VLASTIMIR GOLUBOVIĆ, President of the Chamber of Economy of Montenegro: WE ARE HEADING IN THE RIGHT DIRECTION

I firmly believe that, in order to accomplish dynamic growth in the following period, policy creators will not secure stability of public finances through increase in taxes and excise, but rather through the implementation of measures relating to widening the tax base, combating shadow economy and reforming public administration

The Chamber of Economy of Montenegro has been playing an active role in the state’s integration processes since their very beginning. Numerous meetings organized by the Chamber of Economy have presented the opportunities and challenges stemming from membership in NATO and the EU. The Chamber’s members have been actively participating in task forces that are engaged in accession negotiations with the European Union. Such an active position of the Chamber was confirmed late last year by the adoption of the Law on the Chamber of Economy, which stipulates that the Chamber of Economy provides decision makers with its opinion on the regulations affecting the economic system and economic policy.

How would you rate the macroeconomic situation in Montenegro today?

The macroeconomic developments in Montenegro are characterized by the increase in the majority of indicators – gross domestic product, employment, wages, volume of services and foreign investment growth. In 2017, the Montenegrin economy grew at a rate of 4.4%, with positive trends continuing this year too. This is supported by the data on industrial production growth in Q1 which shows a 39.3% hike, as well as the 36.2% production growth in the forestry sector of and in services sectors – construction, tourism and commerce. The construction of transport and energy infrastructure, especially the priority segments of the Bar – Boljare motorway, generated a 46.8% increase in construction activity in the first quarter of this year, while investments in the tourism sector are continually improving the quality of tourist offer, resulting in an increase in the number of tourists and overnight stays, thus contributing to the increase of tourism revenues. External trade is characterized by a continuous deficit. The high import dependence of the Montenegrin economy is a result of a narrow production base, strong correlations between imports of goods and tourism, a significant share that imported raw materials have in exported goods, and the implementation of large infrastructure projects that are a significant driving force behind import. However, thanks to revenue generated by the services sector, primarily tourism, as well as revenues from direct foreign investments (the total value of foreign direct investments in Montenegro, made in 2017, amounted to EUR 649.2 million), which continuously show growth, successfully alleviating the foreign trade deficit on the current account of the balance of payments.

What impact did the fiscal stabilization have on economic growth and what are your expectations in the upcoming period in terms of austerity measures, including an increase in certain taxes and excises?

The high level of public debt and budget deficit in Montenegro in previous years, and the need for stabilization of public finances, have created the need for the implementation of fiscal consolidation measures. Positive results are confirmed by the data which shows that in the first quarter of 2018, compared to the same period in 2017, revenues from value added tax increased by 12.7%, contributions by 10.3% and income tax for legal entities by 25.1%, as a result of growing economic activity, as well as fiscal consolidation measures such as the increase in the standard VAT rate by 2 percentage points and settlement of liabilities based on reprogramming of owed taxes. The economic activity indicators point to the fact that in the previous year, the fiscal stabilization measures did not slow down economic growth, with the Montenegrin economy recording the higher than projected growth. Are you satisfied with the business environment? Does he favor the growth of investment and private business?

The business environment has been significantly improved. In support of this claim, the data shows that from 2006 onwards, Montenegro has attracted 8.45 billion euros worth of investments from over 130 countries worldwide. There are renowned world brands in Montenegro, especially in tourism. The ongoing projects are valued at over 4 billion euros. In this year’s World Bank report on the ease of doing business, Montenegro occupies the 42nd place out of 190 ranked countries, which a jump by nine places compared to the previous year. Bearing in mind the fact that companies in the private sector are contributing to the ranking in this report, it is evident that Montenegro continues to make progress with regard to the business environment. The fact that Montenegro has a competitive tax system, with the lowest profit tax rate of 9%, and that the country has been a full-fledged NATO member since 2017, make Montenegro an attractive destination for investment and development of private business. All countries in the region, including Montenegro, attach great importance to foreign investments. Does the Montenegrin government have enough understanding and resources to encourage the development of domestic private businesses in an appropriate way?

Foreign and domestic investors in Montenegro have equal treatment. In order to attract investments, the Government has devised a number of incentive measures in the last few years. Thus, in accordance with the Regulation on Fostering Direct Investment, the incentives for investors range from €3,000 to €10,000 per each new job created for investment projects that are implemented in the production and service sector. There are special benefits for companies that operate in business zones that represent a unique entity in the area managed by a local government. These zones have partial or full infrastructure and, apart from location and infrastructure, they provide potential investors with additional tax and administrative incentives on local and state (such as exemption from paying contributions on wages, exemption from personal income tax, exemption or reduction of municipal utility charges and land development fees, with real estate tax rates also reduced). With the goal of stimulating entrepreneurship and establishment of new companies, Montenegro’s Investment Development Fund offers special financial support programmes such as entrepreneurship development programme, start-up programme for beginners in business, and a programme for young people in business which stipulates favourable interest rates, with a grace period up to 4 years and a payment period of up to 12 years. Before you became the Chamber’s President, you were the Chamber’s Assembly chairman in two terms, and a member of its Managing Board. What is your view of the changes in the economic environment in Montenegro that are happening during the EU pre-accession process and following the country joining NATO?

By participating in the work done by the highest bodies of the Chamber, the influence that this oldest business association

has on improving the business environment for its members, which is realized through a partnership with decision-makers at the state and local level, became very evident to me. My term as the President of the Chamber of Economy and a member of its Managing Board was marked by the economic development thanks to which Montenegro positioned itself as the most prosperous state in the Western Balkans, a NATO member and the first candidate for joining the European Union. The Chamber has given and continues to give a remarkable contribution. Significant economic opportunities have been created for Montenegro by entering NATO, in addition to security benefits. Joining the Alliance gives us the opportunity to increase trade and foreign investments, which, along with the improvement in the country’s credit rating, is a prerequisite for bolstering the competitiveness of the national economy. Montenegrin companies that codified their products in accordance with the Alliance’s requirements have gained access to a significant market.

What are the biggest challenges in the private sector today and what recommendations did you give to the government relating to changing public policies?

  • The most common barriers that business people point to are numerous, quite high taxes, local fees, high labour costs, i.e. salary contributions, shadow economy, unfair competition, insolvency and inability to collect receivables, problems relating to insufficient labour flexibility, and the discrepancy between education and labour market needs. We can conclude from the aforementioned that bolstering the competitiveness of the domestic economy can contribute to changes in tax policy by expanding the tax base, on one side and reducing the tax burden on business, on the other side, especially reducing the contribution to employee salaries, introducing a lower VAT rate in all catering and tourist facilities, regardless of their categorization, and the abolition or redefinition of fiscalities (taxes, fees, charges) at the local level, as well as their harmonization between local self-governments.

How willing is the government to listen to advice from business community?

The Chamber of Economy is a business association of all Montenegrin companies and as such, unifies and articulates their requirements towards decision-makers. The Chamber has been nurturing very good relations with the Government in continuity. To corroborate this, I would like to mention the traditional annual meetings with the Prime Minister and ministers in the Chamber of Economy, where our association presents the annual business analysis and gives an opportunity to business people to highlight the challenges they face through directly communicating with the Government representatives.

You are known in Montenegro, and especially in its business community, as a successful manager of several companies from various economy sectors. Based on your experience, could you tell us how capable is the Montenegrin economy to withstand the competition in Europe should the country join the EU in 2025?

  • Although we do realize that there are many areas in which it is necessary to improve the competitiveness of our companies, it is obvious that the economy is increasingly progressing in meeting the prerequisites for a successful performance in this common, highly demanding market that is the European Union. One of many positive examples of this is the Montenegrin food producers which have received European export numbers to sell their products in the market that has 500 million potential buyers. In the coming period, one of the most important tasks for our economy will be the implementation of international quality standards, which is a condition we need to fulfill in order to sell our products in the EU market. Also, it is necessary for many of our companies to directly participate in the education of the future workforce through partnering with educational institutions in the dual education system. The Montenegrin Chamber of Economy continuously supports both processes and contributes to their realization with its activities



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