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RESEARCH & FORECAST REPORT Montenegro 2017 Overview Q2 Summary Recent Trends Prognosis In the past decade Montenegro has shown considerable With the country directing the inflow of investments into growth, and many consider the country one of the fastest tourism, it is very likely that new structures will continue to rising tourism markets in the world. With its stable economic be built to accommodate the demands of the market. The growth over the past few years, it is sure to continue to new road infrastructure and air connections should allow not attract foreign investmets in the forseeable future. The only only a better and faster connection between the southern downside of such trends is that development has largely and northern region, which would again present a valuable been concentrated on retail and hospitality sectors, whereas opportunity for new projects in the northern parts of the the industrial market has been largely left in the backdrop. country, but this will largely depend on external factors. Economic Unemployment (% of active population) 19.7% 19.5% 18.0% 17.7% Overview 20.3% 17.6% 15.2% Summary & Prognosis Introduction: Montenegro is an upper middle income country, with a small open economy. The country is in 2011 2012 2013 2014 2015 2016 2017 transition towards a market based economy and integration into the EU. Steady progress has been made on key Source: Montenegro Statistical Office reforms geared towards EU integration. However, further structural and institutional changes are required. The > Economic Performance: Montenegro has been badly economy continues to be over reliant on the state and affected by the global financial crisis and the resultant unprofitable state owned companies are kept afloat by volatility in the euro zone. Marked recession in 2009 was public finance. Unemployment and regional differences in followed by economic growth in 2010 and in 2011 driven by development are also key political and economic issues. increased exports, recovering domestic consumption and Key Economic Indicators are summarized in the following the performance of the tourism sector. However, weak table: external demand resulted in a decline in exports and this, together with weak domestic demand, contributed to 2.5% Economic Figures real economic decline in 2012. Growth resumed in 2013, with a 3.5% growth, and has since continued to expand, with 2013 2014 2015 2016 2017F 2018F IMF staff projecting a 3.0% rise in 2017. However, an IMF assessment states that Montenegro is Actual vulnerable to a downturn in external demand, and Nominal substantial financing needs expose the country to shifts in GDP € 3,362 3,458 3,625 3,773 3,970 4.187 risk aversion and disruptions to global financial markets. In millions Real GDP the following years Montenegro has continued to rely on its 3.5 1.8 3.4 2.5 3.0 2.8 % Change tourism as a source of income. Inflation Montenegro’s economy continues to grow at a moderate CPI Year 0.3 (0.3) 1.4 1.0 1.6 2.6 pace, and growth should continueover the medium term, End boosted by the implementation of large investment projects, % of GDP includingthe construction of the Bar-Boljare highway. IMF Current staff projects the economy to expand by 3 percent in 2017 Account (14.5) (15.2) (13.3) (19.0) (20.2) (21.2) and 2.8 percent in 2018, with planned fiscal consolidation Balance Foreign acting as a moderate drag on growth. Direct 9.6 10.2 17.1 9.8 10.3 10.4 While the implementation of large publicly financed Investment infrastructure projects will add to economic growth, the External 153.5 163.1 163.1 166.8 169.8 173.5 accompanying use of fiscal resources has contributed to a Debt large increase in government debt, which reached 78 Exports 41.3 40.1 42.5 42.4 42.9 42.8 percent of GDP in 2016. Large refinancing needs in coming years are also a source of fiscal vulnerability. Imports 61.4 60.0 61.1 66.0 67.7 68.6 Source: IMF Average monthly gross earnings (€/month) 748 (GDP, annual var in %) 3.5% 3.4% 3.0% 2.5% 2.8% 1.8% 727 727 726 725 723 -2.7% 2011 2012 2013 2014 2015 2016 Source: Montenegro Statistical Office Source: Montenegro Statistical Office 2 Research and forecast report Q2 | 2017 | Montenegro | Colliers International > Economic Sectors: Tourism and the export of refined individual employment agreements. Employment of metals are major economic sectors. Significant natural expatriates is regulated by the Law on Employment of resources include bauxite, hydroelectricity and, for tourism, Foreign Citizens. For an expatriate employee a work permit, the coast and climate. A large aluminium complex and permanent or temporary residence permit and an much of the financial sector have been privatised, and employment contract are obligatory. The Government has foreign direct investment in the tourism sector has an annual maximum quota of foreigners to be employed. commenced. The following table indicates the composition Foreign employees are entitled to equal treatment as local of the economy by broad economic sector, based on employees. employment by sector in September 2017. > Taxation: The tax system has undergone progressive Sector % of Workforce reform since 2001, when Montenegro was moving towards Agriculture 2 independence. The main objectives have been to make the Industry 18 tax system regime more efficient and easier to implement, to increase the attractiveness of the tax regime foreign Services 80 investors and to harmonise the tax system with EU and Total 100 international standards. Tax rates have been significantly rd Source: Montenegro Statistical Office, Labour Force Survey 3 decreased, making Montenegro’s tax regime one of the Q2017 most competitive in the region and Europe as a whole. The rates of significant taxes are as follows: % of Workforce per Sector > Personal Income Tax 9%. 2% Agriculture 18% > Corporation Tax: 9%. Industry > Value Added Tax: 19%, 7% (includes hotel Services accommodation) and 0%. 80% > Withholding Tax: 9%. > Social Security Charges: Employer 9.8% and Employee Source: Colliers International Montenegro 24%. > Foreign Trade: Exports declined from €376 million in > Property tax is levied at proportional rates from between 2013 to €338 million in 2014. Imports increased marginally 0.1% and 1.0%. from €1,773 million in 2013 to €1,784 million in 2014. In > Property transfer tax of 3% of the property’s value is 2014 the major partners for exports were Serbia (24% of total exports), Italy (10%) and Croatia (10%). The major payable by the buyer. partners for imports were Serbia (27% of total imports), Greece (8%) and China (7%). > Tourism: A crucial economic sector in Montenegro. World Travel and Tourism Council (WTTC) estimated that > Exchange Rate: Montenegro adopted the German mark tourism accounts in excess of 10% of total GDP, although in 1999, then the euro on its introduction in 2002. In the last local estimates consider it to be higher. Tourism policies couple of years the US Dollar has steadily risen in value, and strategies, development, operations and marketing are stabilizing during the summer months of 2017 at 1€=1.18. the responsibility of the Ministry of Sustainable Development The value of the Russian Ruble has fluctuated over the and Tourism, with the National Tourism Organisation years, with a decrease in the last year from 1€=74.14 in responsible for planning and implementation tourism 2016 to the current rate of 1€=63.9 in October 2017. strategies, promotion and enhancing the tourism product. Local tourism organisations are active in 19 municipalities. Year End 2012 2013 2014 2015 2016 2017 Montenegro’s tourism product is subdivided into six US$ per € 1.32 1.37 1.23 1.15 1.11 1.18 clusters, whose scenic and cultural traits differ from each Russian other, in the Tourism Strategy. 40.3 45.3 72.3 68.07 74.14 67.75 Rubles/ € > The rocky coastline from Lustica to Ulcinj, with many Source: European Central Bank bays and beaches, is the major beach tourism destination and includes Budva. > Employment: 84.9% of the total economically active work force (273,800) was in employment and 15.1% were > Ulcinj, which has an expansive sandy beach, with Ada reported unemployed in Q2 2017, a drastic improvement Bojana and Valdanos. over the 17.5% unemployment rate in Q2 2016. In August 2016 the gross average monthly salary was €763 and the > The Bay of Kotor, a cultural area surrounded by cliffs, net monthly salary (after tax and contributions) was €509. together with Tivat Bay and the Lustica peninsula. The Employment is governed by the Labour Law, Collective Agreements, general conditions of the employer and 3 Research and forecast report Q2 | 2017 | Montenegro | Colliers International natural and cultural-historic features of the Kotor region are Tourist Arrivals 000s a UNESCO World Heritage Site. 2,000 1,787 1,713 1,492 1,517 > Cetinje, of historic significance, and Skadar Lake, an area 1,500 of natural beauty. 1,643 1,560 1,350 > Durmitor and Sinjajevina, mountainous regions with the 1,324 Tara canyon and the national park. Durmitor National Park 1,000 is a UNESCO World heritage Site. 500 > Bjelasica, Komovi and Prokletije, mountainous areas 168 167 153 144 with national parks, monasteries and mosques. Official statistics cover tourists staying in registered tourist - accommodation. However, this understates tourism demand 2013 2014 2015 2016 Domestic Foreign Total because they exclude tourists in unregistered accommodation (the “grey” market). Source: Montenegro Statistical Office The coast between Budva and Bar is the main tourism zone. Tourist Nights by Type of Accommodation: The majority It accounts for approximately 50% of all tourist nights in (67% in 2016) of tourists stay in private accommodation registered accommodation.