Transcript Document

Country Risk
Assessment: Montenegro
Tony O'Rourke
University of Stirling
Scotland
21/07/2015
BACEE Seminar, 16 November
2006
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Overview 1
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The situation in Montenegro has been
stabilised in the short-to-medium term
as a result of the generally beneficial
economic situation. The pursuit of more
fundamental social, political and
economic reforms will however become
an urgent priority for the new
government
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2006
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Overview 2
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The problem is the extent which the
reforms can be pursued in a thorough
and structured way as there is a great
danger that experimentation with trendy
fiscal reforms – removing corporate
profit tax, reducing VAT etc – will simply
establish an Adriatic version of one of
the British crown’s offshore territories
like the Isle of Man or the Channel
Islands
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2006
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Overview 3
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Certainly Montenegro is increasingly
attractive to inward investors and to
Russian and Irish property speculators,
but we have to remember that the real
economy is mainly powered by SMEs
and is predominantly focused on
tourism
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2006
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2005e
Economic
Indicators
2006f
2007f
4.1
Real % GDP
growth
5.5
6.0
2.4
CP Inflation annual
average %
3.2
3.0
-1.9
Govt balance/
% of GDP
-0.4
-1.2
28.0
Unemployment %
rate av. change
28
28
-9.1
C/A balance, % of
-9.0
-8.0
228
250
GDP
172
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FX reserves in 4th
quarter in EURm
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2006
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Political issues 1
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The success of the Democratic Party of
Socialists/Social Democrat coalition in
achieving a solid block of seats in the
National Assembly of the newly
independent Montenegro confers a
welcome degree of political stability
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2006
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Political issues 2
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The generally poor performance of the
Serbian List, with its demand to reengage with Serbia in a state union and
of the Socialist Peoples Party with its
appeal to a jaded political ideology
indicates that the majority of the
population now wishes to place the
debate about independence into the past
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2006
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Political issues 3
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Independence has been achieved and
the issue is now about the future
progress of this small and economically
vulnerable state
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2006
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Positive Factors
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Macroeconomic stability – including low
inflation
Fiscal consolidation
Rising FDI and improving investment
climate
Low external debt and low servicing
costs
potential to reduce public debt to 35%
of GDP with privatisation income
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2006
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Negative factors
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Poor labour market flexibility and
doubts regarding political will of
DPS/SDP to carry it through
Large informal sector
Large current account deficit
High interest rates
Poor functioning of the commercial
legal system
Potentially high levels of corruption
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Foreign Direct
Investment 1
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2005 was dynamic in terms of FDI and
privatisation with 75% of Telekom
Montenegro sold to Magyar Telecom
(part of Deutsche Telekom) for
EUR132m
A 65% stake in one of Montenegro’s
largest industries, the aluminium
producer Kombinat Aluminia Podgorica
was sold to the Russian company Basic
Element for EUR49m
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2006
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Foreign Direct
Investment 2
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In the first eight months of 2006,
FDI net inflows amounted to
EUR194m of which 53% was
invested in real estate with
Russian and Irish investors being
the most obvious
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2006
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Foreign Direct
Investment 3
Other privatisations appearing during 20062007 will be:
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Elektoprivreda Crne Gore Nikšić (power
generation)
Plantaže (wine and beverage production)
Luka Bar (sea-port)
Željeznice Crne Gore (national railway
operator)
Aerodromi Crne Gore (airports at Podgorica
and Tivat)
Montenegro Airlines (national air carrier)
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Balance of Payments 1
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Despite a general reduction in the
Balance of Payments deficit, the
Current Account balance has been
rising as a percentage of GDP
This is in spite of strong tourism inflows
(latest data indicates a 36% year-onyear increase); a forecast average
annual 18% increase in net exports
over 2006-2007 and strong increases in
inward FDI flows
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Balance of Payments 2
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The critical factor is that we may begin
to see an “Estonian effect”. This is
where FDI inflows and improving
wealth create a huge dynamic for
increased import flows
The increased privatisation of the
tourism sector – where Montenegro’s
only major remaining large scale
companies can be found – will certainly
contribute to increased import flows as
infrastructural work begins
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2006
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Balance of Payments 3
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Added to that will be greater efficiencies in the
banking sector and greater competition which
will lead to a potential 100% leap in credits over
2006-2007
This will result in greater import inflows, as
Montenegro’s productive sector is unable to
provide the necessary consumer goods which
will therefore flow from Slovenia, Croatia and
Serbia
Furthermore, domestic property prices are likely
to be inflated by the huge inflows of foreign
investment into the coastal region from HercegNovi to Ulcinj
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The future?
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the success of Mr Đukanović has its base in his
appeal for a European future for Montenegro
unfortunately we cannot be certain that at this
time, as EU enlargement grinds to a halt, that
Montenegro will enter the EU in the
immediately foreseeable future
if the new administration in Podgorica appears
unable to deliver EU membership within a
reasonably close time frame (i.e. by 2012), then
the current aura of political stability may vanish
fairly swiftly
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2006
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