Business Environment Macroeconomic Outlook Capital Market Banking Sector Privatization and Investments Economic Freedom Business News In the Spotlight Coming up... Graphic 1. Country Comparisons World Average
59.5
Regional Average
66.1
Free Economies
84.7
Montenegro
62.5 0
20
40
60
80
37
40.4
100
Graphic 2. Rule of Law 100 80 60 40 20 0
43.4
40
Property Rights
Freedom from Corruption
Montenegro
World average
Graphic 3. Limited Government 100 80 60 40 20 0
91.3
76.9 59.8 31.7
Fiscal Freedom
Govrenment Spending
Montenegro
World average
Graphic 4. Regulatory Efficiency 100 80 60 40 20 0
69.2 64.7
86.1 61.4
Business Feedom Labor Freedom
Montenegro
81.2 74.4
Monetary Freedom
World average
Graphic 5. Open Markets 100 80 60 40 20 0
83.6
74.5 55 50.7
Trade Freedom
Investment Freedom
Montenegro
50 48.6
Financial Freedom
World average
Economic Freedom Prepared by: Mr. Darko Konjević, Montenegro Business Alliance (MBA)
Economic freedom in Montenegro - are we on the right track? For the last several years, economic freedom in Montenegro has been measured by the Fraser Institute and Heritage Foundation Index. The level has remained the same for a long time, but recently it has dropped lower. So what are we are doing wrong and why are we not using all of the available reforms to improve our situation regarding economic freedom? If we say that economic freedom is defined as the freedom to produce, trade and consume any goods and services acquired without the use of force, fraud or theft, then we can say that in Montenegro there are still obstacles which prevent the further development of the free market that could increase economic freedom. A brief analysis of the current situation in Montenegro, carried out by the Heritage Foundation Index, shows areas that could be improved. The following suggestions were made: Montenegro’s economic freedom score is 62.5 which makes its economy the 72nd freest in the 2012 Index of Economic Freedom published by the Heritage Foundation and the Wall Street Journal. Its score is the same as last year’s mainly due to deterioration in the areas of business freedom and labor freedom. The poor performance in these areas counteracted the modest improvements that were achieved in monetary freedom and in the management of public finance. Montenegro ranks 33rd out of 43 countries in the European region; its overall score is above the world average. In the category of rule of law Montenegro has still not achieved the necessary key points in order to improve its current ranking. As this area includes freedom from corruption and property rights, greater efforts should be made to improve this area. The Constitution of Montenegro and also its laws guarantee property rights; however, in some cases property rights, especially intellectual property rights, are not sufficiently protected in Montenegro. Also, in the area of corruption, there should be more transparency. This could be achieved by limiting the size of the government and by introducing clearer procedures. This would undoubtedly foil most of the present corruption. The category concerning government comprises fiscal freedom and government spending. Montenegro is highly regarded both in the region and on a wider scale regarding its level of taxes and also its introduction of a flat tax. The flat tax system has contributed to faster economic growth in Montenegro; therefore the Montenegrin government should maintain the present low flat tax system. The positive effects of government spending cuts have still not yet really been felt. Further economic growth and more activity in the private sector could still be seen as a result of the aforementioned cuts. The areas of business, labor and monetary freedom still challenge Montenegro. Procedures for setting up business in Montenegro have been streamlined and it is now possible to register a business online. Labor freedom continues to be a concern as the most recent changes in labor legislation have reduced the level of freedom in the labor market; this needs to be improved. Montenegro uses the Euro as a currency so monetary freedom is at a fairly high level. Trade freedom in Montenegro is at a high level and customs tariffs are relatively low. Nontariff barriers are still present and represent a potential threat to the level of trade freedom. New regulations in the area of investments provide further assurance to investors that they are welcome in Montenegro; the regulations also confirm that Montenegro is a good destination for investment. However, slow procedures, inadequate bureaucratic responses to investors, and a variety of other problems continue to create obstacles for investing in Montenegro. Financial freedom in Montenegro is made difficult by non-performing loans, illiquidity in the economy and the real estate sector. All of these issues will contribute the further deterioration of financial freedom in Montenegro. In conclusion, Montenegro is on the right road towards achieving a higher level of economic freedom. The main concern is that the level of economic freedom in Montenegro has stagnated over the last couple of years. The consequence of this is that the recent reforms are not reflected in the present measured level of economic freedom. Policy makers need to consider this when making decisions about reforms in Montenegro.
Source: The Economic Freedom of the World: 2012 Report
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