NewsMontenegro, One of the most advanced countries when it comes to EU...

Montenegro, One of the most advanced countries when it comes to EU membership negotiations

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Montenegro is one of the most advanced countries in the process of accession in terms of EU membership negotiations, and it is important to capitalize on progress and not allow a setback due to political uncertainties, said Liliana Pavlova, Vice President of the European Investment Bank (EIB).

“However, further general progress will require political stability and constructive engagement of all interested parties, which will lead to the establishment of a stable government and consensus on key reforms,” said Pavlova in an interview.

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She added that these activities will help attract new investments and opportunities for the country, also within the framework of the Economic and Investment Plan, which foresees significant financial resources for the region, including grants and technical assistance.

Pavlova announced that the pace of economic expansion in the economies of the Western Balkans has slowed down and that last year it fell to 2.8 percent annual growth, due to the shocks caused by the energy crisis and high inflation, after a strong post-pandemic recovery of 7.8 percent in 2021.

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Other structural risk factors in the region include, as she said, unfavorable demographic conditions, high unemployment rate, high share of gray economy, political instability and funding constraints.

Pavlova stated that the slow pace of the transition to a net-zero carbon economy could pose a risk, as companies have no incentives to green their business models.

“It’s an issue that needs to be addressed, as physical climate risks already affect ten percent of small and medium-sized enterprises (SMEs) in the region, according to the EIB’s Enterprise Survey.” It reveals that 32 percent of companies in the region are credit constrained, varying from 18 percent in Albania to 47 percent in Montenegro. According to the EIB Bank Lending Survey, banks in the region expect to have to tighten their lending conditions, especially for the SME sector, mainly due to increased risk perception and lower tolerance. This can be worrying, as access to finance, including overdrafts, has been a source of resilience for firms during the pandemic,” said Pavlova.

She believes that the green and digital transition could also represent an opportunity for companies to advance in the global value chain, as well as take advantage of strong ties with the EU, as its main trading partner, which accounts for over 70 percent of exports in the region.

“Prospects for EU membership of all the countries of the region enable effective implementation of reform programs, help stabilize the political environment and increase its attractiveness for foreign investments,” explained Pavlova.
She reminded that the EIB, as a strong partner of Montenegro, has invested EUR 1.1 billion to date, mainly to support the transport network, as well as the development of SMEs and other vital sectors. Since 2020 alone, the EIB has invested EUR 243 million to help the country recover faster and improve transport and water infrastructure.

“Within our branch dedicated to activities outside the EU – EIB Global, we are actively working to strengthen our teams and partnerships, in order to help Montenegro and other countries of the Western Balkans to use the available funds and technical assistance of the EU more effectively,” said Pavlova.

As she reminded, the EIB signed a EUR 50 million program with the Investment and Development Fund (IRF) last year for the financing of ecological and energy-efficient investments among small and medium-sized enterprises.

“The credit line will enable SMEs to increase liquidity, as well as to invest in improving energy efficiency, reducing energy losses and dependence on fossil fuels.” Also, we provided a technical grant to strengthen the capacity of the IRF, in order to help improve the organizational and business model of the fund in accordance with the best international practice. In this way, we want to accelerate the growth of the private sector and create new jobs,” said Pavlova.

The EIB also provided a grant for technical assistance to accelerate the modernization of the Montenegrin national education system through the upgrading, construction and reconstruction of educational infrastructure. The EIB grant, as she explained, will cover technical and advisory support for the preparation of projects and the public procurement process, as well as for the development of national standards for supervision and evaluation.

The total value of technical assistance grants from the EIB’s own funds signed for Montenegro last year reached EUR 3.3 million.

“I want to mention the progress regarding the Bar-Vrbnica railway section, which the EIB is financing with EUR 20 million, supplemented by an EU grant of EUR 20 million channeled through the Investment Framework for the Western Balkans.” “Investments in the railway infrastructure on that section have resulted in an increase in traffic safety and the quality of freight and passenger transport services,” said Pavlova.

She added that the project will directly benefit 1.2 million passengers a year and the wider economy by facilitating trade, regional integration and sustainable growth. This will enable a gradual transition to more environmentally friendly transport models.

“This project is part of the European Commission’s Economic and Investment Plan, which is expected to mobilize up to 30 billion new investments and help implement key projects within the Global Exit initiative. It is a new European strategy to encourage the development of smart infrastructure around the world, which brings up to EUR 300 billion of investments,” said Pavlova.

She said that SMEs in the region are credit-constrained and lack financial resources to decarbonize and digitize their operations.

“In all countries of the Western Balkans, according to the surveyed companies, unfavorable borrowing conditions for SMEs remain the main obstacle to their development. Access to finance for innovative firms and newly founded enterprises is particularly difficult due to the lack of credit history and reliance on intangible assets, which are difficult to collateralize,” said Pavlova.

EIB investment research for the Central, Eastern and South-Eastern Europe region indicates that the crises caused by the conflict in Ukraine and the pandemic have led to disruptions in international trade, causing business disruptions.

“Some of the key obstacles that companies highlight are reduced access to raw materials and services, as well as disruptions in global logistics.” Firms in those countries are quite cautious when it comes to future investments. As long-term obstacles to investment, they mention general uncertainty, high energy costs and insufficiently qualified personnel,” said Pavlova.

She stated that, in order to help companies solve these issues, the EIB would develop various financial instruments, such as a credit line for Montenegrin companies to introduce energy-efficient and climate-sustainable projects.
“The next step is the introduction of an incentive loan in the entire region, including Montenegro, to support long-term employment and professional training of people from vulnerable social groups.” In addition to the credit, companies will receive a financial reward based on performance, if they meet specific goals to encourage leadership, employment and professional development opportunities for women, young people and marginalized groups who often face obstacles in the labor market,” said Pavlova.

She added that this type of financial instrument reflects the EIB’s ability to attract additional bilateral and EU funds that address just and socially inclusive transformation.

Pavlova announced that the European Investment Fund launched a guarantee instrument for enterprise development and innovation in the Western Balkans, with a guarantee coverage of EUR 60 million, which aims to increase access to finance for about four thousand small businesses in the context of the current crisis.

“I would also like to mention the new financial instruments within the European Fund for Sustainable Development (EFSD+) for projects that promote connectivity in the region.” They aim to provide financial and technical support to municipalities, utility companies, independent electricity producers, local and international companies, SMEs and commercial banks for projects in the field of renewable energy sources, energy efficiency, transport and digital networks,” said Pavlova.

She added that the EIB Group, which consists of the EIB and the European Investment Fund, has so far provided close to EUR 5.6 billion for the private sector in the region, which is almost 50 percent of the total volume of lending in the region since the beginning. Those funds supported the growth, recovery and transformation of SMEs throughout the region, while preserving around 800,000 jobs.

“For Montenegro, in cooperation with domestic commercial banks and the IRF, we have allocated EUR 710 million for small businesses since the beginning of our operations in the country.” “We signed the first loan with the IRF in 2012 and since then, thanks to our successful cooperation, we have delivered a total of EUR 520 million that has supported 1.2 thousand projects,” said Pavlova.

She announced that they plan to expand activities in Montenegro and the region within EIB Global, in close cooperation with local partners, the European Commission and other international financial institutions.

“We want to bring our expertise and finances closer to Montenegro and adapt our support to the specific needs of the country, also through increased local presence and the potential establishment of a local office in the future.” As for specific sectors, we see the importance of further supporting SMEs in order to adapt to the new economic environment and move closer to a greener, more inclusive and digitized business model,” said Pavlova.

She added that they plan to continue with investments in the field of education, sustainable transport such as railway infrastructure, but also to expand funding to the health sector.

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