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Montenegro Development Directions 2018-2021

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MONTENEGRO THE MINISTRY OF FINANCE MONTENEGRO DEVELOPMENT DIRECTIONS 2018-2021 December 2017 CONTENTS MONTENEGRO ............................................................................................................................. 1 MINISTRY OF FINANCE ................................................................................................................. 1 3.1. The key priorities of economic policy ................................................................................ 13 3.2. Growth pattern changes .................................................................................................. 15 3.3. Economic situation and prospects .................................................................................... 16 3.4. Domestic and external demand ........................................................................................ 18 3.4.1.Changes in the structure of the gross domestic product................................................... 19 3.4.2. External demand and foreign direct investment are an important source of growth ....... 20 3.4.3. The financial stability is at satisfactory level, with enhanced resilience to potential risks 22 3.5. Public finances ................................................................................................................. 24 3.5.1. The state of public finances and projections ................................................................... 24 3.5.2. The state nod dynamics of government debt.................................................................. 26 3.6.Demographic trends ......................................................................................................... 27 4.1. SMART GROWTH ................................................................................................................................... 29 4.1.1. Business Environment ................................................................................................... 30 4.1.2. Small and medium enterprises ...................................................................................... 31 4.1.3. Manufacturing ............................................................................................................. 32 4.1.4. Competitiveness/foreign direct investment.................................................................... 34 4.1.5. Science ......................................................................................................................... 35 4.1.6. Higher education .......................................................................................................... 37 4.1.7. Information and communication technologies ............................................................... 39 4.1.8. Tourism ........................................................................................................................ 41 4.1.8.1. Promotion of culture as a growth driver (cultural tourism) .......................................... 43 4.2. Sustainable growth ........................................................................................................................ 45 4.2.1. Agriculture and rural development ................................................................................ 46 4.2.2. Forestry ........................................................................................................................ 48 4.2.3. Energy .......................................................................................................................... 51 4.2.4. Environment .................................................................................................................. 53 4.2.5. Transport ...................................................................................................................... 56 4.2.6. Construction and housing .............................................................................................. 61 4.3. INCLUSIVE GROWTH ............................................................................................................................ 66 4.3.1 Labor market policy ....................................................................................................... 67 4.3.2 Education ...................................................................................................................... 68 4.3.3 Sport ............................................................................................................................. 69 4.3.4. Social Welfare ............................................................................................................... 70 4.3.5. Health ........................................................................................................................... 72 VI SWOT analysis of Montenegrin economy ................................................................................ 77 ANEX ............................................................................................................................................... 97 Abbreviations GVA Gross Value Added CEFTA Central European Free Trade Agreement CIP Framework Program for Competitiveness and Innovation COSME Competitiveness of Enterprises and SMEs EBRD European Bank for Reconstruction and Development EPCG Elektroprivreda Crne Gore Power Company of Montenegro EU European Union EUREKA European Network for Market-Oriented Research EMEP Transboundary Air Pollution EFT European Training Foundation EE Energy Efficiency EEPPB Energy Efficiency Public Buildings Program GERD Gross Domestic Expenditure on Research and Development GCI Global Competitiveness Indicator ICT Information and Communication Technologies ILO International Labor Organization IPA Instrument for Pre-Accession Assistance IPARD Instrument for Pre-Accession Assistance for Rural Development IXP National Internet Exchange Point ISSS Information System of Social Housing JPP Public-Private Partnership KfW German Development Bank MIPA Montenegrin Investment Promotion Agency MONSTAT Statistical Office of Montenegro SME Small and Medium Enterprises OECD Organization for Economic Cooperation and Development RES Renewable Energy Sources DD Development Directions MDD Montenegro Development Directions VAT Value Added Tax WAEIR Weighted Average Effective Interest Rate WADIR Weighted Average Deposit Interest Rate PPP Purchasing Power Parity PDO Protected Designation of Origin PGI Protected Geographical Indication R&D Research and Development RIA Regulatory Impact Assessment SEECEL South East Europe Centre for Entrepreneurial Learning Support for Improvement in Governance and Management in Central and Eastern Europe SIGMA FDI Foreign Direct Investment WTO World Trade Organization SWOT Strengths-Weaknesses-Opportunities-Threats Analysis SBA SMEs Act RPP Real Purchasing Power SEE South Eastern Europe SEETO South Eastern Europe Transport Observatory UN United Nations United Nations Educational, Scientific and Cultural Organization UNESCO UNFCCC United Nations Framework Convention on Climate Change I Introduction In accordance with the Government's Conclusions no. 08-1592 from July 9, 2015 and the Work Program of the Government of Montenegro for 2017, the Ministry of Finance prepared the Montenegro Development Directions 2018-2021, in cooperation with the relevant state institutions. The establishing of the Coordination Team for the Preparation and Monitoring of the Implementation of the Montenegro Development Directions 2018-2021 and of the Working Group for the Preparation of the Montenegro Development Directions 2018-2021 preceded the preparations for the Development Directions. All the state institutions in accordance with their competences for designing and implementing relevant policy fields that are included in the DD, took part in preparation of the Development Directions 2018-2021. What is the connection between the Montenegro Development Directions 2018-2021 with the Montenegro Development Directions 2015-2018, or with the Montenegro Development Directions 2013-2016? At its session held on July 2, 2015, the Government of Montenegro adopted the Montenegro Development Directions 2015-2018 (Government Conclusions No. 08-1592 from July 9, 2015) that are "leaning" on the Montenegro Development Directions 2013-2016 which was adopted by the Government of Montenegro at its session held on March 28, 2013 (Government Conclusions No. 06- 536 / 4 from April 4, 2013), and thereby fulfilled the obligation to determine the vision of social and economic development, which it had as an EU membership candidate country. Development directions, as the umbrella development implementation document, determined the strategic goal of development of Montenegro, which is: Increasing the quality of life in the long term In order to realize the strategic development goal, four priority sectors of development have been formally established: Tourism; Energy; Agriculture and rural development and Manufacturing. In order to realize the goals set by the Development Directions, taking into account the natural resources of Montenegro being its comparative advantages, and the need to align with EU standards and requirements, within the Development Directions "smart growth", "sustainable growth" and "inclusive growth"1, the policy fields were identified, priorities and proposed 1 The Development Directions, according to the Europe 2020 strategy, define three directions of development (smart, sustainable and inclusive growth). Smart growth represents innovation, digitization
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