In the following period, the activities will be focused on creating a stimulating regulatory framework that will bring more predictable and safer business, growth of profitability and employment, a better credit rating for Montenegro
We have talked to the President of the Chamber of Economy of Montenegro (CEM), Vlastimir Golubović about the economic environment in Montenegro, what business people are struggling with, what has been done so far, and what remains to be done.
What are the most common obstacles that business people have been pointing to?
– In addition to stimulating business activities, Montenegro’s commitment to joining the EU is a reason for a serious re-examination of market conditions and opportunities, primarily for the analysis of the business environment, business obstacles and other constraints affecting the sustainability and development of domestic companies. The most common barriers that business people are pointing to are shadow economy and unfair competition, collection of claims, high labour costs, that is, high salary taxes and contributions, high cost of capital and difficult access to credit, legislative barriers, problems with insufficient flexibility of the labour market, lack of qualified staff, frequent changes to regulations, and others.
You have said on several occasions that the shadow economy remains the biggest obstacle to boosting the competitiveness of the domestic economy and its development. Has something changed in this respect?
– The degree of the shadow economy is very difficult to measure in Montenegro as there are no precise data on its share. In the part of the research that dealt with the issue of undocumented workers, it was pointed out that, in the last ten years, the number of undocumented workers amounted to about 1/3 of the total workforce. Overall, it is estimated that the shadow economy’s share in the national GDP ranges from 25% to 30%. Together with the unfair competition, the shadow economy remains the biggest obstacle to boosting the competitiveness of the domestic economy. The most effective response in terms of combating shadow economy is improving the tax system, which is based on simple legal solutions, unique and low tax rates and as few tax exemptions as possible. Respecting the principle of predictability of business conditions and consistent implementation of regulations would significantly contribute to solving this problem, which would have a positive effect on the overall economy. In order to solve this problem, the Government of Montenegro has set up a Shadow Economy Commission which consists of company representatives, as well as operative teams composed of representatives of competent authorities and institutions.
At the beginning of last year, a new Chamber of Economy Law came into force, which profiles CEM as a fullfledged institutional partner to the Government. What has changed in the Chamber’s operations, activities and powers since then?
– The new Chamber of Economy Law additionally fortifies the Chamber’s foundation in line with the best European practices and creates a legal framework for advancing the cooperation with the Government, state bodies and local self-governments. The implementation of the new Law has additionally bolstered the Chamber’s work in the segment of improving the business environment and raising the competitiveness of Montenegrin companies. With this law, our association became an institutional partner to decision-makers at the state and local level, which resulted in numerous benefits for the economy. Now, every text of the law affecting businesses must take into consideration the opinions of business people before it is considered by the Government. During 2018, the Chamber analyzed about 50 regulations. The adoption of new regulation, as well as amendments and supplements to the existing laws and bylaws, have been initiated. In the following period, the work on creating a stimulating regulatory framework that will bring more predictable and safer business, growth of profitability and employment, a better credit rating for Montenegro, as well as a better position on the competitiveness lists of renowned international organizations, will be continued.
Does the Government listen to the advice of business people, and if it does, to what extent?
– Both businesses, on the one hand, and state bodies, on the other, are getting to see the Chamber of Economy as the only place where the institutional cooperation between the state authorities and businesses is being implemented. Via their representatives in the Chamber, companies use their power, consolidated under the auspices of this institution, to influence the flows of economic development, while the Government, through the Chamber of Economy, as its important partner, now better understands the problems that businesses have been facing, as well as their requirements and recommendations. Last year, in accordance with the requirements of businesses, the Chamber, as I have already mentioned, initiated changes to numerous regulations. Some of these include the Law on Administrative Fees, the Law on Local Communal Taxes, the Law on Tourist Boards and others. FFor instance, as a result of the implementation of the new Law on Administrative Fees, 72 fees were reduced, or 11% of the total number. Also, 49 fees were abolished, or 7% of the total number. A significant number of administrative fees relating to food safety and protection of intellectual property rights have been reduced, which is especially significant for alleviating businesses, especially micro, small and medium ones.
Does the Montenegrin government sufficiently encourage the development of the domestic and private business?
– The competitiveness of domestic enterprises is one of the basic challenges that the Montenegrin government is facing and some of the activities that are undertaken in this direction are the following: encouraging the development of existing and creating new economic capacities, boosting export performances of companies, promoting Montenegrin potentials and others. In order to develop the private sector and increase competitiveness, in March 2019, the Government adopted a new Decree on the allocation of funds for facilitating direct investments and improving the economy’s competitiveness, based on which the Ministry of Economy created the Programme for Improving the Competitiveness of the Economy. Through 10 lines, this programme defines activities and measures for rendering financial and non-financial support to potential and existing entrepreneurs, micro, small, medium and large enterprises, as well as formation of clusters with the goal of increasing the competitiveness in the national and international market, bolstering the development and business performances, facilitating modernization of the industry, developing innovative potentials, promoting entrepreneurship and crafts, and implementing international standards in the field of product improvement, business processes, methods, techniques, management strategies and marketing. The Programme will support domestic and foreign investments all across Montenegro and thus contribute to increasing the country’s export potential, boosting the recognition of Montenegrin products and services, enabling creation of new jobs, and ultimately contributing to the economic and regional development of Montenegro.
What should be done to create a stimulating regulatory framework? How can CEM contribute to this?
– In the framework of its programme activities, the Chamber of Economy of Montenegro continuously monitors activities of companies through reviewing and analyzing their activities, and conditions for doing business, as well as initiating changes in regulations, all with the aim of creating a regulatory framework that is tailor-made for businesses. In order to have a stimulating regulatory framework, first and foremost, we need to improve systemic regulation such as Labour Law, Company Law and Public Procurement Law. The draft Labour Law contains provisions that pose a challenge for employers. We consider it necessary for this regulation to stipulate simpler procedures for the conclusion and cancellation of job contracts, thus ensuring greater employment, more successful business and faster development of companies. The draft Company Law also requires further improvement. Among other things, business people consider that this Law should prescribe measures, such as increasing the initial capital and inspecting businesses ex officio, which will prevent the increasingly frequent occurrence of abuse relating to the institution of the legal subject when establishing companies. Shadow economy remains the biggest obstacle to increasing the level of competitiveness of the domestic economy. No matter how much the state has been trying to regulate the performance of economic activities, there are always segments with executed transactions in the shadow zone, to a greater or lesser extent, which, in turn, leads to the stifling of legally conducted business, as well as stripping the state budget of revenue. In order to ensure legal safety, predictability, removal of business barriers and inception of new companies, it is necessary to ensure a more efficient implementation of the current regulations. It is also necessary to include all market participants in the system of recording the turnover from the sale of products and services, and for the competent authorities to carry out coordinated activities towards reducing illegal business, thus making the burden of paying taxes equally distributed to all participants. As of March 2018, with the goal of further improving its communication with businesses and exchanging information about doing business, obstacles and difficulties, the Chamber has been paying more visits to companies. We had over 1,300 visits to companies, and we are continuing to do so this year too. This is just one of the activities and ways in which we receive input from businesses, and accordingly, propose initiatives to decision-makers while contributing to the creation of a stimulating environment for doing business.