Montenegro market overview, Business Environment
Since regaining independence in 2006, Montenegro has adopted an investment framework to encourage growth, employment,and exports. Although the continuing transition has not eliminated all structural barriers,the government recognizes the need to remove impediments, ensure business-friendly policies and improve transparency, and open the economy to foreign investors.
Montenegro makes no distinction between domestica and foreign companies. Foreign companies can own 100 percent of a domestic company, while profits and dividends can be repatriated without limitations or restrictions. Exceptions to this policy are the small number of cases dealing with defense-related industries.
Montenegro has been committed to membership in Euro-Atlantic alliances. The country joined NATO in June 2017. As a candidate country on the path to joining the European Union (EU), Montenegro opened its final negotiating chapter on June 30, while three chapters have already been provisionally closed.
Montenegro offers foreign investors low, fixed tax rates, a business-oriented economy, significant economic freedom, a stable currency (Euro), and openness to incentivize investors. Montenegro is a beneficiary of the Generalized System of Preferences program, which provides duty-free access to the U.S. market in various eligible categories. The Euro is the official currency in Montenegro, which stabilizes financial flows and results in lower transaction costs. This is an informal arrangement with the European Central Bank, and Montenegro is not part of the Euro Zone. Private ownership is protected by the Constitution and includes equal treatment of foreigners. The IMF has cautioned Montenegro that its economic system is vulnerable to external shocks due to its high public debt-to-GDP ratio. Montenegro’s public financial situation is relatively weak, with a debt-to-GDP ratio of 76.9 percent, with forecasts, absent fiscal consolidation, to increase over 80 percent once the repaymnet to China’s Ex/Im Bank of USD 1 billion highway loan begins.
Montenegro has a favorable tax regime with the lowest corporate tax rate in the region (9 percent). In 2019, Montenegro’s economy grew by 3.5 percent while the unemployment rate was 15.3 percent.
The Montenegrin economy will probably be the hardest hit of all Western Balkans countries as a result of the COVID- 19 pandemic, given its heavy reliance on toursim. Key international organizations project contraction of the Motenegrin economy by at least 5 percent in 2020. In in its Spring 2020 Economic Report, the European Commission projected Montenegro’s economy to contract by 5.9 percent in 2020 due to the negative effects of the coronavirus ooutbreak. S&P forecasted a 7.8 percent contraction, while the World Bank and IMF predicted economic downturns of 8.9 percent and 9 percent, respectively.
Montenegro attracts considerable interest from foreign investors. According to data released by the Montenegrin Investment Promotion Agency (MIPA), EUR 9.6 billion have been invested in Montenegro since 2006 with a total FDI inflow in 2019 of EUR 778 million.
No country dominates foreign direct nvestments in Montenegro. Significant investments have come from Italy, Hungary, Russia, and Serbia, with new interest coming from the United Arab Emirates, Azerbaijan, China, Turkey, and the United States. On January 1, 2019, Montenegro launched its economic citizenship program, designed to attract a maximum of 2,000 investors from 2019 to 2021. Preliminary estimates suggest the program could bring as much as $1 billion in infrastructure investments to the country if it attracts 2,000 applicants. As of July 1, 2020, approximately 50 people had applied for economic citizenship.
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