5. Environmental elements ...... 105 5.1. Responsible stewardship of the environment ...... 105 6. Assessment results and ways forward ...... 109 Bibliography ...... 112

The enabling environment for sustainable enterprises in Montenegro

Foreword

Montenegrin orientation towards entering the membership of the European Union (EU) calls for a serious review of the conditions in the country. This is especially important in regards to the business environment, visible and hidden business barriers and all other constraints at national and local levels affecting sustainability, stability and overall enterprise development. Micro, small and medium enterprises (MSME) that generate economic growth and employment are particularly important in this regard, as they represent an important precondition for overall growth in production, exports, productivity, and competition.

As a small economy, Montenegro cannot influence changes in the global market, and is influenced by external shocks such as the global financial crisis specifically, which negatively impacted the Montenegrin economy. High debts, problematic debtor‑creditor relations, and difficulties securing sufficient financial resources for day‑to-day activities define enterprises in Montenegro. The global crisis resulted in an increase in the number of firms that went out of business and those with blocked accounts, reduced solvency of enterprises, and consequently, a decline in economic growth. Therefore, the greatest challenge for the country at this time is how to preserve business and maintain economic activity.

Representing the voice of employers in Montenegro, the Montenegrin Employers Federation (MEF) continuously strives for creation of a better business environment and aims to provide an evidence base for policy reforms in this direction. This report is the result of a survey done with support from the International Labour Organization (ILO) and their methodology for enabling environment for sustainable enterprises (EESE) that analysed 17 conditions relevant to enhancement of sustainable enterprises. This has provided insight into the existing shortcomings in Montenegro’s business environment and provides recommendations for strategic solutions.

MEF wishes to thank all enterprises that participated in the survey and focus group meetings, and for dedicating time and providing information, comments and suggestions that contributed to the overall quality of the document. Special thanks goes to the ILO specifically to Dr. Farid Hegazy, Global Coordinator for Enabling Environment for Sustainable Enterprises in Geneva for his research support and Mr. Dragan Radic, ACT/ EMP Senior Specialist on Employers’ Activities from the Budapest Office, for financial and technical support, as well as all information provided that guided our work and enriched our knowledge in the field.

7 The enabling environment for sustainable enterprises in Montenegro

Abbreviations and acronyms

CSO Civil society organization DPS Democratic Party of Socialists EU European Union ILC International Labour Conference ILO International Labour Organisation IOE International Organisation of Employers KAP Aluminum Factory in Podgorica MBA Montenegro Business Alliance MEF Montenegrin Employer Federation MFI Micro-finance institutions MSE Micro- and Small Enterprises NGO Nongovernmental organization SDP Social Democratic Party SME Small and Medium Enterprise SOGI Sexual orientation and gender identity SSGC Confederation of Trade Unions of Montenegro (Savez sindikata Crne Gore) UPCG Montenegrin Employers’ Federation (Unija poslodavaca Crne Gore) USSCG Union of Free Trade Unions of Montenegro (Unija slobodnih sindikata Crne Gore) WB EDIF Western Balkans Enterprise Development and Innovation Facility

8 The enabling environment for sustainable enterprises in Montenegro

Executive summary

Montenegrin Employers Federation conducted a comprehensive research in 2013 based on the ILOs toolkit on “Enabling Environment for Sustainable Enterprises which evaluates 17 pillars conducive to the promotion of sustainable enterprises. The report analyses how the country performs with respect to each pillar, with the aim of assessing the relative strengths and weaknesses of the enabling environment for sustainable enterprises and employment in Montenegro.

A key result of primary and secondary surveys and of numerous focus groups’ meetings with representatives of the most important enterprises operating in all economic sectors is a unique and undivided opinion on 5 biggest barriers enterprises in Montenegro face in their everyday operations. Along with a detailed review of problems recognised, it also offers recommendations for their solutions.

The most important constraints for enabling environment for growth and sustainability of enterprises recognised are: inadequate regulatory framework, limited access to financial resources, high share of informal economy, corruption in all areas and at all levels and a mismatch between education system and labour market demands.

When it comes to regulatory framework, both primary and secondary surveys show positive shifts and improvements in Montenegro as reported by the relevant international institutions. Nevertheless, significant problems still exists which is confirmed by the fact that 97 per cent of companies think that regulatory framework does not stimulate enterprise growth. The results of primary survey and focus groups’ meetings show that the problem of inconsistent and/or selective implementation of regulations is bigger than that of its drafting. Also, state administration is marked as inefficient, ineffective, clumsy and expensive by 60% of enterprises in the sample. Furthermore, respondents to a large extent agree with the fact of the overlap in the competences/jurisdiction of institutions, which leads to excessive, complicating and expensive procedures. Although there is a legal obligation of cooperation and coordination in the exercise of competences, bad coordination between different state bodies themselves or those of local governments is considered to be a very significant constraint for business operations. Equally important barrier as shown in both primary and secondary survey are the high costs of labour. Only 11.2 per cent of companies in EESE survey reported the opposite.

Recommended key measures for making the regulatory environment support the growth of sustainable enterprises are: simplification of necessary procedures and the elimination of unnecessary ones; reduction of implementation costs, elimination of emerging forms of bureaucratic autocracy - especially at local levels and, in that sense, widening of one-stop- shop concept where possible; further work on simplification of tax collection process (as reported by 43.4 per cent of companies in the survey); greater involvement of employers representatives in creation of legislation and strategic documents relating to economy; strengthening capacities of public administration through increased accountability, transparency, efficiency and coordination of competencies; decrease in labour costs.

9 The enabling environment for sustainable enterprises in Montenegro

Lack of financial resources and difficulties in debt collection jeopardise the solvency and reduce enterprises’ growth potential in terms of investment in new services, products and new technologies. Highly alarming is the fact that 96 per cent of companies reported problems related to access to finance. Furthermore, 93 per cent of companies find interest rates to be high, accompanied by a problem of ensuring collateral upon business start up. Communication gap between financial institutions and economic operators is evident, since 98 per cent of companies find financial products not adjusted to their needs. The lack of sector specific credit lines and stimulation policies further deteriorates bad economic situation in the country. Poor knowledge of and insufficient use of alternative financial resources contributes to it as well.

If we are to have strong economy it is advisable to create stimulating credit policy for companies regardless their activity and size. It would mean more favourable credit conditions, lower interest rates, more diverse and acceptable collateral as well as the possibility of reprogramming the current credits without changing the credit conditions. There is a need for creation of special credit lines that comply with individual SME needs (e.g. export or production oriented enterprises, especially those producing and/or processing food; enterprises wishing to implement energy efficiency projects, innovative enterprises etc.)

Informal economy and unfair competition are burning topics in Montenegro being major concerns for the economic and overall development. Although the official data do not exist, there is a wide-accepted consensus that the share of informal economy in GDP is 23-31 per cent. The survey has shown that 32.7 per cent of companies often face unfair competition in terms of legal and natural persons entirely or partially operating on illegal basis especially in trade and services sectors (as reported by 57.1 per cent of enterprises).

In order to tackle informal economy it is necessary to ensure professional, timely and non-discriminative actions of public and local administration bodies, especially inspections in terms of uncompromisingly turning illegal entities into formal economy. Being closely related to regulatory framework, solution to this problem lies in reduction of fiscal burden related to labour, making labour legislation more flexible as well as in reduction and simplification of all administrative procedures related to business operations.

Bribery and corruption, in the context of good governance, is the next recognised business barrier. According to World Bank data, the level of corruption control in Montenegro is very low, as well confirmed by EESE survey whereby 61.6 per cent of enterprises state corruption is a major concern in business operations. The areas most affected by the issue are: spatial planning, public procurement, privatisation processes, education and health and local administrations work. Especially worrying is the fact that only 32.2 per cent of companies in the survey know about the existence of institutions dealing with corruption and about the possibility of reporting it. Another problem having emerged in the survey is inappropriate use of budget resources by state institutions, perceived by 67.6 per cent of companies.

It is therefore necessary to create environment that will guarantee legislation implementation in terms of protecting the independence and impartiality of institutions in decision making

10 The enabling environment for sustainable enterprises in Montenegro from political and other influences, and increase the accountability in exercise of competencies. Stronger liaisons and cooperation between public and private sector are also needed if we want to increase the transparency of public administration work (especially in the areas of public procurement, inspections activities etc.).

Mismatch between education system and labour market needs is another weak point in Montenegrin business environment. 47.5 per cent of enterprises in EESE survey have difficulties in finding skilled worker while 96 per cent of enterprises reported the lack of skills as major problem in everyday activities. Only 3.1 per cent of enterprises is of opinion that existing practical trainings contribute to employment upon the completion. As most enterprises in Montenegro are small, they don’t have a sector or person exclusively responsible for training and HRD.

In order to bridge the gap between supply and demand at the labour market Montenegro needs to improve skills anticipation system and create enrolling policies accordingly. Further efforts are needed for involvement of employers in education policy and programmes creation but also in promoting the image of those occupations negatively perceived by youth. In promotion of work based learning as crucial to creating skilled workforce, there is a strong recommendation for improved quality of practical training, its introduction in higher education curricula as compulsory part, as well as for introduction of tax relief or similar stimulating measures that will ensure active participation of enterprises in the processes.

Detailed list key recommendations could be found on page 109.

11 The enabling environment for sustainable enterprises in Montenegro

Methodology

The assessment described in this report is based on secondary data research, a literature review, focus group discussion, and in-depth interviews with relevant companies’ in Montenegro and other stakeholders important for further development of business environment for sustainable companies in Montenegro. This report also covers results of the survey carried out in Montenegro among 200 companies from March to May 2013 focusing on 7 out of 17 pillars.

Secondary survey is based on the analysis of existing documents and reports on Montenegro by relevant international and national institutions and agencies. For the sake of monitoring the progress/ regress in particular areas, all data are shown chronologically for different years (5-6 years time depending on available data) in graphs and tables at the end of chapters. Countries used for comparative analysis are: Serbia, Slovenia, Croatia, Bulgaria and Iceland. They were chosen based similar development levels, regional proximity and similarities in size.

For the purpose of readability of the report, all 17 pillars are summarised in four sections (political elements, economic elements, social elements and environmental elements). The final chapter gives an overview and lists the activities to be taken in order to ensure the creation of an enabling environment for the sustainable growth of enterprises, thereby providing clear guidelines for policy makers and decision makers in Montenegro.

Naturally, certain pillars that the ILO targets in the EESE framework represent lesser or no challenge to the business environment in Montenegro. MEF conducted four focus group discussions with the purpose of selecting priority pillars for improvement. Following focus group discussions and in-depth interviews with representatives of companies, other business organizations and relevant institutions, the following priority pillars were chosen:

• Good governance;

• Education, training and lifelong learning;

• Access to financial services;

• Sound and stable macroeconomic policy and good management of the economy;

• Enabling legal and regulatory environment;

• Trade and sustainable economic integration; and

• Fair competition

The table in section 5 of this report provides an overview of activities to be undertaken in order to ensure the creation of an enabling environment for the development of sustainable enterprises, and provides clear guidelines for policy makers and decision makers in Montenegro.

12 The enabling environment for sustainable enterprises in Montenegro

1. Introduction

The important role that the private sector plays in social and economic development led the International Labour Conference to discuss the concept of sustainable enterprises in June 2007. The promotion of sustainable enterprises ensures that human, financial and natural resources are combined equitably. An environment conducive to the creation and growth of enterprises on a sustainable basis must take into account the three dimensions of sustainable development – economic, social and environmental – as interdependent and mutually reinforcing pillars.

The 2007 International Labour Conference adopted conclusions for the promotion of sustainable enterprises and identified 17 conditions for an enabling environment. An environment conducive to the creation and growth of sustainable enterprises combines the legitimate quest for profit with the need for development that respects human dignity, environmental sustainability and decent work.

The same conclusions invite the ILO to focus its interventions on practical responses, including tools, methodologies and knowledge sharing, which are relevant to the social partners in their activities. This is why the ILO has developed a methodology to assess the degree to which the 17 conditions for an enabling environment for sustainable enterprises are met in different countries. This report describes the implementation of such an assessment in Montenegro and is part of a series of country reports on the same topic. The report covers the political, economic, social, and environmental situation of the enabling business environment in Montenegro. The political area comprises 4 of the 17 conditions, the economic includes 8, the social 4, and the environmental dimension consists of 1 condition. In order to understand how Montenegro performs relative to neighbouring and/or similar countries, the report compares Montenegro with the following countries across the selected indicators: Serbia, Croatia, Bulgaria, Iceland, and Slovenia.

The enabling environment for sustainable enterprises in Montenegro was assessed through a careful review of secondary data, findings from a national employers’ perception survey and focus group discussions with relevant enterprise owners in the country. The Montenegro EESE survey was conducted in April and May 2013 among companies operating in all sectors and covering the three regions of Montenegro. The survey focused on 7 of the 17 conditions, which were selected through focus group discussion and were approved by the Executive board of MEF.1

According to the methodology of the ILO total number of companies sampled in this survey was 200. Whole process of companies’ selection was very strict with just one purpose - to reflect the economy of Montenegro as realistically as possible.

1 These include : “Good governance”, “Education, training and lifelong learning”, “Access to financial services”, “Sound and stable macroeconomic policy and good management of the economy”, “Enabling legal and regulatory environment”, “Adequate social protection”, “Fair competition”, and “Trade and sustainable econimic integration”.

13 The enabling environment for sustainable enterprises in Montenegro

Table 1: Sample group of the survey, by sector Valid Percent

Agriculture, hunting and forestry 6.9 Mining and quarrying 1.0 Manufacturing 5.9 Electricity and gas supply 2.0 Construction 12.9 Wholesale and retail trade 20.8 Hotels and restaurants 11.9 Transport, storage and communication 1.0 Financial services 12.9 Real estate services 2.0 Education 3.0 Health and social work services 1.0 Other 18.8 Total 100.0

Of the total number of surveyed companies, the trade sector is most represented, making up 20.8 per cent of respondents. It is especially important that this sector be well represented, because it offers the strongest reflection of the state of the Montenegrin economy. Trade is followed by the sector of other communal and personal services with 18.8 per cent of representation in the EESE survey sample. Concerning firm size based on number of employees, the greatest proportion of enterprises have fewer than 5 employees (30.7 per cent), followed by those with more than 99 employees (16.8 per cent). It is important that small firms are well represented as this best reflects the economy of Montenegro, where 99 per cent of the companies are SMEs. Regarding firm age, for the strength of the sample, it is necessary to have stable companies. Of all firms surveyed, 75.2 per cent have operated more than 5 years, and just 10.9 per cent have operated less than 2 years. From the total number, 22.8 per cent of SMEs in the sample operate with the specific goal conducting activities at the international market level, 51.5 per cent are oriented to the national market, and 25.7 per cent of surveyed companies conduct activities at local level. A great number of companies from the survey are members of MEF (74 per cent) and the biggest share of these companies have been members of MEF for more than 5 years. The greatest share of companies in the sample stated that they are not members of some other business association, while 23.8 per cent reported they are members of the following associations: Am Cham, Business Women association, and MBA.

Apart from field survey results, this report takes into consideration the results of the focus group discussions. For the purpose of creating a strong base for the report and the EESE survey organized by MEF, 4 focus groups were conducted with business owners and firm directors from different sectors.2 All important statements are inserted in the report to reflect the real state of the Montenegrin economy. This report recommends certain activities and goals to be carried out and achieved in the future, emphasising the role of all actors in pursuing these goals. The broad purpose of these recommendations is to support relevant institutions in Montenegro to promote an enabling environment for sustainable enterprise development.

2 The first focus group covered the construction and energy sectors, the second included the trade and tourism sectors, the third was on the transport, telecommunication and other services sectors, and the final group discussion focused on the agriculture and production sectors.

14 The enabling environment for sustainable enterprises in Montenegro

2. Political elements

KEY FINDINGS:

Montenegro reflects a comparatively peaceful and politically stable state. Having started the negotiations as a candidate country for EU membership, and on track towards acceding to NATO membership, Montenegro shows that it is on a positive track in terms of political stability.

Corruption is a key problem in the country, where a strong policy management system in the country comprising sufficient legal framework and necessary bodies, is crippled by poor implementation and a lack of resources. The push for EU accession has helped to stimulate the process of combating corruption, but there is still much space for improvement. An issue of particular importance for the economy, as revealed in the Montenegro EESE survey, is corruption in the public procurement process, which must be made more transparent in order to ensure equal treatment of those participating in it.

Social dialogue is a constitutional category, regulated by special laws, namely Law on Social Council, Labour Law, and Law on Trade Unions Representativity. Social Council is established in 2007 on a tripartite basis and consists of social partners: Goverenment representatives, representatives of representative TU organisations (SSCG i USSCG) and representatives of representative employers’ organisation (UPCG). AS regulated by provisions of Law on Social Council, Social Council considers and takes stands on the issues such as: development and improvement of collective bargaining; the influence of economic policies and measures to social development and the stability of employment policy, wages and prices; competition and productivity; privatisation and other structural adjustment issues; environmental and labour protection; education and training; health and social protection and security; demographic flows and other issues important for implementation and improvement of economic and social policy. Social dialogue played very important role at the time of crisis when all major desicions regarding workers and employers in Montenegro were made on tripartite basis, especially in the area of legislation review. Although the level of social dialogue development has been satisfactory, it is still neccessary to improve its mechanisms so that they become more efficient. In order to encourage the dialogue of social partners at local levels and satisfy economic and social needs of people, local social councils have been established in 21 municipality, but their work and functioninig is far from good. It seems still that decisions made at local level, important for economic position of employers and therefore the employees too in a certain municipality, are not considered as they should be discussed and aproved by local social councils.

15 The enabling environment for sustainable enterprises in Montenegro

Graph 1: Indicators assessing political elements of an enabling environment for sustainable Graph 1: Indicators assessing political elements of an enabling environment for sustainableenterprises enterprises (2011)* (2011)*

*the values for the individual indicators have been harmonized for better presentation and formatted so that the further from the center a data point is, the better the country’s performance in that regard. The original indicator values are included in the chapters. *the values for the individual indicators have been harmonized for better presentation and formatted so that the further from the center a data point is, the better the country’s performance in that regard. The original indicator values are included in the chapters. • Montenegro began EU accession negotiations accession, but gaps in implementation and an in June 2012, and is currently on track towards inefficient government bureaucracy substantially  Montenegroacceding to began NATO EU membership accession by negotiations 2014. in June hinder Anti the-corruption effectiveness actions of have laws been and taken policies. 2012, and is currently on track towards acceding to Thus,by it the is government,likely that the especially weak implementation in the push of • Political tensions have increased in the country in NATO membership by 2014. anti-corruptionfor EU policies accession, and but activities gaps is more in a the past two years in spite of positive growth since  productimplementation of a lack of capacity,and anrather inefficient than a lack of Politicalgaining tensions independence. have increased Tensions in the between country partners in the past willingnessgovernment by the bureaucracystate. substantially twoof years the ruling in spite European of positive Montenegro growth since Coalition gaining independence. Tensions between partners of the ruling hinder the effectiveness of laws and grew in regards to planned candidates for the 2013 • Acquisition of construction licenses is one of the European Montenegro Coalition grew in regards to policies. Thus, it is likely that the weak presidential elections, and the opposition party greatest challenges for businesses operating in the planned candidates for the 2013 presidential elections, implementation of anti-corruption policies has substantially increased voter support in recent country. According to the and the opposition party has substantially increased voter and activities is more a product of a lack years. support in recent years. World of Bank capacity, “Doing rather Business” than a 2013 lack of report, willingness by the state.  Corruption• Corruption is ais major a major concern concern in the in countrythe country and isand most Montenegro ranked 176 out of 185 countries on the pervasiveis most pervasivein local inself local-government, self-government, spatial spatialplanning, ease of Acquisition dealing with of construction licensespermits. is one planning, public procurement, privatization, of the greatest challenges for businesses public procurement, privatization, education, and health • According to the EESE survey findings, bribery care.education, and health care. operating in the country. According to the is a greater challenge for firms employing up to 5 • Anti-corruption actions have been taken by workers, than for larger firms. the government, especially in the push for EU • Public oversight is important in combating 17

16 The enabling environment for sustainable enterprises in Montenegro

corruption in the country, as government resources • There is a high rate of impunity in the Montenegrin are limited. Montenegro boasts a comparatively justice system for perpetrators of crimes against high level of NGO and public political participation human rights defenders and journalists. for the region, and the Parliament is now streaming • The Roma population is the ethnic group most sessions online and information on MP votes is discriminated against in the country. published on the parliamentary website to promote greater public oversight and transparency. • Concerns also abound regarding the legal status of the 17,000 refugees living in Montenegro, • Montenegro has ratified 4 of the 6 ILO labour most of whom arrived from Kosovo, Bosnia conventions on social dialogue, where C151 on the and Herzegovina, and Croatia during the wars Protection of the Right to Organise and Procedures surrounding the fall of the former Yugoslavia. for Determining Conditions of Employment in the Public Service, and C154 concerning the • In October 2011, the government established Promotion of Collective Bargaining are not yet the Coordinating Committee for monitoring ratified. the implementation of the Strategy for Durable Solution to the Issue of Displaced and Internally • A tripartite body known as the Social Council Displaced Persons with special emphasis on the is responsible for facilitating social dialogue Konik site, the largest refugee camp in Europe in Montenegro. However, its capacity remains made up largely of Roma. limited, as it can only give opinions on proposed laws and regulations within its authority. The • As for human trafficking and forced labour the Montenegrin Employer Federation (MEF) also government has adopted the Strategy for the Fight plays a large role in facilitating social dialogue in against Trafficking for 2012-2018, which focuses the country. on education, victim assistance, protection, reintegration, and prosecution. • In November 2010, social partners signed the Amendments to the General Collective Agreement • Gender equality and protection from gender-based at national level, the first since 2004. It then “grew violence, especially for women, are important into” so called temporal act since for the first time human rights issues in the country. In 2010, the it was signed as the fix-term act. It endured many government adopted the Law on the Protection changes, whereby its legal effectiveness was first from Domestic Violence and established a number extended to December 31st 2011, then to June 30th of measures for the protection of victims. 2012 and finally to September 30th 2013. Despite • In 2011, representatives from the Network of continuous negotiations, social partners failed to NGOs for Democracy and Human Rights signed a reach the agreement and conclude a new General memorandum of understanding with the president Collective Agreement, starting from September of the Montenegrin Parliament, establishing routes 30th 2012 the very act have ceased to be a positive of cooperation between NGOs and the government. law in Montenegro. However, NGOs are generally weak in the country • Montenegro has adopted all 9 main human rights insofar as their ability to act as national political conventions, and has ratified the eight ILO core watchdogs. conventions.

17 The enabling environment for sustainable enterprises in Montenegro

2.1. Peace and political stability

Peace and political stability are key conditions for the creation and development of sustainable enterprises. Montenegro reflects a comparatively peaceful and politically stable environment. During the collapse of the former Yugoslavia, it was the only republic not to experience combat within its borders. Today, Montenegro is on a positive track towards acceding to NATO membership by 2014, and began EU accession negotiations in June 2012.3

Montenegro became an independent state in May 2006 when a narrow majority of the population (55.5 per cent) voted in favour of separating from the Union of Serbia and Montenegro (SCG). The SCG was formed in 2003 and was the cause of much political instability.4 Nonetheless, following the 2006 referendum that ended the SCG, political antagonisms in Montenegro reflected a polarized society, where only a narrow majority has voted in favour of the decision to become independent. Since then, the country has made great strides in respect to political stability, joining various international bodies and reflecting a strong level of cooperation among opposition parties that previously were extremely divided and resistant to dialogue.5

The two major political parties in Montenegro are the Democratic Party of Socialists (DPS) and the Social Democratic Party (SDP), which, along with the Liberal Party, make up of the ruling European Montenegro coalition. In the 2012 parliamentary elections, the coalition was two seats short of a majority, provoking them to include the ethnic minority Bosniak, Croat and Albanian party. This has allowed for the inclusion of the ethnic minority parties in the ruling coalition.6

Secondary data on “Political Stability and Absence of Violence” assesses a country’s political stability on a scale from -2.5 to 2.5 where higher values correspond to better performance. Between 2006 AND 2009, Montenegro experienced a notable improvement in this regard, moving from 0.07 in the former year to 0.81 in the latter. However, since 2009 the situation has worsened, where Montenegro fell to 0.52 in 2011. Relative to the countries used for comparison, Montenegro outperforms Serbia and Bulgaria, and records a similar value as Croatia in 2011. Slovenia and Iceland reflect the highest levels of political stability and absence of violence in that year.

Confirming the secondary data reflecting Montenegro’s slight worsening in recent years, political tensions have increased in the country in the past two years in spite of positive growth since gaining independence. In 2012, the SDP announced the possibility that it would run independently of its coalition partner, the DPS, in the 2013 presidential race. In the same year, it was announced that opposition parties were attempting to unite all anti-government forces under the former foreign minister and leader of the increasingly popular opposition party, the Democratic Front, Miodrag Lekic.7 In the 2013 presidential election incumbent DPS president Filip Vujanovic won 52.2 per cent of the vote,

3 Ministry of Sustainable Development and Tourism. (undated). Montenegro Investment Opportunities Guide. White letter. Government of Montenegro. Accessed 2 May 2013. 4 European Forum for Democracy and Solidarity. 2013. Montenegro – Country updates. Labour Party through Westminster Foundation for democracy; Party for European Socialists. Accessed 27 May 2013. 5 Soury, Marion. 2011. Montenegro Since Independence: Achievement and challenges. London Redaction, 10 May. Accessed 27 May 2013. 6 European Forum for Democracy and Solidarity. 2013. 7 Milosevic, M. 2012. The Montenegrin Political Landscape: The end of political stability?. ELIAMEP Briefing Notes 27/2012, July.

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while Miodrag Lekic took 48.8 per cent. Subsequently, the close victory was contested from multiple sides. The SDP had called on its voters to boycott the polls on the basis that Vujanovic’s candidacy was unconstitutional, as he had already served two terms, the maximum allowed by the constitution. The DPS defended his candidacy, arguing that Vujanovic’s first term did not count because it was prior to Montenegro’s independence. Following the victory, Lekic’s supporters demanded a recount and other protesters called for an annulment of the results based on allegations of fraud and corruption.8 Considering the recentness of these events, it is difficult to determine the proximate future extent of political stability in Montenegro.

Key Indicator

Political Stability and Absence of Violence/ 2006 2007 2008 2009 2010 2011 Terrorism Montenegro 0.07 0.15 0.79 0.81 0.53 0.52 The likelihood that the Bulgaria 0.42 0.37 0.36 0.37 0.37 0.30 government will be destabilized by unconstitutional or violent Croatia 0.54 0.59 0.55 0.58 0.58 0.54 means, including domestic Iceland 1.44 1.49 1.22 1.18 1.01 1.22 violence and terrorism. Serbia -0.56 -0.60 -0.57 -0.52 -0.41 -0.33 Source: World Bank, Slovenia 1.05 1.08 1.12 0.88 0.80 0.84 Governance Matters Estimate of governance measured on a scale from approximately database.9 ‑2.5 to 2.5. Higher values correspond to better governance.

8 European Forum for Democracy and Solidarity. 2013. 9 World Bank World Governance Indicators.

19 The enabling environment for sustainable enterprises in Montenegro

2.2. Good governance

Good governance, the absence of corruption and efficient institutions foster entrepreneurship and promote private sector growth and development. The Constitution of Montenegro is in line with EU standards regarding good governance. As for the development of entrepreneurship, legal and institutional framework has been set followed by adoption of policies and strategic documents. However, despite formal preconditions, the lack of full institutional support has slowed effective implementation of rule of law and achievement of good governance. There is a disconnect in the country between the strong policy management system comprising a legal framework and necessary bodies, and the limited extent to which laws and policies are actually implemented. Anti-corruption efforts have been made by the government, specifically in the push for EU accession, but there is still space for improvement.

The sectors in which corruption is most pervasive include local self-government, spatial planning, public procurement, privatization, education, and health care. Actions have been taken to facilitate a more business-friendly environment by streamlining business registration procedures.10 However, companies continue to face many related barriers, particularly in regards to acquiring construction licenses.11 In the World barriers,Bank “Doing particularly Business” in regards 2013 to report,acquiring Montenegro construction ranked licenses. notably11 In the low, World at Bank 176 out of 185 economies “Doingon the easeBusiness” of dealing 2013 withreport, construction Montenegro permits. ranked12 notably low, at 176 out of 185 economies on the ease of dealing with construction permits.12

GraphGraph 2: Is bribery2: Is bribery and other and otherforms forms of corrupt of corrupt payments, payments, an issue an issuethat consistently that consistently impacts on impactsfirms? on firms?

According to the Montenegro EESE survey results, 15.2 per cent of all respondents stated that bribery and other forms of corrupt payments are issues that consistently impact firms in the country, which is highly According to the Montenegro EESE survey results,15.2 per cent of all respondents worrying. However, a larger portion of interviewees, 24.2 per cent, responded that it never influences their stated that bribery and other forms of corrupt payments are issues that consistently business operations.impact firms The in analysis the country, shows which that is61.6 highly per cent worrying. of firms However, recognize a larger bribery portion as ofa problem for conductinginterviewees, business in Montenegro.24.2 per cent, Consideringresponded tha firmst it never by influencessize, the largesttheir business percentage operations. of those who see bribery as aThe problem analysis employ shows up that to 5 61.6 workers per cent (40 ofper firms cent recognizeof all firms). bribery Comparatively, as a problem firms for employing more than 20conducting workers business make up in the Montenegro. biggest percentage Considering of firmsthose bywho size, do the not largest see bribery percentage as a problem,of and 25 per centthose of firms who seewho briberythink it as is anot problem a problem employ have up tomore 5 thaworkersn 99 employees. (40 per cent of all firms). Comparatively, firms employing more than 20 workers make up the biggest percentage of those who do not see bribery as a problem, and 25 per cent of firms who think it is not 10 Freedoma House.problem 2012a. have more than 99 employees. 11 TableIbid. 2: Are firms expected to give monetary contributions/gifts:? 12 World Bank. 2013. Doing Business Report – Economy profile: Montenegro. World Bank and IFC. Accessed 27 May 2013. No never Rarely Sometimes Often Don’t know To receive a reasonable level of service and 2051 9 19 3 18 avoid administrative obstacles? When meeting with tax inspectors? 60.2 6.1 11.2 4.1 18.4 To secure a construction permit? 49.0 11.2 5.1 5.1 29.6 To secure a government contract? 53.1 11.2 6.1 3.1 26.5

11 Ibid. 12 World Bank. 2013. Doing Business Report – Economy profile: Montenegro. World Bank and IFC. Accessed 27 May 2013.

The enabling environment for sustainable enterprises in Montenegro

Table 2: Are firms expected to give monetary contributions/gifts:?

Don’t No never Rarely Sometimes Often know To receive a reasonable level of service 51 9 19 3 18 and avoid administrative obstacles? When meeting with tax inspectors? 60.2 6.1 11.2 4.1 18.4 To secure a construction permit? 49.0 11.2 5.1 5.1 29.6 To secure a government contract? 53.1 11.2 6.1 3.1 26.5 To secure an import license? 57.1 7.1 3.1 1.0 31.6 To secureTo secure an an operating import license? license? 58.257.1 6.17.1 6.13.1 01.0 29.631.6 To secure an operating license? 58.2 6.1 6.1 0 29.6 The responses from firms in the EESE survey show that the majority feel that they are not expected to make extra speedThe responsespayments fromor illicit firms backhanders in the EESE to surveyreceive show a reasonable that the majoritylevel of service,feel that or they to give monetary contributions/giftsare not expected to to secure make an extra import speed or paymentsoperating license. or illicit Nevertheless, backhanders a to worrying receive factor a is that positivereasonable answers level do ofexist service, and orat tonon-negligible give monetary rates. contributions/gifts The EESE survey to secure results an showimport that or the procedure ofoperating obtaining license. construction Nevertheless, permits a worrying is seen factor by 21 is per that cent positive of respondents answers do asexist a field and at where bribery andnon corruption-negligible are rates.prevalent. The EESE survey results show that the procedure of obtaining construction permits is seen by 21 per cent of respondents as a field where bribery and corruption are prevalent. Graph 3: Control of Corruption Graph 3:Control of Corruption

Source:Source: World World Bank, Bank, Governance Governance Matters Matters database database. .

Secondary data confirms the picture described by respondents from the EESE Secondarysurvey, data though confirms it reflects the picture a slightly described more by negativerespondents picture from. theMontenegro EESE survey, generally though it reflects a slightlyperforms more poorly. negative "Control picture. of Corruption"Montenegro measuresgenerally theperforms extent poorly.to which “Control public ofpower Corruption” is measures theexercised extent to for which private public gain power and the is exercised state is captured for private by gainelites and and the private state is interests, captured on by aelites and privatescale interests, from on -a2.5 scale and from 2.5 ‑ 2.5 where and 2.5 higher where values higher reflectvalues reflect better performance.better performance. Though Though MontenegroMonten improvedegro somewhatimproved somewhatbetween 2010-11, between it 2010 performs-11, it more performs poorly more than poorly other thancountries other used for comparison,countries reflecting used for a levelcomparison, of ‑0.21 reflecting in 2011. Thisa level is ofslightly -0.21 lowerin 2011. than This the is scores slightly recorded lower for than the scores recorded for Serbia and Bulgaria in that year, while Croatia rated 0.02, Serbia and Bulgaria in that year, while Croatia rated 0.02, and Iceland and Slovenia performed the and Iceland and Slovenia performed the strongest with 1.94 and 0.93 respectively. The strongest with 1.94 and 0.93 respectively. The “Corruption Perceptions Index” reflects a similar picture. “Corruption Perceptions Index” reflects a similar picture. On a scale from 0 (“highly corrupt”) to 10 (“highly clean”), Montenegro has increased from 3.3 in 2007 to 4.1 in 2012. Though this is still somewhat low relative to other countries, conditions in the other countries used for comparison have21 worsened over this period, while Montenegro improved.

The enabling environment for sustainable enterprises in Montenegro

On a scale from 0 (“highly corrupt”) to 10 (“highly clean”), Montenegro has increased from 3.3 in 2007 to 4.1 in 2012. Though this is still somewhat low relative to other countries, conditions in the other countries used for comparison have worsened over this period, while Montenegro improved.

The majority of firms are not informed about existence of effective, independent anti-corruption institutions responsible for handling complaints made by the private sector. Only 32.2 per cent of enterprises are aware that such institutions exist and are able to combat this threat for the Montenegrin economy compared to 39.4 per cent of enterprises unaware of the existence of such institutions. These data showgreater the need promotion for greater and activepromotion involvement and active of involvement such institutions of such throughout institutions the privatethroughout the private sector in the country.

Graph 4: Do effective, independent anti-corruption institutions exist to Graph 4: Do effective,handle independent complaints anti-corruptionby private sector? institutions exist to handle complaints by private sector?

Though corruption is a major issue in Montenegro, largely due to gaps in implementation, Though corruption is a major issue in Montenegro, largely due to gaps in inefficientimplementation, government inefficientbureaucracy government is the more bureaucracy problematic is thefactor more for problematicdoing business factor in forthe country 13 accordingdoing to the business World Economic in the country Forum acco Globalrding Competitiveness to the World Report Economic 2012-13. Forum Based Global on these findings,Competitiveness it is likely Reportthat 2012the -13.weak13 Based implementation on these findings, of anti-corruption it is likely that policies the weak and activities ismore a productimplementation of a lack of ofcapacity, anti-corruption rather than policies a lack and of activities willingness is more by the a productstate. According of a lack ofto a 2010 governmentcapacity, survey rather of business than a lack leaders of willingne in Montenegro,ss by the companies state. According are more to negativea 2010 government about dealing with the publicsurvey administration of business than leaders they in are Montenegro, towards corruption, companies legal are morecosts, negative or weak about infrastructure. dealing Given reasons withfor this the largely public referred administration to the behavior than they of public are towards institution corruption, staff and legal include: costs slowness,, or weak rudeness and improperinfrastructure. behavior, Given a lack reasons of professionalism, for this largely andreferred a lack to ofthe motivation behavior of and public interest. institution14 In addition, ahead ofstaff inefficient and include: government slowness, bureaucracy rudeness and in improperthe World behavior, Economic a lack Forum of professionalism,list of most problematic 14 factors forand business, a lack of an motivation inefficient and labour interest. force Inwith addition, a poor work ahead ethic of inefficientis the most government hindering factor for businessesbureaucracy operating in in the the World country. Ec15onomic Forum list of most problematic factors for business, an inefficient labour force with a poor work ethic is the most hindering factor for businesses operating in the country.15

Secondary data reflects improvements in regards to government efficiency in Montenegro in recent years. The indicator "Government Effectiveness" measures the quality of public services, the capacity of the civil service and its independence from 13 Worldpolitical Economic pressures, Forum. 2012. the Global quality Competitiveness of policy Report formulation 2012-2013. and WEF implementation, (Geneva, Switzerland). and the 14 Rojec,credibility M. et al. 2010. of Competitivenessthe government's of Montenegrin commitment Economy. to such Ministry policies. of Finance In a ofrange Montenegro, of values December. from Accessed 25 May-2.5 2013. to 2.5 with higher values indicating better performance, Montenegro recorded values below 0 over the period 2006-09, but has since successfully moved to a score of 0.1 in 15 World Economic Forum. 2012.

13 World Economic Forum. 2012. Global Competitiveness Report 2012-2013. WEF (Geneva, Switzerland). 14 Rojec, M. et al. 2010. Competitiveness of Montenegrin Economy. Ministry of Finance of Montenegro, December. Accessed 25 May 2013. 15 World Economic Forum. 2012.

The enabling environment for sustainable enterprises in Montenegro The enabling environment for sustainable enterprises in Montenegro

Secondary data reflects improvements in regards to government efficiency in Montenegro in recent years. TheSecondary indicator data “Government reflects improvements Effectiveness” in regards measures to government the quality efficiency of public inservices, Montenegro the capacity in recent of years. the civil The serviceindicator and “Government its independence Effectiveness” from political measures pressures, the quality the of quality public ofservices, policy the formulation capacity andof implementation, the civil service and and the its credibility independence of the from government’s political pressures, commitment the quality to such of policies. policy formulation In a range of and values implementation, from ‑2.5 to and 2.5 the with credibility higher valuesof the government’s indicating better commitment performance, to such Montenegro policies. In recorded a range valuesof values below from 0 over -2.5 the to period 2.5 with 2006-09, higher but values has indicatingsince successfully better performance, moved to a Montenegroscore of 0.1 recordedin 2011, outperformingvalues below Serbia 0 over and the Bulgariaperiod 2006-09, in that year. but hasMontenegro since successfully is also the moved only country to a score of thoseof 0.1 compared in 2011, to outperforminghave improved Serbia in this and regard Bulgaria between in that 2010-11. year. Montenegro is also the only country of those compared to have improved in this regard between 2010-11.

Graph 5: Government Effectiveness

Source: World Bank, Governance Matters database. Source: World Bank, Governance Matters database. Findings from the Montenegrin EESE survey show that of all the enterprises covered by the research,Findings only 5.1 from per cent the Montenegrinfelt that the government EESE survey does show not waste that of funds all the earmarked enterprises for coveredpublic services, by the whileresearch, a prevailing only 5.1 67.6 per percent cent felt thatthink the that government the government does not does waste not funds spend earmarked these funds for in public line with services, their basicwhile purpose. a prevailing Moreover, 67.6 peralmost cent 50 think per centthat theof firms government that expressed does not spendmore critical these fundsattitudes in lineto government with their spendingbasic purpose. think that Moreover, the funds almost are often 50 per wasted. cent of firms that expressed more critical attitudes to government spending think that the funds are often wasted.

23 22 2011, outperforming Serbia and Bulgaria in that year. Montenegro is also the only country of those compared to have improved in this regard between 2010-11.

Graph 5: Government Effectiveness

Source: World Bank, Governance Matters database.

Findings from the Montenegrin EESE survey show that of all the enterprises covered by the research, only 5.1 per cent felt that the government does not waste funds earmarked for public services, while a prevailing 67.6 per cent think that the government does not spend these funds in line with their basic purpose. Moreover, almost 50 per cent of firmsThe that enabling expressed environment more critical for attitudes sustainable to government enterprises spending in Montenegro think that the funds are often wasted.

Graph 6: Does the Government waste funds earmarked for public services? Graph 6: Does the Government waste funds earmarked for public services?

When it comes to trust in government, 13.9 per cent of EESE survey respondents stated that 24 government does not at all provide a regulatory framework to encourage firms to expand operations, and onlyWhen 3 per itcent comes of firms to trust felt thatin government, the opposite 13.9is true. per cent of EESE survey respondents stated that government does not at all provide a regulatory framework to encourage firms to expand operations, and only 3 per cent of firms felt that the opposite is true.

Graph 7:Graph Does the7: Doesgovernment the government provide a provideregulatory a regulatoryframework framework that encourages that firms to encourages firmsexpand to expand their operations, their operations, if the business if the business case permits? case permits?

Furthermore,Furthermore, concerning concerning the interpretations the interpretations of the oflaws the and laws regulations and regulations affecting affectingfirms, only 5 per centfirms, of EESE only survey 5 per respondents cent of EESE find surveythem both respondents consistent findand predictable, them both while consistent all others and felt there to predictable,be a problem while in this all field. others For felt 43.6 there per tocent be of a problemfirms surveyed, in this thefield. regulatory For 43.6 framework per cent ofis not at all predictablefirms surveyed, expected the and regulatory reliable. framework is not at all predictable expected and reliable.

Graph 8: Public procurement

When it comes to trust in government, 13.9 per cent of EESE survey respondents stated that government does not at all provide a regulatory framework to encourage firms to expand operations, and only 3 per cent of firms felt that the opposite is true.

Graph 7: Does the government provide a regulatory framework that encourages firms to expand their operations, if the business case permits?

Furthermore, concerning the interpretations of the laws and regulations affecting firms, onlyThe enabling 5 per cent environment of EESE survey for sustainable respondents enterprises find them in both Montenegro consistent and predictable, while all others felt there to be a problem in this field. For 43.6 per cent of firms surveyed, the regulatory framework is not at all predictable expected and reliable.

GraphGraph 8: 8: Public Public p Procurementrocurement

An important set of questions in the Montenegro EESE survey is related to public procurement and issues and problems as they are reflected in the firms’ responses. According to the opinion of enterprises surveyed, 19.6 per cent think that procurement procedures are never transparent when tendering for public bids, while only 3.1 per cent said that these procedures25 are often or always transparent. In addition, 42.7 per cent of enterprises think that subcontracts, purchase orders or consulting agreements are often used as a means of channeling corrupt payments to public officials, to employees of business partners or their relatives. In this respect, only 2.1 per cent of firms think that this is never the case. These attitudes are confirmed again by similar firm responses to the question “Which areas of public services are the most affected with bribery,” whereby the most frequent answers are “public procurement” and “public administration”. The next on the list of respondents’ answers in this regard are inspection bodies and courts.

Considering the ability of the population to freely participate in and influence politics, Montenegro reflects certain characteristics that imply a comparatively impressive environment, while secondary data counters this picture. “Voice and Accountability” measures the extent to which citizens participate in selecting their government, as well as freedom of expression, freedom of association and a free media. On a scale from -2.5 to 2.5 with higher values indicating better performance, Montenegro has maintained a stable, but relatively weak performance level over the period 2006-11. In the latter year, Montenegro recorded the lowest score of all countries used for comparison at 0.25. Serbia performed similarly in the same year, registering a score 0.29, and all other countries performed notably better.

16 Ibid.

25 An important set of questions in the Montenegro EESE survey is related to public procurement and issues and problems as they are reflected in the firms’ responses. According to the opinion of enterprises surveyed, 19.6 per cent think that procurement procedures are never transparent when tendering for public bids, while only 3.1 per cent said that these procedures are often or always transparent. In addition, 42.7 per cent of enterprises think that subcontracts, purchase orders or consulting agreements are often used as a means of channeling corrupt payments to public officials, to employees of business partners or their relatives. In this respect, only 2.1 per cent of firms think that this is never the case. These attitudes are confirmed again by similar firm responses to the question “Which areas of public services are the most affected with bribery,” whereby the most frequent answers are “public procurement” and “public administration”. The next on the list of respondents’ answers in this regard are inspection bodies and courts.

Considering the ability of the population to freely participate in and influence politics, Montenegro reflects certain characteristics that imply a comparatively impressive environment, while secondary data counters this picture. "Voice and Accountability" measures the extent to which citizens participate in selecting their government, as well as freedom of expression, freedom of association and a free media. On a scale from -2.5 to 2.5 with higher values indicating better performance, Montenegro has maintained a stable, but relatively weak performance level over the period 2006-11. In the latter year, Montenegro recorded the lowest score of all countries used for comparison at 0.25. Serbia performed similarly in the same year, registering a score 0.29, and all other countries performed notably better.

In spite of relatively poor performance as reflected by secondary data, Montenegro boasts a comparatively high level of NGO and public political participation for the region.16 The Parliament of Montenegro has made substantial efforts to facilitate ongoing cooperation with nongovernmental organizations (NGOs) and civil society organizations (CSOs). In 2011, several changes were made which clearly reflect a successful increase Thein enabling cooperation. environment In that year, for NGOs sustainable participated enterprises in 40 committee in Montenegro sessions, including consultative hearings, parliament signed a memorandum with a network of CSOs focused on democracy and human rights, and a data registry of NGOs interested in streamed online,cooperation and information was established on votes is by published the parliamentary on the parliamentary administrative website. staff. 17 Parliamentary These changes sessions are also now being streamed online, and information on votes is published on reflect positive efforts by the government to remedy the prevalent negative perceptions of the country the parliamentary website.17 These changes reflect positive efforts by the government to regarding corruptionremedy and the provide prevalent citizens negative with increased perceptions access of the to the country decision-making regarding corruption process, thereby and hopefully increasingprovide the citizens level ofwith transparency increased access in the to political the decision decision-making-making process, processes. thereby hopefully increasing the level of transparency in the political decision-making processes. 18 19 20 Key Indicators

Control of corruption 2006 2007 2008 2009 2010 2011 The extent to which public Montenegro -0.38 -0.31 -0.19 -0.16 -0.24 -0.21 power is exercised for private

gain, including both petty and Bulgaria -0.10 -0.23 -0.30 -0.21 -0.19 -0.17 grand forms of corruption, as Croatia 0.09 0.08 -0.04 -0.09 -0.03 0.02 well as “capture” of the state by Iceland 2.25 2.28 2.45 2.07 1.92 1.94 elites and private interests. Source: World Bank, Governance Serbia -0.28 -0.35 -0.30 -0.25 -0.25 -0.20 18 Matters database . Slovenia 1.02 0.98 0.91 1.05 0.87 0.93 16 Ibid. 17 Estimate of governance measured on a scale from approximately Freedom House. 2012a. -2.5 to 2.5. Higher values correspond to better governance. Corruption Perception Index (CPI) 2007 2008 2009 2010 2011 2012 26 The Transparency International Montenegro 3.3 3.4 3.9 3.7 4.0 4.1 CPI measures the perceived

levels of public sector Bulgaria 4.1 3.6 3.8 3.6 3.3 4.1 corruption as seen by business Croatia 4.1 4.4 4.1 4.1 4 4.6 people and country analysts in a given country and is a Iceland 9.2 8.9 8.7 8.5 8.3 8.2 composite index, drawing on Serbia 3.4 3.4 3.5 3.5 3.3 3.9 different expert and business surveys. Slovenia 6.6 6.7 6.6 6.4 5.9 6.1 Source: Transparency The scores are on a scale from 0 (highly corrupt) to 10 (highly clean). International.19 Note: In 2012, Transparency International changed the CPI scale from 0-10 to 0-100. In the interest of comparison, the numbers reflected here for 2012 are thus altered, where the original score given is divided by 10.

Government Effectiveness 2006 2007 2008 2009 2010 2011 The quality of public services, Montenegro -0.13 -0.17 -0.01 -0.01 0.08 0.10 the capacity of the civil service

and its independence from Bulgaria -0.01 -0.00 -0.05 0.06 0.01 0.01 political pressures, the quality Croatia 0.57 0.48 0.58 0.61 0.62 0.55 of policy formulation and implementation, and the Iceland 1.86 1.79 1.82 1.65 1.58 1.57 credibility of the government's Serbia -0.20 -0.22 -0.18 -0.09 -0.10 -0.15 commitment to such policies. Source: World Bank, Governance Slovenia 0.98 0.94 1.19 1.16 1.03 0.99 20 Matters database. Estimate of governance measured on a scale from approximately -2.5 to 2.5. Higher values correspond to better governance. Voice and Accountability 2006 2007 2008 2009 2010 2011 17 Freedom House. 2012a. The extent to which a country’s Montenegro 0.27 0.27 0.25 0.26 0.21 0.25 18 citizensWorld Bank are Worldable Governanceto participate Indicators. Bulgaria 0.57 0.69 0.57 0.52 0.49 0.47 in selecting their government, 19 asTransparency well asInternational freedom CPI. of Croatia 0.45 0.48 0.47 0.50 0.42 0.42 expression, freedom of 20 World Bank World Governance Indicators.Iceland 1.48 1.46 1.46 1.44 1.47 1.46 association and a free media. Source: World Bank, Governance Serbia 0.19 0.28 0.25 0.32 0.28 0.29 21 Matters database. Slovenia 26 1.06 1.05 1.01 1.01 1.00 1.03

18 World Bank World Governance Indicators. 19 Transparency International CPI. 20 World Bank World Governance Indicators. 21 Ibid.

well as “capture” of the state by Iceland 2.25 2.28 2.45 2.07 1.92 1.94 elites and private interests. Source: World Bank, Governance Serbia -0.28 -0.35 -0.30 -0.25 -0.25 -0.20 18 Matters database . Slovenia 1.02 0.98 0.91 1.05 0.87 0.93 Estimate of governance measured on a scale from approximately -2.5 to 2.5. Higher values correspond to better governance. Corruption Perception Index (CPI) 2007 2008 2009 2010 2011 2012 The Transparency International Montenegro 3.3 3.4 3.9 3.7 4.0 4.1 CPI measures the perceived

Government Effectiveness 2006 2007 2008 2009 2010 2011 The quality of public services, Montenegro -0.13 -0.17 -0.01 -0.01 0.08 0.10 the capacity of the civil service

The extent to which a country’s Montenegro 0.27 0.27 0.25 0.26 0.21 0.25 citizens are able to participate Bulgaria 0.57 0.69 0.57 0.52 0.49 0.47 in selecting their government, as well as freedom of Croatia 0.45 0.48 0.47 0.50 0.42 0.42 expression, freedom of Iceland 1.48 1.46 1.46 1.44 1.47 1.46 association and a free media. Source: World Bank, Governance Serbia 0.19 0.28 0.25 0.32 0.28 0.29 Matters database.21 23 Slovenia 1.06 1.05 1.01 1.01 1.00 1.03 Estimate of governance measured on a scale from approximately -2.5 to 2.5. Higher values correspond to better governance.

18Other World BankUseful World Indicators Governance Indicators. 19 Transparency International CPI. 20 Political World Bank Rights World Index Governance Indicators. 2009 2010 2011 2012 21 Ibid. The Political Rights Index Montenegro 3 3 3 3 measures the degree of 27 freedom in the electoral Bulgaria 2 2 2 2 process, political pluralism and Croatia 1 1 1 1 participation, and functioning of government. Iceland 1 1 1 1 Source: Freedom House, The Serbia 2 2 2 2 Freedom in the World Survey.22 Slovenia 1 1 1 1 Freedom House rates political rights on a scale of 1 to 7, with 1 representing the most free and 7 representing the least free. Civil Liberties Index 2009 2010 2011 2012

The Civil Liberties index Montenegro 2 2 2 2 measures freedom of Bulgaria 2 2 2 2 expression, assembly, association, and religion. Croatia 2 2 2 2 Source: Freedom House, The Iceland 1 1 1 1 Freedom in the World Survey23. Serbia 2 2 2 2 Slovenia 1 1 1 1

Freedom House rates civil liberties on a scale of 1 to 7, with 1 representing the most free and 7 representing the least free.

2.3. Social dialogue

Social dialogue with freedom of association and the right to collective bargaining is fundamental for the achievement of effective, equitable and mutually beneficial outcomes for ILO constituents and society at large.

The country has ratified 4 of the 6 ILO labour conventions on social dialogue, where C151 on the Protection of the Right to Organise and Procedures for Determining Conditions of Employment in the Public Service, and C154 concerning the Promotion of Collective Bargaining are not yet ratified.24 21 Ibid. 22 Freedom House. 23 Ibid.

27 22 Freedom House. 23 Ibid. 24 ILO. (undated). Ratifications for Montenegro. NORMLEX – Information System on International Labour Standards. Accessed 24 May 2013.

The enabling environment for sustainable enterprises in Montenegro

2.3. Social dialogue

A tripartite body known as the Social Council, made up of government and trade union and employer representatives, is responsible for facilitating social dialogue in Montenegro.25 The Council plays a central role in negotiations on amendments to the general collective agreement and may be involved in drafting proposals for laws through creation of working groups. However, its capacity remains limited, as it can only give opinions on proposed laws and regulations within its authority.26 Furthermore, amendments are required to bring it up to EU standards and ensure effective implementation.27

The Montenegrin Employer Federation (MEF) plays a large role in facilitating social dialogue in the country. The MEF was established in 2002 as an organization of voluntary membership. It is a member to the International Organisation of Employers (IOE), BUSINESSEUROPE, and the member of the Adriatic Regional Employers’ Center. Its members spread from the largest to the smallest enterprises in Montenegro also comprising local and sector associations of employers and NGOs. In 2005 MEF was granted the status of representativeness. MEF entered into its first tripartite agreement as early as 2006 and its work was instrumental in the adoption of the Law on Social Council in 2007 and the Labour Law as such in 2008, institutionalizing social dialogue in Montenegro.

To date, MEF has signed four branch collective agreements, with 4 more in the making.

Until 2008 when the new one – The Union of Free Trade Unions - was registered, there had been only one trade union association at national level – Association of Trade Unions of Montenegro.

Trade union pluralism at national and sector level as well as at levels of individual employers, called for the need of recognition of their representativeness which had to be preceded by creation of legislative framework, i.e. the Law on the Representativeness of Trade Unions (which was adopted in 2010 and recently amended).

In line with the above, the successor of the former socialist trade union - Confederation of Trade Unions of Montenegro was granted the representativeness the beginning of November 2010, followed by Union of Free Trade Unions by the end of the same month that year.

24 ILO. (undated). Ratifications for Montenegro. NORMLEX – Information System on International Labour Standards. Accessed 24 May 2013. 25 European Commission. 2012. 26 ILO. (undated). 27 European Commission. 2012.

28 The enabling environment for sustainable enterprises in Montenegro

In November 2010, social partners signed the Amendments to the General Collective Agreement at national level, the first since 2004. It then “grew into” so called temporal act since for the first time it was signed as the fix-term act. It endured many changes, whereby its legal effectiveness was first extended to December 31st 2011, then to June 30th 2012 and finally to September 30th 2013. Despite continuous negotiations, social partners failed to reach the agreement and conclude a new General Collective Agreement, starting from September 30th 2012 the very act have ceased to be a positive law in Montenegro.

Graph 9: Cooperation in Labour-Employer Relations Graph 9: Cooperation in Labour-Employer Relations Graph 9: Cooperation in Labour-Employer Relations

Source: World Economic Forum Executive Opinion Survey. Source: World Economic Forum Executive Opinion Survey. Source: World Economic Forum Executive Opinion Survey. "Cooperation in Labour-Employer Relations" determines whether labour-employer relations"Cooperation are confrontational in Labour - orEmployer cooperative Relations" on a scaledetermines from 1 whether to 7 with labour higher-employer values “Cooperationrelatindicating inions Labour-Employer are more confrontational cooperation. Relations” or Montenegro cooperative determines performs on a scale whether comparatively from 1labour-employer to 7 with well higher in this relations values area, are confrontational indicatingoutperformingor cooperative more all on cooperation.countries a scale usedfrom Montenegro for 1 comparisonto 7 with performs higher in 2012, comparativelyvalues with indicatingthe exception well more in of this Iceland. cooperation. area, Montenegro performsoutperformingThis comparatively comparatively all countries strong well performanceused in this for area,comparison is outperforming in spite in 2012, of a slight withall countries the decrease exception used in theof for Iceland. rate comparison for in 2012, with theThisMontenegro exception comparatively between of Iceland. strong 2011 This performanceand 2012.comparatively The is countryin spite strong compares of a performance slight well decrease on ais global inin thespite scale rate of for asa slight Montenegrowell, where inbetween 2012, Montenegro2011 and 2012. earned The a countryscore of compares 4, compared well to on an a only global marginally scale as decrease in the higherrate for w orldMontenegro mean of 4.3. between 2011 and 2012. The country compares well on a global scale as well, wherewell, wherein 2012, in 2012,Montenegro Montenegro earned earned a score a score of 4, of compared 4, compared to toan anonly only marginally marginally higher higher world mean of 4.3. world mean of 4.3. Related Indicators Related Indicators Cooperation28 in Labour-Employer Relations 2009 2010 2011 2012 TheCooperation World inEconomic Labour-Employer Forum RelationsMontenegro 20094.0 20104.2 20114.2 20124.0 (WEF) Survey asked business The World Economic Forum 4.0 4.2 4.2 4.0 leaders to provide their expert BulgariaMontenegro 3.8 3.8 3.9 3.9 (WEF) Survey asked business opinions on the following: leaders to provide their expert CroatiaBulgaria 3.73.8 3.53.8 3.33.9 3.43.9 “Labour-employer relations in your opinions on the following: country are”. IcelandCroatia 5.53.7 5.73.5 5.93.3 5.63.4 “Labour-employer relations in your countrySource: are”.World Economic Forum SerbiaIceland 3.85.5 3.85.7 3.45.9 3.35.6 Executive Opinion Survey.28 Source: World Economic Forum SloveniaSerbia 4.53.8 4.43.8 4.13.4 3.83.3 Executive Opinion Survey.28 WorldSlovenia 4.5 4.4 4.44.1 4.33.8 World1 = genera lly confrontational, 7 = generally4.5 cooperative.4.4 4.4 4.3 1 = generally confrontational, 7 = generally cooperative.

28 World Economic Forum Global Competitiveness report.

28 World Economic Forum Global Competitiveness report. 28 World Economic Forum Global Competitiveness report.29 30 30

The enabling environment for sustainable enterprises in Montenegro

2.4. Respect for universal human rights and international labour standards

Societies, that have successfully integrated sustainability and decent work, respect human rights and international labour standards. The Government of Montenegro has made clear efforts to promote and strengthen human rights in the country with increasing success. However, limited resources hinder effective implementation of protections.29 Montenegro has adopted all 9 main human rights conventions, as have Serbia and Croatia. Bulgaria and Slovenia have adopted 8 conventions, and Iceland has done so for 7. All six countries used for comparison have ratified the eight ILO core conventions on freedom of association and collective bargaining, the abolition of child labour, forced labour, and all forms of discrimination.

The human rights situation in Montenegro can also be assessed considering other indicators. The “Political Rights Index” measures the level of freedom in the electoral process, political pluralism and participation, and functioning of the government. In a range from 1 to 7, with 1 representing the most free and 7 representing the least free, Montenegro has maintained a stable level of 3 between 2009 and 2012. This is notably weaker than levels in all other countries used for comparison over the same period, where Bulgaria and Serbia maintain levels of 2, and Croatia, Iceland and Slovenia reveal levels of 1 over the same 3-year period. The “Civil Liberties Index” measures freedom of expression, assembly, association, and religion. On a scale from 1 to 7, with 1 representing the most free and 7 representing the least free, Montenegro performs relatively well, maintaining a level of 2 over the period 2009-12. This is identical to the performance of Bulgaria, Croatia and Serbia, while Iceland and Slovenia are the most free, maintaining levels of 1 over the same period.

Torture and ill treatment in detentions is a serious concern in the country, where repeatedly, local and international organizations have reported such violations. At the same time, perpetrators of crimes against human rights defenders and journalists have low conviction and follow-up rates. In 2011, Montenegro experienced a disappointing decline in media freedoms, where media and journalists have become the victims of threats, physical assaults, financial pressures, and defamation charges.30 In the same year, the European Court for Human Rights (ECHR) ruled that Montenegro violated the European Convention on Human Rights when it fined a journalist with 5,000 euros in 2004 for a defamation.31 However, in response to this worsening condition of freedom of expression in the country, the Government of Montenegro amended the Criminal Code in June 2011 to decriminalize insult and defamation, and to align national courts with the ECHR case law in this regard.32

Montenegro has made improvements in the past couple of years in response to some human rights concerns voiced by the international community, most notably in regards to human trafficking, gender equality and discrimination based on sexual orientation, and the status of refugees and internally displaced persons. The government adopted the Strategy for the Fight against Trafficking for 2012- 2018, which focuses on education, victim assistance, protection, reintegration, and prosecution. In 2010,

29 These are the International Convention on the Elimination of All Forms of Racial Discrimination, the International Covenant on Civil and Political Rights, the International Covenant on Economic, Social and Cultural Rights, the Convention on the Elimination of All Forms of Discrimination against Women, the Convention against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment, the Convention on the Rights of the Child, the International Convention on the Protection of the Rights of All Migrant Workers and Members of Their Families, the International Convention for the Protection of All Persons from Enforced Disappearance, and the Convention on the Rights of Persons with Disabilities. 30 Freedom House. 2012a. 31 Ibid. 32 Office of the High Commissioner for Human Rights. 2013. Universal Periodic Review – Media Brief: Montenegro. OHCHR, 28 January. Accessed 31 May 2013.

30 Thehum enablingan trafficking, environment gender equality for sustainable and discrimination enterprises based inon Montenegrosexual orientation, and the status of refugees and internally displaced persons. The government adopted the Strategy for the Fight against Trafficking for 2012-2018, which focuses on education, victim assistance, protection, reintegration, and prosecution. In 2010, the government the government adopted the Law on the Protection from Domestic Violence and established a number of adopted the Law on the Protection from Domestic Violence and established a number of measures for measuresthe protection for the of protectionvictims. In of October victims. 2011,In October the government 2011, the governmentestablished establishedthe Coordinating the Committee forCoordinating monitoring the Committee implementation for monitoring of the Strategy the implementation for Durable Solution of the toStrategy the Issue for of Durable Displaced 33 and InternallySolution Displaced to Persons the Issue with ofspecial Displaced emphasis and on Internallythe Konik Displacedsite (Roma Personspopulation). with special emphasis on the Konik site (Roma population).33

Furthermore, Furthermore, there is a strong there is body a strong of non-governmental body of non-governmental human rightshuman work rights being work donebeing in Montenegro. Somedone inof Montenegro.the strongest SomeNGOs of working the strongest in the countryNGOs working focusing in on the human country rights focu issuessing onhave a high capacityhuman for public rights advocacy. issues have Cooperation a high capacity between for these public groups advocacy. and the Cooperation government between is quite good. In 2011,these representatives groups and from the the government Network of is NGOs quite good.for Democracy In 2011, and representatives Human Rights from signed the a memorandumNetwork of understanding of NGOs with for the Democracy President of and the Montenegrin Human Rights Parliament, signed a establishing memorandum routes of of cooperation betweenunderstanding NGOs withand thethe government.President of 34the However, Montenegrin NGOs Parliament, are generally establishing weak in theroutes country of 34 insofar with respectcooperation to their between ability NGOsto act asand national the government. political watchdogs. However,35 NGOs 36 37 are generally weak in the country insofar with respect to their ability to act as national political watchdogs.35

Key Indicators

Ratification of Human Rights Conventions As of January 2013 It shows the status of human rights referring to ratification Montenegro 9 of following 9 conventions: Convention against Torture and Other Cruel, Inhuman or Degrading Treatment or Serbia 9 Punishment; Convention on the Rights of the Child; Croatia 9 Convention on the Elimination of All Forms of Discrimination against Women; International Convention Bulgaria 8 on the Elimination of All Forms of Racial Discrimination; Iceland 7 Convention on the Prevention and Punishment of the Crime of Genocide; International Covenant on Civil and Slovenia 8 Political Rights; International Covenant on Economic, Social and Cultural Rights; International Convention for Number of Conventions ratified out of 9. the Protection of All Persons from Enforced Disappearance; Convention on the Rights of Persons with Disabilities. Source: United Nations Treaty Collection Multilateral Treaties Deposited with the Secretary General (UNTC).36

Ratification of fundamental ILO Conventions As of January 2013 It shows the status of labour rights conventions. It refers Montenegro 8 to ratification of following 8 conventions: Freedom of

association and collective bargaining (C.87, C.98), Serbia 8 Elimination of forced and compulsory labour (C.29, Croatia 8 C.105), Elimination of discrimination in respect of employment and occupation (C.100, C.111), Abolition of Bulgaria 8 child labour (C.138, C.182). Iceland 8 Source: ILO37 Slovenia 8

33 Office of the High Commissioner for Human Rights. 2013. Number of Conventions ratified out of 8. 34 Freedom House. 2012a. 35 Civil Rights Defenders. 2012.

36Other UN Treaty Useful Collection. Indicators 33 Office of the High Commissioner for Human Rights. 2013. 34 Political Freedom Rights House. Index2012a. 32 2009 2010 2011 2012 35 The Civil Political Rights Defenders. Rights 2012.Index Montenegro 3 3 3 3 measures the degree of 36 UN Treaty Collection. freedom in the electoral Bulgaria 2 2 2 2 37 process,International political Labour pluralism Organization. and Croatia 1 1 1 1 participation, and functioning of government. Iceland 1 1 1 1 Source: Freedom House, The Serbia 31 2 2 2 2 Freedom in the World Survey.38 Slovenia 1 1 1 1 Freedom House rates political rights on a scale of 1 to 7, with 1 representing the most free and 7 representing the least free. Civil Liberties Index 2009 2010 2011 2012 The Civil Liberties index Montenegro 2 2 2 2 measures freedom of expression, assembly, Bulgaria 2 2 2 2 association, and religion. Croatia 2 2 2 2 Source: Freedom House, The Freedom in the World Survey.39 Iceland 1 1 1 1 Serbia 2 2 2 2 Slovenia 1 1 1 1 Freedom House rates civil liberties on a scale of 1 to 7, with 1 representing the most free and 7 representing the least free.

37 International Labour Organization. 38 Freedom House. 39 Ibid.

child labour (C.138, C.182). The enabling environment for sustainableIceland enterprises in Montenegro 8 Source: ILO37 Slovenia 8 Number of Conventions ratified out of 8. 38 39

Other Useful Indicators

Political Rights Index 2009 2010 2011 2012 The Political Rights Index Montenegro 3 3 3 3 measures the degree of freedom in the electoral Bulgaria 2 2 2 2 process, political pluralism and Croatia 1 1 1 1 participation, and functioning of government. Iceland 1 1 1 1 Source: Freedom House, The Serbia 2 2 2 2 Freedom in the World Survey.38 Slovenia 1 1 1 1 Freedom House rates political rights on a scale of 1 to 7, with 1 representing the most free and 7 representing the least free. Civil Liberties Index 2009 2010 2011 2012 The Civil Liberties index Montenegro 2 2 2 2 measures freedom of expression, assembly, Bulgaria 2 2 2 2 association, and religion. Croatia 2 2 2 2 Source: Freedom House, The Freedom in the World Survey.39 Iceland 1 1 1 1 Serbia 2 2 2 2 Slovenia 1 1 1 1 Freedom House rates civil liberties on a scale of 1 to 7, with 1 representing the most free and 7 representing the least free.

37 International Labour Organization. 38 Freedom House. 39 Ibid.

38 Freedom House. 39 Ibid.

32 The enabling environment for sustainable enterprises in Montenegro

3. Economic elements

KEY FINDINGS:

The macroeconomic situation in the country is characterized as stable, but problems exist concerning the public debt and national budget deficit. Findings form the Montenegro EESE survey suggest that macroeconomic indicators are not the biggest problem for enterprises in Montenegro, but there is a room for improvement in this area as well. Several years ago Montenegro experienced an economic boom with a growing GDP up until the strong effects of the global economic crisis began. The financial crisis has deeply affected employment, firm growth and solvency, and a great number of large companies that went through privatization process did not achieve the expected results upon privatization. Today all national documents point to three main sectors of a strategic importance for the future economic growth: tourism, energy and rural development and agriculture.

Trade is an important part of the Montenegrin economy. The country has made substantial improvements in terms of encouraging companies to export, though this is not confirmed by the data. Over the past couple of years, Montenegro has become heavily dependent on imports and the amount of exported products is decreasing.

Montenegro has made progress in promoting an enabling legal and regulatory environment for business, particularly in regards to regulatory reform and company registration to improve the business environment in the country. Bankruptcy laws are now in line with international standards and Montenegro outperforms all regional neighbours in the areas of time needed to clear bankruptcy, the costs incurred and the recovery rate. Currently, the authorities have focused their attention on gaps identified in business surveys, specifically the time required to obtain construction permits and complete business registration procedures, as well as the need to streamline investment procedures. In addition, a complicated regulatory framework and costly administrative procedures have been identified by the government as key barriers to increased entrepreneurial activity in the country. However, as stated in EESE focus group meetings, the problem in Montenegro is not the creation of laws, but rather their implementation.

Access to finance has been made clear as the biggest obstacle for enterprises performance in Montenegro over the last couple of years, specifically concerning the lack of financial resources and unfavourable conditions for gaining access to loans from commercial banks. The EESE survey reveals that around 96 per cent of surveyed companies experience financial problems and difficulties in access to finance. The state/owned Investment Development Fund is the only institution that offers favourable loans to companies. One of the necessary measures in this regard is to reduce the collateral for SME loans. In addition, loans are not structured to respond to the needs of SMEs. It is, therefore, necessary to design special guidelines for specific types of enterprises (i.e. for special investment projects such as green business, energy efficiency projects etc.). For example, one of the measures could be introduction and promotion of alternative sources of financing for SME such as international programmes and grants.

ICT usage in Montenegro has increased, but further work on implementation of electronic services is needed so that they contribute to the ease of doing business and to the transparency of public administration activities. According to the EESE survey findings, the high cost of Internet is said to be one of the main burdens in this regard. EESE survey respondents do not see physical infrastructure as one of the main problems for companies, but modern road infrastructure is necessary for the better flow of goods. Monopolies and monopolistic practices in certain sectors are seen as constraints as well. The

33 The enabling environment for sustainable enterprises in Montenegro

informal sectorfor activities companies, and butunfair modern competition road infrastructure also pose specificis necessary challenges for the betterfor the flow formal of goods. business environment inMonopolies the country. and Although monopolistic the problempractices hasin certain existed sectors for years, are seen intensive as constraints activities as well. toward tackling this problemThe informal have onlysector just activities begun. and unfair competition also pose specific challenges for the formal business environment in the country. Although the problem has existed for years, intensive activities toward tackling this problem have only just begun. Indicators assessing economic elements of an enabling environment for sustainable enterprises*Indicators assessing economic elements of an enabling environment for sustainable enterprises*

GraphGraph 10: 10: Macroeconomic Macroeconomic indicators indicators (2011)(2011)

* the values for the individual indicators have been harmonized for better presentation and formatted so that the further from the * thecenter values a data for thepoint individual is, the better indicators the country’s have been performance harmonized in that for regard. better presentationThe original indicatorand formatted values so are that included the further in th frome chapters. the center a data* da pointta for is, the the indicator, better the “Enabling country’s Trade performance Index”, is inunavailable that regard. for The 2011. original Figures indicator shown in values the above are included chart reflect in the data chapters. for 2012. * data for the indicator, “Enabling Trade Index”, is unavailable for 2011. Figures shown in the above chart reflect data for 2012.

• Montenegro recorded the fastest growing GDP in the • Between 2011-12, Montenegro fell 5 places in region up until a sharp decrease in the growth rate the World Bank Doing Business Trading Across in 2009, largely due to global economic crisis with Borders rank, moving from 37 to 42, though this is consequences in contracted banking sector activity still comparatively high. and reduced production, particularly of aluminum. The country has since successfully recovered, but • Montenegro is the only country in the region to have lasting negative impacts are still visible in the large not yet completed and implemented legislation and and growing public debt and a tightening liquidity infrastructure for technical regulations concerning squeeze in the economy. trade. It should adopt some or all EU standards and align the sanitary and phytosanitary standards, as well • The three priority sectors for economic development as continue to put into place effective accreditation in the 2013 National Development Plan include conformity, metrology and market surveillance tourism, energy, and agriculture and rural infrastructure. development.

• A poor work ethic is the most hindering factor to doing business in Montenegro. At the same time, EESE survey findings show that labour costs pose the largest obstacle to productivity improvements for firms, followed by skills shortages and negative attitudes. 35

34  Montenegro recorded the fastest growing GDP in the  Between 2011-12, Montenegro fell 5 places in region up until a sharp decrease in the growth rate in the World Bank Doing Business Trading 2009, largely due to global economic crisis with Across Borders rank, moving from 37 to 42, consequences in contracted banking sector activity though this is still comparatively high. and reduced production, particularly of aluminum.  Montenegro is the only country in the region The country has since successfully recovered, but to have not yet completed and implemented lasting negative impacts are still visible in the large legislation and infrastructure for technical and growing public debt and a tightening liquidity regulations concerning trade. It should adopt squeeze in the economy. some or all EU standards and align the  The three priority sectors for economic development sanitary and phytosanitary standards, as well in the 2013 National Development Plan include as continue to put into place effective tourism, energy, and agriculture and rural accreditation conformity, metrology and development. market surveillance infrastructure.  A poor work ethic is the most hindering factor to  Montenegro is a leader among other doing business in Montenegro. At the same time, transitional countries in regards to FDI, though EESE survey findings show that labour costs pose rates have been consistently decreasing since the largest obstacleThe enabling to productivity environment improvements for for sustainable enterprises2009 due to the in global Montenegro economic crisis. firms, followed by skills shortages and negative attitudes.

GraphGrafik 11: 11: Access Access to tocredit, credit, property property rigth rigth and and competition competition indicators indicators (201 1)(2011)

 Progress has been made in terms of regulatory reform Index" rank from 45 in 2011 to 58 in 2012 out 185 • andProgress company has registration,been made in bankruptcy terms of regulatory laws are reformnow in countries.• The functionality of institutions is generally lineand with company international registration, standards, bankruptcy and laws Montenegro are now  Overlappingunsatisfactory regulatory and requires bodies structural (agencies, and inspections) institutional outperformsin line with all international regional neighbours standards, in and the areasMontenegro of time arereforms. a key problem undermining the business neededoutperforms to clear all bankruptcy, regional neighbours the costs incurred in the areas and the of environment, where 70.4 per cent of EESE survey recoverytime needed rate. to clear bankruptcy, the costs incurred respondents• In 2010, thereport Stabilisation overlap to and be eitherAssociation a problem Agreement either  Montenegroand the recovery moved rate. up the World Bank "Ease of Doing sometimes(SAA) between or very frequently.Montenegro and the EU entered into Business Index" rank from 84 in 2008 to 51 in 2012,  Theforce tax burdento consolidate is a major rule constraint of law, law on enforcementfirm investment and • outMontenegro of 185 countries, moved but up fell the in Worldthe "Starting Bank a “Ease Business of plansthe foradministration 43.4 per cent of justice. of EESE surveyed enterprises, Doing Business Index” rank from 84 in 2008 to 51 in 2012, out of 185 countries, but fell in the “Starting a • Development of an independent judiciary is a major Business Index” rank from 45 in 2011 to 58 in 2012 priority,36 where the career system and recruitment out 185 countries. processes within the judiciary require reform.

• Overlapping regulatory bodies (agencies, inspections) • The Anti-Corruption Strategy for 2010-14, and an are a key problem undermining the business Action Plan for the period 2010-12 intended to combat environment, where 70.4 per cent of EESE survey corruption. However, they do not sufficiently prioritize respondents report overlap to be either a problem results or activities, and results are too vague. either sometimes or very frequently. • Citizens’ trust in public institutions is weak, • The tax burden is a major constraint on firm investment particularly in regards to the judicial system. plans for 43.4 per cent of EESE surveyed enterprises, and all enterprises agreed that tax collection could be • Regarding property rights, the process of restitution is simplified. not yet fully ensured in the country and the work of relevant commissions is slow. • The size and effectiveness of the public administration is problematic, and 59 per cent of EESE survey • One of the prerequisites for the country’s accession respondents describe it as inefficient and ineffective. into the EU is to bring intellectual property protections into accordance with international law. • SMEs suffer from policy gaps in innovation and tailored support services that create an unfavorable • In 2012, the parliament adopted the Montenegrin Law legal and regulatory environment. Policies and on the Protection of Competition, intended to further legislation to promote SMEs exist, but limited align national legislation with the EU competition resources prevent effective implementation. acquis.

35 The enabling environment for sustainable enterprises in Montenegro

• Policies to promote fair competition exist, but and 53.3 per cent of enterprises with less than 5 suffer from limited resources that prevent effective employees reported the same problem. implementation. • Successes regarding access to finance include the • According to the EESE survey, most companies (45.9 Decision on Public Disclosure of Information and Data per cent) consider anti-trust legislation to be inefficient by Banks (2012), the Decision on Large Exposures of in breaking up trusts and other monopolistic practices. Banks (2012), the Decision on Minimum Standards for Credit Risk Management in Banks (2012), and • The privatization process is nearly complete, with the Decision on the Establishment of the Advisory only 15 per cent of firms remaining under government Committee (2011). control as of 2011. • The most prominent gap for access to finance in • According to the EESE survey findings, the great Montenegro is financial market infrastructure. majority of enterprises feel that political factors negatively influence commercial activity. • The majority of EESE surveyed enterprises (40.6 per cent) count on self-financing, and only a small • The substantial number of businesses operating in the percentage count on support of individual investors informal or grey economy is a main hindrance to fair and investment funds. competition in the economy. In the trade sector, 57.1 per cent of respondents noted that enterprises in the informal economy are often the greatest competitors,

GraphGraph 12: 12: ICT ICT and and infrastructure infrastructure indicators indicators (2010) (2010)

conducting trade is a challenge for firms, according to EESE survey results.  The World Economic Forum ranked Montenegro 48 out  Specific land configurations, organization of 142 countries for ICT development in 2012, based on problems in the transportation chain, financing the WEF Network Readiness Index. and management, and insufficient or bad  100 per cent of the ICT sector in Montenegro is conditions of transportation infrastructure limit privatized and, between 3 mobile operators, 99 per cent the ability of the country to maximize usage of of the country’s inhabited areas are covered. There is a transport to promote growth. high degree of mobile telephony, but internet usage  Energy consumption is high, largely due to should be promoted, especially in areas where it is not 36 inefficient consumption patterns. Specifically, profitable for the private sector to make investments. 2.1 times more energy is consumed per unit of  Infrastructure priorities tend to be regionally specific. domestic product in Montenegro than in Water and electricity supply are priorities for the whole developed countries on average, and 3.3 times country, but in the northern region, road infrastructure more than in the EU, due largely to is prioritized, while in the coastal region, it is sewage organizational weakness and obsolete or systems/wastewater treatment that is important. depreciated networks and equipment.  Transport is a key issue because of its relationship to the priority sectors of tourism, agriculture and trade. Physical infrastructure and transport necessary for

The enabling environment for sustainable enterprises in Montenegro

• The World Economic Forum ranked Montenegro 48 conducting trade is a challenge for firms, according to out of 142 countries for ICT development in 2012, EESE survey results. based on the WEF Network Readiness Index. • Specific land configurations, organization problems in • 100 per cent of the ICT sector in Montenegro is the transportation chain, financing and management, privatized and, between 3 mobile operators, 99 per cent and insufficient or bad conditions of transportation of the country’s inhabited areas are covered. There is infrastructure limit the ability of the country to a high degree of mobile telephony, but internet usage maximize usage of transport to promote growth. should be promoted, especially in areas where it is not profitable for the private sector to make investments.

• Infrastructure priorities tend to be regionally specific. Water and electricity supply are priorities for the whole country, but in the northern region, road infrastructure is prioritized, while in the coastal region, it is sewage systems/wastewater treatment that is important.

• Transport is a key issue because of its relationship to the priority sectors of tourism, agriculture and trade. Physical infrastructure and transport necessary for

37 The enabling environment for sustainable enterprises in Montenegro

3.1. Sound and stable macroeconomic policy and good management of the 3.1.economy Sound and stable macroeconomic policy and good management of the economyMacroeconomic policies should guarantee stable and predictable economic conditions. Sound economic management should combine the objectives of creating Macroeconomicmore and policiesbetter jobs, should combating guarantee inflation, stable and andimplementing predictable policies economic and regul conditions.ations Sound economic managementthat stimulate should long- term combine productive the objectives investment. of Thecreating impact more of the and economic better jobs, crisis combating inflation, andremains implementing salient in Montenegro,policies and thoughregulations economic that outputstimulate has nearlylong-term recovered productive in recent investment. years and the financial sector is stabilizing.40 Up until the economic crisis, Montenegro The impact of the economic crisis remains salient in Montenegro, though economic output has nearly recorded the fastest growing GDP in the region.40 Like the countries used for recovered in recentcomparison, years and Montenegro the financial experienced sector is astabilizing. sharp decrease Up until in the the GDPeconomic growth crisis, rate Montenegro in recorded the 2009,fastest droppin growingg from GDP 6.9 in per the cent region. in 2008 Like to the -5.7 countries per cent usedin 2009. for comparison,This was largely Montenegro experienced duea sharp to contracteddecrease in banking the GDP sector growth activity rate andin 2009, reduced dropping production, from 6.9 particularly per cent ofin 2008 to ‑5.7 per cent aluminum.in 2009. This41 However, was largely in 2010due to and contracted 2011, Montenegro banking sector showed activity the mostand reduced successful production, particularly ofpost aluminum.-crisis recovery41 However, of the countriesin 2010 andcompared, 2011, Montenegroachieving a rate showed of 2.5 the per most cent insuccessful 2010 post- crisis recoveryand of 3.2 the in countries 2011. In compared,the latter year, achieving Montenegro a rate recordedof 2.5 per the cent highest in 2010 GDP and growth 3.2 in rate 2011. In the latter year, Montenegroof the group. recorded the highest GDP growth rate of the group. Graph 13: GDP Grow Rate Graph 13: GDP Grow Rate

Source:Source: World BankWorld national Bank national accounts accounts data data(World (World Development Development Indicators Indicators Online). Online).

In the recently presented 2013 National Development Plan for Montenegro, the In the recentlythree priority presented sectors 2013 for National economic Development development Plan include for Montenegro, tourism, energy, the three and priority sectors for economic development include tourism, energy, and agriculture and rural development.42 The prioritization of the tourism industry in Montenegro is supported by the fact that the country already holds the resources necessary for a thriving tourism industry. In addition, the potential spill-over effects of a strong tourism industry include the development of transport, trade, banking, agriculture, and construction,40 IMF. 2012. Montenegroas well as decreasedStaff Report unemployment, for the 2012 Article improved IV Consultation standards. IMF, of 27 living, April. and enhancing of rural development.41 Ministry of Sustainable The main Development challenges andthat Tourism. the country (undated). must confront with in order to sufficiently develop this sector include poor infrastructure quality in transport, wastewater and solid waste treatment, and problems with water and electricity supply. Other hindering39 factors include the issue of unbalanced distribution of development, where the coastal region tends to be the favoured tourist destination,

40 IMF. 2012. Montenegro Staff Report for the 2012 Article IV Consultation. IMF, 27 April. 41 Ministry of Sustainable Development and Tourism. (undated). 42 European Commission. 2013. National Development Plan of Montenegro Presented. Delegation of the European Union to Montenegro (Podgorica), 27 February. Accessed 31 May 2013.

38 The enabling environment for sustainable enterprises in Montenegro

insufficiently trained and qualified staff, a short tourist season, and notably large fluctuations in the number of tourists between the high and low seasons. Rural and agricultural development has been prioritized as well because of Montenegro’s comparative advantages in this regard. These include the high level of agricultural diversity and the lack of pesticide and fertilizer usage in the soil, which allows the possibility of organic food production. The main challenges, however, will most likely be associated with fulfilling the EU agricultural policy requirements. Energy has also been prioritized, firstly, because of the fact that a sufficient energy supply is a pre-requisite for sustainable economic development, and secondly, because of the crucial need for reforms in this area. Inefficient and problematic energy consumption patterns are a major hindrance for the economic sustainability of the country, as well as import dependency and a low level of use of national natural energy resources such as the available hydro potential.43

Though Montenegro has shown a good recovery from the global economic crisis, the negative impact remains most visible in the large and growing public debt and a tightening liquidity squeeze in the economy.44 The level of debt made up 38 per cent of GDP in 2006 and 45 per cent in 2007, while at the end of 2012 public debt reached 51,1% of GDP45. Moreover, the “Current Account Balance” as a percentage of GDP for Montenegro is notably low at ‑19.62 in 2011. Of the countries used for comparison, none perform worse in that year and the second lowest, Serbia, still earns a notably higher percentage of ‑8.37. Nonetheless, Montenegro has shown consistent improvement since 2008 when the percentage dropped as low as ‑50.58 per cent.

GraphGraph 14: 14: Current Current Account Account Balance Balance

Source: International Monetary Fund, Balance of Payments Statistics Yearbook and data files, and Source: International Monetary Fund, Balance of Payments Statistics Yearbook and data files, and World World Bank and OECD GDP estimates (World Development Indicators Online). Bank and OECD GDP estimates (World Development Indicators Online). There is wide agreement that a current account deficit of 4-5 percent of GDP is high, and the higher the current account deficit, the higher the risk for the overall There iseconomy. wide agreement A high thatcurrent a current account account deficit deficit increases of 4-5a country’s percent ofdependency GDP is high, on andforeign the higher the current accountresources. deficit, Montenegro the higher maintains the risk high for levelsthe overall of foreign economy. direct investmentA high current (though account this deficit rate is currently decreasing), which is essential for the inflow of foreign currency. 43 GovernmentShould of Montenegro. foreign currency2007. National fail toStrategy cover of the Sustainable current accountDevelopment deficit, of Montenegro. the result wouldMontenegro mean Minisrty of Tourism aand renewed Environment economic Protection; crisis UNDP; for Montenegro. UNEP; Government of Italy Ministry of Environment, Land and Sea. Accessed 25 May 2013. 44 IMF. 2012. Graph 15: Inflation, Average Consumer prices 45 Central Bank of Montenegro, Annual Report of Chief Economist, 2012. Public Debt (Annual Report 2012)

Source: International Monetary Fund, Balance of Payments Statistics Yearbook and data files, and World Bank and OECD GDP estimates (World Development Indicators Online).

Graph 14: Current Account Balance

Source: International Monetary Fund, Balance of Payments Statistics Yearbook and data files, and World Bank and OECD GDP estimates (World Development Indicators Online).

TheThere enabling is wide environment agreement that for a sustainablecurrent account enterprises deficit of in 4 -Montenegro5 percent of GDP is high, and the higher the current account deficit, the higher the risk for the overall economy. A high current account deficit increases a country’s dependency on foreign increasesresources. a country’s Montenegro dependency maintains on foreign high resources. levels of Montenegro foreign dir maintainsect investment high levels(though of thisforeign direct investmentrate is currently (though this decreasing), rate is currently which decreasing), is essential which for the is essential inflow of for foreign the inflow currency. of foreign currency.Should Should foreign foreign currency currency fail fail to to cover cover the the current current account account deficit, deficit, the the result result would would mean mean a reneweda economic renewed crisiseconomic for Montenegro. crisis for Montenegro.

Graph 15: Inflation,Graph 15:Average Inflation, Consumer Average prices Consumer Prices

Source:Source: International International Monetary Monetary Fund, Fund, Balance Balance of Payments of Payments Statistics Statistics Yearbook Yearbook and data and files, data and files, World and BankWorld and Bank OECD and GDP OECD estimates GDP estimates(World Development (World Development Indicators Online). Indicators Online). Inflation in the country has fluctuated in recent years, notably in 2008 and 2010, when it spiked and fell respectively. Other countries used for comparison reflect Inflationsimilar inchanges the country around has the fluctuated same years. in recent In 2008,41 years, the notably“Inflation in 2008Rate” and in Montenegro2010, when it spiked and fell jumpedrespectively. from Other 4.35 incountries the previous used for year comparison to 8.76. By reflect 2010 similarhowever, changes it had aroundfallen tothe 0.65, same years. In 2008,the the lowest “Inflation level Rate”of inflation in Montenegro of all countries jumped comparedfrom 4.35 inin thethat previousyear. The year most to 8.76.recent By 2010 figure for the country is 3.18 in 2011, which is lower than the rates for Bulgaria, however, it had fallen to 0.65, the lowest level of i nflation of all countries compared in that year. The Iceland and Serbia, but still higher than those of Croatia and Slovenia. The world mean most recent figure for the country is 3.18 in 2011, which is lower than the rates for Bulgaria, Iceland for the same year was 4.98. This reflects a positive trend in Montenegro and points to a and Serbia, but still higher than those of Croatia and Slovenia. The world mean for the same year was continued successful recovery from the economic crisis. 4.98. This reflects a positive trend in Montenegro and points to a continued successful recovery from the economic crisis.Graph 16: Does the inflation rate have significant impact on the competitiveness of firms? Graph 16: Does the inflation rate have significant impact on the competitiveness of firms?

Based on EESE survey responses, an important fact when discussing inflation is that Montenegrin enterprises are aware that their activities have a low impact on the 40 inflation rate. Thus, they find this macroeconomic indicator irrelevant for their business conduct and business plans. More than 23 per cent of enterprises said that the inflation rate does not have a significant impact on the competitiveness and plans of firms to invest or expand. For a slightly larger portion of firms at 31.3 per cent, this factor is still only somewhat significant.

High levels of “Gross Capital Formation” or investment are conducive to economic growth. Montenegro performs relatively poorly in this regard, with only Iceland recording a lower percentage in 2011. Additionally, while all countries used for comparison experience moderate decrease in the percentage of gross capital formation over the period 2008-11, Montenegro saw its percentage half over the same period, reflecting the largest decrease of all countries. “Gross Domestic Savings” rates in Montenegro have remained the lowest of all countries used for comparison over the period 2006-11. The latest available rate for Montenegro is -6.5 per cent of GDP in 2011. This is substantially lower than the next lowest rate of 9.7 in Serbia for the same year.

The enabling environment for sustainable enterprises in Montenegro

Based on EESE survey responses, an important fact when discussing inflation is that Montenegrin enterprises are aware that their activities have a low impact on the inflation rate. Thus, they find this macroeconomic indicator irrelevant for their business conduct and business plans. More than 23 per cent of enterprises said that the inflation rate does not have a significant impact on the competitiveness and plans of firms to invest or expand. For a slightly larger portion of firms at 31.3 per cent, this factor is still only somewhat significant.

Graph 17: GrossGraph Domestic 17: GrossSavings Domestic Savings

Source: World Bank national accounts data, and OECD National Accounts data files (World Source:Development World Bank Indicators national Online). accounts data, and OECD National Accounts data files (World Development Indicators Online). Structural macroeconomic reforms in Montenegro are notably well developed relative to the rest of the region, but progress has been slowed in recent years, Structuralespecially macroeconomic in the labour reforms markets in Montenegro and previously are notably privatized well developed large enterprises. relative to the In rest of the region,particular, but progress the hasunsuccessful been slowed efforts in recent to resolve years, especiallyoverstaffing in theissues labour in themarkets metal and sector, previously privatizedthe large need enterprises. to make regular In particular, labour contractsthe unsuccessful more attractive efforts to to resolve employers, overstaffing and the use issues of in the metal sector,public the expenditure need to make reforms regular to reducelabour unemploymentcontracts more trapsattractive need toto employers,be addressed and within the use of public expenditurea greater labourreforms market to reduce reform unemployment effort.46 Unfortunately, traps need to secondary be addressed data within on the a “ greaterLabour labour market reformForce effort.Participation46 Unfortunately, Rate” is not secondary available data for onMontenegro, the “Labour nor Force is it for Participation Serbia.47 Rate” is not available for Montenegro, nor is it for Serbia.47 According to findings from the Montenegro EESE survey, only 11.1 per cent of respondents perceive their profitability as being very likely to improve over the next 46 IMF, 2012.12 months, which is highly troublesome. However, 32.2 per cent estimate the opposite 47 The labourto be force true. participation The other rate worrying is the proportion factor isof thatthe population 100 per centages 15-64of small that isenterprises economically answered active: all people who supplythis questionlabour for thenegatively. production Itof isgoods interesting and services to noteduring that a specified even enterprises period. The labourthat have force existedparticipation rate is calculatedfor a bylong expressing period thehave number a negative of persons opinion in the labour concerning force as athe percentage possibility of the of working-age improving population. their The labour profitsforce is theover sum the of thenext number year. of For persons example, employed among and the businesses number of unemployed. run for more than 5 years, 31.1 per cent do not expect an increase in profits at all, and only 10.8 per cent expect that this increase is very likely. 41

46 IMF, 2012. 47 The labour force participation rate is the proportion of the population ages 15-64 that is economically active: all people who supply labour for the production of goods and services during a specified period. The labour force participation rate is calculated by expressing the number of persons in the labour force as a percentage of the working-age population. The labour force is the sum of the number of persons employed and the number of unemployed.

The enabling environment for sustainable enterprises in Montenegro

According to findings from the Montenegro EESE survey, only 11.1 per cent of respondents perceive their profitability as being very likely to improve over the next 12 months, which is highly troublesome. However, 32.2 per cent estimate the opposite to be true. The other worrying factor is that 100 per cent of small enterprises answered this question negatively. It is interesting to note that even enterprises that have existed for a long period have a negative opinion concerning the possibility of improving their profits over the next year. For example, among businesses run for more than 5 years, 31.1 per cent do not expect an increase in profits at all, and only 10.8 per cent expect that this increase is very likely.

Graph 18: In your view, do firms expect profitability to improve over the next 12 months? Graph 18:18: InIn youryour view, view, do do firms firms expect expect profitability profitability to toimprove improve over over the the next next 1212 months? months?(by firm (by (by sizefirm firm and size size number and and number numberof employees) of ofemployees) employees)

The situationThe issituation similar is with similar other with macroeconomic other macroeconomic indicators indicators over next over 3 years,next 3 expectedyears, by The situation is similar with other macroeconomic indicators over next 3 years, enterprises.expected by enterprises. expected by enterprises.

GraphGraph 19:19 19: ExpectationExpectation: Expectation about: about: about:

The encouraging signals come from the fact that 43.3 per cent of enterprises said The encouraging signals come from the fact that 43.3 per cent of enterprises said that the number of employees will decrease over the next 3 years. However, almost 50 that the number of employees will decrease42 over the next 3 years. However, almost 50

44 44

The enabling environment for sustainable enterprises in Montenegro per cent of responding firms stated that the average selling prices and average costs per unit will be greater in the next 3 years. The encouraging signals come from the fact that 43.3 per cent of enterprises said that the number of perThe cent EESE of respondi surveyng findings firms stated also that show the that average the singleselling largest prices obstacleand average inhibiting costs per employees will decrease over the next 3 years. However, almost 50 per cent of responding firms stated productivityunit will be improvements greater in the fornext firms 3 years. in Montenegro is labour costs, followed by skills that the average selling prices and average costs per unit will be greater in the next 3 years. shortages and negative attitudes. This is particularly notable considering that the The EESE survey findings also show that the single largest obstacle inhibiting World Bank notes a poor work ethic and low levels of labour productivity as the most productivity improvements for firms in Montenegro is labour costs, followed by skills hindering factor to doing business in Montenegro. Theshortages EESE survey and negative findings attitudes. also show This that is theparticularly single largest notable obstacle considering inhibiting that the productivity improvements for firms in Montenegro is labour costs, followed by skills shortages and negative WorldGraph Bank 20: notes What a poor is the work single ethic largest and low obstacle levels ofcohabiting labour productivity productivity as the most attitudes.hindering This is particularly factor to doing notable business considering in Montenegro. that the World Bank notes a poor work ethic and low levels of labour productivity asimprovement the most hindering for firms factor in to thedoing country? business in Montenegro. Graph 20: What is the single largest obstacle cohabiting productivity Graph 20: What is the single largest obstacle cohabiting productivity improvement improvement for firms in the country? for firms in the country?

According to respond of the enterprises largest obstacles inhibiting productivity improvement are labours costs (for 44.26 per cents) than skills shortages and negative Accordingattidute for to almost respond 20 of per the cent. enterprises largest obstacles inhibiting productivity improvement are labours costs (forAccording 44.26 per to cents)respond than of skills the enterprisesshortages and largest negative obstacles attidute inhibitingfor almost productivity20 per cent. improvementGraph 21: areWhat labours single costs factor (for is 44.26 most per limiting cents) thanfirm`s skill abilitys shortages to increase and n egative attidute for almost 20 per cent. Graph 21: What single factor is mostproduction? limiting firm`s ability to increase production? Graph 21: What single factor is most limiting firm`s ability to increase production?

For more than 62 per cent of enterprises that responded to the EESE survey, the single most limiting factor for a firm’s ability to increase production is finances, followed by orders and labour. 45

45 43

For more than 62 per cent of enterprises that responded to the EESE survey, the single most limiting factor for a firm’s ability to increase production is finances, Thefollowed enabling by orders environment and labour. for sustainable enterprises in Montenegro

Key Indicators

GDP Growth Rate (%) 2005 2006 2007 2008 2009 2010 2011 Annual percentage Montenegro 4.2 8.6 10.7 6.9 -5.7 2.5 3.2 growth rate of Gross Domestic Product (GDP) Bulgaria 6.4 6.5 6.4 6.2 -5.5 0.4 1.7 at market prices based Croatia 4.3 4.9 5.1 2.1 -6.9 -1.4 0.0 on constant local currency. GDP is the Iceland 7.2 4.7 6.0 1.2 -6.6 -4.0 2.6 sum of gross value added by all resident Serbia 5.4 3.6 5.4 3.8 -3.5 1.0 2.0 producers in the Slovenia 4.0 5.8 6.9 3.6 -8.0 1.4 -0.2 economy plus any product taxes and minus World 3.5 4.0 3.9 1.3 -2.2 4.4 2.7 any subsidies not Annual percentage growth rate of GDP. included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. Source: World Bank national accounts data (World Development Indicators Online). 48

Other Useful Indicators

Current Account Balance (% of GDP) 2007 2008 2009 2010 2011 Current account balance (also Montenegro -39.49 -50.58 -29.56 -24.62 -19.62 called ‘current account

surplus/deficit’) is the sum of net Bulgaria -27.16 -22.91 -8.76 -1.67 0.42 exports of goods and services, Croatia -7.29 -8.74 -4.90 -1.55 -0.71 net income, and net current transfers. It is a record of a Iceland -15.64 -26.57 -11.62 -8.05 -6.16 country’s transactions with the Serbia -17.69 -21.76 -7.14 -7.34 -8.37 rest of the world. It shows whether a country is ‘living within Slovenia -4.86 -6.14 -0.67 -0.58 0.01 its means’. If a country is % of GDP. spending more abroad than it

earns from the rest of the world then corrective action will be 48necessary, World Bank e.g. Databank. to maintain the value of the country’s currency in relation to other countries’ 46 currency. The balance of payments is a double-entry accounting system that shows all flows of goods and services into and out of an economy. All transactions are recorded twice— once as a credit and once as a debit. In principle the net balance should be zero, but in practice the accounts often do not 48 World Bank Databank. balance, requiring inclusion of a balancing item, net errors and omissions. Positive current account (surplus) balance is 44 associated with positive net exports. If the current account balance is negative, it measures the portion of domestic investment financed by foreigners' savings. Source: International Monetary Fund, Balance of Payments Statistics Yearbook and data files, and World Bank and OECD GDP estimates (World Development Indicators Online).49 Gross Capital Formation (% of GDP) 2006 2007 2008 2009 2010 2011 Gross capital formation consists Montenegro 25.4 33.8 40.7 27.1 22.8 19.5 of outlays on additions to the fixed assets of the economy plus Bulgaria 32.1 34.1 37.5 29.4 22.9 23.1 net changes in the level of Croatia 29.4 29.4 30.4 24.9 21.7 21.1 inventories. Fixed assets include land improvements (fences, Iceland 35.6 29 24.6 13.9 12.5 14.2 ditches, drains, and so on); plant, Serbia 24.1 29 29.7 23 22.8 24.9 machinery, and equipment purchases; and the construction Slovenia 28.9 32 31.9 22.5 22.6 21.6 of roads, railways, and the like, World 22.3 22.5 22 19.1 19.8 19.9

49 Ibid.

its means’. If a country is % of GDP. spending more abroad than it earns from the rest of the world then corrective action will be necessary, e.g. to maintain the value of the country’s currency in relation to other countries’ currency. The balance of payments is a double-entry accounting system that shows all flows of goods and services into and out Theof anenabling economy. environment All for sustainable enterprises in Montenegro transactions are recorded twice— once as a credit and once as a debit. In principle the net balance shou4950ld be zero, but in practice the accounts often do not balance, requiring inclusion of a balancing item, net errors and omissions. Positive current account (surplus) balance is associated with positive net exports. If the current account balance is negative, it measures the portion of domestic investment financed by foreigners' savings. Source: International Monetary Fund, Balance of Payments Statistics Yearbook and data files, and World Bank and OECD GDP estimates (World Development Indicators Online).49 Gross Capital Formation (% of GDP) 2006 2007 2008 2009 2010 2011 Gross capital formation consists Montenegro 25.4 33.8 40.7 27.1 22.8 19.5 of outlays on additions to the fixed assets of the economy plus Bulgaria 32.1 34.1 37.5 29.4 22.9 23.1 net changes in the level of Croatia 29.4 29.4 30.4 24.9 21.7 21.1 inventories. Fixed assets include land improvements (fences, Iceland 35.6 29 24.6 13.9 12.5 14.2 ditches, drains, and so on); plant, Serbia 24.1 29 29.7 23 22.8 24.9 machinery, and equipment purchases; and the construction Slovenia 28.9 32 31.9 22.5 22.6 21.6 of roads, railways, and the like, World 22.3 22.5 22 19.1 19.8 19.9 including schools, offices, % of GDP. hospitals, private residential dwellings, and commercial and industrial buildings. Inventories are stocks of goods held by firms to meet temporary or unexpected fluctuations in production or sales, and "work in progress". Gross capital formation (also called investment rate or gross domestic investment), along with foreign direct investment, is critical to economic growth and 49 Ibid. economic development. High level of gross capital formation in a period of time refers to increase 47 in the value of inventories. High level of gross capital formation or investment is conducive to economic growth. Source: World Bank national accounts data, and OECD National Accounts data files (World Development Indicators Online)50 Gross Domestic Savings (% of GDP) 2006 2007 2008 2009 2010 2011

Gross domestic savings are Montenegro -4.3 -8.5 -13.9 -6.2 -5.6 -6.5 calculated by deducting total final consumption expenditure from Bulgaria 14.6 14.4 17.0 20.5 21.0 23.8 GDP at current prices. A high 49 grossIbid. domestic savings rate Croatia 22.7 22.2 22.7 21.4 21.2 21.0 50 usuallyIbid. indicates a country’s high Iceland 17.4 18.4 21.8 22.5 22.6 22.8 potential to invest. Savings can therefore be vital to the amount Serbia 2.6 4.8 5.3 6.3 9.7 of fixed capital available, which in 45 28.4 30.2 28.7 23.9 23.2 22.6 turn can contribute to economic Slovenia growth. However, increased World 22.2 22.5 21.5 19.2 19.7 19.5 savings do not always correspond to increased % of GDP. investment. If savings are not deposited into a financial intermediary like a bank, there is no chance for those savings to be recycled as investment by businesses. This means that savings may increase without increasing investment, possibly causing a short-fall of demand rather than economic growth. In the short term, if savings fall below investment, it can lead to growth of aggregate demand and economic boom. In the long term, if savings fall below

50 Ibid.

including schools, offices, % of GDP. hospitals, private residential dwellings, and commercial and industrial buildings. Inventories are stocks of goods held by firms to meet temporary or unexpected fluctuations in production or sales, and "work in progress". Gross capital formation (also called investment rate or gross domestic investment), along with foreign direct investment, is critical to economic growth and economic development. High level of gross capital formation in a period of time refers to increase in the value of inventories. High level of gross capital formation or investment is conducive to economic growth. Source: TheWorld enabling Bank environmentnational for sustainable enterprises in Montenegro accounts data, and OECD National Accounts data files (World Development Indicators Online)50 Gross Domestic Savings (% of GDP) 2006 2007 2008 2009 2010 2011

Gross domestic savings are Montenegro -4.3 -8.5 -13.9 -6.2 -5.6 -6.5 calculated by deducting total final consumption expenditure from Bulgaria 14.6 14.4 17.0 20.5 21.0 23.8 GDP at current prices. A high gross domestic savings rate Croatia 22.7 22.2 22.7 21.4 21.2 21.0 usually indicates a country’s high Iceland 17.4 18.4 21.8 22.5 22.6 22.8 potential to invest. Savings can therefore be vital to the amount Serbia 2.6 4.8 5.3 6.3 9.7 of fixed capital available, which in 28.4 30.2 28.7 23.9 23.2 22.6 turn can contribute to economic Slovenia growth. However, increased World 22.2 22.5 21.5 19.2 19.7 19.5 savings do not always correspond to increased % of GDP. investment. If savings are not deposited into a financial intermediary like a bank, there is no chance for those savings to be recycled as investment by businesses. This means that savings may increase without increasing investment, possibly causing a short-fall of demand rather than economic growth. In the short term, if savings fall below investment, it can lead to growth of aggregate demand and economic boom. In the long term, if savings fall below investment it eventually reduces investment and detracts from future growth. Source: World Bank national 50 accountsIbid. data, and OECD National Accounts data files (World Development Indicators Online).51 48 Inflation, Average consumer price change in per cent 2006 2007 2008 2009 2010 2011 The Consumer price index Montenegro 2.9 4.3 8.8 3.5 0.7 3.2 reflects changes in the cost to the

average consumer of acquiring a Bulgaria 7.3 8.4 12.3 2.8 2.4 4.2 fixed basket of goods and Croatia 3.2 2.9 6.1 2.4 1.0 2.3 services that may be fixed or changed at specified intervals, Iceland 6.7 5.1 12.7 12.0 5.4 4.0 such as yearly. Serbia 11.7 6.4 12.4 8.1 6.1 11.1 Source: IMF, International Financial Statistics and data files (World Slovenia 2.5 3.6 5.7 0.9 1.8 1.8 Development Indicators Online).52 World 4.4 5.1 9.0 2.9 3.6 5.0 Annual percentage change.

3.2. 5152 Trade and sustainable economic integration

Trade integration can lead to positive employment effects through efficiency gains. However, as trade integration can also lead to job dislocation, increased 51 Ibid. informality and growing income inequality, the employment and decent work impact 52 Ibid. of trade policies must be carefully considered. Montenegro has integrated export promotion programmes into national policy, but financial support for them has declined.53 Between 2011-12, Montenegro fell 5 places in the World Bank Doing Business Trading Across Borders rank,46 moving from 37 to 42. However, it continues to rank well above other countries used for comparison, with the exception of Iceland.

"Trade" as an indicator measures the sum of exports and imports of goods and services as a share of GDP. For some countries, in particular small ones, it exceeds 100 per cent, as is the case for Montenegro. Over the period 2006-08, Montenegro consistently improved in this regard. However, in 2009, along with other countries used for comparison, it experienced a decrease in trade as a share of GDP, most likely due to the global economic crisis. Montenegro has since shown signs of improvement, though Bulgaria and Slovenia reflect the most rapid recoveries since the 2009 drop.

EESE survey covered in a big share problems and future perspectives of Montenegrin companies about production and possibility to increase amount of the

51 Ibid. 52 Ibid. 53 OECD. 2012. SME Policy Index Western Balkans and Turkey. OECD, European Commission, ETF, European Bank. Accessed 2 May 2013.

The enabling environment for sustainable enterprises in Montenegro

3.2. Trade and sustainable economic integration

Trade integration can lead to positive employment effects through efficiency gains. However, as trade integration can also lead to job dislocation, increased informality and growing income inequality, the employment and decent work impact of trade policies must be carefully considered. Montenegro has integrated export promotion programmes into national policy, but financial support for them has declined.53 Between 2011-12, Montenegro fell 5 places in the World Bank Doing Business Trading Across Borders rank, moving from 37 to 42. However, it continues to rank well above other countries used for comparison, with the exception of Iceland.

“Trade” as an indicator measures the sum of exports and imports of goods and services as a share of GDP. For some countries, in particular small ones, it exceeds 100 per cent, as is the case for Montenegro. Over the period 2006-08, Montenegro consistently improved in this regard. However, in 2009, along with other countries used for comparison, it experienced a decrease in trade as a share of GDP, most likely due to the global economic crisis. Montenegro has since shown signs of improvement, though Bulgaria and Slovenia reflect the most rapid recoveries since the 2009 drop.

EESE survey covered in a big share problems and future perspectives of Montenegrin companies about productionexport. Special and possibility focus is to onincrease the procedures amount of the and export. ways Special to simplify focus is and on createthe procedures better and ways tocondition simplify and for createexport better of domestic condition products. for export of domestic products.

GraphGraph 22: 22: Have Have firms firms seen seen an an increase increase inin thethe amount amount of ofproduct product they they exports? exports?

In most Inof mostcases, ofEESE cases, survey EESE respondents survey respondents abstained from abstained responding from to respondingthe question to of thewhether exports questionhave increased of whether in recent exports years. have Of increased those who in recentdid respond, years. onlyOf those 3.4 perwho cent did ofrespond, respondents consideronly exports 3.4 to per have cent completely of respondents increased, consider compared exports to 30.3 toper have cent who completely consider increased,exports to have increasedcompared only somewhat. to 30.3 per cent who consider exports to have increased only somewhat. The "Enabling Trade Index" measures the factors, policies and services Thefacil “Enablingitating the Trade free Index” flow measuresof goods theacross factors, borders policies and and to finalservices destination. facilitating On the a freescale flow of goods acrossfrom 1borders to 7 where and to the final highest destination. value indicatesOn a scale that from a country1 to 7 whereis successful the highest at enablingvalue indicates the free flow of trade, Montenegro earned a score of 4.5 in 2012, showing consistent performance with its 2010 level of 4.47. Unfortunately, earlier data is not available for 53 OECD.Montenegro. 2012. SME PolicyNonetheless, Index Western the figuresBalkans andfor Turkey.2010 aOECD,nd 2012 European compare Commission, well with ETF, the European other Bank. Accessedcountries 2 May 2013. used for comparison, where Croatia and Slovenia perform similarly to Montenegro, Bulgaria and Serbia record lower scores, and Iceland performs the strongest in both years. 47 Considering data from the World Bank's Doing Business Report, in Montenegro the number of documents required to import and export has remained unchanged over the period 2007-12, at 7 required documents in either case. This is similar to requirements in other countries used for comparison, where in 2012 Iceland required 5 documents in either case, and Croatia required 7 to export and 8 to import. Similarly, the number of days it takes to import and export has remained at 14 over the period 2007-12 in Montenegro. This compares well with other countries, where Serbia required only 12 days to export and 14 to import in 2012, and Bulgaria required 21 to export and 17 to import in the same year.

The enabling environment for sustainable enterprises in Montenegro

that a country is successful at enabling the free flow of trade, Montenegro earned a score of 4.5 in 2012, showing consistent performance with its 2010 level of 4.47. Unfortunately, earlier data is not available for Montenegro. Nonetheless, the figures for 2010 and 2012 compare well with the other countries used for comparison, where Croatia and Slovenia perform similarly to Montenegro, Bulgaria and Serbia record lower scores, and Iceland performs the strongest in both years.

Considering data from the World Bank’s Doing Business Report, in Montenegro the number of documents required to import and export has remained unchanged over the period 2007-12, at 7 required documents in either case. This is similar to requirements in other countries used for comparison, where in 2012 Iceland required 5 documents in either case, and Croatia required 7 to export and 8 to import. Similarly, the number of days it takes to import and export has remained at 14 over the period 2007-12 in Montenegro. This compares well with other countries, where Serbia required only 12 days to export and 14 to import in 2012, and Bulgaria required 21 to export and 17 to import in the same year.

Although Montenegro reflects a reduction of necessary documentation, which has been done for the purpose of simplifying the trade process, the lingering existence of problems in this respect must be mentioned. For example, there is a clear lack of resources that limit the capacity for electronic submission of forms. Based on findings from the EESE survey, 15.2 per cent of respondents believe there is no possibility of electronically submitting forms, and only 1.3 per cent responded that this was possible. The electronically submitting forms, and only 1.3 per cent responded that this was possible. highest percentage (35.4 per cent) of respondents considered the possibility of electronically submitting The highest percentage (35.4 per cent) of respondents considered the possibility of documents to be rare. electronically submitting documents to be rare.

RegardingRegarding the existence the existence of government of government initiatives, initiatives, for example for examplein terms of in tax terms exemptions, of tax the majorityexemptions, of EESE survey the majority respondents of EESE(25.6 per survey cent) believe respondents that these (25.6 exist per only cent) somewhat. believe Nonetheless, that the percentagethese exist of only respondents somewhat. who Nonetheless,believe that no the such percentage initiatives of exist respondents is non-negligible, who believe at 18.9 per cent thatof the no total such respondents. initiatives exist is non-negligible, at 18.9 per cent of the total respondents.

GraphGraph 23: 23: Credit Credit guarantees guarantees andand creditcredit insurance? insurance?

In regardsIn regards to access to accessto credit to guaranties credit guaranties and loans and for financing loans for financingbusiness-trade business oriented-trade activities, only oriented2.4 per cent activities of EESE, only survey 2.4 respondentsper cent of feltEESE these survey services respondents exist completely. felt these On theservices other hand, 7.2 perexist cent completely. concluded Onthat theenterprises other hand, in general 7.2 per have cent no concluded access to thatcredit enterprises guaranties inand general 9.5 per cent havehave no access no access to loans to for credit financing guaranties business-trade and 9.5 peroriented cent activities. have no Concerning access to loansenterprise for access financing business-trade oriented activities. Concerning enterprise access to information about trade procedures, tariffs, duties, and taxes, only 5.6 per cent of EESE survey respondents consider that enterprises have complete access. The highest percentage of respondents consider access 48to be mostly available (42.2 per cent) and only 8.9 per cent consider such information unavailable. Customs procedures are not positively rated. Only 1.2 per cent of respondents completely agree with the fact that efficient and transparent custom procedures facilitating import and export exist, while 11 per cent completely disagree. The highest percentage of respondents at 45.1 per cent somewhat agree with this statement.

The process of standardization and certification in Montenegro is recognized as a very important segment of the trade sector and product export. Thee EESE survey results show that for 6.6 per cent of respondents, certification does not meet the required standards, while 45 per cent stated that it only partially meets the required standard, Regarding how the certification framework is applied, 38.7 per cent of respondents conclude that it is done so effectively and consistently, while 9.3 per cent conclude that it is not applied effectively and consistently. The process of obtaining certificates of origin and other documentation is, for 11.8 per cent of respondents, the not difficult at all, while for 36.8 per cent it is a somewhat difficult process. For 22.4 per cent of respondents, this is usually a difficult process.

The enabling environment for sustainable enterprises in Montenegro

to information about trade procedures, tariffs, duties, and taxes, only 5.6 per cent of EESE survey respondents consider that enterprises have complete access. The highest percentage of respondents consider access to be mostly available (42.2 per cent) and only 8.9 per cent consider such information unavailable. Customs procedures are not positively rated. Only 1.2 per cent of respondents completely agree with the fact that efficient and transparent custom procedures facilitating import and export exist, while 11 per cent completely disagree. The highest percentage of respondents at 45.1 per cent somewhat agree with this statement.

One element of the above indicators ("Enabling Trade Index") refers to the Onephysical element infrastructure of the above indicators necessary (“Enabling for conducting Trade trade,Index”) as refers well to as the the physical availability infrastructure of necessaryfreight for conducting transport. Intrade, this assense, well theas theEESE availability survey results of freight imply transport. that there In isthis a problemsense, the in EESE survey the results case imply of transport that there and is physical a problem infrastructure. in the case Of of all transport EESE andsurvey physical respondents, infrastructure. 20.5 Of all EESEper survey cent consider respondents, the existing20.5 per infrastructure cent consider tothe be existing insufficient infrastructure for supporting to be insufficientefficient for supportingimport efficient and export import of andgoods, export while of 9goods, per cent while consider 9 per centthere consider to be a competitivethere to be achoi competitivece choice ofof freightfreight transporttransport to to and and from from the the final final destination.destination. Survey Survey results results show show that that there there are are no firms that thinkno the firms existing that infrastructure think the existing is completely infrastructure adequate is for completely efficient export adequate and import, for efficient and only 1.3 per centexport was in and full import,agreement and that only there 1.3 isper a choice cent was of freightin full transportagreement to thatand fromthere the is afinal choice destination. of freight transport to and from the final destination. Graph 24: Infrastructure/transport: Graph 24: Infrastructure/transport:

Montenegro is the only country in the region to have not yet completed and implemented legislation and infrastructure for technical regulations concerning trade, though it is in the draft stages of doing so. What is needed is to continue adopting some or all EU standards and aligning49 Montenegro’s sanitary and phytosanitary standards, among others. It is also recommended that Montenegro continue to put effective accreditation conformity assessment, metrology and market surveillance infrastructure into place. They should upgrade their institutes in accordance with EU requirements and improve their provision of administrative and regulatory information to the business community, and especially in regards to SMEs.54

54 Ibid.

The enabling environment for sustainable enterprises in Montenegro

Montenegro is the only country in the region to have not yet completed and implemented legislation and infrastructure for technical regulations concerning trade, though it is in the draft stages of doing so. What is needed is to continue adopting some or all EU standards and aligning Montenegro’s sanitary and phytosanitary standards, among others. It is also recommended that Montenegro continue to put effective accreditation conformity assessment, metrology and market surveillance infrastructure into place. They should upgrade their institutes in accordance with EU requirements and improve their provision of administrative and regulatory information to the business community, and especially in regards to SMEs.54

GraphGraph 25: FDI 25: Net FDI Inflow net inflow

Source: International Monetary Fund, International Financial Statistics and Balance of Payments Source:databases International & World Monetary Development Fund, IndicatorsInternational Online. Financial Statistics and Balance of Payments databases & World Development Indicators Online. When it comes to “Foreign Direct Investment”, Montenegro is a leader among other transitional countries.55 FDI measures the net inflows of investment to acquire Whenlasting it comesmanagement to “Foreign of anDirect enterprise Investment”, operating Montenegro in a country is a leader different among from other that transitional of the 55 countries.investor. FDI measures The percentages the net inflows recor dedof investment in Montenegro to acquire are lastinghigher thanmanagement those registeredof an enterprise in operatingall in countries a country used different for comparisonfrom that of overthe investor. the period The 2008percentages-11, but recorded have been in Montenegro consistently are higher thandecreasing those registered since a inpeak all countriesin the percentage used for comparison in 2009. Thisover hasthe periodlargely 2008-11, been a butproduct have beenof consistentlythe globaldecreasing economic since a peakcrisis. in56 the N percentageonetheless, in in 2009. 2011, This Montenegro has largely been recorded a product a percentage of the global 56 economicof crisis.12.41, Nonetheless,which is the in highest2011, Montenegro of the countries recorded compared a percentage in ofthat 12.41, year, which where is theIceland highest of the countriesrecorded compared the second in that highest year, wherelevel atIceland 7.89 perrecorded cent. the second highest level at 7.89 per cent.

Key Indicators

Trade (% of GDP) 2006 2007 2008 2009 2010 2011 Trade is the sum of exports Montenegro 126.6 129.7 132.2 97.5 97.8 106.4 and imports of goods and 54 Ibid. services measured as a share Bulgaria 140.0 138.6 136.9 103.8 116.7 132.3 of gross55 Ministry domestic of Sustainable product. Development It Croatia and Tourism. (undated).92.4 91.8 91.9 76.7 79.2 83.7 takes56 values United Statesbetween Department 0 and of State. 2013. Investment Climate Statement – Montenegro. Bureau of Economic and Business Iceland 82.7 80.0 91.6 97.1 102.6 110.1 Affaires, April. Accessed 27 May 2013.

55 Ministry of Sustainable Development and Tourism. (undated). 56 United States Department of State. 2013. Investment Climate Statement – Montenegro. Bureau of Economic and Business Affaires, April. Accessed 27 May 2013.

Graph 25: FDI net inflow

Source: International Monetary Fund, International Financial Statistics and Balance of Payments databases & World Development Indicators Online.

When it comes to “Foreign Direct Investment”, Montenegro is a leader among other transitional countries.55 FDI measures the net inflows of investment to acquire lasting management of an enterprise operating in a country different from that of the investor. The percentages recorded in Montenegro are higher than those registered in all countries used for comparison over the period 2008-11, but have been consistently decreasing since a peak in the percentage in 2009. This has largely been a product of 56 Thethe enabling global economic environment crisis. forNonetheless, sustainable in 2011, enterprises Montenegro in Montenegro recorded a percentage of 12.41, which is the highest of the countries compared in that year, where Iceland recorded the second highest level at 7.89 per cent.

57 Key Indicators

Trade (% of GDP) 2006 2007 2008 2009 2010 2011 Trade is the sum of exports Montenegro 126.6 129.7 132.2 97.5 97.8 106.4 and imports of goods and 58 services measured as a share Bulgaria 140.0 138.6 136.9 103.8 116.7 132.3 of gross domestic product. It Croatia 92.4 91.8 91.9 76.7 79.2 83.7 takes values between 0 and Iceland 82.7 80.0 91.6 97.1 102.6 110.1 +∞. Serbia 81.3 85.2 88.7 76.4 86.3 87.3 Source: World Bank national accounts data (World Development Slovenia 133.6 140.8 137.5 115.3 130.3 143.5 Indicators Online).57 World 56.5 57.4 59.7 51.2 56.1 59.1 Note: The trade - to - GDP ratio refers to the sum of the imports Trade share (%) in GDP. and exports and could therefore 55 exceedMinistry 100 of per Sustainable cent. Development and Tourism. (undated). 56 United States Department of State. 2013. Investment Climate Statement – Montenegro. Bureau of Economic and Business Affaires, April. Accessed 27 May 2013. Enabling Trade Index (ETI) 2008 2009 2010 2012 53 The Enabling Trade Index Montenegro - - 4.47 4.5 measures the factors, policies

and services facilitating the free Bulgaria 4.31 3.76 3.87 3.93 flow of goods over borders and Croatia 4.45 4.36 4.45 4.4 to destination. The index breaks the enablers into four Iceland - - 5.26 5.08 overall issue areas: (1) market Serbia - - 3.98 4 access, (2) border administration, (3) transport Slovenia 4.74 4.61 4.68 4.65 and communications On a scale from 1 to 7, a high score in the overall ETI indicates that infrastructure and (4) the a country is relatively successful at enabling the free flow of trade. business environment. Source: World Economic Forum.58 FDI Net Inflow (% of GDP) 2007 2008 2009 2010 2011 Foreign direct investment are Montenegro 25.47 21.25 36.88 18.50 12.41 the net inflows of investment to acquire a lasting management Bulgaria 32.95 19.87 8.02 3.91 4.84 interest (10 per cent or more of Croatia 8.45 8.70 5.51 1.43 2.02 voting stock) in an enterprise operating in an economy other Iceland 33.67 7.17 0.52 2.05 7.89 than that of the investor. It is Serbia 8.81 6.27 4.82 3.49 5.89 the sum of equity capital, reinvestment of earnings, other Slovenia 3.98 3.34 -0.71 1.35 1.65 long-term capital, and short- term capital as shown in the World 4.39 3.56 1.96 2.11 2.37 balance of payments. This FDI net inflow (in current US$ as % of GDP). series shows net inflows in the reporting economy and is divided by GDP. Source: International Monetary Fund, International Financial Statistics and Balance of Payments databases & World Development Indicators Online.59

Other Useful Indicators 57 World Bank Databank.

58 ExportWorld EconomicPropensity Forum Index Global (% Enabling of GDP) Trade report. 2006 2007 2008 2009 2010 2011

57 World Bank Databank. 58 World Economic Forum Global Enabling Trade report. 59 World Bank Databank.

+∞. Serbia 81.3 85.2 88.7 76.4 86.3 87.3 Source: World Bank national accounts data (World Development Slovenia 133.6 140.8 137.5 115.3 130.3 143.5 Indicators Online).57 World 56.5 57.4 59.7 51.2 56.1 59.1 Note: The trade-to-GDP ratio refers to the sum of the imports Trade share (%) in GDP. and exports and could therefore exceed 100 per cent.

Enabling Trade Index (ETI) 2008 2009 2010 2012 The Enabling Trade Index Montenegro - - 4.47 4.5 measures the factors, policies

and services facilitating the free Bulgaria 4.31 3.76 3.87 3.93 flow of goods over borders and Croatia 4.45 4.36 4.45 4.4 to destination. The index breaks the enablers into four Iceland - - 5.26 5.08 overall issue areas: (1) market Serbia - - 3.98 4 access, (2) border administration, (3) transport Slovenia 4.74 4.61 4.68 4.65 and communications On a scale from 1 to 7, a high score in the overall ETI indicates that infrastructure and (4) the a country is relatively successful at enabling the free flow of trade. business environment. Source: World Economic Forum.58 FDI Net Inflow (% of GDP) 2007 2008 2009 2010 2011 Foreign direct investment are Montenegro 25.47 21.25 36.88 18.50 12.41 the net inflows of investment to acquire a lasting management Bulgaria 32.95 19.87 8.02 3.91 4.84 interest (10 per cent or more of Croatia 8.45 8.70 5.51 1.43 2.02 voting stock) in an enterprise operating in an economy other Iceland 33.67 7.17 0.52 2.05 7.89 than that of the investor. It is Serbia 8.81 6.27 4.82 3.49 5.89 the sum of equity capital, reinvestment of earnings, other Slovenia 3.98 3.34 -0.71 1.35 1.65 long-term capital, and short- term capital as shown in the World 4.39 3.56 1.96 2.11 2.37 balance Theof payments.enabling environmentThis FDI net inflowfor sustainable (in current US$ enterprises as % of GDP). in Montenegro series shows net inflows in the reporting economy and is divided by GDP. Source:596061 International Monetary Fund, International Financial Statistics and Balance of Payments databases & World Development Indicators Online.59

Other Useful Indicators

Export Propensity Index (% of GDP) 2006 2007 2008 2009 2010 2011 Exports of goods and services Montenegro 48.45 43.71 38.83 32.08 34.71 40.18 represent the value of all goods Bulgaria 61.21 59.47 58.22 47.51 57.41 66.51 and other market services Bulgaria 61.21 59.47 58.22 47.51 57.41 66.51 provided to the rest of the 57provided World Bank to Databank.the rest of the Croatia 42.84 42.28 42.06 36.60 39.36 41.78 58world. They include the value of World merchan Economicdise, Forum Globalfreight, EnablingIceland Trade report.32.24 34.65 44.40 52.84 56.33 59.32 59of merchandise, freight, Iceland 32.24 34.65 44.40 52.84 56.33 59.32 insurance, World Bank Databank.transport, travel, insurance, transport, travel, Serbia 29.87 30.51 31.08 29.39 34.89 36.08 royalties, license fees, and other services, such as Slovenia 66.54 5469.56 67.14 58.39 65.42 72.30 communication, construction, World 28.15 28.69 29.57 25.64 28.03 29.34 financial, information, business, World personal, and government personal, and government It ranges from 0 (with no exports) to 100 (with all domestic services. They exclude labour services. They exclude labour production exported). and property income (formerly called factor services) as well as transfer payments. Source: World Bank national accounts data and OECD national accounts data files (World 60 Development Indicators Online).60 Trading Across Borders Data Ease of doing business index ranks economies from 1 to 183, with first place being the best. The cost to export is the cost US$ per container. The number of import and export documents required to carry out an international trade transaction. The time to export and import is measured in days. 61 Source: International Finance Corporation.61

2007 2008 2009 2010 2011 2012

Montenegro Rank - - - - 37 42 Cost to export (US$ per container) $645 $775 $775 $775 $805 $855 Documents to export (number) 7 7 7 7 7 7 Documents to import (number) 7 7 7 7 7 7 Time to export (days) 14 14 14 14 14 14 Time to import (days) 14 14 14 14 14 14

Bulgaria Rank - - - - 95 93 Cost to export (US$ per container) $1329 $1626 $1551 $1551 $1551 $1551 Documents to export (number) 5 5 5 5 5 5 Documents to import 59 (number)World Bank Databank. 6 6 6 6 6 6 Time to export (days) 23 23 23 23 21 21 60 TimeIbid. to export (days) 23 23 23 23 21 21 Time to import (days) 18 18 18 18 17 17 61 TimeWorld to Bank import Doing (days) Business report. 18 18 18 18 17 17

60 60 Ibid. 61 61 World Bank Doing Business report.

Exports of goods and services Montenegro 48.45 43.71 38.83 32.08 34.71 40.18 represent the value of all goods

and other market services Bulgaria 61.21 59.47 58.22 47.51 57.41 66.51 provided to the rest of the Croatia 42.84 42.28 42.06 36.60 39.36 41.78 world. They include the value of merchandise, freight, Iceland 32.24 34.65 44.40 52.84 56.33 59.32 insurance, transport, travel, Serbia 29.87 30.51 31.08 29.39 34.89 36.08 royalties, license fees, and other services, such as Slovenia 66.54 69.56 67.14 58.39 65.42 72.30 communication, construction, 28.15 28.69 29.57 25.64 28.03 29.34 financial, information, business, World personal, and government It ranges from 0 (with no exports) to 100 (with all domestic services. They exclude labour production exported). and property income (formerly called factor services) as well as transfer payments. Source: World Bank national accounts data and OECD national accounts data files (World Development Indicators Online).60 Trading Across Borders Data Ease of doing business index ranks economies from 1 to 183, with first place being the best. The cost to export is the cost US$ per container. The number of import and export documents required to carry out an international trade transaction. The time to export and import is measured in days. Source: International Finance Corporation.61

2007 2008 2009 2010 2011 2012

Montenegro Rank - - - - 37 42 Cost to export (US$ per container) $645 $775 $775 $775 $805 $855 Documents to export (number) 7 7 7 7 7 7 Documents to import (number) The enabling environment7 for sustainable7 enterprises7 in7 Montenegro7 7 Time to export (days) 14 14 14 14 14 14 Time to import (days) 14 14 14 14 14 14

Bulgaria Rank - - - - 95 93 Cost to export (US$ per container) $1329 $1626 $1551 $1551 $1551 $1551 Documents to export (number) 5 5 5 5 5 5 Documents to import (number) 6 6 6 6 6 6 Time to export (days) 23 23 23 23 21 21 Time to import (days) 18 18 18 18 17 17

Croatia Rank - - - - 105 105 Cost to export (US$ per 60container) Ibid. $1200 $1200 $1281 $1281 $1300 $1300 61Documents World Bank to Doing export Business report. (number) 7 7 7 7 7 7 Documents to import 55 (number) 8 8 8 8 8 8 Time to export (days) 26 22 20 20 20 20 Time to import (days) 18 16 16 16 16 16

Iceland Rank - - - - 13 14 Cost to export (US$ per container) $1269 $1109 $1532 $1532 $1532 $1465 Documents to export (number) 5 5 5 5 5 5 Documents to import (number) 5 5 5 5 5 5 Time to export (days) 15 15 19 19 19 19 Time to import (days) 14 14 14 14 14 14

Serbia Rank - - - - 92 94 Cost to export (US$ per container) $1240 $1398 $1398 $1398 $1433 $1455 Documents to export (number) 7 7 7 7 7 7 Documents to import (number) 7 7 7 7 7 7 Time to export (days) 12 12 12 12 12 12 Time to import (days) 14 14 14 14 14 14

Slovenia Rank - - - - 54 57 Cost to export (US$ per container) $971 $1075 $1075 $710 $710 $745 Documents to export (number) 6 6 6 6 6 6 Documents to import (number) 8 8 8 8 8 8 Time to export (days) 20 20 20 19 16 16 Time to import (days) 21 21 21 17 15 14

53 3.3. Enabling legal and regulatory environment

The enabling environment for sustainable enterprises in Montenegro

3.3. Enabling legal and regulatory environment

Well-designed and clear regulations, including those that uphold labour and environmental standards, are good for the promotion of start-ups and enterprise development. They facilitate formalization and boost systemic competitiveness. Montenegro has made progress in this area, particularly in regards to regulatory reform and company registration to improve the business climate in the country. Bankruptcy laws are now inMontenegro line with international has made progress standards in this and area, Montenegro particularly inoutperforms regards to regulatory all regional reform neighbours and company registration to improve the business climate in the country. Bankruptcy62 in the areas of timelaws needed are now to in clear line withbankruptcy, international the costs standards incurred and Montenegroand the recovery outperforms rate. allCurrently, the authorities regional have focused neighbours their in attention the areas of on time gaps needed identified to clear bankruptcy,in business the costssurveys, incurred specifically the time required toand obtain the recovery construction rate.62 permitsCurrently, and the complete authorities business have focused registration their attention processes, on gaps as well as the need to streamlineidentified investment in business procedures. surveys, specificall63 In addition,y the time a complicated required to regulatory obtain construction framework and permits and complete business registration processes, as well as the need to streamline costly administrative procedures have63 been identified by the government as key barriers to increased entrepreneurial investmentactivity in theprocedures. country.64 In addition, a complicated regulatory framework and costly administrative procedures have been identified by the government as key barriers to increased entrepreneurial activity in the country.64

The “RegulatoryThe Quality “Regulatory Index” Quality measures Index the” measures ability theof aability government of a government to provide to providesound policies and regulations soundfor the po promotionlicies and regulations of the private for the sector promotion on a ofscale the fromprivate ‑ 2.5sector to 2.5on awith scale higher from values indicating better-2.5 performance. to 2.5 with Montenegro’s higher values performance indicating in better this regard performance has been. Montenegro's poor and below 0, though the countryperformance has experienced in this regard a consistent has been improvement poor and below since 0,2007, though shifting the coun fromtry ‑ 0.16 has in that experienced a consistent improvement since 2007, shifting from -0.16 in that year to year to ‑0.06 in 2011. Of the countries compared, this is the lowest score for 2011, with Serbia registering -0.06 in 2011. Of the countries compared, this is the lowest score for 2011, with Serbia the second lowestregistering score at the0.01 second in that lowest year, and score Iceland at 0.01 achieving in that year, the andhighest Iceland score achieving at 1.01. the highest score at 1.01.

GraphGraph 26: Regulatory 26: Regulatory Quality Quality Index Index

Source: World Bank, Governance Matters database. Source: World Bank, Governance Matters database.

In spite of relatively poor performance in the case of regulatory quality in Montenegro, there has been62 OECD. notable 2012. progress in the creation of a more enabling regulatory and legal business climate in 63 IMF. 2012. 64 Government of Montenegro. 2011. Strategy for Development of Small and Medium Sized Enterprises 62 2011OECD.-15 2012.. Montenegro Directorate for Development of Small and Medium Sized Enterprises (Podgorica), January. 63 IMF. 2012. 64 Government of Montenegro. 2011. Strategy for Development of Small57 and Medium Sized Enterprises 2011-15. Montenegro Directorate for Development of Small and Medium Sized Enterprises (Podgorica), January.

54 In spite of relatively poor performance in the case of regulatory quality in Montenegro, there has been notable progress in the creation of a more enabling regulatoryThe enabling and legal environment business climate for insustainable the country. enterprises The World Bank in Montenegro Doing Business survey indicator, “Ease of Doing Business Index”, ranks economies from 1 to 185, where a high ranking reflects a regulatory environment that is conducive for business operations. The data shows that Montenegro has improved in this regard over time, the country.moving The fromWorld 84 Bank in 2008Doing to Business 51 in 2012, survey and indicator, of the other“Ease compared of Doing countries,Business Index”, it is ranks economiesoutperformed from 1 to 185, only where by Slovenia a high ranking at 35 reflects and Iceland a regulatory at 14 in environment 2012. The that“Starting is conducive a for businessBusiness operations. Index The” data records shows the that officially Montenegro required has improved procedures in this to regard start andover operatetime, moving an from 84 in 2008enterprise to 51 in and 2012, ranks and coun of thetries other accordingly. compared Montenegro’scountries, it is rankoutperformed in this regard only worsenedby Slovenia at 35 and Icelandfrom at 201114 in to2012. 2012, The moving “Starting from a Business 45 out ofIndex” 185 records countries, the toofficially 58 in the required latter year.procedures to start andBulgaria, operate an Croatia, enterprise Iceland, and ranks and countries Slovenia accordingly. also saw dipsMontenegro’s in their rank rank overin this the regard same worsened from 2011period, to 2012, while moving Serbia from moved 45 out up offrom 185 91 countries, to 42. to 58 in the latter year. Bulgaria, Croatia, Iceland, and Slovenia also saw dips in their rank over the same period, while Serbia moved up from 91 to 42. The situation presented by secondary data is largely confirmed by the Montenegro EESE survey’s responses from firms. Nearly all surveyed enterprises (90 Theper situation cent) agreepresented with bythe secondary statement: data “The is largely amount confirmed of overall bymanagement the Montenegro time firmsEESE survey’s responsesspend from d ealing firms. with Nearly the requirementsall surveyed of enterprises government regulation(90 per cent) is a major agree issue with forthe statement: “The amount offirms.” overall Only management a very small time numberfirms spend of respondents dealing with (4.15 the requirements per cent) disagree of government with the regulation is a majorstatement issue for. Concerning firms.” Only whether a very it issmall easy numberto obtain of businessrespondents licenses (4.15 and per permits cent) disagree, 40 with the statement.per cent Concerning of respondents whether disagreed it is easy that to it obtainis easy business, as opposed licenses to 1 and per permits,cent who 40 fully per cent of respondentsagreed disagreed that the that processes it is easy, are aseasy. opposed The majorityto 1 per cent(45.4 who per fullycent) agreedhowever, that somewhat the processes are easy. Theagreed majority that (45.4 it is easy. per cent) however, somewhat agreed that it is easy. Graph 27: Do firms have to deal with overlapping regulatory bodies? Graph 27: Do firms have to deal with overlapping regulatory bodies?

The overlapping of regulatory bodies (agencies, inspections) is a key problem Theundermining overlapping theof regulatory business environment bodies (agencies, in Montenegro. inspections) The is abovea key problem chart reflects undermining the the businessextent environment of this in problem, Montenegro. where The 30.6 above per centchart ofreflects respondents the extent from of the this EESE problem, survey where 30.6 per cent reportof respondents overlap to from be athe very EESE frequent survey phenomenon, report overlap and to 38.8be a pervery cent frequent stated phenomenon, that it is and 38.8 persometimes cent stated a thatproblem. it is sometimes Only 2 per a centproblem. of firms Only responded 2 per cent that of there firms are responded no regulatory that there are no regulatorybodies bodies with overlapping with overlapping jurisdictions. jurisdictions. Regarding Regarding the tax theburden tax burdenas a major as aconstraint, major constraint, for 43.4 forper 43.4cent of per EESE cent survey of EESE respondents survey respondentsthis is a key constraint this is a on key their constraint investment on theirplans. While only 5.1 per cent of interviewees stated that it is not a major constraint at all, 16.2 per cent reported it to be a complete constraint. Furthermore, all enterprises58 in the sample agreed with the statement that tax collection could be simplified. The functioning of the tax administration was perceived by respondents as somewhat more positive, and while 39.4 per cent of interviewees perceived the administration to pose a slight constraint on business, for 19.2 per cent, it does not pose any constraint. Only 11.1 per cent of those interviewed reported the administration to be a very significant barrier for their operations, as shown in the chart below.

55 investment plans. While only 5.1 per cent of interviewees stated that it is not a major constraint at all, 16.2 per cent reported it to be a complete constraint. Furthermore, all enterprises in the sample agreed with the statement that tax collection could be simplified. The functioning of the tax administration was perceived by respondents as somewhat more positive, and while 39.4 per cent of interviewees perceived the administration to pose a slight constraint on business, for 19.2 per cent, it does not pose any constraint. Only 11.1 per cent of those interviewed reported the administration to be a very significant barrier for their operations, as shown in the chart Thebelow. enabling environment for sustainable enterprises in Montenegro Graph 28: Constraint about size of tax burden/tax administration?

Graph 28: Constraint about size of tax burden/tax administration?

AccordingAccording to the EESE to the survey, EESE most survey, enterprises most enterprises(over 45 per (overcent), 45agree per (completely cent), agree or mostly) that the(completely costs of payroll or mostly) taxes are that a major the costs issue offor payrollfirms, compared taxes are to a only major 11.2 issue per forcent firms,that disagreed. The ratiocompared of answers to only on the11.2 reporting per cent requirements that disagreed. to comply The ratio with of the answers taxation on frameworks the reporting is similar. Namely,requirements 11.3 per cent to comply of respondents with the reportedtaxation thisframeworks not to be is an similar. issue, Namely,while 54.6 11.3 per per cent cent think this is a problem.of respondents Another reported problem thisreported not toto bebe ana constant issue, while constraint 54.6 perfor the cent business think this environment is a in Montenegroproblem. is the Another multilayer problem nature reportedof the tax tocollection be a constant process. constraOf the enterprisesint for the surveyed, business 41.8 per cent thinkenvironment that certain in taxesMontenegro and duties is arethe oftenmultilayer collected nature in a ofmultilayer the tax processcollection (at process.the central Of and local levels),the while enterprises 43.9 per surveyed, cent think 41.8it happens per cent only think sometimes. that certain A somewhat taxes andworrying duties factor are oftenhere is that 2 per centcollected of enterprises in a multilayer feel that theprocess tax collection (at the central is not aand multilayered local leve process.ls), while 43.9 per cent think it happens only sometimes. A somewhat worrying factor here is that 2 per cent of enterprises feel that the tax collection is not a multilayered process. GraphGraph 29: 29: Is taxIs tax collection collection a amultilayered multilayered process?process?

As a crucial As a crucialproblem problem when it whencomes it to comes public to administration public administration in Montenegro in Montenegro is its size and is itseffectives. Accordingsize andthe EESEeffectives survey. According results, 59 the per EESEcent of surveyrespondents results, perceive 59 per the cent public of respondentsadministration to be inefficientperceive and theineffective, public administration and only 4 per to cent be inefficientfeel the opposite. and inef fective, and only 4 per cent feel the opposite.

Graph 30: To what extent do you agree with the statement, “Public administration is efficient and effective”? 56

A quarter of the enterprises in the Montenegro EESE survey sample (24.5 per cent) disagree with the statement: “Overall the amount of time involved in complying with statutory worker entitlements is a major issue for firms”. Only 8.2 per cent is completely agreeable with the statement. Nonetheless, because 50 per cent of the survey respondents somewhat agree with the above statement, it is highly likely that there are problems in this regard.

Graph 29: Is tax collection a multilayered process?

As a crucial problem when it comes to public administration in Montenegro is its size andThe effectives enabling. According environment the EESEfor sustainable survey results, enterprises 59 per centin Montenegro of respondents perceive the public administration to be inefficient and ineffective, and only 4 per cent feel the opposite.

Graph 30:Graph To what 30 extent: To what do you extent agree do with you the agree statement, with “Publicthe statement, administration “Public is efficient and administration is efficienteffective”? and effective”?

A quarter A quarter of the enterprisesof the enterprises in the Montenegro in the Montenegro EESE survey EESE sample survey (24.5 sample per cent)(24.5 disagree per with the statement:cent) disagree “Overall with the the amount statement: of time “Overall involved the inamount complying of tim withe involved statutory in workercomplying entitlements is a majorwith issuestatutory for firms”.worker entitlementsOnly 8.2 per centis a ismajor completely issue for agreeable firms”. Onlywith the 8.2 statement. per cent Nonetheless,is becausecompletely 50 per cent agreeable of the survey with therespondents statement. somewhat Nonetheless, agree becausewith the 50above per statement, cent of theit is highly likelysurvey that there respondents are problems somewhat in this regard.agree with the above statement, it is highly likely that there are problems in this regard.

Graph 31: “Overall the amount of time involved in complying with statutory worker Graph 31: “Overall theentitlements amount ofis atime major involved issue for infirms” complying with statutory worker entitlements is a major issue for firms” 60

TheThe EESE EESE survey survey reveals reveals a large a large gap ingap enterprises’ in enterprises’ awareness awareness on the on tax the deductions tax availabledeductions for investment available in equipment for investment and facilities. in equipment The portion and of facilities. respondents The who portion are not of aware of therespondents possibility of who using are tax not deductions aware ofwhen the investing possibility in equipment of using and tax facilities deductions was whenas high as 32.3 investingper cent. On in equipmentthe other hand, and thefacilities rest of was the enterprisesas high as in32.3 the per sample cent. had On athe negative other hand,opinion in this regard,the rest where of the 28.1 enterprises per cent infeel the that sample enterprises had a arenegative not allowed opinion to inuse this tax regard,deduction where in these 28.1 per cent feel that enterprises are not allowed to use tax deduction in these cases. Almost half of the enterprises in the sample (46.7 per cent) stated there are no tax rebates available to small enterprises 57 which are particularly prone to losses. Nonetheless, a bit over 10 per cent of respondents were more positive about this, where 3.3 per cent were completely positive, and 7.6 per cent were partially positive. The number of interviewees who responded that they did not know is notable at 39.1 per cent. This may further be a reflection of enterprises’ unawareness of the possibilities available in this matter.

E-government has been a burning topic in Montenegro for years now. Along with the portal www.euprava.me, many other activities are being taken up in order to strengthen the IT network. The purpose of this is to ensure that companies can complete the process of establishing a business, along with other administrative requirements, electronically via the Internet. Still, these systems have not yet achieved broad usage. The EESE survey results show that 23.2 per cent of respondents think there are not electronic systems for the submission of reports and payments, and only 5 per cent are aware of this possibility.

The enabling environment for sustainable enterprises in Montenegro

cases. Almost half of the enterprises in the sample (46.7 per cent) stated there are no tax rebates available to small enterprises which are particularly prone to losses. Nonetheless, a bit over 10 per cent of respondents were more positive about this, where 3.3 per cent were completely positive, and 7.6 per cent were partially positive.

The number of interviewees who responded that they did not know is notable at 39.1 per cent. This may further be a reflection of enterprises’ unawareness of the possibilities available in this matter.

The legal and regulatory environment in Montenegro is particularly challenging for SMEs, where the country suffers from policy gaps in innovation and SME support services. Policies and legislation to promote SMEs exist, but due to limited resources, efficient implementation is a challenge. At the same time, SMEs make up 99.6 per cent of registered businesses, of which 88.9 per cent are microenterprises (less than 10 employees), and 61.6 per cent of labour is employed in SMEs.65 The Montenegro Strategy for Development of Small and Medium Enterprises for 2011- 15 states that processes have been initiated in recent years by the government to simplify the administrative procedures for businesses and to establish analysis of how new regulations may affect SMEs in particular. The document also notes that it has been recognized that the business registration process needs to be simplified, that all necessary permits for starting a business should be issued at a single location, and that there is a need for institutional coordination in the process of creating and implementing a policy to enhance SME competitiveness.66

In general, the functionality and development of institutions in Montenegro is unsatisfactory, implying the need to implement a series of structural and institutional reforms to improve the enabling legal and regulatory environment for businesses and thus, to provoke increased competitiveness and economic productivity. Among other changes, state regulation should be made flexible to ensure that bureaucratic obstacles for business and investments are removed, comprehensive reform of public management and labour legislation is carried out, the tax burden is removed from the economy, public expenditure and all other forms of indebtedness are decreased, and the negative impact of the economic crisis is neutralized.67

65 OECD. 2012. 66 Government of Montenegro. 2011. 67 Radovic, M. et al. 2013. Economic Institutions and Competitiveness of Economy with Emphasis on Montenegro. Montenegrin Journal of Economics, vol. 9 no. 1.

58 employees), and 61.6 per cent of labour is employed in SMEs.65 The Montenegro Strategy for Development of Small and Medium Enterprises for 2011-15 states that processes have been initiated in recent years by the government to simplify the administrative procedures for businesses and to establish analysis of how new regulations may affect SMEs in particular. The document also notes that it has been recognized that the business registration process needs to be simplified, that all necessary permits for starting a business should be issued at a single location, and that there is a need for institutional coordination in the process of creating and implementing a policy to enhance SME competitiveness.66

In general, the functionality and development of institutions in Montenegro is unsatisfactory, implying the need to implement a series of structural and institutional reforms to improve the enabling legal and regulatory environment for businesses and thus, to provoke increased competitiveness and economic productivity. Among other changes, state regulation should be made flexible to ensure that bureaucratic obstacles for business and investments are removed, comprehensive reform of public management and labour legislation is carried out, the tax burden is removed from the economy, public expenditure and all other forms of indebtedness are decreased, and Thethe enabling negative environmentimpact of the economic for sustainable crisis is neutralized. enterprises67 in Montenegro

Key Indicators

Regulatory Quality Index 2005 2007 2009 2010 2011 The ability of the government to Montenegro -0.13 -0.16 -0.04 -0.07 -0.06 provide sound policies and

regulations that enable and Bulgaria 0.64 0.62 0.64 0.62 0.56 promote private sector Croatia 0.49 0.45 0.55 0.55 0.56 development. Estimate of governance measured on a Iceland 1.61 1.52 1.01 0.89 1.01 scale from approximately -2.5 Serbia -0.55 -0.34 -0.14 -0.04 0.01 to 2.5. Higher values correspond to better Slovenia 0.83 0.8 0.87 0.7 0.63 governance. Estimate of governance measured on a scale from approximately Source: World Bank, Governance -2.5 to 2.5. Higher values correspond to better governance. Matters database.68

Ease of Doing Business Rank 2008 2009 2010 2011 2012 (2009 (2010 (2011 (2012 (2013 report) report) report) report) report) 686970Ease of Doing Business Index Montenegro 84 77 65 57 51 ranks economies from 1 to 185, Bulgaria 44 42 51 64 66 with first place being the best. A Croatia 107 110 89 80 84 high ranking means that the regulatory environment is Iceland 11 11 14 13 14 conducive to business Serbia 91 90 90 95 86 65operation. OECD. 2012. This index averages 66the Government country's of Montenegro. percentile 2011. Slovenia 64 58 43 35 35 67rankings Radovic, on M. 10 ettopics, al. 2013. made Economic up Institutions and Competitiveness of Economy with Emphasis on The index ranks economies from 1 to 185, with first place being the Montenegro.of a variety Montenegrinof indicators, Journal giving of Economics, vol. 9 no. 1. best. 68equal World weight Bank toDatabank each topic.. Source: World Bank, Doing 69 Business Project. 62

Other Useful Indicators

Starting a Business Rank 2011 2012 (2012 report) (2013 report) Starting a Business Index Montenegro 45 58 records all procedures that are

officially required for an Bulgaria 48 57 entrepreneur to start up and Croatia 72 80 formally operate an industrial or commercial business. These Iceland 37 45 include obtaining all necessary Serbia 91 42 licenses and permits and completing any required Slovenia 28 30 notifications, verifications or inscriptions for the company The index ranks economies from 1 to 185, with first place being the

and employees with relevant best. authorities. Source: World Bank, Doing Business project.70

68 3.4.World RuleBank Databank. of law and secure property rights 69 World Bank Databank. A formal and effective legal system which guarantees that contracts are honoured 70 World Bank Doingand Business upheld, Project the rule of law is respected and property rights are secure, is a key condition for attracting investment, as well as for nurturing trust and fairness in society. Rule of law and secure property rights are the two main areas that have been prioritized in Montenegro in order to 59accede to the EU.71

69 World Bank Doing Business Project. 70 Ibid. 71 Ministry of Sustainable Development and Tourism. (undated).

The enabling environment for sustainable enterprises in Montenegro

3.4. Rule of law and secure property rights

A formal and effective legal system which guarantees that contracts are honoured and upheld, the rule of law is respected and property rights are secure, is a key condition for attracting investment, as well as for nurturing trust and fairness in society. Rule of law and secure property rights are the two main areas that have been prioritized in Montenegro in order to accede to the EU.71

The Montenegrin judicial system is a three-instance court system with fifteen basic courts, two high courts, and Appellate Court, and a Supreme Court, as well as two Commercial Courts and an Administrative Court. The Constitutional Court is made up of 7 elected judges and decides on the conformity of laws with the Constitution and ratified international agreements. It can also make decisions on whether or not the President has violated the Constitution. The Judicial Council administers the judiciary, and consists of a President who is also the President of the Supreme Court, and nine members, including the Minister of Justice. The Council selects, appoints, promotes, dismisses, and disciplines judges. A major concern for the legal system in Montenegro is to ensure the independence of the judiciary, and determine where the career system and recruitment processes must be reformed and strengthened. Rules and a code of conduct exist concerning the impartiality of judges, but the judiciary insufficiently monitors rules regarding corruption and conflict of interest. Judges and prosecutors also benefit from immunity from prosecution.72

In 2007, Montenegro signed the Stabilisation and Association Agreement (SAA) with the EU which entered into force in 2010. The SAA states that the consolidation of rule of law, law enforcement and the administration of justice should be emphasized in the parties’ cooperation on justice, freedom and security. In particular, strengthening the judiciary and improving its efficiency is a central focus. Because corruption is one of the greatest challenges for Montenegro, and the justice system is the main tool used to combat corruption, it is essential that the judiciary functions properly. In addition, the Government of Montenegro passed an Anti-Corruption Strategy for 2010-14, and an Action Plan for the period 2010-12 which was revised and as such adopted in July 2011. According to the Report on the Implementation of Renewed Action Plan for Fight against Corruption Measures73, in the period from July 31st to December 31st 2012 there were 161 measures implemented (43.28 per cent). 109 measures (29.30 per cent) are only partially implemented while 102 measures (27.42 per cent) are not implemented at all. Having adopted the Action Plan for 2013-2014, Montenegro commenced the second implementation phase of the Strategy.

According to secondary data, the rule of law in Montenegro has improved over time. The “Rule of Law Index” measures the extent to which agents have confidence in and abide by the rules of society on a scale from -2.5 to 2.5 with higher values indicating better performance. This includes the quality of contract enforcement and property rights, the police and the courts, as well as the likelihood of crime and violence. Over the period 2007-11, Montenegro records consistently improving levels, moving from -0.2 to 0.03. Over this period, Serbia and Bulgaria performed worse than Montenegro, while Croatia, Iceland and Slovenia consistently recorded the highest levels of rule of law of the group.

A critical concern regarding the rule of law in Montenegro is the need to strengthen citizen’s trust in public institutions, particularly in regards to the judicial system. As Montenegro works to improve its legal

71 Ministry of Sustainable Development and Tourism. (undated). 72 Berenschot. 2013. Thematic Evaluation of Rule of Law, Judicial Reform and Fight against Corruption and Organised Crime in the Western Balkans – Lot 3. European Union; Bereschot, February. Accessed 30 May 2013. 73 National Commission Report on the Implementation of Strategy for Fight against Corruption and Organised Crime – March 2013, accessed September 5th 2013

60 The enabling environment for sustainable enterprises in Montenegro

system to meet EU accession requirements, it is important that reforms are not rushed, especially with regard to constitutional amendments impacting the judiciary. Because amendments require a two-thirds majority, a rushed effort to pass these could easily lead to extreme political bargaining, which would then give room totwo political-thirds opportunismmajority, a rushed and nationalistic effort to pass posturing these could at the easily cost of lead real to reforms. extreme74 political bargaining, which would then give room to political opportunism and nationalistic posturing at the cost of real reforms.74

GraphGraph 32: Property 32: Property Rights Rights

Source: World Economic Forum, The Global Competitiveness Report. Source: World Economic Forum, The Global Competitiveness Report. Minimal progress has been made in recent years in regards to property rights in Montenegro. The process of restitution is not yet fully ensured in the country and the work of relevant commissions tends to move slowly. However, secondary data shows Minimalthat progress business has leaders been made in Montenegro in recent years are comparatively in regards to propertypositive aboutrights thein Montenegro. clarity of The process of restitutionproperty rightsis not yet and fully the ensured legal protection in the country they and provide. the work Of theof relevant countries commissions used for tends comparison, only Iceland performed more favourably in this regard over the period to move slowly.2010 -However,12. This secondary is in spite data of shows a slight that worsening business leaders in perceptions in Montenegro of protection are comparatively in positive aboutMontenegro the clarity overof property the same rights period. and the legal protection they provide. Of the countries used for

comparison, only Iceland performed more favourably in this regard over the period 2010-12. This is in spite of a slight worsening in perceptions of protection in Montenegro over the same period.

GraphGraph 33:33: Intellectual Property Property Protection Protection

74 Freedom House. 2012a.

Source: World Economic Forum, The Global Competitiveness Report. Source: World Economic Forum, The Global Competitiveness Report. Strong intellectual property protection is of pivotal importance for Montenegro, where one of the prerequisites for the country’s accession into the EU is to bring protections into accordance with international law. It is also crucial for the development of SMEs in the country, where strong intellectual property protection 74 Freedom House. 2012a. allows for easier access to financial resources, contributes to an increase in the market value of enterprises, profitability, improved marketing, and differentiation of goods and services.75 Intellectual property protection in Montenegro is perceived to be relatively strong compared to other countries.61 In 2012, Montenegro outperformed Bulgaria, Croatia and Serbia in this regard, while Iceland and Slovenia reflected the strongest intellectual property protection. In addition, Montenegro was only marginally lower than the world mean of 3.8 in the same year. However, intellectual property protection in Montenegro is perceived to be weaker than property rights protection, where the country scored a level of 4.6 in property rights in 2012 and 3.6 in intellectual property protection, on a scale for 1 to 7 where the highest value indicates stronger protection and enforcement.

Findings from the EESE survey show that progress has been made in the area of intellectual property protection, but there is still much space for improvement. In the chart below, it is apparent that only 1 per cent of the interviewees agreed with the statement on intellectual property protection, though 46.9 per cent think these rights are somewhat well defined.

75 Government of Montenegro. 2011.

The enabling environment for sustainable enterprises in Montenegro

Strong intellectual property protection is of pivotal importance for Montenegro, where one of the prerequisites for the country’s accession into the EU is to bring protections into accordance with international law. It is also crucial for the development of SMEs in the country, where strong intellectual property protection allows for easier access to financial resources, contributes to an increase in the market value of enterprises, profitability, improved marketing, and differentiation of goods and services.75 Intellectual property protection in Montenegro is perceived to be relatively strong compared to other countries. In 2012, Montenegro outperformed Bulgaria, Croatia and Serbia in this regard, while Iceland and Slovenia reflected the strongest intellectual property protection. In addition, Montenegro was only marginally lower than the world mean of 3.8 in the same year. However, intellectual property protection in Montenegro is perceived to be weaker than property rights protection, where the country scored a level of 4.6 in property rights in 2012 and 3.6 in intellectual property protection, on a scale for 1 to 7 where the highest value indicates stronger protection and enforcement.

Graph 34: Intellectual property protection is well defined:

75 Government of Montenegro. 2011.

62 Graph 34: Intellectual property protection is well defined:

The enabling environment for sustainable enterprises in Montenegro

Key Indicators

Rule of Law Index 2007 2008 2009 2010 2011 The extent to which agents Montenegro -0.2 -0.08 0.07 0 0.03 have76 77confidence in and abide

by the rules of society, Bulgaria -0.14 -0.19 -0.05 -0.08 -0.09 including the quality of contract Croatia 0.04 0.07 0.14 0.18 0.18 enforcement and property 78 rights, the police and the Iceland 1.85 1.89 1.70 1.69 1.69 courts, as well as the likelihood Serbia -0.50 -0.53 -0.43 -0.38 -0.33 of crime and violence. Source: World Bank, Governance Slovenia 0.88 0.98 1.09 1.02 1.07 Matters database.76 Estimate of governance measured on a scale from approximately -2.5 to 2.5. Higher values correspond to better governance.

Other Useful Indicators

Property Rights 2008 2009 2010 2011 2012 (GC (GC (GC (GC (GC 08/09) 09/10) 10/11) 11/12) 12/13) The World Economic Forum Montenegro 4.7 4.7 4.8 4.7 4.6 (WEF) Survey asked the Bulgaria 3.9 3.4 3.2 3.3 3.5 business leaders to provide Croatia 4.2 4 4 3.9 3.8 their expert opinions on the Iceland 6.4 6 5.4 5.2 5.1 following: “Property rights in your country, including over Serbia 3.6 3.4 3.2 3.1 3.1 76financial assets, are 1=poorly defined World Bankand Worldnot protected Governance by Indicators.Slovenia 4.9 4.8 4.6 4.4 4.4 law, 7=clearly defined and well protected by law”. World 4.767 4.5 4.4 4.3 4.3 Source: World Economic Forum, 1=poorly defined and not protected by law, 7=clearly defined and The Global Competitiveness well protected by law. Report.77

Intellectual Property Protection 2008 2009 2010 2011 2012 (GC (GC (GC (GC (GC 08/09) 09/10) 10/11) 11/12) 12/13) The World Economic Forum Montenegro 2.9 3.3 3.6 3.7 3.6 (WEF) Survey asked the

business leaders to provide Bulgaria 2.9 2.6 2.6 2.9 3 their expert opinions on the Croatia 3.7 3.5 3.5 3.5 3.5 following: “Intellectual property protection and anti- Iceland 6 5.5 5.1 5.2 5.2 counterfeiting measures in your Serbia 2.8 2.8 2.6 2.7 2.8 country are 1=weak and not enforced, 7=strong and Slovenia 4.4 4.5 4.4 4.2 4.3 enforced”. World 3.8 3.8 3.7 3.7 3.8 Source: World Economic Forum, The Global Competitiveness 1=weak and not enforced, 7=strong and enforced. Report.78

76 World Economic Forum Global Competitiveness report. 773.5. Ibid. Fair competition 78 World Bank World Governance Indicators. As a precondition of development and growth of the private sector and sustainable enterprises, it is important to have competition rules, including those ensuring respect for labour and social63 standards. In addition, anti-competitive practices at the national level must be eliminated. Montenegro is in the process of EU accession, one condition of which is a certain level of competition in the Montenegrin economy.

77 World Economic Forum Global Competitiveness report. 78 Ibid. 79 BDK Attorneys at Law. 2012. Montenegro: Competition. BDK Newsletter, No. 6/2012. Accessed 24 May 2013.; European Commission. 2012.

The enabling environment for sustainable enterprises in Montenegro

3.5. Fair competition

As a precondition of development and growth of the private sector and sustainable enterprises, it is important to have competition rules, including those ensuring respect for labour and social standards. In addition, anti-competitive practices at the national level must be eliminated. Montenegro is in the process of EU accession, one condition of which is a certain level of competition in the Montenegrin economy.

In Montenegro, policies to promote fair competition exist, but suffer from limited resources that prevent effective implementation. Nonetheless, according to the World Economic Forum Global Competitiveness report, Montenegro’s improvement in regards to competition has been rapid and consistent. In 2012, the parliament adopted the Montenegrin Law on the Protection of Competition, intended to further align national legislation with the EU competition acquis. This law includes stronger market regulation and merger control, as well as establishing an operationally independent authority, now known as the Montenegrin Competition Agency.79 In addition, the privatization process, a key element of promoting fair competition in the country, is nearly complete, where only 15 per cent of previously state-owned firms remained under government control as of 2011. Most of the retained public companies are of strategic importance to the country and are in such industries as energy, tourism, and transport.80

Increased competition exposure is a concern in Montenegro, firstly due to the informal economy existence, and secondly because of the higher level of globalization and openness of the country where domestic companies may not be sufficiently prepared for this level of competition.81 Thus, efforts must be made by the government to foster transitions from informal to formal economy and, at the same time, determine strategies to prepare domestic business operators for international competition.

According to findings from the EESE survey in Montenegro, most enterprises have not reduced the prices of their main products in response to price reductions by both domestic and foreign competitors. Only 14.9 per cent of sampled enterprises significantly reduced the price of their main product at the domestic market, and just 12.1 per cent did so at the foreign market.

79 BDK Attorneys at Law. 2012. Montenegro: Competition. BDK Newsletter, No. 6/2012. Accessed 24 May 2013.; European Commission. 2012. 80 European Bank for Reconstruction and Development. 2010. Strategy for Montenegro 2010‑2013. Accessed 24 May 2013. 81 Rojec, M. et al. 2010.

64 privatization process, a key element of promoting fair competition in the country, is nearly complete, where only 15 per cent of previously state-owned firms remained under government control as of 2011. Most of the retained public companies are of strategic importance to the country and are in such industries as energy, tourism, and transport.80

The enablingAccording environment to findings fromfor thesustainable EESE survey enterprises in Montenegro, in most Montenegro enterprises have not reduced the prices of their main products in response to price reductions by both domestic and foreign competitors. Only 14.9 per cent of sampled enterprises significantly reduced the price of their main product at the domestic market, and just 12.1 per cent did so at the foreign market. Graph 35: Has your firm significantly reduced the price of its main product in response to price Graph 35: Has your firm significantly reduced the price of its main product in responsereductions to price by reductions domestic/foreign by domestic/foreign competitors? competitors?

According to World Economic Forum Executive Opinion surveys, competition in Montenegro is perceived to be less intense than in other countries used for comparison, According to World Economic Forum Executive Opinion surveys, competition in Montenegro is perceived to be less intense than in other countries used for comparison, with the exception of Serbia, where competitionwith80 Europeanis thethe least exceptionBank intensefor Reconstruction of of Serbia, the group. and whereDevelopment. The competition “Intensity 2010. Strategy of is Local thefor Mont least Competitionenegro intense 2010-2013 ofIndex” .the Accessed group. measures The the level "Intensity24 May 2013. of Local Competition Index" measures the level of competition in local of competition81 Rojec, in M. local et al. 2010.markets from 1 to 7, 1 being limited and 7 being intense in most industries. Only Serbia recordsmarkets a lower from intensity 1 to 7, level 1 being than Montenegro limited and over 7 being the period intense 2008-12. in most Moreover, industries. the Only competitive Serbia records a lower intensity level than Montenegro over the period 2008-12. environment in Montenegro has worsened since 2008, with69 marginal improvements between 2010 and 2012. Moreover, the competitive environment in Montenegro has worsened since 2008, with marginal improvements between 2010 and 2012.

Graph 36: GraphIntensity 36: of Intensity Local Competition of Local Competition Index Index

Source: World Economic Forum Executive Opinion Survey, The Global Competitiveness Report. Source: World Economic Forum Executive Opinion Survey, The Global Competitiveness Report. Further reflective of the level of market competition in the country, “New Business Density" indicates the number of newly registered, limited liability companies per 1,000 working aged people (15 to 64 years old) in a given year. The amount of newly registered businesses in Montenegro has rapidly declined since 2007, and in 2009, it was the lowest among all countries used for comparison. In 2011 however, Montenegro recorded the highest65 number of newly registered companies of the group at a rate of 10.44. This is a large leap from 2009, when it recorded the lowest rate at 0.92.

The enabling environment for sustainable enterprises in Montenegro

Further reflective of the level of market competition in the country, “New Business Density” indicates the number of newly registered, limited liability companies per 1,000 working aged people (15 to 64 years old) in a given year. The amount of newly registered businesses in Montenegro has rapidly declined since 2007, and in 2009, it was the lowest among all countries used for comparison. In 2011 however, Montenegro recorded the highest number of newly registered companies of the group at a rate of 10.44. This is a large leap from 2009, when it recorded the lowest rate at 0.92\

Graph 37: New BusinessGraph 37: Density New Business Density

Source: World Bank's Entrepreneurship Survey (World Bank World Development Indicators Online). Source: World Bank’s Entrepreneurship Survey (World Bank World Development Indicators Online). While anti-monopoly policies exist in Montenegro, insufficient resources tend to hinder implementation. Nonetheless, secondary data shows that Montenegro still While anti-monopoly policies exist in Montenegro, insufficient resources tend to hinder stands well in this regard relative to similar countries. The "Effectiveness of Anti- implementation. Nonetheless, secondary data shows that Montenegro still stands well in this regard monopoly Policy Index" reflects the level of efficiency of anti-monopoly policy in relative to similar countries. The “Effectiveness of Anti-monopoly Policy Index” reflects the level of promoting competition, on a scale from 1 to 7 with higher values corresponding to efficiency of anti-monopoly policy in promoting competition, on a scale from 1 to 7 with higher values better performance. In 2012, Montenegro recorded a value of 3.79, outperforming corresponding to better performance. In 2012, Montenegro recorded a value of 3.79, outperforming Serbia, Bulgaria, and Croatia. Serbia, Bulgaria, and Croatia. According the results from the Montenegro EESE survey, the largest portion of Accordingrespondents the resultsconfirms from the the existence Montenegro of EESE monopolies survey, andthe largest monopolistic portion of practices. respondents confirmsHowever, the existence opinions of monopolies are largely and monopolistic divided on practices. this issue. However, While opinions 39.6 perare largely cent ofdivided on this intervieweesissue. While 39.6 responded per cent positivelyof interviewees to the responded existence positively of monopolies to the existence and monopolistic of monopolies and monopolisticpractices, practices,a comparatively a comparatively large portion large portionof respondents of respondents (36.6 per(36.6 cent) per thinkcent) thinkthere thereare are no monopoliesno monopolies at all in theirat all sector.in their sector.

The enabling environment for sustainable enterprises in Montenegro

GraphGraphGraph 38 :38 Do38:: Do monDo mon monopoliesopoliesopolies or ormonopolistic monopolisticmonopolistic practices practices practices existexist exist inin youryourin your sector? sector? sector?

According to the EESE survey, most companies (45.9 per cent) consider anti-trust legislation to be inefficient Accordingin Accordingbreaking toup tothetrusts the EESE EESEand survey,other survey, monopolistic most most companies companies practices, (45.9 (45.9while per per only cent) cent) 9.8 consider per consider cent anti of anti -enterprises- think thistrusttrust legislation legislation legislation is to efficient. beto beinefficient inefficient The inmost breakingin breakingworrying up uptrustsoutcome trusts and and isother that other monopolisticnone monopolistic of the enterprisespractices, practices, surveyed reportedwhile thatwhile onlythis only legislation 9.8 9.8 per per cent is cententirely of of ente enteeffective.rprisesrprises think think this this legislation legislation is isefficient. efficient. The The most most worryingworrying outcome outcome is thatis that none none of theof the enterprises enterprises surveyed surveyed reported reported that that this this legislation legislation is entirelyis entirely effective. effective. The “Extent of Market Dominance Index” indicates whether corporate activity is dominated by only a few businessTheThe "Extent "Extent groups of Marketof or Market spreads Dominance Dominance among many Index" Index" firms, indicates indicates in a rangewhether whether of corporatevalues corporate from activity 1activity to 7 iswith is higher valuesdominated correspondingdominated by byonly to only more a few a fewfirms. business business The groups value groups foror spreadorMontenegro spreads amongs among in mthisa mny regarda nyfirms, firms, decreased in ain range a range between of of 2011 values from 1 to 7 with higher values corresponding to more firms. The value for and 2012,values moving from from 1 to 74.03 with in higherthe former values year corresponding to 3.84 in the to latter. more Nonetheless, firms. The valuebetween for 2009 and Montenegro in this regard decreased between 2011 and 2012, moving from 4.03 in the 2012, Montenegroit outperformed in this all otherregard countries decreased used between for comparison. 2011 and 2012, moving from 4.03 in the formerformer year year to 3.84to 3.84 in thein the latter. latter. Nonetheless, Nonetheless, between between 2009 2009 and and 2012, 2012, it outperformed it outperformed all allother other countries countries used used for for comparison comparison. . Graph 39: Extent of Market Dominance GraphGraph 39 :39 Extent: Extent of ofMarket Market Dominance Dominance

Source: World Economic Forum Executive Opinion Survey, The Global Competitiveness Report. Source: World Economic Forum Executive Opinion Survey, The Global Competitiveness Report.

72 72

67 The enabling environment for sustainable enterprises in Montenegro

It should not be surprising that Montenegro would perform well in the area of It shouldmarket not dominance be surprising as thethat country’sMontenegro business would performenvironment well in is the defined area of bymarket many dominance small as the country’sbusinesses, business environment where large is defined companies by aremany practicallysmall businesses, non-existent. where large This companies is also whyare practically non-existent.prioritization This is also of businesswhy prioritization developm ofent business and improvements development andin competition improvements in thein competition country in the country economiceconomic development development strategy strategy is focused is focused primarily primarily on small on and small medium and size medium companies. size 82 companies.82

PoliticalPolitical factors can, factors in addition can, in toaddition having to positive having influences, positive influences, also negatively also negatively impact competition. impact competition. According to the EESE survey findings, the great majority of According to the EESE survey findings, the great majority of enterprises clearly state that there are political enterprises clearly state that there are political factors negatively influencing factors negatively influencing commercial activity in the country. Of the firms interviewed, 10.3 per cent commercial activity in the country. Of the firms interviewed, 10.3 per cent completely completely agree with the above opinion, 26 per cent agree, 28.9 per cent only somewhat agree, and 11 per agree with the above opinion, 26 per cent agree, 28.9 per cent only somewhat agree, cent disagree.and 11 per cent disagree.

Graph 40: There are political factors at play that negatively influence Graph 40: There are political factorscommercial at play that activity: negatively influence commercial activity:

One of the main hindrances to competition in Montenegro is the substantial Onenumber of the of main busine hindrancessses operating to competition in the informal in Montenegro or grey economy, is the substantial as this greatly number affects of businesses operatingall inthe the regular informal activities or grey of economy, enterprises as thisoperating greatly inaffects the formal all the economy.regular activities The EESE of enterprises operatingsurvey in the shows formal thateconomy. 32.7 per The cent EESE of survey enterprises shows often that 32.7 compete per cent with of unregisteredenterprises often and compete with unregisteredinformal economy and informal enterprises, economy though enterprises, a larger though portion a larger equal portion to 34.7 equal per to cent 34.7 reported per cent reported never havingnever competition having competition problems with problems unregistered with unregisteredand informal economyand informal enterprises. economy In the trade sector, 57.1enterprises. per cent In of the respondents trade sector, noted 57.1 that per enterprises cent of respondentsin the informal noted economy that enterprises are often thein greatest competitors,the informal and 53.3 economyper cent of areenterprises often thewith greatest less than competitors, 5 employees andreported 53.3 the per same cent problem. of The non-existenceenterprises of informal with less sector than companies 5 employees is reported reported mostly the same by enterprisesproblem. The having non 5-existence to 19 employees, where 46.4of informalper cent of sector them did companies not report is having reported any problems mostly by with enterprises this kind of having competition. 5 to 19 employees, where 46.4 per cent of them did not report having any problems with this kind of competition.

82 Radovic, M. et al. 2013.

68 The enabling environment for sustainable enterprises in Montenegro

Graph 41: Does your firm compete against unregistered or informal firms? Graph 41: Does your firm compete against unregistered or informal firms?

While 30.6 per cent of EESE survey respondents reported that enterprises in the informal economy are While 30.6 per cent of EESE survey respondents reported that enterprises in the the major sourceinformal of economycompetition, are athe notable major portion source ofof 25.5 competition, per cent stated a notable that thisportion is only of 25.5sometimes/rarely per the case. Thecent most stated worrying that this fact ishowever, only sometimes/rarely is that only 13.3 per the cent case. of enterprises The most reported worrying that fact companies operating inhowever, the informal is that economy only 13.3 are per never cent theof enterprises major source reported of competition. that companies Interestingly, operating 53.3 in per cent of enterprisesthe employinginformal economy less than are 5 people never thinkthe major that companiessource of competition.operating in theInterestingly, informal sector 53.3 are often the major persource cent of of competition, enterprises employing while companies less than employing 5 people thinkover 99that employees companies think operating it is somewhat in a major sourcethe of informal competition sector and are 18.8 often per thecent majorof them source that do of not competition, consider it whilea source companies of competition at all. Althoughemploying respondents over 99feel employees the existence think of it the is somewhinformalat economy, a major source the greatest of competition number of and enterprises in the sample18.8 (86.3 per cent per cent)of them does that not do cooperate not consider with it firms a source operating of competition in the informal at all. Althougheconomy, and only 5.3 per centrespondents reported thatfeel sometimes the existence they ofdo thebusiness informal with economy,such companies. the greatest Another number frequent of problem recognisedenterprises by the respondents in the sample in the (86.3 EESE per survey cent) dois thees not issue co operateof bootleg with goods. firms Ofoperating the interviewees, in the 69.4 per cent reportedinformal this economy, to be often and or onlyoccasionally 5.3 per a cent problem, reported as opposed that sometimes to only 7.1 they per do cent business that felt it is not with such companies. Another frequent problem recognised by the respondents in the a problem. The worrying fact however, is that 27.2 per cent of enterprises noted that the issue of bootleg EESE survey is the issue of bootleg goods. Of the interviewees, 69.4 per cent reported goods has been increasing over the past couple years, and 26.1 per cent consider it to be at least moderately this to be often or occasionally a problem, as opposed to only 7.1 per cent that felt it is increasingnot from a problem.one year toThe another. worrying fact however, is that 27.2 per cent of enterprises noted that the issue of bootleg goods has been increasing over the past couple years, and 26.1 per cent consider it to be at least moderately increasing from one year to another.

Key Indicators

New Business Density 2006 2007 2008 2009 2010 2011 The number of newly registered Montenegro 4.19 5.99 3.89 0.92 - 10.44 limited liability companies per

1,000 working-age people Bulgaria 6.91 9.81 8.27 7.20 - - (those ages 15-64) in that year. Croatia 3.35 3.59 3.36 2.58 2.38 2.39

69 Graph 41: Does your firm compete against unregistered or informal firms?

While 30.6 per cent of EESE survey respondents reported that enterprises in the informal economy are the major source of competition, a notable portion of 25.5 per cent stated that this is only sometimes/rarely the case. The most worrying fact however, is that only 13.3 per cent of enterprises reported that companies operating in the informal economy are never the major source of competition. Interestingly, 53.3 per cent of enterprises employing less than 5 people think that companies operating in the informal sector are often the major source of competition, while companies employing over 99 employees think it is somewhat a major source of competition and 18.8 per cent of them that do not consider it a source of competition at all. Although respondents feel the existence of the informal economy, the greatest number of enterprises in the sample (86.3 per cent) does not cooperate with firms operating in the informal economy, and only 5.3 per cent reported that sometimes they do business with such companies. Another frequent problem recognised by the respondents in the EESE survey is the issue of bootleg goods. Of the interviewees, 69.4 per cent reported this to be often or occasionally a problem, as opposed to only 7.1 per cent that felt it is not a problem. The worrying fact however, is that 27.2 per cent of enterprises noted that the issue of bootleg goods has been increasing over the past couple years, and 26.1 Theper enabling cent consider environment it to be at least for sustainablemoderately incr enterpriseseasing from in one Montenegro year to another .

Key Indicators

New Business Density 2006 2007 2008 2009 2010 2011 The number of newly registered Montenegro 4.19 5.99 3.89 0.92 - 10.44 limited liability companies per

1,000 working-age people Bulgaria 6.91 9.81 8.27 7.20 - - (those ages 15-64) in that year. Croatia 3.35 3.59 3.36 2.58 2.38 2.39 Source: World Bank's Iceland 15.68 17.54 11.99 12.28 7.60 7.94 Entrepreneurship Survey (World Development Indicators Online)83 Serbia 2.1774 2.26 2.17 1.96 1.87 1.66 Slovenia 2.75 3.52 4.41 4.10 3.81 4.04

World 3.25 3.57 3.54 3.16 3.13 3.42 The number of newly registered limited liability companies per 1,000 working-age people.

Other Useful Indicators

Intensity of Local Competition Index 2008 2009 2010 2011 2012 (GC (GC (GC (GC (GC 08/09) 09/10) 10/11) 11/12) 12/13) Intensity of local competition Montenegro 4.6 4.5 4.0 4.0 4.1 index83 84is 85based on survey data drawn from the following Bulgaria 5.0 4.9 4.5 4.4 4.3 question: “Competition in the Croatia 5.0 4.6 4.2 4.1 4.8 local markets is (1=limited in most industries and price-cutting Iceland 5.1 5.1 4.9 4.7 4.6 is rare, 7=intense in most Serbia 3.7 4.0 3.8 3.6 3.6 industries as market leadership)”. Slovenia 5.1 5.1 5.2 5.1 5.2 Source: World Economic Forum World 4.9 4.9 4.8 4.8 4.8 Executive Opinion Survey, The Global Competitiveness Report.84 1=limited in most industries and price-cutting is rare, 7=intense in most industries as market leadership.

Effectiveness of Anti-monopoly Policies 2008 2009 2010 2011 2012 (GC (GC (GC (GC (GC 08/09) 09/10) 10/11) 11/12) 12/13) Effectiveness of anti-monopoly Montenegro 3.5 3.8 3.8 3.9 3.8 policy index is based on annual

survey data. The respondents Bulgaria 3.4 3.4 3.3 3.3 3.5 were asked to rate the Croatia 3.5 3.6 3.6 3.7 3.8 effectiveness of anti-monopoly policy in their country: Iceland 5.3 4.9 4.4 4.6 4.5 "Antimonopoly policy in your Serbia 2.6 2.7 2.8 2.8 2.8 country is (1=lax and not effective at promoting Slovenia 4.2 4.4 4.5 4.3 4.1 competition, 7=effective and 4.0 4.0 4.1 4.0 4.0 promotes competition)". World Source: World Economic Forum 1=lax and not effective at promoting competition, 7=effective and Executive Opinion Survey, The promotes competition. Global Competitiveness Report85

83 ExtentWorld Bankof Market Databank. Dominance 2008 2009 2010 2011 2012 (GC (GC (GC (GC (GC 84 World Economic Forum Gobal Competitiveness report. 08/09) 09/10) 10/11) 11/12) 12/13) 85 Ibid.

70 83 World Bank Databank. 84 World Economic Forum Gobal Competitiveness report. 85Ibid.

The enabling environment for sustainable enterprises in Montenegro

86 Extent of market dominance Montenegro 3.52 3.75 3.94 4.03 3.84 index is based on annual survey Bulgaria 3.8 3.7 3.4 3.1 3.3 data. The respondents were asked to rate the corporate Croatia 3.37 3.16 3 3.08 3.19 activity in their country: Iceland 3.6 3.5 3.2 3.4 3.5 “Corporate activity in your country is (1=dominated by a Serbia 2.61 2.69 2.5 2.49 2.62 few business groups, 7=spread

among many firms)”. Slovenia 4.3 4.1 3.9 3.7 3.7 Source: World Economic Forum World 3.9 3.9 3.8 3.8 3.8 Executive Opinion Survey, The 86 1=dominated by a few business groups, 7=spread among many Global Competitiveness Report. firms.

3.6. Informacione i komunikacione tehnologije

U eri ekonomije koja je zasnovana na znanju, upotreba informacionih i 3.6. Informationkomunikacionih and communication tehnologija (ICT) jetechnologies osnov razvoja održivih kompanija. Pristupačna širokopojasna tehnologija je takođe veoma važna i treba imati upotrebu. Svjetski In the eraekonomski of the knowledge forum (WEF) economy, je rangirao the use of Crnu information Goru na and 48. communication mjestu od 142 technologies zemlje po (ICTs) is fundamentalrazvoju ICT to the-a udevelopment 2012.godini, of na sustainable osnovu WEF enterprises. Indeksa spremnostiAffordable mrežebroadband87 technology is also very important and should be facilitated. The World Economic Forum ranked Montenegro 48 out of 142 countries forAgencija ICT development za elektronske in 2012, based komunikacije on the WEF i Network poštanske Readiness usluge Index. je nezavisna87 regualtorna agencija za ICT sector u Crnoj Gori i osnovana je zakonom o telekomunikacijama 2008.g. Ova Agencija je odgovorna za podsticanje konkurentnosti The Agencyi pristupa for Electronic mrežama, Communications izdavanje licenci and operaterima Postal Services i regulisanje is the independent saobraćaja regulatoryu ovom agency for thesektoru. ICT sector88 Ministarstvo in Montenegro za and informaciono was established društvo by the utelecommunications Crnoj Gori izradilo law in je 2008. i It is specificallyimplementiralo responsible Strategiju for promoting razvoja informacionog competition društvaand access (2009 -to13), networks, koja ima issuing za cilj licenses to operators, andunapređenje regulating tariffs stanja in uthis ICT sector.-u i 88 njihovu The Ministry interakciju of Information sa ekonomskim Society in i socijalnimMontenegro developed andokruženjem implemented89, thekoja Strategy je praćena for Information novom Strategijom and Society 2012 Development-2016. Trenutno (2009-13),, 100 % which ICT is intended to improvesektora the u Crnojstate of Gori ICTs je and privatizovano how they interact i 3 mobilna with the operatera economic pokrivaju and social 99% environment naseljene 89, followed by aoblasti new Strategy zemlje. 2012-2016. Currently, 100 per cent of the ICT sector in Montenegro is privatized and between 3 mobile operators 99 per cent of the country’s inhabited areas are covered. Prema Globalnom UN E-Governm According to UN Global E-Government 90 AccordingReports to UN Global Montenegro E-Government has recorded Reports positive90 Montenegro shift in the has development recorded positive of e-government shift in the development inof recente-government years. Montenegro in recent years. ranked Montenegro 57 among ranked191 countries 57 among in 2012. 191 countriesCompared in with 2012. Compared withcountries countries from from the theregion region it ranked it ranked better better than than Bosni Bosniaa and Herzegovinaand Herzegovina which which took 79took 79 place and placeMacedonia and Macedonia which ranked which 70, ranked while Serbia70, while (51), Serbia Croatia (51), (30) Croatia and Slovenia (30) and (25) Slovenia ranked significantly better. According to this report, Web Measure Index is at the level of 0.5098 which means that these services are only half-developed.

86Ibid. 87 Bilbao-Osorio, B; Dutta, S.; and Lanvin, B. (ed.). 2013. The Global Information Technology Report 2013. World Economic Forum; The Business School for the World (INSEAD). Accessed 24 May 2013. 88 United States Department of State. 2012b. Doing Business in Montenegro. Accessed 27 May 2013. 8689 MiIbid.nistry for Information Society. 2009. Strategy for Information Society Development in Montenegro 87from Bilbao-Osorio, 2009 to 2013 B;. Dutta,Government S.; and Lanvin, of Montenegro. B. (ed.). 2013. Accessed The Global 24 May Information 2013. Technology Report 2013. World Economic Forum; The Business School for the World (INSEAD). Accessed 24 May 2013. 90 http://unpan3.un.org/egovkb/about/Introduction.htm 88 United States Department of State. 2012b. Doing Business in Montenegro. Accessed 27 May 2013. 89 Ministry for Information Society. 2009. Strategy for Information Society Development in Montenegro from 2009 to 2013. Government of Montenegro. Accessed 24 May 2013. 76 90 http://unpan3.un.org/egovkb/about/Introduction.htm

71 The(25) enabling ranked significantly environment better. forAccording sustainable to this report,enterprises Web Measure in Montenegro Index is at the level of 0.5098 which means that these services are only half-developed.

ElectronicElectronic services (availableservices (available both for both natural for and natural legal and persons) legal persons) play an important play an role in important role in enabling business environment in Montenegro. Having started the enabling business environment in Montenegro. Having started the portal www.euprava.me Montenegro portal www.euprava.me Montenegro made a great step towards improving the made a greatsituation step towards in this improvingfield. Still, thisthe systemsituation has innot this yet field.reached Still, its full this potential system so has naturally not yet reached its full potentialthere so is naturallya need for there its upgrade. is a need Moreover, for its upgrade. current facts Moreover, point out current pretty factslow level point of out pretty low level of usage ofof this this service, service, both both by citizensby citizens and enterprisesand enterprises posing posing the need the for need its promotion for its promotion to both parties.to bothRecent parties. data Recentreveal datathat only reveal 11.7 that per only cent 11.7 of per citizens cent ofuse citizens Internet use services Internet of public institutions andservices administrative of public institutions bodies while and only administrative 41.4 per bodiescent of while enterprises only 41.4 used per thesecent ofservices in electronic processingenterprises of used administrative these services procedures in electronic91. The processing same survey of administrative reveals that procedures only 21.891 per. cent of enterprises usedThe online same survey services reveals for ordering that only products/services. 21.8 per cent of enterprises Also, in 2011used online59.6 per services cent of for companies used public administrationordering products/services. services via Internet. Also, in The 2011 same 59.6 survey per cent revealed of companies that only used 53,1 public per cent of all administration services via Internet. The same survey revealed that only 53,1 per cent the enterprises with Internet access has their own homepage/website.92 of all the enterprises with Internet access has their own homepage/website.92

Graph 42: NetworkGraph Readiness 42: Network Index Readiness Index

Source: World Economic Forum, The Global Information Technology Report.

Source: WorldThe Economic “Network Forum, Readin The Globaless Index”Information measures Technology the Report.extent to which a country leverages ICTs for enhanced competitiveness. On a scale from 1 to 7 with higher values corresponding to better performance, Montenegro reflects a slow but consistent The “Networkimprovement Readiness from Index” 2008 tomeasures 2012. In the 2011 extent-12, toMontenegro which a country outperformed leverages Serbia ICTs andfor enhanced competitiveness. On a scale from 1 to 7 with higher values corresponding to better performance, Montenegro reflects a slow but consistent improvement from 2008 to 2012. In 2011-12, Montenegro outperformed

Serbia and Bulgaria,91 and registered an equal level as Croatia. Slovenia and Iceland consistently maintain the highest scores over Statistical the period Office 2008-12. of MontenegroThe “ICT Development ‘The Use of Index” Information compares Communication developments in ICT Technologies in Montenegro’ Podgorica, 2012. in 154 countries. It combines several indicators, such as households with a computer, number of Internet users, literacy levels,92 Ibid etc., on a scale from 1 to 10 with higher values indicating better performance. Data for Montenegro is only available for 2008 and 2010, during which time the country improved in this regard. However, in 2010 Montenegro scored the lowest of the countries used for comparison. 77

91 Statistical Office of Montenegro ‘The Use of Information Communication Technologies in Montenegro’ Podgorica, 2012. 92 Ibid

72 Bulgaria, and registered an equal level as Croatia. Slovenia and Iceland consistently maintain the highest scores over the period 2008-12. The “ICT Development Index” compares developments in ICT in 154 countries. It combines several indicators, such as households with a computer, number of Internet users, literacy levels, etc., on a scale from 1 to 10 with higher values indicating better performance. Data for TheMontenegro enabling is environment only available for 2008sustainable and 2010, enterprises during which in Montenegrotime the country improved in this regard. However, in 2010 Montenegro scored the lowest of the countries used for comparison.

GraphGraph 43: Internet 43: Internet Users Users

Source: International Telecommunication Union. Source: International Telecommunication Union. Concerning ICT usage in Montenegro, there is a high degree of mobile telephony, but a major challenge for the country is the need to promote internet usage, especially Concerningin areas ICT whereusage init is Montenegro, not profitable there for is the a high private degree sector of to mobile make telephony, investments. but93 a major challenge for theConsidering country is“Internet the need Users” to promote per 100 internet people, usage, Montenegro especially has in c areasonsistently where improved it is not profitable for the privateover sector the toperiod make 2006 investments.-11. Though93 Consideringthe country reflected “Internet the Users” lowest per number 100 people,of users Montenegroof has consistentlythe improvedcountries comparedover the periodin 2011, 2006-11. with 40 Thoughusers per the100 country people, reflectedMontenegro the compares lowest number of users of the countrieswell to thecompared world meanin 2011, of justwith 32.8 40 users in the per same 100 year. people, Similarly, Montenegro when comparesit comes to well to the world mean of“Fixed just 32.8 Line in Subscriptions” the same year. per Similarly, 100 people, when Montenegro it comes toagain “Fixed performs Line Subscriptions”the poorest of per 100 people, Montenegrothe countries again performs used for comparison,the poorest of but the outperforms countries used the world for comparison, mean over butthe outperforms period the 2006-10. Unlike the rate of Internet users however, there has been a decrease in fixed world mean overline the subscriptions period 2006-10. in Montenegro Unlike the from rate 2007 of Internet to 2010. users Comparatively, however, there the numberhas been of a decrease in fixed line“Mobile subscriptions Cellular inSubscriptions” Montenegro per 100from people 2007 hasto 2010.increased Comparatively,substantially over the the number of “Mobile Cellular Subscriptions” per 100 people has increased substantially over the period 2006-10, moving from 102.7 in the former year to 185.3 in the latter. In this regard, Montenegro outperforms all countries used for comparison in 2010, and recorded more than double the rate of the world mean in that year. Concerning “Broadband93 Ministry for Subscribers” Information Society. per 100 2009. people, Montenegro improved its performance between 2007 and 2009. Again outperforming the world mean for the latter year, Montenegro nonetheless reflected the lowest rate of subscribers of any country used for comparison. 78

93 Ministry for Information Society. 2009.

73 period 2006-10, moving from 102.7 in the former year to 185.3 in the latter. In this regard, Montenegro outperforms all countries used for comparison in 2010, and recorded more than double the rate of the world mean in that year. Concerning “Broadband Subscribers” per 100 people, Montenegro improved its performance between 2007 and 2009. Again outperforming the world mean for the latter year, Montenegro nonetheless reflected the lowest rate of subscribers of any country used forThe comparison. enabling environment for sustainable enterprises in Montenegro

Graph 44: Mobile cellular subscriptions (per 100 people) Graph 44: Mobile Cellular Subscriptions (per 100 people)

Source: International Telecommunication Union Source: International Telecommunication Union According to most recent data, at the end of 2012 number of mobile phone users in Montenegro was 990.869 which correspond to the penetration rate of 159.81 per cent. AccordingOut of to that most number recent data, 31.9 at per the cent end belongof 2012 tonumber postpaid of mobile users phone while users 68.1 in per Montenegro cent are was 990.869 whichprepaid correspond users.94 On to thethe otherpenetration side, overall rate of number 159.81 ofper fixed cent. lines Out connectionsof that number at the31.9 end per cent belong to ofpostpaid December users 2012 while was 68.1 169.803. per cent95 are prepaid users.94 On the other side, overall number of fixed lines connections at the end of December 2012 was 169.803.95

94 Agency for Electronic Communications and Postal Services of Montenegro, Information on the state of Electronic communications market in December 2012 – mobile lines

95 Agency for Electronic Communications and Postal Services of Montenegro, Information on the state of Electronic communications market in December 2012 – fixed lines

94 Agency for Electronic Communications and Postal Services of Montenegro, Information on the state of Electronic communications market in December 2012 – mobile lines 95 Agency for Electronic Communications and Postal Services of Montenegro, Information on the state of Electronic communications market in December 2012 – fixed lines

74 The enabling environment for sustainable enterprises in Montenegro

Key Indicators

ICT Development Index (IDI) 2002 2007 2008 2010 2011 IDI compares developments in Montenegro - - 4.57 5.03 - information and communication

technologies (ICT) in 154 Bulgaria 2.74 4.37 4.87 5.19 5.2 countries. The Index combines 11 Croatia 3.19 4.68 5.53 6.21 5.75 indicators in a single measure that can be used as a Iceland 5.88 7.14 7.23 8.06 8.17 benchmarking tool globally, Serbia - - 4.23 5.11 5.4 regionally and at the country level. These are related to ICT Slovenia 4.47 5.88 6.26 6.75 6.7 access, use and skills, including Scale from 1 to 10, with lower scores reflecting lower households with a computer, the number of Internet users and development levels. literacy levels. Source:International Telecommunication Union.96

Other Useful Indicators

Network Readiness Index 2008- 2009- 2010- 2011- 09 10 11 12 The NRI measures the degree to Montenegro 3.8 4.1 4.09 4.22 which developed and developing

countries across the world Bulgaria 3.8 3.66 3.79 3.89 leverage96 97 information and Croatia 4.1 3.91 3.91 4.22 communication technologies (ICT) for enhanced Iceland 5.5 5.2 5.07 5.33 competitiveness. The Index Serbia 3.6 3.51 3.52 3.64 comprises three sub indexes that measure the environment for ICT, Slovenia 4.6 4.51 4.44 4.58 together with the main stakeholders’ readiness and Scale of 1 to 7, with higher scores reflecting a better readiness usage, with a total of nine pillars to utilise the opportunities created by ICT. and 71 variables. Source: World Economic Forum, The Global Information Technology Report.97 Internet Users (per 100 people) 2006 2007 2008 2009 2010 2011 The Internet is a linked global Montenegro 28.9 30.8 32.9 35.1 37.5 40.0 network of computers in which users at one computer get Bulgaria 27.1 33.6 39.7 45.0 46.2 51.0 information from other computers Croatia 38.0 41.4 50.6 56.3 60.3 70.7 in the network. Internet users are people with access to the Iceland 89.5 90.6 91.0 93.0 95.0 95.0 worldwide network. The total Serbia 27.2 33.2 35.6 38.1 40.9 42.2

96 International Telecommuniation Union. 97 World Economic Forum Global Information Technology report.

96 International Telecommuniation Union. 80 97 World Economic Forum Global Information Technology report.

75 The enabling environment for sustainable enterprises in Montenegro

number of Internet users is Slovenia 54.0 56.7 58.0 64.0 70.0 72.0 divided by the population and multiplied by 100. World 17.5 20.6 23.2 25.7 29.5 32.8 Source: International Number of users per 100 people. Telecommunication Union.98 Fixed Line Subscriptions (per 100 people) 2006 2007 2008 2009 2010 2011 Fixed lines are telephone Montenegro 26.8 28.1 27.7 27.2 26.8 - mainlines connecting a

customer's equipment to the Bulgaria 31.2 30.1 28.9 29.2 29.7 31.6 public switched telephone Croatia 41.3 41.7 42.5 42.2 42.4 40.1 network.

Source: International Iceland 62.7 61.1 64.2 60.3 60.5 58.9 98 99 100101 99 Telecommunication Union. Serbia 33.6 37.0 38.1 38.3 38.3 37.3 Slovenia 51.3 50.0 48.5 46.4 44.9 42.9 World 19.2 18.8 18.6 18.3 17.8 17.3 Number of subscribers per 100 people.

Mobile Cellular Subscriptions (per 100 people) 2006 2007 2008 2009 2010 2011 Mobile phone subscribers refer to Montenegro 102.7 112.0 184.1 205.3 185.3 - users of portable telephones subscribing to an automatic public Bulgaria 107.3 129.5 137.4 138.6 136.1 140.7 mobile telephone service using Croatia 99.1 113.8 103.1 106.0 111.9 116.4 cellular technology that provides access to the public switched Iceland 100.3 106.7 108.5 107.7 106.5 106.1 telephone network. Serbia 82.0 104.4 118.7 122.1 122.1 125.4 Source: International Telecommunication Union.100 Slovenia 90.7 95.8 101.8 103.8 104.6 106.6 World 41.8 50.6 59.9 68.2 77.1 85.6 Number of subscribers per 100 people.

Broadband Subscribers (per 100 people) 2006 2007 2008 2009 2010 2011 Broadband subscribers are the Montenegro - 2.6 5.4 8.4 8.3 - total number of broadband

subscribers with a digital Bulgaria 5.0 8.2 10.8 12.7 14.5 16.5 subscriber line, cable modem or Croatia 5.7 8.7 11.9 15.5 18.3 19.6 other high-speed technologies. Source: International Iceland 29.2 32.0 33.4 33.2 33.4 33.9 101 Telecommunication Union. Serbia 1.5 4.0 5.6 7.3 9.9 11.3 Slovenia 13.9 17.1 21.1 22.2 23.5 24.3 World 4.6 5.2 6.2 7.0 7.7 8.6 Number of subscribers per 100 people.

98 International Telecommunication Union. 99 Ibid. 98100 Ibid.International Telecommunication Union. 101 Ibid. 99 Ibid. 100 Ibid. 81 101 Ibid.

76 The enabling environment for sustainable enterprises in Montenegro

3.7. Access to financial services

The creation and expansion of sustainable enterprises require access to financial resources. Montenegro, Croatia and Serbia are the only Western Balkan countries to have integrated basic SME support services into their national strategies, including measurable targets.102 The Enterprise Development and Innovation Facility (WB EDIF), a joint initiative of several European financial institutions intended to promote micro and small enterprise development in the Western Balkans region, is the main driver of access to finance for micro- and small enterprises (MSEs.)103 However, access to finance remains limited in Montenegro and the level of SME development is inconsistent across regions.104

Access to finance is limited in Montenegro, but some progress has been made, particularly in the area of financial services as part of EU alignment efforts. Major successes include the Decision on Public Disclosure of Information and Data by Banks, which was adopted in 2012 to bring the Montenegro Central Bank Regulation in line with EU Directive 2006/48/EC. Other notable developments include the Decision on Large Exposures of Banks (2012) on calculation and treatment of large exposures, the Decision on Minimum Standards for Credit Risk Management in Banks (2012), and the Decision on the Establishment of the Advisory Committee (2011) as a standing advisory board of the Central Bank Council. The most prominent gap for access to finance in Montenegro is financial market infrastructure.105

Considering “Credit to Private Sector” as a percentage of GDP, Montenegro experienced fluctuating percentage changes over the period 2005-11. The country increased its rate from 18 per cent in 2005, to 87 per cent in 2008, followed by a post‑crisis decrease to 55.8 by 2011. Only Serbia registered a lower percentage than Montenegro in 2011 at 48.2 per cent. Iceland and Slovenia perform the strongest in this regard, with 97.3 and 91.4 per cent respectively in the same year.

Graph 45: Do many firms: Graph 45: Do many firms:

102 OECD. 2012. 103 European Investment Fund. (undated). Western Balkans Enterprise Development & Innovation Facility (WB EDIF) – What WeThe Do. Accessed chart above 3 May 2013.reflects findings from the EESE survey showing that the majority of Montenegrin enterprises interviewed (40.6 per cent) count on self- 104 Europeanfinancing. Bank for Within Reconstruction the exa andmined Development. sample 2011.of enterprises, Business Advisory only Servicesa small –Montenegro. percentage European of Union; EBRD, June. Accessed 28 May 2013. enterprises count on support of individual investors and investment funds. On the other 105 Europeanhand, Commission. in terms of 2012. the most important external sources of financing, the majority of respondents listed banks (53.7 per cent), while the next most common source was advance payments from clients (24.7 per cent). Credit unions have not been used very 77 much as external sources of enterprises’ financing in Montenegro. Therefore, access to finance in Montenegro represents a huge problem, and 96 per cent of respondents covered within the research agree that this is so. In terms of enterprise size, only 7.1 per cent of enterprises employing 5-19 employees do not agree with this statement and the percentage of enterprises employing more than 99 employees in this context is also low at only 6.3 per cent. The majority of enterprises employing less than 5 workers have the biggest problems in accessing external financing where 55 per cent completely agree with the previously mentioned statement.

The enabling environment for sustainable enterprises in Montenegro

The chart above reflects findings from the EESE survey showing that the majority of Montenegrin enterprises interviewed (40.6 per cent) count on self-financing. Within the examined sample of enterprises, only a small percentage of enterprises count on support of individual investors and investment funds. On the other hand, in terms of the most important external sources of financing, the majority of respondents listed banks (53.7 per cent), while the next most common source was advance payments from clients (24.7 per cent). Credit unions have not been used very much as external sources of enterprises’ financing in Montenegro. Therefore, access to finance in Montenegro represents a huge problem, and 96 per cent of respondents covered within the research agree that this is so. In terms of enterprise size, only 7.1 per cent of enterprises employing 5-19 employees do not agree with this statement and the percentage of enterprises employing more than 99 employees in this context is also low at only 6.3 per cent. The majority of enterprises employing less than 5 workers have the biggest problems in accessing external financing where 55 per cent completely agree with the previously mentioned statement.

GraphGraph 46: 46:Interest Interest Rate SpreadRate Spread

Source: International Monetary Fund, International Financial Statistics and data files. (World Development Indicators Online). Source: International Monetary Fund, International Financial Statistics and data files. (World Development Indicators Online). "Interest Rate Spread" measures the difference between the lending rate and deposit rate. In this area, Montenegro performs well, registering a lower interest rate “Interestspread thanRate Bulgaria,Spread” measures Croatia the and difference Serbia inbetween 2011, the the lending only countriesrate and deposit for which rate. Indata this area, was Montenegro available performs for that well, year. registering However, a lower in interest2009, the rate last spread year than for Bulgaria, which Croatia data was and Serbiaa vailablein 2011, thefor only Slovenia, countries this for country which data registered was available an interest for that rate year. notably However, lower in 2009, than the that last year forof which Montenegro data was inavailable the same for Slovenia, year. Moreover, this country theregistered rate has an interest consistently rate notably increased lower than in that ofMontenegro Montenegro fromin the 2007same year.to 2011. Moreover, the rate has consistently increased in Montenegro from 2007 to 2011. Graph 47: What is the influence of the value of interest rate?

Because interest rates in Montenegro are at a moderately high level, they are perceived as posing a large burden and obstacle for businesses and planning business operations and activities. According to the EESE survey results, 74.7 per cent of

Graph 46: Interest Rate Spread

Source: International Monetary Fund, International Financial Statistics and data files. (World Development Indicators Online).

"Interest Rate Spread" measures the difference between the lending rate and deposit rate. In this area, Montenegro performs well, registering a lower interest rate spread than Bulgaria, Croatia and Serbia in 2011, the only countries for which data was available for that year. However, in 2009, the last year for which data was available for Slovenia, this country registered an interest rate notably lower than that of Montenegro in the same year. Moreover, the rate has consistently increased in MontenegroThe from enabling 2007 environmentto 2011. for sustainable enterprises in Montenegro

Graph 47: What is the influence of the value of interest rate? Graph 47: What is the influence of the value of interest rate?

BecauseBecause interest interest rates ratesin Montenegro in Montenegro are at a moderately are at a moderatelyhigh level, they high are level,perceived they as areposing a largeperceived burden asand posing obstacle a forlarge businesses burden andand planning obstacle business for businesses operations and and planning activities. business According to theoperations EESE survey and results, activities. 74.7 per According cent of enterprises to the EESEbelieve the survey interest results, rate level 74.7 is eitherper cent important of or veryent important.erprises believeOnly 4 per the cent interest of the rateresponding level is enterprises either important in Montenegro or very responded important. that Onlythe interest 4 rate does not influence their business plans and business activities. per cent of the responding enterprises in Montenegro84 responded that the interest rate does not influence their business plans and business activities.

Graph 48: Access to finance represent big problem for companies in Montenegro? Graph 48: Access to finance represent big problem for companies in

Montenegro?

Access to finance in Montenegro represents a huge problem, where 96 per cent of 79 respondents covered in the EESE survey agree with this statement. In terms of size, only 7.1 per cent of enterprises employing 5-19 employees do not agree with this statement and the percentage of enterprises employing more than 99 employees who agree is only 6.3 per cent. Furthermore, the enterprises employing less than 5 workers appear to have the greatest problems in accessing external financing, where 55 per cent of those enterprises completely agree with the previously mentioned statement.

Regarding the question of affordability of financial products and services available that enterprises need at each stage of their evolution, the largest portion of EESE survey respondents (36.5 per cent) answered negatively regarding the context in Montenegro. Only 13.5 per cent responded positively in this regard, which implies a pretty unfavourable situation in the country.

The enabling environment for sustainable enterprises in Montenegro

Access to finance in Montenegro represents a huge problem, where 96 per cent of respondents covered in the EESE survey agree with this statement. In terms of size, only 7.1 per cent of enterprises employing 5-19 employees do not agree with this statement and the percentage of enterprises employing more than 99 employees who agree is only 6.3 per cent. Furthermore, the enterprises employing less than 5 workers appear to have the greatest problems in accessing external financing, where 55 per cent of those enterprises completely agree with the previously mentioned statement.

Graph Graph49: Affordability 49: Affordability of financialof financial products products and services, services, by bysector sector

Needs of SME financial products do not conform to the needs of 28.6 per cent of the survey sample, and different types of enterprise financial products do not conform to 13.3 per cent of the sample’s needs. Only 2 per cent of companies in the sample think that financial products are tailored to ‘’Beside the government support and credits that offer more favourable the needs of companies conditions, businesses can not find possibilities and opportunities to access needed financing sources because of very demanding terms, limited of all sizes, while on amounts approved or purpose the means have to be used (usually as fixed the other hand 3.9 per assets)’’.Ivana, Focus group represents company from tourism sector. cent of respondents 80 think that they are fully adapted to the needs of SMEs.

Graph 49: Affordability of financial products and services, by sector

The enabling environment for sustainable enterprises in Montenegro Needs of SME financial products do not conform to the needs of 28.6 per cent of the survey sample, and different types of enterprise financial products do not conform to 13.3 per cent of the sample’s needs. Only 2 per cent of companies in the sample Needs of SME financial think that financial products do not conform to the products are tailored to needs of 28.6 per cent of the ‘’Beside the government support and credits that offer more favourable the needs of companies survey sample, and different types conditions, businesses can not find possibilities and opportunities to access needed financing sources because of very demanding terms, limited of all sizes, while on of enterprise financial products the other hand 3.9 per do not conform to 13.3 per cent amounts approved or purpose the means have to be used (usually as fixed cent of respondents of the sample’s needs. Only 2 per assets)’’.Ivana, Focus group represents company from tourism sector. think that they are fully cent of companies in the sample adapted to the needs of think that financial products are tailored to the needs of companies SMEs. of all sizes, while on the other hand 3.9 per cent of respondents think that they are fully adapted to the needs of SMEs. Graph 50: Are finacial products adapted to the needs of SMEs/ enterprices of Graph 50: Are finacial products adapteddifferent to the needssize? of SMEs/ enterprices of different size?

Regarding EESE survey respondent attitudes towards microfinance, one quarter do not think that micro-financeRegarding institutions EESE survey (MFIs) respondent play a useful attitudes intermediary towards role microfinanc in disseminatinge, one informationquarter aboutdo financialnot think services that micro among-finance the business institutions sector. (MFIs)However, play 41.8 a usefulper cent inte of rmediaryenterprises rolesomewhat in agreedisseminating that MFIs provide information this service. about Another financial quarter services of responding among SMEs the think business that there sector. is no sufficientHowever, support 41.8 per targeted cent of to enterprises SMEs, such somewhat as advisory agree thatservices MFIs andprovide programmes this service. to assist themin preparingAnother bankable quarter loan of proposals.responding Only SMEs 3.8 perthink cent that of SMEthere respondentsis no sufficient completely support agree targeted that this kind of support exists. There were no respondents estimating that access to short-term financing was to SMEs, such as advisory services and programmes to assist them in preparing completely effective. While 43.6 per cent think that it is somewhat effective, 28.2 per cent considers thisbankable access to notloan be proposals. effective at Only all. 3.8 per cent of SME respondents completely agree that this kind of support exists. There were no respondents estimating that access to short- term financing was completely effective. While 43.6 per cent think that it is somewhat effective,When analyzing 28.2 per perception cent considers of availability this access of using to not different be effective types of at collateral all. to access loans at better rates, 20.2 per cent of EESE survey respondents stated that they cannot use their positive credit “history”When in seeking analyzing more competitive perception termsof availability of lending, of though using 22.3different per cent types of SMEsof collateral have a moreto positiveacces opinions loans on at thisbetter issue. rates, Nevertheless, 20.2 per cent the factof EESEthat 29.8 survey per cent respondents of SMEs have stated no thatinformation they regardingcannot this use question their positive is concerning credit and“history” implies in that seeking smaller more enterprises competitive are not termswell informed of lending, on the though 22.3 per cent of SMEs have a more positive opinion on this issue. Nevertheless, the fact that 29.8 per cent of SMEs have no information regarding this question is concerning and implies that smaller81 enterprises are not well informed on the opportunities and possibilities in respect to access to financial services. There is a similar situation in terms of respondents’ opinion on availability of collateral share risk schemes for SMEs, where 44.9 per cent of enterprises do not know anything about this option, and only 19.4 per cent said that these schemes are available.

The enabling environment for sustainable enterprises in Montenegro

opportunities and possibilities in respect to access to financial services. There is a similar situation in terms of respondents’ opinion on availability of collateral share risk schemes for SMEs, where 44.9 per cent of enterprises do not know anything about this option, and only 19.4 per cent said that these schemes are available.

GraphGraph 51: 51: Is Is i informationnformation aboutabout financial financial services services well well disseminated disseminated to to SMEs/among the the business business sector? sector?

The majorityThe of majority enterprises of in enterprises the EESE insurvey the EESEstated that survey the policy stated and that regulatory the policy incentives and to encourageregulatory financial incentives institutions to toencourage lend to SMEsfinancial are institutionssomewhat tosufficient lend to SMEs(55.7 areper somewhatcent), but there is also a considerablesufficient (55.7percentage per cent), of respondents but there is (24.1 also pera considerable cent) who think percentage that these of respondentsincentives are not (24.1 per cent) who think that these incentives are not sufficient. Only 8.9 per cent sufficient. Only 8.9 per cent found these incentives to be mostly sufficient, and none of the responding found these incentives to be mostly sufficient, and none of the responding SMEs stated SMEs stated that these measures are completely sufficient. that these measures are completely sufficient.

One issue hindering better performance in this regard by Montenegro may be a One issue hindering better performance in this regard by Montenegro may be a low rate of credit low rate of credit applicants, rather than a low level of access to finance. According to applicants, rather than a low level of access to finance. According to an annual survey of SMEs in an annual survey of SMEs in Montenegro, only 32 per cent of companies reported Montenegro,applying only 32 for per credit cent in of 2009, companies and in reported 2010 this applying number for decreased credit in 2009, to 20 and per in cent. 2010 this number decreasedHowever, toin 20the perlatter cent. year, However, of those who in the did latter apply, year, 70 per of thosecent were who awarded did apply, financial 70 per cent were awardedsupport. financial Findings support. from Findings the same from 2010 the same survey 2010 reveal survey that reveal companies that companies have poor have poor cooperationcooperation with business with and business financial and service financial providers service and providers only 20 andper cent only of 20 respondents per cent ofreported 106 having communicatedrespondents reported with such having institutions. communicated with such institutions.106

106 Government of Montenegro. 2011.

82 106 Government of Montenegro. 2011.

The enabling environment for sustainable enterprises in Montenegro

GraphGraph 52: 52: Credit Credit Information Information Index Index

Source: World Bank, Doing Business project. Source: World Bank, Doing Business project. In spite of this, Montenegro performs relatively well in the area of credit information. The “Credit Information Index” measures the level of credit information In spiteavail ofa blethis, in Montenegro a country performs through relatively public or well private in the area registries of credit to information. facilitate lending The “Credit Informationdecisions. Index” Onmeasures a scale the from level 0 to of 6, credit higher information values indicate available better in performance. a country through In 2012, public or private registriesMontenegro to facilitate recorded lending a score decisions. of 5. This Onis higher a scale than from the 0 scoresto 6, higher recorded values for Bulgariaindicate better performance.and Slovenia,In 2012, Montenegroand is equal recordedto those ofa scoreCroatia, of 5.Iceland This isand higher Slovenia. than Itthe is scoresalso notably recorded for Bulgaria andhigher Slovenia, than the and world is equal mean to of those 3.3 for of theCroatia, same Icelandyear. and Slovenia. It is also notably higher than the world mean of 3.3 for the same year. At the same time, according to focus groups’ statements, as well as data provided by enterprises on the basis of their day-to-day activities, it can be concluded that there At theis samea certain time, number according of reasonsto focus forgroups’ insufficient statements, use asof wellfinances as data that provided are not byrelated enterprises to on the basis financialof their day-to-day institutions activities, in the countryit can be (banks,concluded microfinance that there is institutions, a certain number development of reasons for insufficientfund). use Asof financesa main reasonthat are respondents not related to indicate financial lack institutions of information in the oncountry available (banks, funds microfinance institutions,and development inadequate fund). and irrelevant As a main knowl reasonedge respondents about these indicate funds lack that of couldinformation be used on foravailable funds andfinancing inadequate of and innovation irrelevant activities. knowledge The about second these reasonfunds that is could unsatisfactory be used for level financing of of innovationawareness activities. andThe second lack of reason skills isof unsatisfactory their employees level of during awareness preparation and lack of of projectskills of their employeesproposals, during preparation as it implies of project high engagement proposals, as and it implies dedication high of engagement human resources and dedication and of human resourcesadequate and experience. adequate Nevertheless,experience. Nevertheless, this is an issue this that is anshould issue be that resolved should in be the resolved future in the future as itas can it canbe extremely be extremely important important within within the process the process of strengthening of strengthening and growth and of growth manufacturing of and productionmanufacturing activities andin Montenegro, production activitiesas well as inin Montenegro,the process of as connecting well as in science the process and businesses of through realizationconnecting of science common and initiatives. businesses through realization of common initiatives.

83 The enabling environment for sustainable enterprises in Montenegro

107108109 Key Indicators

Credit to Private Sector (% of GDP) 2005 2007 2008 2009 2010 2011 Domestic credit to private sector Montenegro 18.0 80.3 87.0 76.5 66.9 55.8 refers to financial resources

provided to the private sector, Bulgaria 41.0 62.8 71.7 75.5 74.1 72.1 such as through loans, Croatia 52.6 62.3 64.7 67.2 71.7 73.8 purchases of non-equity securities, and trade credits and Iceland 247.9 261.4 126.7 113.6 108.7 97.3 other accounts receivable, that Serbia 29.0 35.2 40.2 45.2 51.4 48.2 establish a claim for repayment. For some countries these claims Slovenia 56.3 78.8 85.3 92.9 94.4 91.4 include credit to public 131.9 134.7 129 137.4 133.6 128.8 enterprises. World Source: International Monetary Credit to private sector (% of GDP). Fund, International Financial Statistics and data files, and World Bank and OECD GDP estimates (World Development Indicators Online).107

Other Useful Indicators

Credit Information Index 2009 2010 2011 2012 Credit information index Montenegro 4 4 4 5 measures rules affecting the

scope, accessibility and quality Bulgaria 6 6 4 4 of credit information available Croatia 4 4 5 5 through public or private credit registries. The index ranges Iceland 5 5 5 5 from 0 to 6, with higher values Serbia 5 5 5 5 indicating the availability of more credit information, from Slovenia 4 4 4 4 either a public registry or a

private bureau, to facilitate World 3 3.1 3.2 3.3 lending decisions. 0=less information to 6=more information. Source: World Bank, Doing Business project.108 Interest Rate Spread 2006 2007 2008 2009 2010 2011 Interest rate spread (lending Montenegro 6.10 4.12 5.42 5.55 5.83 6.55 rate minus deposit rate) is the interest rate charged by banks Bulgaria 5.72 6.32 6.42 5.16 7.07 7.26 on loans to prime customers Croatia 8.21 6.99 7.25 8.35 8.62 7.98 minus the interest rate paid by commercial or similar banks for Serbia 11.50 7.05 8.81 6.72 5.97 7.41 demand, time or savings Slovenia 4.61 2.32 2.61 4.54 - - deposits. Source: International Monetary World 6.33 6.54 6.22 6.25 6.19 6.14 Fund, International Financial Interest rate spread (lending rate minus deposit rate, %). Statistics and data files. (World Development Indicators Online) 109 Note: Data for Iceland is not 107available. World Bank Databank. 108 Ibid.

90 3.8. Physical infrastructure

107 World Bank Databank. The development of sustainable enterprises critically depends on the quality and 108 Ibid. quantity of the physical infrastructure available, such as physical facilities and 109 Ibid. transportation systems. Access to water and energy also plays a pivotal role. In Montenegro, infrastructure priorities tend to be regionally specific. While water and electricity supply are priorities for the whole country, in the northern region, road infrastructure is also very important,84 while in the coastal region, it is sewage systems/wastewater treatment that is a priority.110 Based on secondary data, infrastructure in Montenegro is generally good and notable progress has been made in the area of transport. Financial constraints however, continue to limit infrastructural development.111

The “Quality of Overall Infrastructure Index” reveals whether a country's infrastructure is underdeveloped or extensive and efficient based on a range from 1 to 7 with higher values indicating better performance. Over the period from 2008-12, Montenegro consistently rose in the index, reaching 3.7 in the latter year. This is higher than the values recorded for Serbia and Bulgaria in the same year, and lower than those for Croatia, Slovenia and Iceland. The “Quality of Port Infrastructure Index” reflects the level of development of port facilities and inland waterways on a range from 1 to 7 with higher values indicating better development. For landlocked countries, this indicates how accessible port facilities are. Montenegro experienced a decline in this regard between 2008-12, and in the latter year, of the countries compared, only Serbia registered a lower score than Montenegro.

Transport is a key issue for infrastructure development, particularly on main pan- European road corridors. Improvement in road and rail networks, and strengthening of port and airport accessibility are also key government transport priorities.112 Montenegro has two international airports in Podgorica and Tivat.113 Paved roads as a percentage of total roads in Montenegro have increased from 64.4 per cent in 2006 to 69.1 per cent in 2010, the last year for which data is available. Montenegro outperforms Iceland and Serbia in this regard, as well as the world mean in 2010. However, Croatia and Bulgaria record higher rates above 90 per cent in 2010.

Transport is especially important to economic development because of its relationship to the priority sectors of tourism, agriculture and trade. However, certain

109 Ibid. 110 Government of Montenegro. 2007. 111 European Commission. 2012. 112 European Bank for Reconstruction and Development. 2010. 113 United States Department of State. 2012b.

The enabling environment for sustainable enterprises in Montenegro

3.8. Physical infrastructure

The development of sustainable enterprises critically depends on the quality and quantity of the physical infrastructure available, such as physical facilities and transportation systems. Access to water and energy also plays a pivotal role. In Montenegro, infrastructure priorities tend to be regionally specific. While water and electricity supply are priorities for the whole country, in the northern region, road infrastructure is also very important, while in the coastal region, it is sewage systems/wastewater treatment that is a priority.110 Based on secondary data, infrastructure in Montenegro is generally good and notable progress has been made in the area of transport. Financial constraints however, continue to limit infrastructural development.111

The “Quality of Overall Infrastructure Index” reveals whether a country’s infrastructure is underdeveloped or extensive and efficient based on a range from 1 to 7 with higher values indicating better performance. Over the period from 2008-12, Montenegro consistently rose in the index, reaching 3.7 in the latter year. This is higher than the values recorded for Serbia and Bulgaria in the same year, and lower than those for Croatia, Slovenia and Iceland. The “Quality of Port Infrastructure Index” reflects the level of development of port facilities and inland waterways on a range from 1 to 7 with higher values indicating better development. For landlocked countries, this indicates how accessible port facilities are. Montenegro experienced a decline in this regard between 2008-12, and in the latter year, of the countries compared, only Serbia registered a lower score than Montenegro.

Transport is a key issue for infrastructure development, particularly on main pan-European road corridors. Improvement in road and rail networks, and strengthening of port and airport accessibility are also key government transport priorities.112 Montenegro has two international airports in Podgorica and Tivat.113 Paved roads as a percentage of total roads in Montenegro have increased from 64.4 per cent in 2006 to 69.1 per cent in 2010, the last year for which data is available. Montenegro outperforms Iceland and Serbia in this regard, as well as the world mean in 2010. However, Croatia and Bulgaria record higher rates above 90 per cent in 2010.

Transport is especially important to economic development because of its relationship to the priority sectors of tourism, agriculture and trade. However, certain issues currently prevent transport infrastructure from seriously benefiting growth in the country. These include specific land configurations, organization problems in the transportation chain, financing and management, and insufficient or bad conditions of transportation infrastructure. Budgetary limitations over the past 15 years have led to deficiencies in the Montenegrin road system where nearly 60 per cent of state roads required urgent maintenance in 2007. Furthermore, damage from transportation accidents costs the country 2 per cent of GDP, making transport security a priority issue for the government.114 Awarding competitive public-private partnership contracts has been proposed as a strategy to increase private sector participation in Montenegro to stimulate priority transport infrastructure development projects.115 Transport Development Strategy of Montenegro objectives

110 Government of Montenegro. 2007. 111 European Commission. 2012. 112 European Bank for Reconstruction and Development. 2010. 113 United States Department of State. 2012b. 114 Government of Montenegro. 2007. 115 European Bank for Reconstruction and Development. 2010.

85 The enabling environment for sustainable enterprises in Montenegro

include: improving safety and security, connection to TEN-T network, improving of transport services, more efficient and less expensive transport and minimizing negative impacts of transport development and traffic infrastructure.116

Energy is also an infrastructural concern in view of the need to develop and execute the South-Eastern Europe Energy Community.117 “Electric Power Consumption” measures the production of power plants and combined heat and power plants less transmission, distribution and transformation losses, and own use by heat and power plants. In this regard, Montenegro registers a comparatively high level of consumption, where only Slovenia and Iceland recorded higher rates over the period 2005-10. However, since 2007, Montenegro has experienced a mild decline, moving from 6,605.5kWh per capita in that year, to 5,547.2kWh in 2010. In addition to these findings, it also been shown that 2.1 times more energy is consumed per unit of domestic product in Montenegro than in developed countries on average, and 3.3 times more than in the EU. This is in part due to the fact that the transmission and distribution systems reflect very high electricity losses, mainly caused by organizational weakness and obsolete or depreciated networks and equipment. In addition, the consumer structure is problematic, where KAP and Steel Mill in Niksic consume nearly half of the gross electricity consumption in the country. On the supply side, there is very high import dependency in meeting the country’s energy needs and the entire consumption of oil and oil derivatives is covered from imports, as well as one third of electricity consumption. This, combined with the low consumption efficiency, creates a high vulnerability to energy shortages. Montenegro has set in place legislative framework regulating energy efficiency: Energy Development Strategy by 2025, Energy Efficiency Strategy in Buildings, Law on Energy Efficiency, Law on Construction Materials (in the process of adoption), regulations on buildings characteristics, Minimum Requisites of energy efficiency in buildings, energy control in buildings and building certification. Montenegro has significant potential for energy generation from hydro power plants along with potential in usage of Solar energy but the biggest problem in implementation is lack of financial resources, especially favorable credit lines for companies and citizens.

Like other compared countries, Montenegro performs very well regarding the percentage of the population with access to improved water sources. The country maintains a level of 98 per cent and consistently outperformed the world mean over the period 2003-10.

116 Transport Development Strategy of Montenegro, 2010. 117 European Bank for Reconstruction and Development. 2010.

86 Like other compared countries, Montenegro performs very well regarding the Thepercentage enabling of environment the population for with sustainable access to enterprises improved water in Montenegro sources. The country maintains a level of 98 per cent and consistently outperformed the world mean over the period 2003-10.

Key Indicators

Electric Power Consumption (kWh per 2005 2007 2008 2009 2010 capita) 118 119 Electric power consumption Montenegro 6371.1 6605.5 6389.2 5042.5 5547.2 measures the production of

power plants and combined Bulgaria 4121.6 4455.8 4594.3 4400.6 4476.5 heat and power plants less Croatia 3475.9 3737.6 3878.4 3711.7 3813.5 transmission, distribution and transformation losses, Iceland 27988.0 36852.5 50067.1 51259.2 51439.9 and own use by heat and Serbia 3921.9 4159.1 4291.8 4224.4 4358.8 power plants. Source: International Energy Slovenia 6917.9 7137.8 6920.2 6103.4 6521.1 Agency, Energy Statistics and Balances of Non-OECD World 2660.2 2832.6 2860.7 2815.5 2974.8 Countries and Energy KWh per capita. Statistics of OECD Countries (World Development Indicators Online). * Taken from Index Mundi.118 Roads, paved (% of total roads) 2006 2007 2008 2009 2010 Paved roads are those Montenegro 64.4 66.5 66.5 - 69.1 surfaced with crushed

stone (macadam) and Bulgaria - - - - 98.6 hydrocarbon binder or Croatia - 89.1 86.9 90.5 90.7 bituminized agents, with concrete or with Iceland 35.9 36.6 37.3 38.4 39.9 cobblestones, as a Serbia - - 47.7 63.2 63.3 percentage of all the country’ roads, measured Slovenia 100 100 100 100 - in length. World - - - 64.9 55.2 Source: International Road Federation, World Road % of total roads. Statistics (World Development Indicators Online).119

Other Useful Indicators

percentage of the population Croatia 99 99 99 99 withImproved reasonable Water accessSource to(% an of population with access) 2003 2006 2009 2010 Accessadequate to anamount improved of water MontenegroIceland 10098 10098 10098 10098 from an improved source, such source refers to the Serbia 99 99 99 99 as a household connection, Bulgaria 100 100 100 100 public standpipe, borehole, Slovenia 100 100 99 99 protected well or spring, and rainwater collection. World 84.6 86.3 87.9 88.4

Unimproved sources include % of population with access. vendors, tanker trucks and 118unprotected World Bank wells Databank. and springs.and Index Mundi. 119Reasonable World Bank access Databank. is defined as the availability of at least 20 litres per person per day from 93 a source within one kilometre of the dwelling. Source: World Health Organization and United Nations 118Children's World Bank Databank.andFund, IndexJoint Mundi. Measurement Programme (World 119Development World Bank Databank.Indicators Online).120 Quality of Overall Infrastructure Index 2008 2009 2010 2011 2012 (GC (GC (GC (GC (GC 87 08/09) 09/10) 10/11) 11/12) 12/13) Survey data: “General Montenegro 2.6 2.7 3.1 3.5 3.7 infrastructure in your country is: 1=underdeveloped, 7=as Bulgaria 2.5 2.8 3.1 3.1 3.3 extensive and efficient as the Croatia 4.1 4.5 5.1 5.2 5.2 world’s best”.

Source: World Economic Forum, Iceland 5.9 6.3 6.6 6.4 6.3 The Global Competitiveness Serbia 2.3 2.6 3 3.1 3.2 Report.121 Slovenia 4.8 5.2 5.3 5.3 5.4 World 3.8 4.1 4.3 4.3 4.3 1=underdeveloped, 7=as extensive and efficient as the world’s best. Quality of Port Infrastructure Index 2008 2009 2010 2011 2012 Survey data: “Port facilities Montenegro 3.8 3.3 3.4 3.7 3.6 and inland waterways in your

country are: Bulgaria 3.7 3.6 3.8 3.8 3.7 1=underdeveloped, 7=as Croatia 3.4 3.8 4 4 4 developed as the world’s best. For landlocked countries, this Iceland 6 6.2 6.3 6.2 6.2 measures the ease of access Serbia 3.5 3.3 2.8 2.7 2.7 to port facilities and inland waterways”. Slovenia 4.8 5.2 5.3 5.2 5.2 Source: World Economic Forum, World 4.1 4.2 4.3 4.3 4.3 The Global Competitiveness Report.122 1=underdeveloped, 7=as developed as the world’s best.

120 Ibid. 121 World Economic Forum Global Competitiveness report. 122 Ibid.

percentage of the population Croatia 99 99 99 99 with reasonable access to an adequate amount of water Iceland 100 100 100 100 from an improved source, such Serbia 99 99 99 99 as a household connection, public standpipe, borehole, Slovenia 100 100 99 99 protected well or spring, and rainwater collection. World 84.6 86.3 87.9 88.4 Unimproved sources include % of population with access. vendors, tanker trucks and unprotected wells and springs. Reasonable access is defined as the availabilityThe enabling of at least environment 20 for sustainable enterprises in Montenegro litres per person per day from a source within one kilometre of the dwelling. Source: World Health Organization and United Nations Children's Fund, Joint Measurement Programme (World Development Indicators Online).120 Quality of Overall Infrastructure Index 2008 2009 2010 2011 2012 (GC (GC (GC (GC (GC 08/09) 09/10) 10/11) 11/12) 12/13) Survey data: “General Montenegro 2.6 2.7 3.1 3.5 3.7 infrastructure in your country is: 1=underdeveloped, 7=as Bulgaria 2.5 2.8 3.1 3.1 3.3 extensive and efficient as the Croatia 4.1 4.5 5.1 5.2 5.2 world’s best”.

120 Ibid. 121 World Economic Forum Global Competitiveness report. 122 Ibid.

120 121 122

120 Ibid. 121 World Economic Forum Global Competitiveness report. 122 Ibid.

88 The enabling environment for sustainable enterprises in Montenegro

4. Social Elements

KEY FINDINGS:

Entrepreneurial culture is one of the main preconditions for economic development. Montenegro has achieved significant progress when it comes to raising awareness on the importance of building the entrepreneurial competences with youth, primarily through the education system. Entrepreneurship is included as a subject within curricula in VET schools, and is a separate department within the Faculty of Economics. However, representation of such programmes at the primary and secondary education levels and non-economic studies is insufficient. Despite government efforts to promote this type of training, such efforts are contradictory, where the advisory and financial support to potential entrepreneurs is limited to only a few institutions, commercial banks and a single development fund. Although available, loans are often unfavourable, with high interest rates, and the network of business centres/incubators is underdeveloped, both in terms of human resources and physical infrastructure.

A long-term problem in the Montenegrin labour market is a disconnect between supply and demand (i.e. the education system focus and private sector employers’ needs). The mismatch is reflected in a deficit of certain profiles and a low level of demanded skills in the current labour market. Low levels of practical training in school curricula and the complete absence at the tertiary level (with the exception of individual voluntary initiatives), the workforce is unable to respond to the requirements of labour market skill demands. Craft occupations and those requiring III and IV levels of qualifications are still widely unpopular and the majority of youth acquiring those qualifications prefer continuing with education at tertiary levels, rather than entering the labour market directly. Within the Montenegrin economy, 99.7 per cent of enterprises are small and medium enterprises that typically do not have a separate department or even a focal point responsible for human resources development at the company level. Therefore, the number of enterprises with their own training budget is very limited. Evident, but also contradictory, is the fact that enterprises often rely on the education system to ensure that their future workforce is adequately prepared for position, but at the same time, they do not actively participate in education policy development or cooperation with schools, universities or other education providers.

Between 2010 and 2011, the poverty rate and the level of inequality in Montenegro increased significantly. The rural population in the country faces greater poverty levels compared to urban areas, the Northern region has a poverty rate three times higher than in the Southern and Central regions, and the rate is highest among self-employed persons more than any other labour activity status. Concerning social exclusion, the Ministry of Health, Labour and Social Welfare has identified specific groups as particularly vulnerable, including first, the Roma population, which suffers the highest concentrations of poverty and social exclusion. Refugees and displaced persons are also a highly vulnerable group due to their status. In addition, the disabled, elderly and children are considered vulnerable groups in the country. One of the positive trends recently has been a lower participation of women in the overall unemployment due to creation of new jobs, especially in those sectors where women are more active such as trade, tourism, etc.

Medical facilities in Montenegro are generally available, but can be limited in terms of provided and available services. However, reform is needed in this area to ensure that the available social protections are not producing a low labour activity rate by creating incentives for beneficiaries to work in the grey market. A major issue in this regard is the relationship between social protection and labour market productivity, where the social assistance and transfers system is designed in such a way that it negatively affects the performance and productivity of the labour market, is the lead factor hindering doing business in the country, and can lead to increased participation in the informal economy.

89 The enabling environment for sustainable enterprises in Montenegro

Graph 53: Indicators assessing social elements of an enabling environment for Graph 53: Indicators assessing social elements of an enabling environment for sustainable sustainableenterprises enterprises for 2009* for 2009*

* the values for the individual indicators have been harmonized for better presentation and formatted so that the further from the center a data point is, the better the country’s performance in that regard. The original indicator values are included in the * the valueschapters. for the individual indicators have been harmonized for better presentation and formatted so that the further from the center a data point** data is, thefor thebetter gender the- relatedcountry’s indicators performance refer to 2006,in that as regard. this is the The most original recent indicator year for which values data are was included collected. in the chapters. ** data for the gender-related indicators refer to 2006, as this is the most recent year for which data was collected.  SMEs make up 99.6 per cent of registered businesses, finance, corruption, and regional of which 88.9 per cent are microenterprises (less than discrepancies in SME development. After 10 employees), and 61.6 per cent of labour is employed starting a business, other challenges include in SMEs. high interest rates, a great number of duties  Montenegro, Croatia and Serbia are the only Western imposed by the state and local authorities, Balkan countries to have integrated basic SME support and unfair competition. services into their national strategies, including Lifelong entrepreneurial learning programmes can no measurable targets, but in Montenegro the level of longer survive due to insufficient funding. • SMEs make up 99.6 per cent of registered businesses, • The main challenges to MSMEs are bureaucratic SME development is inconsistent across regions.  The relationship between the private sector and of which 88.9 per cent are microenterprises (less bottlenecks with regard to starting and closing  Further development of e-government services, human education providers is weak, in spite of incongruent than 10capital, employees), and broader and 61.6 governmental per cent budgetaryof labour supportis demandbusinesses, and supply access of to labour finance, skills. corruption, and regional employedfor inwomen's SMEs. entrepreneurship are essential to promote Concerningdiscrepancies human in SME resources development. staff in particular, After starting 47.5 a SME development and an entrepreneurial culture. business, other challenges include high interest rates, • Montenegro, Croatia and Serbia are the only per cent of EESE respondents faced problems recruiting a great number of duties imposed by the state and Western Balkan The countries main challenges to have integrated to MSMEs basic are skilled employees. bureaucratic bottlenecks with regard to local authorities, and unfair competition. SME supportstarting services and into closing their businesses,national strategies, access to including measurable targets, but in Montenegro the • Lifelong entrepreneurial learning programmes can level of SME development is inconsistent across no longer survive due to insufficient funding. regions. 97 • The relationship between the private sector and • Further development of e-government services, education providers is weak, in spite of incongruent human capital, and broader governmental budgetary demand and supply of labour skills. support for women’s entrepreneurship are essential • Concerning human resources staff in particular, to promote SME development and an entrepreneurial 47.5 per cent of EESE respondents faced problems culture. recruiting skilled employees.

90 The enabling environment for sustainable enterprises in Montenegro

• In 2010, the greatest barriers to personal development • One of the positive trends recently has been a lower were a lack of time for improving professional skills participation of women in the overall unemployment and a lack of appropriate training. rate due to creation of new jobs in sectors where women are more active such as trade, tourism, etc. • In May 2013, a Memorandum of Understanding was signed between the European Commission and • In 2011, women made up 46 per cent of the active Montenegro on the participation of the country in the labour population, though the majority of female EU Lifelong Learning Programme. labour is employed on fixed-term contracts, which makes them financially vulnerable and hampers their • The majority of enterprises in Montenegro are small, right to maternity leave. which means that within most enterprises there is no sector or a person in charge of training. • An electoral gender quota was introduced in 2011 as part of amendments made to the Law on election • Between 2010 and 2011, the poverty rate and the level of municipal councilors and members of parliament. of inequality in Montenegro increased significantly. However, these rules are largely ineffective as the • The rural population in the country faces greater law does not specify that candidates of each sex must poverty levels compared to urban areas, the Northern be ranked high enough on party lists to have a serious region has a poverty rate three times higher than chance at being allocated a mandate. in the Southern and Central regions, and the rate is • Medical facilities in Montenegro are generally highest among self-employed persons more than any available, but can be limited in terms of provided and other labour activity status. available services. • The Roma population suffers the highest concentrations of poverty and social exclusion. Refugees and displaced persons are also a highly vulnerable group, as are the disabled, elderly and children.

91 The enabling environment for sustainable enterprises in Montenegro

4.1. Entrepreneurial culture

The general recognition of the key role of enterprises in development is a fundamental element for a conducive business environment. Strong public and private support to entrepreneurship, innovation, creativity, and the concept of mentorship are other important determinants of an enabling environment for sustainable enterprises. The Montenegrin economy is dominated by the MSME sector which represented nearly 60 per cent of the national GDP and employs 67 per cent of the total workforce.123 However, in spite of government efforts to improve the business environment for SMEs, barriers specific to this sector persist and positive change is slow.

Montenegro is a party of the Western Balkans Enterprise Development Innovation Facility (WB EDIF)124 and is one of the only Western Balkan countries to have integrated SME support services into the national strategy. In Montenegro, SMEs make up 99.6 per cent of registered businesses and constitute 61.6 per cent of employment. In spite of SME dominance in the economic market, progress to promote SMEs has been slow, especially in regards to innovation and support services. Priority actions to promote SME development in Montenegro include: further development of e-government services and establishment of online portals for SMEs; re- establishing policy momentum in the area of human capital development to promote skills at all levels, especially in sectors that have significant trade with the EU; and creating broader and more emphasized governmental budgetary support for women’s entrepreneurship. However, no major improvements have been made in this area in recent years due to the lack of resources that prevents affective implementation.125 The main challenges to MSMEs in Montenegro are bureaucratic bottlenecks with regard to starting and closing businesses, access to finance, corruption, and regional discrepancies in SME development.126

Secondary data on the degree of entrepreneurial culture in Montenegro reflects a promising picture of the successful improvement of entrepreneurial culture in recent years. “New Business Density” indicates the number of newly registered limited liability companies per 1,000 working age people in a year. Poor countries tend to be characterised by a large majority of micro and small enterprises that are normally not limited liability companies. In 2009, the number of new registers in Montenegro decreased sharply from 3.89 in 2008 to 0.92, but has since recovered, reaching it’s highest rate over the period 2006-11 in the latter year at 10.44. This jump moved Montenegro from the weakest performer of the countries compared in 2009, to the strongest performer in 2011, the most recent year for which data is available.

123 European Bank for Reconstruction and Development. 2011. 124 European Investment Fund. (undated). 125 OECD. 2012. 126 European Bank for Reconstruction and Development. 2011.

92 The enabling environment for sustainable enterprises in Montenegro

Graph 54: New Business Density Graph 54: New Business Density

Source: World Bank's Entrepreneurship Survey (World Development Indicators Online). Source: World Bank’s Entrepreneurship Survey (World Development Indicators Online). According to the 2013 World Economic Forum Global Competitiveness report, the most problematic factor for doing business in Montenegro is a poor work ethic in Accordingthe national to the labour 2013 force. World127 EconomicCustomer service Forum and Global sales Competitiveness support is one areareport, where the most problematicimprovements factor for doing in labour business quality in Montenegro in this regard is a poormay workbe provoked ethic in thethrough national exposure labour toforce. 127 Customerforeign service competition.and sales support As U.S. is one firms area enter where the improvements market, the conceptin labour of quality customer in this support regard may be provokedand through other value exposure-added to services foreign iscompetition. growing in As popularity U.S. firms and enter may the eventually market, thehelp concept to of customer regainsupport business and other from value-added the grey economyservices isin growing Montenegro in popularity where no and customer may eventually support is help to regain businessgenerally from offered. the grey128 economy It may also in Montenegro help to kick where-start nopositive customer improvements support is generally in the work offered. 128 It may alsoethic help of to the kick-start national positivelabour force, improvements as it should in createthe work commission ethic of the-based national incentives labour and force, as it should createother customer/clientcommission-based focused incentives remuneration and other scales. customer/client focused remuneration scales. Training may be another route towards alleviating the challenge of a poor work Trainingethic may among be another the national route towards labour alleviating force. The the Ministry challenge of of Education a poor work and ethic Sport among in the national labourMontenegro force. The committed Ministry inof Education January 2013and Sport to launchingin Montenegro an initiativecommitted to in supportJanuary 2013 to launchingvocational an initiative schools to supportto establish vocational local entrepreneurship schools to establish centres. local One entrepreneurship of the first activities centres. One of the firstin activities this project in this is toproject establish is to entrepreneurialestablish entrepreneurial learning learning centres incentres three in vocational three vocational schools inschoo the north-easternls in the north region-eastern of Montenegro.region of Montenegro. Currently, Currently,the focus of the the focus curricula of the is curricula on developing SMEs andis promoting on developing employment SMEs in and the promoting agriculture employmentand tourism sectors in the in agriculture the north east and of tourism the country. sectors in the north east of the country. The reason for selecting this area is to combat The reason for selecting this area is to combat local poverty and deter young people from migrating out local poverty and deter young people from migrating out of the area. However, the of the area. However, the goal of the project is to eventually support all vocational schools in the country goal of the project is to eventually support all vocational schools in the country to to introduce similar programmes.129

Although the Montenegro EESE survey reflects some progress when it comes to the easeof 127 Worldestablishing Economic a business Forum. and2012. promotion of entrepreneurial culture, focus group meetings confirmed a clear 128 United States Department of State. 2012b.

127 World Economic Forum. 2012. 100 128 United States Department of State. 2012b. 129 European Training Foundation. 2013. Entrepreneurial Learning Comes to Vocational Schools in Montenegro. ETF, 21 February. Accessed 31 May 2013.

93 introduce similar programmes.129 The enabling environment for sustainable enterprises in Montenegro Although the Montenegro EESE survey reflects some progress when it comes to the ease of establishing a business and promotion of entrepreneurial culture, focus negative opiniongroup in meetingsregards to confirmed current conditions a clear negative for starting opinion a business. in regards The to general current conclusion conditions is for that the entrepreneurialstarting culture a business. should Thenot begeneral cherished conclusion only in is the that sense the ofentrepreneuria simplifying lthe culture procedures should for companies’ registration.not be cherished After starting only upin athe business, sense ofentrepreneurs simplifying face the a procedureswhole range forof othercompanies’ problems including highregistration. interest rates, After a great starting number up a of business, duties imposed entrepreneurs by the facestate aand whole local range authorities, of other and unfair competition.problems These including issues must high alsointerest be addressed rates, a great to effectively number ofpromote duties aimposed strong entrepreneurial by the state culture in the andcountry. local authorities, and unfair competition. These issues must also be addressed to effectively promote a strong entrepreneurial culture in the country.

‘’My congratulations to all who at this very moment start their own business in Montenegro”

Milan focus group participants – company from Construction sector

Key130 Indicators

New Business Density 2006 2007 2008 2009 2010 2011 The number of newly Montenegro 4.19 5.99 3.89 0.92 - 10.44 registered limited liability

companies per 1,000 Bulgaria 6.91 9.81 8.27 7.20 - - working-age people (those Croatia 3.35 3.59 3.36 2.58 2.38 2.39 ages 15-64) in that year. Source: World Bank's Iceland 15.68 17.54 11.99 12.28 7.60 7.94 Entrepreneurship Survey (World Development Serbia 2.17 2.26 2.17 1.96 1.87 1.66 Indicators Online).130 Slovenia 2.75 3.52 4.41 4.10 3.81 4.04 World 3.25 3.57 3.54 3.16 3.13 3.42 The number of newly registered limited liability companies per 1,000 working-age people.

129European Training Foundation. 2013. Entrepreneurial Learning Comes to Vocational Schools in Montenegro. ETF, 21 February. Accessed 31 May 2013. 130 World Bank Databank.

101

130 World Bank Databank.

94 The enabling environment for sustainable enterprises in Montenegro

4.2. Education, training and lifelong learning

The development of a skilled workforce and the expansion of human capabilities through high- quality systems of education, training and lifelong learning is important in helping workers to find good jobs as well as enterprises to find the skilled workers they require. Montenegro performs well in the areas of education and promotion of entrepreneurship skills in VET. School/university-enterprise cooperation is set but it should be further developed if Montenegro is to achieve full quality assurance in education. However, lifelong entrepreneurial learning programmes can no longer survive due to insufficient funding and progress has slowed in the area of entrepreneurial learning in general.131

Data on “Public Spending on Education” is scanty for the region, and no data is available on Montenegro.132 The “Education Index” measures the educational achievement on a scale from 0 to 1 with higher values indicating better performance. Over the period 2006-11, Montenegro maintained stable and relatively high values, and showed improvement in 2012. The “Youth Literacy Rate” for ages 15-24 in Montenegro is notably high, at 99.33 per cent in 2010, compared to the world mean of 89.63 per cent for the same year. Montenegro outperformed Serbia in this regard, and while no data for Bulgaria is available for 2010, the 2010 rate in Montenegro is higher than Bulgaria’s rate in 2011. Slovenia and Croatia recorded marginally higher rates in 2010.

The EESE survey shows that the majority of enterprises consider both formal and informal relationships with local schools and private education providers to be underdeveloped. Only 3.1 per cent think that most enterprises have developed this sort of relationship, while 9.1 per cent think that such relationships do not exist at all. The other interviewees who responded to this question, representing 67 per cent of the surveyed enterprises, believe that only a very limited number of companies have developed this kind of relationship (20.6 per cent of interviewees responded that they do not know).

GraphGraph 55: 55: Has Has your your firm firm experienced experienced difficulties difficulties recruiting recruiting individuals individuals with certain with skills in thecertain last three skills years?skills in the last in three the lastyears? three years?

The EESE survey findings also reflect the worrying reality that 47.5 per cent of enterprises faced problems regarding the recruitment of skilled human resources 131 OECD. 2012. within the last 3 years. Only 12.1 per cent of those surveyed reported having no 132 “Publicproblems Spending inon Education”this regard. consists In or ofder current to filland capitaltheir vacancies,public expenditure 50.5 on per education cent of plus enterprises subsidies to private educationhave at the had primary, to provide secondary, additional and tertiary training levels, and for is calculated their as a percentage of GDP. newly employed staff, while in 23 per cent of cases, qualified foreign staff was recruited95 and in 21 per cent of cases this problem caused a reallocation of jobs within an enterprise. ‘’FINDING A GOOD EMPLOYEE IS THE The EESE survey also shows that MOST DIFFICULT Montenegrin enterprises face major challenges THING IN with regards to skill shortages in the labour MONTENEGRO‘’ market. Only 3.1 per cent of enterprises consider skills shortages to not pose a negative impact on IVANA FROM TRADE business operations, while the rest of the SECTOR companies from the sample are of the opposite opinion.

103

Graph 55: Has your firm experienced difficulties recruiting individuals with certain skills in the last three years?

The enabling environment for sustainable enterprises in Montenegro

The EESEThe surveyEESE surveyfindings findings also reflect also reflect the worrying the worrying reality realitythat 47.5 that per47.5 cent per of cent enterprises of faced problemsenterprises regarding faced the recruitment problems regardingof skilled human the recruitment resources ofwithin skilled the lasthuman 3 years. resources Only 12.1 per cent ofwithin those surveyed the last 3reported years. having Only 12.1 no problems per cent in of this those regard. surveyed In order reported to fill their having vacancies, no 50.5 problems in this regard. In order to fill their vacancies, 50.5 per cent of enterprises per cent of enterprises have had to provide additional have had to provide additional training for their training for their newly employed staff, while in 23 per newly employed staff, while in 23 per cent of cent of cases, qualified foreign staff was recruited and in cases, qualified foreign staff was recruited and in 21 per 21cent per of cases cent this of problem cases this caused problem a reallocation caused a of jobsrealloc withination an enterprise. of jobs within an enterprise. ‘’FINDING A GOOD EMPLOYEE IS THE The EESE survey also shows that MOST DIFFICULT TheMontenegrin EESE survey enterprises also shows face that major Montenegrin challenges THING IN enterpriseswith face regards major to challenges skill shortages with regards in the to labourskill MONTENEGRO‘’ shortagesmarket. in the Only labour 3.1 per market. cent Onlyof enterprises 3.1 per centconsider of enterprisesskills considershortages skillsto not shortagespose a negative to not impac pose t aon IVANA FROM TRADE negativebusiness impact on operations, business operations, while the while rest the of rest the SECTOR of the companiescompanies from the sample sample are are of of the the opposite opposite opinion.opinion.

Graph 56: To what extent do the current skills shortages negatively affect Graph 56: To what extent do the currentfirms? skills shortages negatively affect firms?

103

AccordingAccording to World to World Economic Economic Forum surveyForum data,survey perceptions data, perceptions of Montenegro’s of Monte businessnegro’s leaders concerningbusiness the leaders extent ofconcerning investment the in extentstaff training of investment over the inperiod staff 2008-12training slightlyover the improved. period The “Extent2008 of- 12Staff slightly Training” improved. shows whether The "Extent companies of Staff in a countryTraining" invest shows little whether or heavily companies in training and employeein a country development invest to attract,little or train heavily and retain in training staff, on and a scale employee from 1 to development 7 with higher valuesto attract, indicating moretrain investments. and retain In 2012, staff, Montenegro on a scale reached from 4.1, 1 to outperforming 7 with higher all countries values indicatingused for comparison more in that year,investments. with the exception In 2012, Montenegroof Iceland at 4.7.reached The world 4.1, outperformingmean for the same all yearcountries was 3.9. used Conversely, for concerningcomparison “Firms in Offering that year, Formal with Training” the exception to their of permanent Iceland at and 4.7. full-time The world staff, mean Montenegro for the seems to performsame yearrelatively was 3.9.poorly Conversely, compared toconcerning other countries “Firms used Offering for comparison. Formal However,Training” it to is theirdifficult to assesspermanent the country, and as data full for-time this indicatorstaff, Montenegro is only available seems for Montenegroto perform inrelatively 2009, and datapoorly for other countriescompared is also to scanty. other Incountries 2009, Montenegro used for comparison. registered 25.2 However, per cent itof is firms difficult offering to assess formal the training, comparedcountry, to 30.6 as data per centfor thisin Bulgaria, indicator 36.5 is inonly Serbia available and 47.5 for in Montenegro Slovenia. in 2009, and data for other countries is also scanty. In 2009, Montenegro registered 25.2 per cent of firms offering formal training, compared to 30.6 per cent in Bulgaria, 36.5 in Serbia and 47.5 in Slovenia. Grafik 57: Extent of Staff Training 96

Source: World Economic Forum, The Global Competitiveness Report.

104

Graph 56: To what extent do the current skills shortages negatively affect firms?

According to World Economic Forum survey data, perceptions of Montenegro’s business leaders concerning the extent of investment in staff training over the period 2008-12 slightly improved. The "Extent of Staff Training" shows whether companies in a country invest little or heavily in training and employee development to attract, train and retain staff, on a scale from 1 to 7 with higher values indicating more investments. In 2012, Montenegro reached 4.1, outperforming all countries used for comparison in that year, with the exception of Iceland at 4.7. The world mean for the same year was 3.9. Conversely, concerning “Firms Offering Formal Training” to their permanent and full-time staff, Montenegro seems to perform relatively poorly compared to other countries used for comparison. However, it is difficult to assess the country, as data for this indicator is only available for Montenegro in 2009, and data for otherThe enabling countries environment is also scanty. for In sustainable 2009, Montenegro enterprises registered in Montenegro 25.2 per cent of firms offering formal training, compared to 30.6 per cent in Bulgaria, 36.5 in Serbia and 47.5 in Slovenia. Grafik 57: Extent of Staff Training Graph 57: Extent of Staff Training

Source: World Economic Forum, The Global Competitiveness Report. Source: World Economic Forum, The Global Competitiveness Report.

104 According to a survey of SMEs and entrepreneurs conducted by the Montenegro Directorate for Development of Small and Medium Sized Enterprises and the German international cooperation agency, GIZ, in 2010 the greatest barriers to personal development were a lack of time for improving professional skills and a lack of appropriate training. It was also found that there is a need for different forms of knowledge and skills acquisition for managers and employees.133 Actions by the government since 2010 point towards improvements in this regard. In May 2013 for example, a Memorandum of Understanding was signed between the European Commission and Montenegro on the participation of the country in the EU Lifelong Learning Programme. This programme funds a range of activities relevant to developing the education and training sectors in Europe. Educational professionals, Ministry representatives and other stakeholders in Montenegro will be able to be involved in the programme through networks at varying levels and sectors of the educational system including all educational levels.134

In spite of reports by international institutions, the EESE survey reflects growth in the amount of resources companies invest in training. Furthermore, only 9.1 per cent of enterprises in the sample reported that resources invested in training are not the main barrier for development and retention of skilled workforce. The rest of the respondents (excluding 2 per cent of those whom did not know the answer to this question) consider the resources invested in training to a small or greater extent a barrier for the development and retention of skilled workforce.

133 Government of Montenegro. 2011. 134 European Union. 2013a. Memorandum of Understanding Between EC and Montenegro on Lifelong Learning Programme. Delegation of the European Union to Montenegro, 24 May. Accessed 29 May 2013.

97 According to a survey of SMEs and entrepreneurs conducted by the Montenegro Directorate for Development of Small and Medium Sized Enterprises and the German international cooperation agency, GIZ, in 2010 the greatest barriers to personal development were a lack of time for improving professional skills and a lack of appropriate training. It was also found that there is a need for different forms of knowledge and skills acquisition for managers and employees.133 Actions by the government since 2010 point towards improvements in this regard. In May 2013 for example, a Memorandum of Understanding was signed between the European Commission and Montenegro on the participation of the country in the EU Lifelong Learning Programme. This programme funds a range of activities relevant to developing the education and training sectors in Europe. Educational professionals, Ministry representatives and other stakeholders in Montenegro will be able to be involved in the programme through networks at varying levels and sectors of the educational system including all educational levels.134

In spite of reports by international institutions, the EESE survey reflects growth in the amount of resources companies invest in training. Furthermore, only 9.1 per cent of enterprises in the sample reported that resources invested in training are not the main barrier for development and retention of skilled workforce. The rest of the respondents (excluding 2 per cent of those whom did not know the answer to this question)The considerenabling the environment resources invested for sustainable in training enterprises to a small in or Montenegro greater extent a barrier for the development and retention of skilled workforce.

Graph 58: Funding for education: Graph 58: Funding for education:

As already noted, the majority of enterprises in Montenegro are small. This often means that there exists a problem of enterprises not having a sector or a person in charge of training. In almost one half of the enterprises in the sample there is no sector or person in charge of education and training of employees. These results are expected having in mind that other surveys of the business climate in Montenegro have shown 133 Governmentthat up toof 90Montenegro. per cent of 2011. companies do not have a training budget. This is generally confirmed by the EESE 134 Europeansurvey, Union. whereby 2013a. only Memorandum33 per cent of enterprises of Understanding in the sample Between have EC a training and Montenegro budget and on only Lifelong 5 per cent of Learningthose Programme with less. Delegation than 5 employees of the European do. This is Union compared to Montenegro, to 70.6 per 24cent M ofay. large Accessed companies 29 May that 2013. have a training budget. If these data are projected to the entire Montenegrin economy, comprising mainly small enterprises, it is clear that only a small number of enterprises in the105 country have either staff or a budget for education and training of employees.

According to the EESE survey findings, one of the major issues recognised by the business sector in Montenegro is that the system of practical training as such does not provide employment after its completion. Of those surveyed, 23.7 per cent feel this way, while only 3.1 per cent consider the system of practical training as the one providing employment. Conversely, 36.1 per cent of enterprises consider the system of practical training only rarely contributing to employment along, with 30 per cent of enterprises considering it sometimes contributory to employment. Another problem is the mismatch between practical training structures and enterprise needs. 28 per cent of EESE survey interviewees think there is no connection at all, and only 1 per cent of enterprises responded with the opposite attitude. Almost 50 per cent of enterprises interviewed consider that the practical training structures only partially fit enterprises needs.

The EESE survey has shown that a notable portion of companies (30.9 per cent) think that the workforce, as produced by public education institutions, is not of superior quality to the employees coming from private education institutions. At the same time, 12.8 per cent of enterprises disagree, stating that the workforce produced by public education institutions is better. Although 17 per cent of respondents do not believe there to be any difference between these two institutions, they believe that the workforce coming out from the education institutions generally do not fully meet the requirements of enterprises in the private sector. Slightly more positive about the environment, 60 per cent of enterprises stated that the workforce produced by the education system in general meets the requirements of private sector enterprises, but only to a certain extent.

98 As already noted, the majority of enterprises in Montenegro are small. This often means that there exists a problem of enterprises not having a sector or a person in charge of training. In almost one half of the enterprises in the sample there is no sector or person in charge of education and training of employees. These results are expected having in mind that other surveys of the business climate in Montenegro have shown that up to 90 per cent of companies do not have a training budget. This is generally confirmed by the EESE survey, whereby only 33 per cent of enterprises in the sample have a training budget and only 5 per cent of those with less than 5 employees do. This is compared to 70.6 per cent of large companies that have a training budget. If these data are projected to the entire Montenegrin economy, comprising mainly small enterprises, it is clear that only a small number of enterprises in the country have either staff or a budget for education and training of employees.

Key135 Indicators

Education Index 2006 2008 2009 2010 2011 2012 It measures the educational Montenegro 0.80 0.80 0.80 0.80 0.80 0.82 attainment. The Education

Index is measured by the adult Bulgaria 0.78 0.79 0.80 0.80 0.80 0.76 literacy rate and the combined Croatia 0.76 0.77 0.78 0.78 0.78 0.70 primary, secondary, and tertiary gross enrolment ratio. The adult Iceland 0.89 0.90 0.91 0.91 0.91 0.89 literacy rate gives an indication Serbia 0.77 0.78 0.79 0.79 0.79 0.71 of the ability to read and write, Slovenia 0.88 0.91 0.92 0.93 0.93 0.91 while the gross enrolment ratio 106 gives an indication of the level On a scale from 0 to 1. Higher values correspond to better of education from kindergarten performance. to postgraduate education. It is a weighted average of Adult literacy index (with two-thirds weighting) and the combined primary, secondary, and tertiary gross enrolment ratio (Gross enrolment index [0, 1]) (with one-third weighting). Source: UNDP, Human Development Report.135 Note: Data for 2012 is adjusted for inequality, as the UNDP altered their methodology for this indicator in that year. Firms Offering Formal Training (% of firms) 2005 2007 2009 Firms offering formal training Montenegro - - 25.2 are the percentage of firms

offering formal training Bulgaria 34.9 36.5 30.6 programmes for their Croatia 62.6 28.0 - permanent, fulltime employees. 49.4 - 36.5 Source:136 World Bank, Enterprise Serbia Surveys and World Development Slovenia 75.0 - 47.5 Indicators Online.136 Note: Data for Iceland is not % of firms offering formal training. available. Extent of Staff Training 2008 2009 2010 2011 2012 (GC (GC (GC (GC (GC 08/09) 09/10) 10/11) 11/12) 12/13) The World Economic Forum Montenegro 3.7 4.0 4.0 4.0 4.1 (WEF) Survey asked the

business leaders to provide Bulgaria 3.1 2.9 2.8 3.1 - their expert opinions on the Croatia 3.9 3.4 3.1 3.2 3.2 following: “The general approach of companies in your Iceland 5.3 4.9 4.7 4.8 4.7 country to human resources is: Serbia 2.9 3.0 3.0 2.9 2.9 (1=to invest little in training and employee development, 7=to Slovenia 4.3 4.3 4.1 3.8 3.7 invest heavily to attract, train, and retain employees)”. World 4.0 4.0 4.0 4.0 3.9 Source: World Economic Forum, 1=to invest little in training and employee development, 7=to invest 135The UNDP Global Human DevelopmentCompetitiveness report. heavily to attract, train, and retain employees. Report.137 136 World Bank Enterprise Surveys. Youth Literacy Rate (% of people ages 15-24) 2010 Youth literacy rate is the Montenegro 99.3 99

135 UNDP Human Development report. 136 World Bank Enterprise Surveys. 137 World Economic Forum Global Competitiveness report.

107

of the ability to read and write, Slovenia 0.88 0.91 0.92 0.93 0.93 0.91 while the gross enrolment ratio gives an indication of the level On a scale from 0 to 1. Higher values correspond to better of education from kindergarten performance. to postgraduate education. It is a weighted average of Adult literacy index (with two-thirds weighting) and the combined primary, secondary, and tertiary gross enrolment ratio (Gross enrolment index [0, 1]) (with one-third weighting). Source: UNDP, Human Development Report.135 Note: Data for 2012 is adjusted for inequality, as the UNDP altered their methodology for this indicator in that year. Firms Offering Formal Training (% of firms) 2005 2007 2009 Firms offering formal training Montenegro - - 25.2 are the percentage of firms

offering formal training Bulgaria 34.9 36.5 30.6 programmes for their Croatia 62.6 28.0 - permanent, fulltime employees.

Source: World Bank, Enterprise Serbia 49.4 - 36.5 Surveys andThe World enabling Development environment Slovenia for sustainable enterprises in Montenegro75.0 - 47.5 Indicators Online.136 Note: Data for Iceland is not % of firms offering formal training. available. 137 Extent of Staff Training 2008 2009 2010 2011 2012 (GC (GC 138 (GC (GC (GC 08/09) 09/10) 10/11) 11/12) 12/13) The World Economic Forum Montenegro 3.7 4.0 4.0 4.0 4.1 (WEF) Survey asked the

business leaders to provide Bulgaria 3.1 2.9 2.8 3.1 - their expert opinions on the Croatia 3.9 3.4 3.1 3.2 3.2 following: “The general approach of companies in your Iceland 5.3 4.9 4.7 4.8 4.7 country to human resources is: Serbia 2.9 3.0 3.0 2.9 2.9 (1=to invest little in training and employee development, 7=to Slovenia 4.3 4.3 4.1 3.8 3.7 invest heavily to attract, train, and retain employees)”. World 4.0 4.0 4.0 4.0 3.9 Source: World Economic Forum, 1=to invest little in training and employee development, 7=to invest The Global Competitiveness heavily to attract, train, and retain employees. Report.137

Youth Literacy Rate (% of people ages 15-24) 2010 Youth literacy rate is the Montenegro 99.3 percentage of people ages 15- Bulgaria* 97.9 24 who can, with understanding, read and write a Croatia 99.7 short, simple statement on their 135 Serbia 99.3 everyday UNDP Human life. Development report. 136 Source: World BankUnited Enterprise Surveys.Nations Slovenia 99.9 137 Educational, World Economic Scientific, Forum and Cultural Global Competitiveness report. Organization (UNESCO) Institute World 89.6 for Statistics (World Development % of people. 107 Indicators Online).138 Note: Data for Iceland is not available. *The rate for Bulgaria is for 2010, as no data for 2009 was available for this country.

4.3. Social justice and social inclusion

Inequality and discrimination hinder the creation and growth of sustainable enterprises. Explicit policies for social justice, social inclusion and equality of opportunities for employment are needed. According to the Montenegro Statistical Office, between 2010 and 2011, the poverty rate and the level of inequality in the country increased significantly. The rural population in the country faces greater poverty levels compared to urban areas, the Northern region has a poverty rate three times higher than in the Southern and Central regions, and the rate is highest among self-employed persons more than any other labour activity status.139 Concerning social exclusion, the Ministry of Health, Labour and Social Welfare has identified specific groups as particularly vulnerable, including first, the Roma population, which suffers the highest concentrations of poverty and social exclusion. Refugees and displaced persons are also a highly vulnerable group due to their status. They suffer structural discrimination, notably regarding housing and the right to formal employment. In addition, the disabled, elderly and children are considered vulnerable groups in the country.140 137 World Economic Forum Global Competitiveness report. The “GINI Coefficient” measures the extent to which the distribution of income 138 World Bank Databank. among individuals or households within an economy is equal. Absolute equality corresponds to a value of 0, whereas absolute inequality is represented by 100. Data for Montenegro reflects slight improvement100 towards greater equality over the period 2002-10, where the GINI coefficient value moved from 30.12 in the former year to 28.58 in the latter. The values for Montenegro over this period are similar to those recorded for other countries, though scanty data makes cross-country comparison

138 World Bank Databank. 139 Montenegro Statistical Office (MONSTAT). 2012. Poverty Analysis in Montenegro in 2011. MONSTAT; World Bank; Ministry of Health, Labor and Social Welfare (Podgorica), December. Accessed 31 May 2013.

140 European Commission. 2008. Social Protection and Social Inclusion in Montenegro. Directorate-General for Employment, Social Affairs and Equal Opportunities – European Commission, June. Accessed 4 May 2013.

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The enabling environment for sustainable enterprises in Montenegro

4.3. Social justice and social inclusion

The “GINI Coefficient” measures the extent to which the distribution of income among individuals or households within an economy is equal. Absolute equality corresponds to a value of 0, whereas absolute inequality is represented by 100. Data for Montenegro reflects slight improvement towards greater equality over the period 2002-10, where the GINI coefficient value moved from 30.12 in the former year to 28.58 in the latter. The values for Montenegro over this period are similar to those recorded for other countries, though scanty data makes cross-country comparison difficult. For example, no data on the GINI coefficient is available for either Iceland or Slovenia between 2005-10, and for Bulgaria and Croatia there is data for only one of the selected years.

Though more recent secondary data on the GINI coefficient is not available for Montenegro, the country’s Statistical Office published the Poverty Analysis report in 2011, which shows that inequality has increased in the country since 2010. According to this study, the poverty line increased to 175.25 in 2011, as did the poverty gap, moving from 1.1 to 2.0, and the poverty rate, moving from 6.6 to 9.3 per cent of the total population. In 2011, the poverty rate in rural areas was 18.4 per cent, while in urban areas it was 4.4 per cent. Poverty is also notably more prevalent in the North of the country, where the rate there in 2011 was 17.5 per cent, compared to 6.3 and 6.4 per cent in the center and south respectively. More than half of the country’s poor population lived in the North in 2011, though the region only makes up about 27 per cent of the total population. It is also worth mentioning that, when looking at the poverty rate disaggregated by employment status, the rate among self-employed people is the highest at 21 per cent, followed by unemployed persons (15.2 per cent) and those under the age of 15 (14.1 per cent). The poverty rate is lowest among employed persons at 2.6 per cent, and retired persons at 5.2 per cent.141 The high rate of poverty among youth in particular has gained increasing attention in recent years. According to the UNICEF Child Poverty Study in Montenegro, 10 per cent of children in 2010, compared to 6.1 per cent of adults, lived below the poverty line, and the child poverty rate in the north was four times that in the central part of Montenegro.142

139 Montenegro Statistical Office (MONSTAT). 2012. Poverty Analysis in Montenegro in 2011. MONSTAT; World Bank; Ministry of Health, Labor and Social Welfare (Podgorica), December. Accessed 31 May 2013. 140 European Commission. 2008. Social Protection and Social Inclusion in Montenegro. Directorate-General for Employment, Social Affairs and Equal Opportunities – European Commission, June. Accessed 4 May 2013. 141 Montenegro Statistical Office (MONSTAT). 2012. 142 UNICEF. 2012. Child poverty rate four times higher in north of Montenegro than in the central part of the country. UNICEF Montenegro (Rozaje and Polje, Montenegro), June. Accessed 31 May 2013.

101 The enabling environment for sustainable enterprises in Montenegro

Certain groups in the country are more at risk of suffering from poverty and social exclusion than others. Montenegro is home to the largest refugee camp in the Balkans, Konik, which is made up of Roma, most of whom migrated from Kosovo during the 1999-2000 conflict. During this period, they were granted “displaced persons” status, which at the time allowed them to migrate to Montenegro, but today deprives them of basic rights such as the right to work. Lacking the right to register with the local employment agency as jobseekers, Roma from Kosovo living in the Konik camp have practically no rights to formal employment, leaving them reliant on informal labour.143 More than half of Montenegro’s Roma population lives below the poverty line and unemployment is very high.144 Furthermore, while the participation of Albanian, Croat and Bosniak minorities in Montenegro is supported by the leading political party, the Roma population is rarely involved in public life. The 17,000 refugees in Montenegro who migrated from Kosovo, Bosnia and Herzegovnia, and Croatia during the wars of the fall of the former Yugoslavia are another group that suffers from structural discrimination and social exclusion. The Government of Montenegro allows these populations to apply for permanent residency provided they have the necessary documents, but most do not, thereby limiting their possibilities of gaining permanent residence and formal employment.145

Gender equality and the status of women in Montenegro is a key priority and the government has made clear efforts to improve conditions for women in the country. Specifically, Montenegro is a Party to the Council of Europe Convention on Action against Trafficking in Human Beings and to the International Convention on the Elimination of All Forms of Discrimination against Women, as well as a signatory to the Council of Europe Convention on Preventing and Combating Violence against Women and Domestic Violence. In addition, the Constitution prohibits direct or indirect discrimination and guarantees gender equality. Domestic violence in the family was incorporated into the penal code as a criminal offence in 2002, and in 2010 Montenegro adopted a law on the prevention of domestic violence. A national strategy on prevention of domestic violence has since been adopted by Parliament. This, of course, also has positive implications for women in the workplace.146 An electoral gender quota was introduced in 2011 as part of amendments made to the Law on election of municipal councilors and members of parliament, requiring that 30 per cent of candidates on the electoral candidate list be female. However, these rules are largely ineffective in increasing female representation in the political system as the law does not specify that candidates of each sex must be ranked high enough on party lists to have a serious chance at being allocated a mandate. Since 2011, female representation in the Parliament has only mildly increased from 12.3 to 13.6 per cent following the 2012 elections.147

According to the 2007 Labour Force Survey carried out in the country, the gender unemployment rate indicates that unemployment among females of working age was lower than for men and amounted to 11.7 per cent, while unemployment of males of working age was 13.5 per cent. Two explanations for this could be that there is a lower level of labour activity among women as many are engaged in unpaid domestic labour, and that job growth since Montenegro’s independence in 2006, has been recorded in activities that are traditionally female-dominated (i.e. trade and tourism).148 In 2011, women made up

143 Haliti, M. and Kelly, E. 2012. Europe’s Shame: Konik Camp for Roma in Montenegro. Open Society Foundation Roma Initiatives Office, 10 December. Accessed 27 May 2013. 144 Minority Rights Group International. (undated). Roma Profile – World Directory of Minorities and Indigenous Peoples. Accessed 28 May 2013. 145 Civil Rights Defenders. 2012. 146 Council of Europe: Parliamentary Assembly. 2013. Gender equality in the countries of the former Yugoslavia. Doc 13092, 17 January. Accessed 3 May 2013. 147 European Commission. 2011. Montenegro 2011 Progress Report. Commission Staff Working Paper. Communication for the Commission to the European Parliament and the Council (Brussels), 12 October. Accessed 31 May 2013. 148 European Commission. 2008.

102 The enabling environment for sustainable enterprises in Montenegro

46 per cent of the active labour population in Montenegro. The majority of female labour however, is employed on fixed-term contracts, which makes them financially vulnerable and hampers their right to maternity leave.149

Graph 59: Gender Empowerment Measure Graph 59: Gender Empowerment Measure

Source:Source: UNDP, UNDP, Human Human Development Development Report. Report. Secondary data on gender relations in Montenegro is quite scanty, and no data is available for the “Gender Inequality Index” and the “Female Economic Activity Secondary data on gender relations150 in Montenegro is quite scanty, and no data is available for the “GenderIndex” Inequality for the Index”country. and theThe “Female “Gender Economic Empowerment Activity Measure” Index” for (GEM) the country. is a 150 The “Gendercomposite Empowerment index Measure”measuring (GEM) gender is inequality a composite based index on measuringdimensions gender of empowerment. inequality based on The lower the value, the more heavily a society is penalized for having inequalities. dimensions of empowerment. The lower the value, the more heavily a society is penalized for having EM data from 2010 (most recent available) point out Montenegro is characterised by inequalities. EM data from 2010 (most recent available) point out Montenegro is characterised by increased industrialisation and economic scope and dominated by large companies, increasedwhich industrialisation puts it into andthe groupeconomic of economies scope and dominatedbased on efficiencyby large companies,. According which to GEM puts it into the groupresults of economies for 2010, suchbased countries on efficiency are those. According having: 1)to theGEM highest results level for of 2010, entrepreneurial such countries are those having:activity 1) among the highest population level ofaged entrepreneurial 25-34; 2) more activity prominent among entrepreneurial population aged activity 25-34; of 2) more prominentmen entrepreneurial compared toactivity that of of men women compared (GEM to that report of women for (GEM Montenegro report for says Montenegro male says male entrepreneurialentrepreneurial activity activity is twiceis twice larger larger compared compared to tofemale). female).

The “Gender-related Development Index” measures average achievement in long Theand “Gender-related healthy life, knowledge Development and Index”a decent measures standard averageof living, achievement adjusted to inaccount long and for healthy life, knowledgeinequalities and betweena decent menstandard and ofwomen. living, Higher adjusted values to account indicate for a inequalitiesbetter situation. between Data men and women.on Higher Montenegro values indicateis only availablea better situation. in 2006 whenData onthe Montenegro country recorded is only a availablevalue of 0.819.in 2006 when the countryThis recorded is similar a tovalue the of value 0.819. for This Serbia is similar and below to the the value values for recorded Serbia and for below Bulgaria, the values recordedCroatia, for Bulgaria, Slovenia, Croatia, and Slovenia, Iceland inand the Iceland same in year. the same Because year. more Because recent more data recent is not data is not availableavailable for Montenegro, for Montenegro, it is difficult it is difficult to deduce to deduce whether whether new legislation new legislation and policiesand policies have had the intendedhave positive had theimpacts. intended positive impacts.

149 Council of Europe: Parliamentary Assembly. 2013. 150 The “Gender Inequality Index” is a composite index measuring loss in achievements in three dimensions of human 150 The “Genderdevelopment—reproductive Inequality Index” health,is a composite empowerment index and measuring labour market, loss in due achievements to inequality inbetween three genders.dimensions The “Female of humanEconomic development Activity—reproductive Index” is a measure health, of empowerment women over the and age labour of fifteen market, who dueare toworking inequality in industry, between agriculture or genders. Theservices “Female as a percent Economic of males. Activity Index” is a measure of women over the age of fifteen who are working in industry, agriculture or services as a percent of males.

103111

The enabling environment for sustainable enterprises in Montenegro

Key Indicators

GINI Coefficient 2005 2006 2007 2008 2009 2010 Gini index measures the extent to Montenegro 30.12 29.33 30.83 29.99 - 28.58 which the distribution of income (or, in some cases, consumption Bulgaria - - 28.19 - - - expenditure) among individuals or Croatia - - - 33.65 - - households within an economy deviates from a perfectly equal Serbia 33.40 29.63 29.40 28.16 27.80 29.62 distribution. A value of 0 0=perfect equality, 100=perfect inequality. represents absolute equality, a value of 100 absolute inequality. Source: World Bank, Development Research Group. Data are based on primary household survey data obtained from government statistical agencies and World Bank country departments.151 Note: Data for Iceland and Slovenia is not available. Gender-related Development Index (GDI) 2004 2006 2007 A composite index measuring Montenegro - 0.819 - average achievement in the three

basic dimensions captured in the Bulgaria 0.814 0.832 0.839 human development index—a Croatia 0.844 0.859 0.869 long and healthy life, knowledge, and a decent standard of — Iceland 0.958 0.963 0.959 adjusted to account for Serbia - 0.818 - inequalities between men and women. Slovenia 0.908 0.92 0.927 Source: UNDP Human Development The lower the value, the more heavily a society is penalized for Report.152 having inequalities.

4.4. Adequate social protection

151 World Bank Databank. 152 UNDP Human Development reports. 153 United States Department of State. 2012b.

151 World Bank Databank. 112 152 UNDP Human Development reports.

104 The enabling environment for sustainable enterprises in Montenegro

4.4. Adequate social protection

Providing citizens with access to key services, such as quality health care, unemployment benefits, maternity protection, and a basic pension, are key to improving productivity. Protecting workers’ health and safety at the workplace is also vital for sustainable enterprise development and productivity gains. In general, the country offers wide social protection coverage. Medical facilities in Montenegro are generally available, but can be limited in terms of provided and available services.153 Parental leave lasts up to 365 days from the day of childbirth. Employed woman can start her maternity leave 45 days but not later than 28 days prior to childbirth. An employee is entitled to compensation in the amount of salary they wouldworking. earn Recently if working. adopted Recently new adopted Law on new Social Law and on SocialChild andProtection Child Protection (unlike the (in old comparison to the oneold )one) introduces provides certain more limitationsrestrictive conditionsof refunding of refundingemployers employers for maternity for maternityand parental and parental leave. leave.Provisions Provisions of the Law,of the among Law, otheramong things, other provides things, provides that the amount that the of amount funds that of fundsare reimbursed to the thatemployer are reimbursed for an employee to the whoemployer is employed for an employeefor at least who 12 continuous is employed months, for at canleast be 12 determined up to continuothe amountus months,of two averagecan be determinedwage in the up state to the in theamount previous of two year, average while wage for those in the employees employedstate less in the than previous 12 months year, up while to the for amount those employeesof an average employed wage in less the thancountry 12 monthsfor the yearup prior to the leave.to the However, amount reform of an is average needed wagein this in area the to country ensure that for the available year prior social to the protections leave. are not producingMoreover a low, labourreform activity is needed rate in by this creating area to incentives ensure that for thebeneficiaries available social to work protections in the grey market. are not producing a low labour activity rate by creating incentives for beneficiaries to work in the grey market. Currently, the main challenges for the social protection system include: Currently, the main challenges for the social protection system include: - Targeting benefits to fit social welfare demands;  Targeting benefits to fit social welfare demands;  -Transparency Transparency and and monitoring monitoring of of system; system;  -Decentralization Decentralization ofof Centre Centre for for Social Social Work Work in terms in terms of financing of financing and the and delivery the of welfare;delivery and - ofImproved welfare; administrative and capacities of relevant institutions.154  Improved administrative capacities of relevant institutions.154 Graph 60: Public Expenditure on Health Graph 60: Public Expenditure on Health

Source: World Bank data online. Source: World Bank data online. Secondary information on social protection in Montenegro is largely missing. 153 UnitedOnly States data Department on “Public of State.Expenditure 2012b. on Health” as a percentage of GDP is available for 154 Ibid.the country. Considering the period 2002-11, a positive trend is apparent for Montenegro, where the country improved from 5 per cent in the former year to 6.2 per cent in the latter, surpassing the world mean of 6 per cent in the latter year. Relative to 105

154 Ibid.

113

The enabling environment for sustainable enterprises in Montenegro

Secondary information on social protection in Montenegro is largely missing. Only data on “Public Expenditure on Health” as a percentage of GDP is available for the country. Considering the period 2002-11, a positive trend is apparent for Montenegro, where the country improved from 5 per cent in the former year to 6.2 per cent in the latter, surpassing the world mean of 6 per cent in the latter year. Relative to thethe countries countries used used for for comparison comparison however, however, in in2011 2011 only only Bulgaria Bulgaria performed performed worse worse than Montenegro inthan this Montenegro regard. in this regard.

A major issue plaguing social protection in Montenegro is the relationship A majorbetween issue plaguing social protection social protection and labour in marketMontenegro productivity, is the relationship particularly between in regards social to protection andparticip labour ationmarket in productivity, informal economic particularly activities. in regards The to participation social assistance in informal and transferseconomic activities. Thesystem social is assistance designed and in suchtransfers a way system that is it designed negatively in affects such a the way performance that it negatively and affects the performanceproductivity and of productivity the labour of market, the labour which, market, as mentioned which, as mentioned already, is already, the lead is the factor lead factor hinderinghindering doing business doing bu insiness the country. in the155 country. Specific155 negativeSpecific consequences negative consequences of the current of thesocial protection systemcurrent include social a low protection labour systemactivity includerate, growth a low of labourthe informal activity economy rate, growth and long-term of the unemployment.informal Though economythe system and provides long extensive-term unemployment. coverage for beneficiaries,Though the it systemis designed provides in such a way that it promotesextensive participation coverage for in beneficiaries,the grey economy, it is which designed is already in such notably a way large that in it Montenegro promotes and the growthparticipation of which has in obviousthe grey negative economy, consequences which is already for the notably overall large economy. in Montenegro In 2007, nearlyand 22.6 per cent ofthe the growth total numberof which of hasemployed obvious persons negative were consequences employed in forthe theinformal overall sector economy. or worked In informally for2007, registered nearly companies, 22.6 per cent and of of the those total formally number employed,of employed 17.5 persons per cent were only employed paid social in security contributionsthe informal on half sector of their or workedactual wages. informally Multiple for reforms registered have companies, been made and in the of thosepast to decrease the extentformally to which employed, social welfare 17.5 per benefits cent only create paid disincentives social security to enter contributions the formal onlabour half force. of However, the theirissue actualremains wages. that forMultiple many livingreforms in haveMontenegro, been made it is in more the past financially to decrease advantageous the extent to remain in the greyto which economy social so welfare as to avoid benefits registering create theirdisincentives incomes, toand enter thus the continue formal to labour receive force. social However, the issue remains that for many living in Montenegro, it is more financially assistance from the state.156 advantageous to remain in the grey economy so as to avoid registering their incomes, and thus continue to receive social assistance from the state.156

Key Indicators

Public Expenditure on Health (% of GDP) 2002 2004 2006 2008 2010 2011 Public expenditure on health as a Montenegro 5.9 6.2 5.6 5.6 6.0 6.2 percentage of GDP—Public

health expenditure consists of Bulgaria 4.6 4.4 3.9 4.1 4.2 4.0 recurrent and capital spending Croatia 5.0 5.4 6.1 6.6 6.6 6.6 from government (central and local) budgets, external Iceland 8.6 8.2 7.5 7.5 7.5 7.3 borrowings and grants (including Serbia 6.4 6.0 5.9 6.4 6.4 6.5 donations from international agencies and nongovernmental Slovenia 6.3 6.1 6.0 6.1 6.5 6.6 organizations), and social (or

compulsory) health insurance World 5.7 5.9 5.8 5.9 6.3 6.0 funds. % of GDP. Source: World Health Organization (WHO) WHOSIS133 and World Development Indicators CD-ROM and UNDP Human Development Report.157

157

155 World Economic Forum. 2012.

156155 Institute for Strategic Studies and Prognoses. 2012. Labour Supply Effect of Social Security Transfers. Slovak Balkan PublicWorld Policy Economic Fund; Forum.Pontis Foundation 2012. (Montenegro), July. Accessed 31 May 2013. 156 Institute for Strategic Studies and Prognoses. 2012. Labour Supply Effect of Social Security Transfers. 157Slovak World Balkan Bank Databank. Public Policy Fund; Pontis Foundation (Montenegro), July. Accessed 31 May 2013. 157World Bank Databank.

106 114

The enabling environment for sustainable enterprises in Montenegro

5. Environmental elements

KEY FINDINGS:

In Montenegro, the main characteristic of the evolving legal framework of sustainable development is the progressive harmonization with the EU as part of the accession process. However, economic development in the Western Balkans adds to environmental strains, particularly in the areas of resource use, waste and biodiversity. Thus, efforts are being made to integrate environmental policies into economic growth frameworks. Legislative framework in this regard has been to a great extent harmonized with EU legislation, though the implementation of legislation remains a question of concern. One of the problems indicated in numerous reports is illegal and unplanned use of land. Another issue is the environmental impact of transport in Montenegro, though the government is making active efforts to ensure that the two goals--development of transport infrastructure and environmental sustainability--are not contradictory.

• The evolving legal framework of sustainable • The illegal use of land and natural resources has lead development is heavily influence by the progressive to serious environmental challenges, in particular harmonization with the EU as part of the accession because parts of the country have been recognized as process. biodiversity hotspots, implying a risk of losing rare species in unprotected areas. • Economic development in the Western Balkans adds to environmental strains, particularly in the areas of • Over-consumption of water is also an issue. resource use, waste and biodiversity. Losses in the distribution system lead to large and environmentally detrimental over consumption. • The environmental impact of transport is a key concern. Of the two objectives for transport in the • Montenegro boasts a high percentage of forested area 2007 National Strategy of Sustainable Development and a relatively low level CO2 emission levels. of Montenegro, one was the full integration of environmental requirements in the development of infrastructure projects.

5.1. Responsible stewardship of the environment

In the absence of appropriate regulations and incentives, markets can lead to undesirable environmental outcomes. The development of sustainable enterprises and the protection of the environment require sustainable production and consumption patterns. In Montenegro, the main characteristic of the evolving legal framework of sustainable development is the progressive harmonization with the EU, as part of the accession process. However, economic development in the Western Balkans adds to environmental strains, particularly in the areas of resource use, waste and biodiversity. Thus, efforts are being made to integrate environmental policies into economic growth frameworks.158

The environmental impact of transport in Montenegro is a key concern, but one which the government has actively acknowledged and is working to remedy. Of the two objectives for transport in the 2007 National Strategy of Sustainable Development of Montenegro, one was the full integration of environmental requirements in the development of infrastructure projects and in the adoption of regulations in the field of transport, reduced pollution from transportation and increased transportation

158 European Environmental Agency. 2010. How will the Western Balkans shape its environmental future?. EEA News, 12 May. Accessed 3 May 2013.

107 The enabling environment for sustainable enterprises in Montenegro

safety.159 Another key concern for Montenegro’s environmental sustainability is the illegal use of land and natural resources that has lead to serious environmental challenges. This is an even more serious issue as parts of the country have been recognized as biodiversity hotspots, implying a risk of losing rare species in unprotected areas. Another focal environmental issue in the country is over-consumption of water. Though more than 90 per cent of the population has access to drinking water, losses in the distribution system lead to large and detrimental over consumption, which has negative consequences on the environment.160

The “Environmental Sustainability Index” benchmarks the ability of nations to protect the environment over the next several decades. Higher values indicate better performance. In 2005, Montenegro registered a score of 47.3, equal to that of Serbia, but below the scores for all other countries used for comparison in that year. Considering “Total Ecological Footprint”, where lower values indicate better performance, Montenegro performs notably well, rating 2.61 in 2005 – the only year for which data on Montenegro is available. This is equal to that of Serbia and just under the world mean for the same year. All other countries compared in 2005 reflected poorer performance in this regard. No data is available on Montenegro for the “Environmental Performance Index”.161

Graph 61: CO2 Emission Graph 61: CO2 Emission

Source: Carbon Dioxide Information Analysis Center, Environmental Sciences Division, Oak Ridge Source:National Carbon Laboratory, Dioxide Information Tennessee, Analysis United Center, States Environmental(World Development Sciences Indicators Division, Online). Oak Ridge National Laboratory, Tennessee, United States (World Development Indicators Online). CO2 emissions in metric tons per capita indicate that Montenegro increased its emission levels between 2005 to 2008, but in 2009 the country showed successful improvement from a steep increase the previous year. Of the six compared countries, Montenegro registered the lowest CO2 emissions in 2009, and was only marginally 159 Governmenthigher of Montenegro. than the world 2007. mean. 160 Economic Commission for Europe. 2007. Environmental Performance Reviews – Republic of Montenegro. United Nations (New York and GraphGeneva). Accessed62: Forest 4 May Ar 2013.ea 161 The “Environmental Performance Index” ranks 149 countries on 25 indicators tracked across six established policy categories: Environmental Health, Air Pollution, Water Resources, Biodiversity and Habitat, Productive Natural Resources, and Climate Change. The EPI identifies broadly accepted targets for environmental performance and measures how close each country comes to these goals.

108

117

Graph 61: CO2 Emission

The enabling environment for sustainable enterprises in Montenegro

Source: Carbon Dioxide Information Analysis Center, Environmental Sciences Division, Oak Ridge National Laboratory, Tennessee, United States (World Development Indicators Online).

2 CO emissionsCO 2in emissions metric tons in metric per capita tons perindicate capita that indicate Montenegro that Montenegro increased increased its emission its levels between 2005emission to 2008, levels but in between 2009 the 2005 country to 2008 showed, but in successful 2009 the improvement country showed from successful a steep increase the previous improvementyear. Of the fromsix compared a steep increase countries, the previous Montenegro year. registeredOf the six comparedthe lowest countries, CO2 emissions in 2009, and wasMontenegro only marginally registered higher the than lowest the CO world2 emissions mean. in 2009, and was only marginally higher than the world mean.

Graph 62: Forest AreaGraph 61: Forest Area

Source: World Bank Indicators Online. Source: World Bank Indicators Online. 117 With the exception of Slovenia, Montenegro also consistently registered the most With the exception of Slovenia, Montenegro also consistently registered the most forest area of the forest area of the countries compared over the period 2005-11.2 Though this and countries compared over the period2 2005-11. Though this and relatively low CO emission levels appear relatively low CO emission levels appear to reflect superior environmental conditions, to reflect superiorit is environmental likely that they conditions, are more it is thelikely product that they of are underdeveloped more the product industry of underdeveloped than of industry than ofcomparatively comparatively effective effective environmental environmental protection protection policies policies and and practices. practices.

162 Key Indicators

Environmental Sustainability Index (ESI) 2001 2002 2005 The Environmental Sustainability Index Montenegro - - 47.3 (ESI) benchmarks the ability of nations to protect the environment over the next Bulgaria 47.4 49.3 50.0 several decades. It does so by integrating Croatia 54.1 62.5 59.5 76 data sets—tracking natural resource endowments, past and present pollution Iceland 67.3 63.9 70.8 levels, environmental management efforts, Serbia - - 47.3 and the capacity of a society to improve its environmental performance—into 21 Slovenia 59.9 58.8 57.5 indicators of environmental sustainability. The higher a country’s ESI score, the better positioned it Source: Yale University's Center for Environmental Law and Policy in collaboration is to maintain favourable environmental conditions into with Columbia University's Center for the future. International Earth Science Information Network (CIESIN), and the World Economic Forum162 Total Ecological footprint (EFP) (global hectares per capita) 2005 2006 2007 162The Yale Ecological University EnvironmentalFootprint (global Sustainability hectares Index. Montenegro 2.61 - - per capita) measures the amount of

biologically productive land and sea area Bulgaria 2.71 3.25 4.07 an individual, a region, all of humanity, or Croatia109 3.20 3.34 3.75 a human activity requires to produce the resources it consumes and absorb the Serbia 2.61 - - waste it generates, and compares this Slovenia 4.46 3.89 5.3 measurement to how much land and sea area is available. World 2.66 2.70 2.70 Source: Global Footprint Network, based on Lower value=better performance. For 2005, humanity's international data (UNSD, FAO, IEA, IPCC).163 total ecological footprint was estimated at 1.3 planet Note: Data for Iceland is not available. Earths. In other words, humanity uses ecological services 1.3 times as fast as Earth can renew them.

Other Useful Indicators

CO2 Emissions (metric tons per capita) 2005 2006 2007 2008 2009 Carbon dioxide emissions are those Montenegro 3.28 6.72 5.92 7.87 4.84

162 Yale University Environmental Sustainability Index. 163 Global Footprint Network.

118

Source: World Bank Indicators Online.

With the exception of Slovenia, Montenegro also consistently registered the most forest area of the countries compared over the period 2005-11. Though this and relatively low CO2 emission levels appear to reflect superior environmental conditions, it is likely that they are more the product of underdeveloped industry than of comparatively effective environmental protection policies and practices.

Key Indicators

Environmental Sustainability Index (ESI) 2001 2002 2005 The Environmental Sustainability Index Montenegro - - 47.3 (ESI) benchmarks the ability of nations to protect the environment over the next Bulgaria 47.4 49.3 50.0 several decades. It does so by integrating Croatia 54.1 62.5 59.5 76 data sets—tracking natural resource endowments, past and present pollution Iceland 67.3 63.9 70.8 levels, environmental management efforts, Serbia - - 47.3 and the capacity of a society to improve its environmental performance—into 21 Slovenia 59.9 58.8 57.5 indicators of environmental sustainability. The higher a country’s ESI score, the better positioned it Source: Yale University's Center for Environmental Law and Policy in collaboration is to maintain favourable environmental conditions into with ColumbiaThe enablingUniversity's environment Center for forthe sustainable future. enterprises in Montenegro International Earth Science Information Network (CIESIN), and the World Economic Forum162 Total Ecological footprint (EFP) (global hectares per capita) 2005 2006 2007 The Ecological Footprint (global hectares Montenegro 2.61 - - per capita) measures the amount of

biologically productive land and sea area Bulgaria 2.71 3.25 4.07 an individual, a region, all of humanity, or Croatia 3.20 3.34 3.75 a human activity requires to produce the resources it consumes and absorb the Serbia 2.61 - - waste it generates, and compares this Slovenia 4.46 3.89 5.3 measurement to how much land and sea area is available. World 2.66 2.70 2.70 Source: Global Footprint Network, based on Lower value=better performance. For 2005, humanity's international data (UNSD, FAO, IEA, IPCC).163 total ecological footprint was estimated at 1.3 planet Note: Data for Iceland is not available. Earths. In other words, humanity uses ecological services 1.3 times as fast as Earth can renew them.

Other Useful Indicators

CO2 Emissions (metric tons per capita) 2005 2006 2007 2008 2009 Carbon dioxide emissions are those Montenegro 3.28 6.72 5.92 7.87 4.84 stemming from the burning of fossil fuels Bulgaria 6.19 6.36 6.89 6.66 5.64 and the manufacture of cement. They 5.20 5.22 5.50 5.27 4.86 include carbon dioxide produced during Croatia consumption of solid, liquid, and gas fuels Iceland 7.43 7.50 7.51 6.99 6.37 and gas flaring. 162 Yale University Environmental Sustainability Index. Source: Carbon Dioxide Information Analysis Serbia - 7.25 7.05 7.08 6.32 163 Global Footprint Network. Center, Environmental Sciences Division, Oak Ridge National Laboratory, Tennessee, United Slovenia 7.93 8.09 8.02 8.49 7.50 States (World Development Indicators 118 4.57 4.67 4.72 4.77 4.70 Online)164 World Metric tons of CO2 emitted per capita. Forest Area 2005 2010 2011

Forest area is land under natural or Montenegro 40.37 40.37 40.37 planted stands of trees of at least 5 meters in situ, whether productive or not, and Bulgaria 33.61 36.17 36.68 excludes tree stands in agricultural Croatia 34.01 34.31 34.37 production systems (for example, in fruit plantations and agroforestry systems) and Iceland 0.25 0.30 0.31 trees in urban parks and gardens. Serbia 28.31 31.02 31.56 Source: World Bank Indicators Online165 Slovenia 61.72 62.21 62.31 World 31.24 31.03 31.02 Percentage of total land that is forested.

163 164 165

163 Global Footprint Network. 164 World Bank Databank. 165 Ibid.

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164 World Bank Databank. 165 Ibid.

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The enabling environment for sustainable enterprises in Montenegro

6. Assessment results and ways forward The following table lists the most important obstacles recognized in each pillar, actions needed to be taken in order to overcome them and main actors responsible for their implementation. This EESE report provided a solid platform for further work on developing a Strategic Policy Framework - high level policy document of MEF which will outline five crucial business barriers and provide main suggestions as to have to overcome them. In addition this report, considering its detailed analysis on numerous business constraints will enable MEF to develop relevant position papers in number of areas that are important to MEF members and broader business community.

Condition Desired results Concrete Measures Main actors for action Good Efficient and - Strengthen institutional capacities for Ministry of Finance, governance transparent tackling bribery and corruption; Ministry of Economy, use of public - Improve the system of electronic Ministry for Information resources and submission of documents; Society, local authorities, active and proper - Improve the efficiency of public The Association of implementation administration through good Municipalities, MEF of policies management, better organization and and laws; higher level of responsibility; reduced level - Improve control and monitoring over of corruption the public resources spent by the state perception and local authorities through internal control and through consultations with public services’ users; - Improve the transparency of the public procurement process at all stages and simplification of conditions for participation in public procurement - inform the public on corruption affairs and persons involved

Education, Education -Advocate for and promote relations Ministry of Education, training system matches between enterprises and education Ministry of Science, VET and lifelong the needs of providers and vice versa; Centre, MEF, enterprises learning businesses; -Insist on work-based curricula: and entrepreneurs, Increased advocate for an increased amount of schools and universities, importance of practical training within VET curricula and tripartite bodies HRD and obligatory practical training comprising all the (traineeships, internships) at tertiary stakeholders mentioned level; -Advocate for more active participation of employers in education planning and curricula design; -Strengthen the capacities of enterprises in regards to HRM; -Work on the promotion of university- business links in the fields of research and innovation; -Build the capacities of Sector Commissions so that they become a leading stakeholder in the analysis of labour market trends, identification and anticipation of future skill needs.

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Enabling Reduced costs of - Continue with labour legislation Ministry of Labour and legal and doing business; reforms; Social Welfare, Ministry regulatory Acceleration and - Reduce the number of procedures of Finance, Ministry of environment simplification (licences, approvals)/ implement „one Economy, Ministry for of procedures; stop shop system”; Information Society and Higher level of - Introduce the rule of adoption of Telecommunications, legal security and bylaws following the adoption of laws; Ministry of Internal predictability - Have parties in the procedures Affairs, Council for the both for citizens not submitting documents already Improvement of Business and companies in possession of other state or local Environment, Regulatory bodies (now regulated with Law on and Structural Reforms, Adminstration Procedure, but still not local governments, MEF implemented); - Reduce the costs of labour, and those arising from obtaining different licences, permits etc; - In procurement procedures eliminate the payment of fees in case of appeals; - Entirely implement the system of e-government (i.e. electronic applications); - Adopt a law on the deadlines for settlement of liabilities. - Introduce an equal model at local level when it comes to local revenues (so called principle of getting Government approval prior to local governments’ decisions and/or have the level of local revenues regulated by law); - Change the concept of penalty policy and set it according to the economic power of enterpirses and the level of violation. Access to Favourable loans - Create stimulating credit policy in Ministry of Finance, financial for SMEs with terms of better loaning conditions, Central Bank, Ministry services reduced collateral lower interest rates, more diverse and of Economy, commercial acceptable collateral and the possibility banks, MEF, Association of reprogramming the current credits of Banks, Am Chamber, without changing the credit conditions; NASME - Create special credit lines that comply with individual SME needs (e.g. export or production oriented enterprises, especially those producing and/or processing food; enterprises wishing to implement energy efficiency projects, innovative enterprises etc.) - Promote the use of alternative sources of financing for companies through seminars, workshops and better dissemination of information from institutions to companies and improve capacities of all actors for better usage of these funds through seminars and education for preparation of proposals and applications;

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Fair Reduced - Further intensify the activities Ministry of Finance, competition informal aimed at reducing informal economic Ministry of Economy, economic activities and encourage registration Ministry of Labour, activities and of unregistered (informal) companies MEF, National Agency monopoly through decrease of tax burden of for SME Development, salaries, better flexibility of labourTax Administration, regulations, decrease and simplification Inspections, and others. of number and costs of administrative procedures needed for business conduct; - Strengthen institutional capacities to better deal with the informal economy; - Create policies and targeted actions against monopolistic practices in certain sectors. - intensify public campaigns on negative effects of informal economy - encourage entrepreneurship and self-employment through appropriate micro financing schemes Trade and Improved - Reduce the number of documents Ministry of Economy, sustainable process of needed for the export of certain goods MEF, NASME, Institute economic standardisation and speed up the process of obtaining for Standardisation, integration and certification; them; Accreditation Body Accelerated - Introduce the system of electronic process of getting submission of documents at all stages the necessary and phases of business operations; documents for - Strengthen the financial support export. to production companies, trade and export through creation of favourable credit lines and grant to support this crucial part of every economy; - Improve the existing infrastructure for better and simpler transport of goods. - better connections and networking of companies and widening the markets through obtaining adequate information on market trends and possibilities

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