MBO#43

February 2013 / № 43

Business Environment WELCOME to the fortysecond edition of Montenegro Business Outlook.

MBO is quarterly publication of pertinent economic indicators presenting a comprehensive view of Montenegro’s business environment.

This publication is intended to serve international business people seeking investment opportunity in Montenegro.

We welcome your comments.

Business Environment in Montenegro: The economic crisis is still influencing companies in Montenegro which creates repercussions on the state finance. In order to improve the budget incomes the Government of Montenegro proposed and the Parliament adopted increased rate for Personal income tax above average wage in Montenegro. . Illiquidity continues to be a problem in Montenegro with rising number of companies with blocked accounts.

Economic Freedom: For more than 20 years the Heritage Foundation has published an index of economic freedom, ranking economies in the World by the level of economic freedom and putting them into different categories. While the debate about this and other rankings are continuing this Foundation is trying to promote the importance of economic freedom by ranking them and providing them an opportunity to improve their overall score.

Macroeconomic Outlook: Basic characteristics of the last quarter of 2012, at a macroeconomic level, are illustrated by quarterly indices (IV 2012/III 2012): - industrial output recorded the fall of 5,5%, - CPI index rose by 1,4% - Employment fell by 2,2%, - Salaries without taxes and contributions also recorded a fall of 0,6%.

Banking Sector: From the end of September to the end of November 2012, the banking sector recorded a decrease of total assets and liabilities of banks, while household deposits recorded a slight increase. In this period, the weighted average lending effective interest rate was decrease by 0.42%. In addition, weighted average deposit effective interest rate was slightly increased. The situation in the banking system, in terms of solvency and liquidity is satisfactory.

Privatization and Investments: According to the announcements of the Government of Montenegro, the main projects expected this year will be in the energy sector: the launching of the tender for gas and oil exploration is expected; there are interests in building the Thermo Power Plant Pljevlja’s second block; and it is expected to start with construction of the first small hydro power plants and their commissioning. The Government also approved the Privatization Plan 2013. The privatization process will be orientated towards repeated procedures of failed privatization processes and new projects for which open calls have not been invited yet.

CENTRE FOR ENTREPRENEURSHIP AND ECONOMIC DEVELOPMENT Kralja Nikole 27a/4, BC “Čelebić“, Podgorica, Montenegro Tel/Fax: +382 (0) 20 633-855 +382 (0) 20 620-611 E-mail: ceed@t-com.me web site: www.visit-ceed.org.me

Capital Markets: During the 2012, the Montenegrin capital market was characterized by negative trends. This was followed by a decrease in the volume of trade and also in the number of transactions when compared with the same period of 2011. Judging by January of 2013, we can conclude that better days are ahead of us. However, crisis is not yet over. In 2012, the greatest turnover was recorded in the area of company shares, followed by bonds and investment funds.

We introduce: Doing business in a changing climate- building a case for adaptation (1) Privatization plan for 2013 EU Corner: Montenegrin steps towards EU Interview: prof. Petar Ivanovic, Minister of Agriculture and Rural Development

Business Environment in Montenegro

by Darko Konjević

As the economic crisis is still influencing companies in Montenegro the repercussions on state finances are visible. There are numerous proposals to increase taxes and especially Value Added Tax (VAT) coming from international organizations. So far the attitude of the Ministry of Finance is that they do not plan to increase the VAT rate, as it would be a decision that would further complicate the situation in the Montenegrin economy.

However, in order to improve the budget incomes the Government of Montenegro proposed and the Parliament adopted an increased rate for Personal income tax above the average wage in Montenegro.

The plan for 2013 is to make a fiscal consolidation and to improve the budget income from one side, cutting the non-necessary expenses from the other. The Government established a new body that would be better organized to fight for the elimination of the grey economy in Montenegro.

Insolvency continues to be a problem in Montenegro with a rising number of companies with blocked accounts.

Over the past few years Montenegro has been recognized as one of the countries, in this part of the world, with the lowest taxation. Montenegro introduced a flat tax system providing investors the opportunity to invest in an attractive investment destination and providing domestic companies to further grow and develop their business. That system provided Montenegro with good international recognition and a favorable investment climate resulting in the highest FDI per capita in South East Europe. During the last couple of years of economic crisis there were internal and external (international organizations) debates on whether the

flat tax system is good and whether it is just helping the rich one to be richer and poor to be poorer by paying the same tax rate. The international organizations such as the World Bank are proposing an increase of the VAT rate (current VAT rate is 17% for the majority of goods and services which place Montenegro just above Malta and Luxembourg with the lowest VAT rate in Europe) in order to decrease the budget deficit and at the same time decrease the public debt that is approaching 60% of GDP. So far the Ministry of Finance of Montenegro announced that they don’t plan to propose an increase of VAT in 2013.

This is a good sign for companies and foreign investors due to the fact that Montenegro is showing responsibility for those that are working and that plan to invest in Montenegro.

From the other side, at the beginning of 2013 and after big debate the Montenegrin Government proposed, and the Parliament adopted, changes of the Personal Income tax rate in Montenegro. Until then the system of flat tax of 9% was established in Montenegro. From February 2013 all wages that are under 720 euros gross (479 euros net) will be taxed at 9% while 15% tax will be paid on amounts higher than this. This actually means that workers that are receiving average and under average salaries will be taxed as before while those that are receiving above average wages will be additionally taxed. This is, in a way, a start of the introduction of progressive taxation that Montenegro had before tax reforms. Lets hope that this is just a temporary measure, since in our opinion it would not contribute to further development of new businesses.

As the grey economy represents a problem in all economies of transition and especially in a period of economic crisis, the Government of Montenegro established a working group for the suppression of the grey economy in Montenegro. The working group consists of all relevant stakeholders including Government, inspections, business associations, trade unions etc. The working group already presented an action plan for the following period. The action plan will specifically target the collection of VAT, excise goods, and grey economy at the labor market (especially in the areas of employment of foreigners in sectors of tourism and construction). The main point to be achieved is an increase of the budget income due to the increase in collection of taxes, fees and other contributions.

Insolvency remains a problem in the Montenegrin economy. According to the data from the Central Bank from March 2013 more than 2,200 companies are blocked more than 30 days with an overall debt of more than 10,000 euros. From July 2013 the Tax Authority of Montenegro will publish a list of the largest tax debtors in Montenegro. ■ Number of registered companies in Montenegro as of 1st March 2013 Source: Commercial Court

Joint stock company Limited liability company

343 27,476

Part of a foreign company

442

General partnership

59

NGO

294

Limited partnership

426

Entrepreneur

16,928

Institution

1,140

Other

114

Total

47,252

Tax rates Value added tax

17%, 7% and 0%

Corporate profit tax

9%

Personal income tax

9% (15% over 479€)

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Economic Freedom

Macroeconomic Outlook

2013 Index of economic freedom - The Heritage Foundation For more than 20 years the Heritage Foundation has published an index of economic freedom, ranking economies in the World by the level of economic freedom and putting them into different categories. While the debate about this and other rankings are continuing this Foundation is trying to promote the importance of economic freedom by ranking them and providing them an opportunity to improve their overall score. It is evident that there is a strong link between the economic freedom score and the economic situation and countries are trying to be at the top of the ranking. What is important to say is that the Index is a good tool that can be used in order to improve the economic situation in the country while following examples of successful ones.

In the case of Montenegro it improved its position on the list but there is plenty of space to further improve the rank.

Some of the areas to improve according to the 2013 report should be Government spending, Property rights, Freedom from corruption and investment freedom. The above mentioned are the main findings on Montenegro that were taken from the report1.

Montenegro’s economic freedom score is 62.6, making its economy the 70th freest in the 2013 Index.

Its score is essentially the same as last year, with notable gains in the control of public spending, business freedom, and freedom from corruption balanced by declines in labor freedom, monetary freedom, and trade freedom. Montenegro ranks 33rd out of 43 countries in the Europe region and its overall score is above the world average.

1 2013 Index of Economic freedom- Heritage foundation

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Montenegro’s ongoing transition to a free-market economy has been facilitated by structural reforms and an increasingly vibrant private sector. Along with policies that open the country to global commerce and trade, competitively low flat tax rates and an evolving regulatory system have contributed to a more dynamic and broadly based economic expansion.

Although the regulatory environment is generally consistent with a market economy, bureaucracy curtails entrepreneurial dynamism. The government has pursued reform measures to curb chronically high levels of government spending and improve public-sector efficiency, but overall progress has been sluggish. Despite the relatively well-maintained rule of law, the pace of legislative and judicial reform has been slow, and corruption is still perceived as significant.

Rule of Law - The constitution provides for an independent judiciary, but the system is inefficient and subject to political interference. Infringements of intellectual property rights are fairly widespread. Mistrust of government continues, particularly due to pervasive corruption in the executive and judicial branches. Parliament is investigating allegations of bribery in connection with the 2005 telecommunications privatization.

Limited Government - The income and corporate tax rates are a flat 9 percent. Other taxes include a valueadded tax (VAT) and an inheritance tax. The overall tax burden equals 24.4 percent of total domestic income.

Government spending is equivalent to 44.2 percent of total domestic output.

The budget balance has been negative

and public debt has risen to almost 46 percent of GDP. Failing state-owned enterprises have put pressure on fiscal accounts.

Regulatory Efficiency - Procedures for setting up a business have been streamlined, and the number of licensing requirements has been reduced. However, licensing costs remain burdensome, averaging more than 10 times the level of average annual income. Labor regulations lack flexibility, discouraging more dynamic job creation. Inflationary pressures have been increasing, but the overall monetary situation remains stable.

Open Market - The trade-weighted average tariff rate is 3.5 percent, but cumbersome non-tariff barriers interfere with trade. Although foreign investment is officially welcome, the investment regime remains too bureaucratic to allow dynamic investment growth. The evolving financial sector has gradually become more competitive and diversified, but non-performing loans have been on the rise. ■

Macroeconomic Outlook Summary Basic characteristics of the last quarter of 2012, at a macroeconomic level, are illustrated by quarterly indices (IV 2012/III 2012): - industrial output recorded the fall of 5,5%, - CPI index rose by 1,4% - Employment fell by 2,2%, - Salaries without taxes and contributions also recorded a fall of 0,6%.

REAL SECTOR Basic sectors Industrial production: recorded a fall of 7.1 % during the period JanuaryDecember 2012 in comparison with the same period last year. Major decreases in industrial output were recorded in the mining and quarrying sectors (29%). A slight increase in output levels (1.4%), was recorded only in the electricity, gas, stream and air conditioning supply industries.

Tourism: during the period September-November 2012, 270 463 tourists (of which 88.3% were foreigners) visited Montenegro.

During this period, 1 222 658 nights were recorded, and Budva, and Herceg Novi were the most visited cities.

Observing the period from the beginning of the year until November, a slight increase was recorded in visits and nights (4,9% and 4,3%, respectively) when compared to the corresponding period last year.

Construction: last available data referring to this sector shows that during the third quarter of 2012, the total value of finished construction works was €74.15 million, while anticipated new building work projects are expected to total €3.77 million.

Inflation The annual inflation rate, measured by the Consumer Price Index (CPI), during the period January-December 2012 was recorded at a level of 4.1%. The most significant price increases during that period were recorded in alcoholic beverages and tobacco (16.7%).

When compared with EU indices, the latest available international comparisons indices that Montenegro’s annual inflation rate (5.2%) was significantly above the EU 27 level (2.4%) in November 2012.

Employment and Wages The data from the Employment Agency of Montenegro shows that at the end of January 2013, there were 31 717 unemployed, indicating the unemployment rate at a level of 13.67%, higher than last year’s corresponding value (11.45%).

In December 2012, the gross average salary was €741; the average salary without taxes and contributions was €497. Higher salaries, without taxes and contributions, were recorded in electricity, gas steam and air conditioning supply (€839) and finance and insurance (€886), while the lowest salaries were recorded in the trade sector (€362).

At the end of January 2013, the Parliament of Montenegro adopted amendments to the Law on Personal Income Tax, which stipulates introducing an additional 15% tax rate on wages exceeding 480€, while the tax on wages below this amount will remain the same (9%). The income tax increase was suggested for the purpose of achieving fiscal stabilization and sustainability of the budget.

PUBLIC FINANCE Budget

Current budget revenue in November 2012 was €93.1 million (2.8% of the

estimated GDP), thus showing an increase of 1.9% in comparison with the planned value. Budget expenditure totaled €109 million, thus showing an increase of 5.3% (3.3% of the estimated GDP). This resulted in the Montenegrin budget showing a deficit of €15.9 million in November, whereas the deficit in the first eleven months amounted to EUR 128.6 million or 3.9% of GDP.

INTERNATIONAL ECONOMIC RELATIONS Foreign Direct Investments (FDI)

During the period January-November 2012, net FDI inflow amounted to €421.5 million, just 15.5% of its recorded value in the same period last year.

- FDI inflow: € 526.4 million, mostly in the form of sale of real estate (€208 million).

- FDI outflow: € 105 million, mostly in the form of withdrawal of non-residents’ investments in Montenegro (€59.3 million).

External trade

T h e t ot a l re a l i z e d t h rou g h foreign exchange during the period January-December 2012 amounted to €366.89 million. Total exports totaled €150.4 million, while total imports totaled €1 820 461 million. The export-import ratio of 20.15%.

Dominant exports in terms of products were: aluminum (35.9%), while the majority of imported goods related to mineral fuels/oils/ waxes.

Montenegro is the most importexport dependent country with Serbia, Bosnia and Herzegovina, Croatia and Slovenia (three fifth of export, and import to (along with Greece and Germany)). ■ (Source: The Central Bank of Montenegro, Monstat, Ministry of finance of Montenegro, Employment Agency of Montenegro)

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Banking Sector

Privatization and Investments

BANKING SECTOR

Total Bank Assets and Liabilities

total capital of banks amounted to € 277.9 million, recording a decline at the annual level (3.1%).

From the end of September to the end of November 2012, total assets and liabilities of banks amounted to € 8,551.20 million, while the average monthly level amounted to € 2,850.4 million. Total assets and liabilities of banks amounted to € 2,822.10 million at the end of November 2012, recording a decline at the annual level (1.2%).

At the end of September, the end of October and the end of November 2012, in the structure of banks’ assets, net loans accounted for the main share (61.0%), followed by cash and deposits with depository institutions (about 27,0%) (Graphic 1).

Graphic 1: The structure of total banks’ assets

Banks’ assets

and banks’ liabilities, in % Loans Monetary assets and deposits Other asset items Deposits Borrowings Total banks’ c apital Other 0,02 SeptemberO

0,04 ctober

0,06

0,08

0,0

November

Source: Bulletin of Central Bank of Montenegro October, November, December 2012.

From the end of September to the end of November, within the banks’ liabilities, deposits accounted for the main share (about 69.6%) and recorded an increase of share in total banks’ liabilities. In addition, borrowings (average around 15.01%) recorded a fall of share, while total banks’ capital (average around 10.5%) recorded an increase of share in total banks’ liabilities (Graphic 1).

The total capital of banks amounted to € 833.4 million from September to November 2012, while at the average monthly level amounted to € 277.8 million. At the end of November, the

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Deposits Total deposits amounted to € 5,949.50 million from the end of September to the end of November 2012 and at the monthly level amounted to € 1,983.17 million. At the end of November 2012, the total deposits amounted to € 1.982,90 million. Observing data from November 2012 and comparing to November 2011, total deposits increased by 8.3%.

From the end of September to the end of November 2012, within the deposit maturity structure, share of time deposits recorded a decrease (amounting to around 60.5% of total deposits), while share of demand deposits recorded an increase (amounting to around 39.5% of total deposits).

In the structure of time deposits, the largest share recorded deposits with maturity from 3 months to 1 year (average about 54.9%) and they recorded an increase of their share. Deposits with maturity up to 3 months recorded a fall of their share (19.4%). Observed by sectors, in the deposit structure, deposits of natural persons were still dominant with a share of about 56.5%.

deposits were dominant with 69.5%.

In addition, time deposits recorded an increase of their share.

Loans From the end of September to the end of November 2012, total loans granted by banks amounted to € 5.617,30 million, which was at the monthly level € 1.872,43 million. At the end of November, total loans amounted to € 1.866,10 million, thus 3.7% less than in the previous year.

The loan-to-deposit ratio1 amounted to 0,95 at the end of June 2012, 0,95 at the end-October and 0,94 at the end of November 2012.

In the structure of total loans disbursed, corporate and household loans were dominant by 92.0% in the period from September to November 2012, whereas the remaining referred to banks, other financial institutions, public owned organizations, nonprofitable organizations and others.

Interest rates From September to November 2012, the weighted average lending effective interest rate (lending interest rates) amounted to around 9.50%.

The weighted average deposit effective interest rate (deposit interest rates) amounted to around 3.21% in the same period. ■ Graphic 2: Interest rates, period-end, in %

According to the announcements of the Government of Montenegro, the main projects expected this year will be in the energy sector: the launching of the tender for gas and oil exploration is expected; there are interests in building the Thermo Power Plant Pljevlja’s second block; and it is expected to start with construction of the first small hydro power plants and their commissioning. The Government also prepared a proposal for the Privatization Plan 2013. The privatization process will be orientated towards repeated procedures of failed privatization processes and new projects for which open calls have not been invited yet.

Investments Cable Car Kotor – Lovcen – Cetinje An approximately 15 km long cable car with four stations is to be constructed from Cetinje through Lovćen to Kotor. The cable car, whose gondolas can accommodate 8 persons, will be the longest cable car on the Adriatic coast and is the requirement for the planned tourist development along the route. The European Bank for Reconstruction and Development (EBRD) called the tender for seeking a consultant

for the construction of the cable car.

Italy’s DBA Group won the tender among nine reputable bidders. The advisory assignment is expected to start in the first quarter of 2013 and has an estimated overall duration of six months. The consultant should prepare a technical review and public-private partnership tender for the cable car project. The public-private partnership (PPP) should involve the government of Montenegro with the private concessionaire to be selected through an open international tender. The cable car project will help to fulfill one of the main objectives of the government of Montenegro

The Government Has Set Up a New Body to Support Large Investors The Government has recently set up the Developing Project Secretariat, a special body dealing exclusively with large investment ventures and providing support in solving administrative and other business constraints. The reason for establishing such a body, which will be accountable to the Prime Minister directly, was numerous problems investors were facing both on a local and national level. On several occasions, foreign investors complained about slow administration and long procedures for doing business in Montenegro. Therefore, many projects that were started remained only dead letter in planning documents, or were stuck at the beginning. The role of the Secretariat will be to identify problems of investors, whose project could have significant impact on development of the Montenegrin economy and to help in their elimination. According to analysis so far, the biggest problems were noted at local authority level. The majority of complaints referred to unclear costs of local self-government, long periods for obtaining permits, slow administration and extensive paperwork.

The Secretariat contact is: nebojsa.popovic@srp.gov.me Ten New Hotels

Household Deposits Total household deposits amounted to € 3,363.10 million from the end of September to the end of November 2012, and at the monthly level amounted to € 1,121.03 million. At the end of November, total household deposits amounted to 1,134.70 million and recorded an increased of 1.8% at monthly level and 10.6% at the annual level.

From the end of September to the end of November 2012, in the maturity structure of household deposits, time

Privatization and Investments

and the municipalities of Kotor and Cetinje, which is to develop highquality tourism amenities.

Source: Bulletin of Central Bank of Montenegro July, August, September 2012.

1 This ratio represents the relationship between the amount of loans and deposits. In this case loans were below deposits by 5% at the end of September, 5% at the end of October and by 6% at the end of November 2012.

The head of the newly formed Developing Projects Secretariat, Mr. Nebojša Popović has announced an intensive investments cycle. The construction of several hotels is expected to start either by the end of the current or at the beginning of the next year: Jadran and Galeb in Ulcinj, a five-star hotel in Bečići to be built by Capital Estate, Suisse hotel in Budva, a new hotel Queen’s Beach in Miločer, a marina and golf course on Luštica, a new exclusive resort at Plavi horizonti

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Privatization and Investments (Blue Horizons) in Tivat, a five-star hotel in Kotor, a new VIP marina in Kotor, and a resort in Kumbor. Also, at the beginning of 2013, the conditions for reconstruction of the hotels Planinka and Jezera will be met, which will contribute to an improvement of hotels on offer in Žabljak.

Montenegro’s Delegation to the Emirates The Prime Minister of the Government of Montenegro, together with his colleagues the Minister of Economy Mr. Vladimir Kavarić and the Minister of Agriculture and Rural Development Mr. Petar Ivanović visited the United Arab Emirates to participate at the Sixth World Renewable Energy Summit (WFES 2013) and III IRENA Assembly. The Montenegrin delegation met with high representatives of the UAE in order to discuss the date of holding the first meeting of the Montenegro and UAE Mixed Economic Committee.

Also was discussed the holding of a regional renewable energy conference under the auspices of IRENA and the Government of Montenegro.

Privatization and Investments

New Investments The Minister of Agriculture and Rural Development Petar Ivanović talked with the Minister of Development and Waters in UAE and representatives of companies interested in investing in the agriculture sector of Montenegro.

Australia’s Balamara Resources Defines Indicated Resource for Montenegro project Australian mining project developer Balamara Resources has defined the first indicated resource for its Montenegro base metals project of 1.32 million t at 3.88% zinc, 3.28% lead and 0.29% copper. “A Inferred Resource 1.63 million t at 16.51 grams per t silver was also defined within the main area along with an additional resource of 0.37 million t at 89.17g/t silver outside the main zone,” Balamara Resources said in a statement.

The updated report made by independent consultants includes the results from 10 holes drilled at the Brskovo deposit in 2012 to upgrade part of

the Brskovo deposit from Inferred to Indicated status. Balamara said that this would in turn serve as a basis for feasibility studies and mine planning, to target any increases in tonnage and grade, and to incorporate silver mineralization into the resource estimate for the first time. “The final seven holes from the Brskovo drilling program have now largely been completed, with remaining drilling or assaying to be completed during 2013.” Brskovo is one of three deposits that make up the Montenegro base metals project. The other two deposits are Visnjica and Zuta Prla and, together, the three deposits form a single coherent mineralized system.

Japanese Companies Interested in Investing in Montenegro The high-level meeting with the presidents and executive directors of 70 companies from Japan interested in investing in countries of Southeast Europe was organized in Vienna with the support of the Government of Japan and the Japanese Agency JETRO. The Montenegrin Investment Promo-

tion Agency (MIPA) presented the investment opportunities and the environment for doing business in Montenegro. Japanese companies expressed interest in investing in Montenegro, especially in the agriculture, energy and industrial sectors.

Beginning of Works on Luštica Peninsula The Prime Minister Milo Đukanović met with representatives of Orascom Holding Development – President of the Board Mr. Samih Saviris, Chief Executive Director Gerhard Nielsen and Chief Executive Director of Luštica Development Samuel Meyer.

During the meeting updates were given on present progress of activities and when any new construction on the tourist complex would start. It was noted that conditions for starting the main construction works in the marina have been met and that € 90 million-worth of works on infrastructure facilities should start by the end of 2013. The Orascom group, as the investor of this project, expects to receive construction permits soon, so that it can continue with the implementation of this investment.

Open calls MIDAS 4th Call The Ministry of Agriculture and Rural Development within the MIDAS project (Montenegro Institutional Development and Agriculture Support) said it announced the fourth

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call for applications for grants of a total of 1.6 million euro ($2.1 million) in the farming sector. Applications by farmers should be sent from February 1 to April 30, 2013.

Eligible applications will receive grant support of 50% of the total amount of the planned investments.

The amount of eligible investment ranges from 10,000 euro to 70,000 euro.More information about this Call available at: www.midas.co.me

Privatization plan for 2013

At the meeting held on 18th January 2013, the Privatization Council adopted a privatization plan for 2013, which was chaired by Prime Minister Milo Djukanovic.

The goal of privatization is to increase the competitiveness and efficiency of the companies that are stateowned and encouraging foreign investment and entrepreneurship, as well as increasing employment and improving living standards.

During 2013, the privatization process will be implemented through: 1. The sale of shares and assets by public tender; 2. The sale of shares on the stock exchange; 3. The sale of shares and assets by public auction;

4. Valuation of tourism sites / companies through public private partnership 5. Sale of companies or assets that are not included in the plan.

The sale of shares and assets by public tender; 1. The procedure for sale by public tender will include: 2. NIG “Pobjeda” Joint Stock Company, Podgorica, 3. Institute “dr Simo Milošević” Joint Stock Company, Igalo, 4. “Kontejnerski terminal i generalni tereti” Joint Stock Company, Bar 5. “Novi duvanski kombinat” Joint Stock Company, Podgorica – partial privatization and/or recapitalization.

Companies for which it is planned to prepare tender documents: 1. Joint Stock Company “Montecargo” Podgorica, 2. “Montenegro airlines” Joint Stock Company, Podgorica; 3. “Budvanska rivijera” Joint Stock Company, Budva; 4. “Ulcinjska rivijera” Joint Stock Company, Ulcinj; 5. “Institut crne metalurgije” Joint Stock Company, Nikšić; 6. Electrode factory “Piva” Joint Stock Company, Plužine. ■

7

Capital Marktets

We Introduce

CAPITAL MARKETS

Trade on the Stock Exchange

During 2012, turnover on the Montenegrin stock exchange amounted to only € 32,44 million, thus showing a decline of 44.9% in comparison with the same period in 2011. The average monthly turnover during 2012 was only € 2.71 million, which was much lower than the average monthly turnover in 2011 (€ 4.91 million). This indicates that the capital market crisis is not yet over. The decline in the turnover of the stock exchange during 2012 was also followed by a decrease in executed transactions. During 2012, a total number of 7,113 transactions were completed. This was 53% less than during the same period in 2011 (13,386 transactions).

During 2012, three types of securities were traded: company shares, privatization-investment fund shares and bonds which included Government bonds and Ministry of Finance bonds. The greatest turnover was recorded in the area of company shares (66.3%), followed by bonds (23,4%). The total turnover of investment funds amounted to 10,3%. The shares of companies and investment funds recorded a fall in comparison to the same period last year, while bonds recorded an increase (321% respectively).

Looking at shares on an individual company basis, the highest monthly trade volume was recorded in March, during 2012; Aluminum Plant shares reached a volume of 3.98 million through a series of block transactions.

Apart from this, the most traded shares during the last six months were those of Telekom Montenegro

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which achieved € 1.11 million on the A list.

Stock Exchange Indices The Montenegrin stock exchange uses the two indices, MONEX20 and MONEXPIF. In March 2012, the Montenegrin Board of Directors adopted a new methodology for calculating the indices MONEX20 and MONEXPIF. Their aim was that, through the adoption of a new method of calculating the index, a more accurate representation of the capital market situation could be reached. The new method that has been adopted for calculating the index is available on the official website of the Montenegrin stock exchange.

The value of the Montenegrin Stock Exchange, MONEX20, upon which MSE’s 20 most liquid companies are traded, had started with its constant declining and permanent oscillations in 2012, to reach its lowest value of 8.138 points on July 27th. Afterwards, the index kept rising until the end of the year, reaching its highest annual value of 9.184 points on December 31st. Index growth continued in January 2013, when it reached its peak of 10.247 points on 16th of January 2013. Variations in index value have influenced all of the changes shown by shares represented in this index.

In particular, the following were most affected: Telekom Montenegro, Jugopetrol Kotor, Prva Banka, Montenegrin Electric Transmission System, Atlas Bank and the Container Terminal.

The value of MONEXPIF index has declined steadily with just a few oscillations since the beginning of

2012. It reached its highest level on 2 February with a total of 4.273 points.

The lowest point was recorded on 21 June with 3.022 points. In January 2013, the index also continued declining. The index value was influenced in such a way that a similar trend was evident in all of the privatization investment funds.

Privatization – Investment Funds on the Stock Exchanges The total volume of trade involving PIF shares during 2012 amounted to € 3.344 million, which is 24% less in comparison to 2011. In total, 1.389 transactions were made during 2012. The most actively traded shares during this period were Atlas Mont (35.148 million shares), while the least traded were those of HLT (1.306 million shares). ■

Figure 1: MONEXPIF 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Figure 2: MONEX 20 12,000

10,000

8,000

6,000

4,000

2,000

0 Jan-12

Feb-12

Mar-12

Apr-12M

ay-12J

un-12

Jul-12

Aug-12S

ep-12O

ct-12N

ov-12D

ec-12J

an-13

While one part of the world is still discussing potential causes of climate change, the other has already started tackling the issue, by adapting to it. This particularly stands for the visionaries in the global business sector. But what does this mean for Montenegrin entrepreneurs?

Many would agree that the climate has significantly changed over the last few decades. We can feel the change and recognize it as extreme weather events, manifested as snow and storm surges or heat waves resulting in costly and damaging droughts and floods. Unfortunately, experts say this is just the beginning.

It is projected with a great deal of certainty that Montenegro will face even greater impacts of changing climate – the Mediterranean will be particularly affected, becoming hotter and drier, while Northern regions can expect higher levels of rainfall.

Given the interdependencies between climatic conditions and production processes and services, it is evident that these changes in climate patterns may affect many businesses.

With this in mind, business as usual should no longer be an option.

The Risk Disk

DOING BUSINESS IN A CHANGING CLIMATE – building a case for adaptation (1)

by MSc Slavica Nikolic and MSc Dragana Mileusnic

On the other hand, climate change adaptation should not only be about vulnerability and risk. It is also about opportunities and benefits. Case studies that we examined demonstrated that it is cost effective, it helps avoid operational disruptions, but it can also bring expansion to new markets and services, reputational benefits and competitive advantage over companies in the same industry that fail to address the issue.

However, we should not overlook the fact that both risks and responses vary according to sector. Those identified as the most vulnerable are agriculture, energy, tourism and forestry, coinciding with Montenegro’s key

Fortunately, there are numerous other examples of good practice that can be a valuable lesson for Montenegrin companies. We explore these in a sequel coming up in the next issue.

Effects of Climate on...

(Source: Pew Center on Global Climate Change)

The graphic above demonstrates how climate change can affect different aspects of business processes – core operations, value chain and broader network. Therefore, in order to adapt, companies need to evaluate risks in each segment and integrate these when planning for further activities. It is also important not to forget that these risks can be diverse in their character.

They can come from physical and operational changes in the environment, causing shortages in raw materials and damage to other assets. None the less, they may result from the regulatory framework for climate change mitigation that is a part of Montenegro’s international legal commitment. This may trigger further financial, market, political and reputational risks.

strategic development areas. In practice, this means that businesses relying on water will be affected due to projected water scarcity. This will reflect on energy supply and demand, a sector that is already susceptible to even minor disturbances. Thus, an exemplary adaptation response for some companies may be to consider including more solar sources in their energy mix.

BROADER NETWORK ...public/private electri and water utilities and other infrastructure VALUE CHAIN ...supples of natural resources and raw materials

CORE OPERATIONS ...disruptions to supply chain

...other inputs into production

physica assets, production processes or O&M

...workforce and changing lifestyles

...customers’ access to product

...customers and demand for goods and services ...government -supplied services

9

EU Corner

EU Corner

MONTENEGRIN STEPS TOWARDS EU - Montenegro opened and provisionally closed the 25th Chapter “Science and Research”.

The second meeting of the Accession Conference with Montenegro at the ministerial level was held in midDecember in Brussels, which opened and provisionally closed the first negotiation chapter: Chapter 25 Science and Research.

Bilateral screening of legislation In the period from December 2012 to March 2013 discussions were held on bilateral screening of EU legislation on the following topics: 19. Social policy and employment; 1. Free movement of goods; 17.

Economic and monetary policy; 4.

Free movement of capital; 12. Food safety, vet. & phytosanitary policy; 10. Information society and media; 22. Regional policy and coordination of structural instruments ; 11.

Agriculture and rural development i 8. Competition policy.

Analytical explanatory examination of the legislation In the period from December 2012 to March 2013 explanatory analytical examinations, took place, of the following chapters:15. Energy, 28.

Consumer and health protection, 27.

Environment, 19. Social policy and employment, 4. Free movement of capital, 1. Free movement of goods and 10. Information society and media. ■ Source: www.mip.gov.me

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Montenegro – Negotiations status Negotiations opened

Negotiations closed

1 – Free movement of goods 2 – Freedom of movement of workers 3 – Right of est. & freedom to provide services 4 – Free movement of capital 5 – Public procurement 6 – Company law 7 – Intellectual property rights 8 – Competition policy 9 – Financial services 11 – Agriculture and rural development 12 – Food safety, vet. & phytosanitary policy 13 – Fisheries 14 – Transport policy 15 – Energy 16 – Taxation 17 – Economic and monetary policy 18 – Statistics 19 – Social policy and employment 20 – Enterprise and industrial policy 21 – Trans-european networks 22 – Regional pol. & coord. of structural instr.

23 – Judiciary and fundamental rights 24 – Justice, freedom and security 26 – Education and culture 27 – Environment 28 – Consumer and health protection 29 – Customs union 30 – External relations 31 – Foreign, security and defense policy 32 – Financial control 33 – Financial and budgetary provisions 34 – Institutions 35 – Other issues Source: http://ec.europa.eu/enlargement/

EUREKA is an international program for small and medium businesses, corporations, universities and institutes, whose objective is the development and practical application of innovative products, processes and services. EUREKA encourages projects that promote cooperation between business and science, and in this sense provides support for projects that result in a new product or service. Projects that receive the label EUREKA become internationally recognized and accepted, and competitive in the European market. Montenegro became in June 2012 the 41st member of EUREKA. The management of EUREKA activities in Montenegro has been assigned directly to the Montenegrin Ministry of Science.

EUREKA supports different types of projects: Individual Projects and Cluster Projects. EUREKA individual project is market-oriented R&D project labeled by EUREKA based on its bottom-up approach and involving partners from at least two EUREKA member countries, often SME-led.

Through a EUREKA individual project its consortium develops new project, technology and/or service for which they agree the Intellectual property rights and build partnerships to penetrate new markets.

10 – Information society and media

25 – Science and research

EU Funds In Focus: Screening of The Acquis

18 December 2012 18 December 2012

The formal opening of negotiations at the Intergovernmental Conference, when common EU and state candidates’ position is shared and negotiated, is followed by the analytical review and assessment of compliance of national legislation with the acquis of the European Union, which is known as screening.

Screening is a formal and technical process carried out by the Commission in order to prepare for the accession negotiations. It allows the candidate countries to familiarize themselves with the acquis communautaire and thus contribute to the preparations for accession. Screening allows the Commission and the Member States to assess the level of readiness of the candidates, to be informed about their plans for the future and prepare to obtain preliminary indications of issues that will likely arise during negotiations.

Screening is carried out through meetings, chapter by chapter, for all chapters except for Chapter 34 Institutions and 35 Other issues. There are two types of meetings for each of the sections: first, explanatory meetings with one or more of the candidates together, and then bilateral meetings with each country separately. For explanatory meetings, the Commission identifies the main elements of the achievements of the EU candidate country status in certain chapters. During a session of bilateral meetings the candidate is expected to explain and show the degree of readiness and its plans for harmonization of national legislation with the EU acquis and its implementation relating to a particular chapter. After the bilateral meeting, the Commission makes reports about screening and presents them to the Council. ■ Source: http://www.mip.gov.me/index.php/Opste/pregovori.html

EUREKA Clusters are long-term, strategically significant industrial initiatives. They usually have a large number of participants, and aim to develop generic technologies of key importance for European competitiveness, primarily in ICT and, more recently, in energy and biotechnology. Initiated by industry in close collaboration with national funding authorities, each Cluster has a technological roadmap defining the most important strategic domains. Specific goals are achieved through scores of individual projects. ■ Source: http://www.eurekanetwork.org/

11

MBO Interview

MBO Interview

Interview with prof. Petar Ivanovic Minister of Agriculture and Rural Development

The sector of agriculture plays an important role in Montenegro’s economy. According to MONSTAT data, over the last several years, the share of agriculture in the GDP, hunting and forestry included, has increased reaching 8% in 2011. Almost 38% of Montenegrin territory is in the category of agricultural land, out of which only 9% goes to arable land (fields and gardens). Advantageous geographical location, climate and terrain features, make that the most common agricultural activities in Montenegro are livestock (Northern Region), viticulture (Central region) and fruit and vegetables (Southern region). Owing to the relatively preserved environment, Montenegro has good potential to develop organic agriculture in its own territory. A particular challenge is the reduction of the trade deficit, given that imports amount to 450 million euros of food and exports only 40 million euros, on an annual average. Considering the fact that nearly 49,000 households in Montenegro generate some income from agriculture or it makes major revenue generation activity for them, we discussed this and other topics with the newly elected Minister of Agriculture and Rural Development, Professor Petar Ivanovic.

“Through open and frank discussions with agricultural food producers in several Montenegrin towns,

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representatives of various organizations, domestic and foreign experts working on the realization of related projects, we analyzed the basic problems. One of the problems in agriculture is a result of the transition we have been going through, while others have been created for decades and further strengthened by the economic crisis. However, for every problem there is one or more solutions. Therefore, I would like to talk about challenges, rather than about problems.”- said Minister Ivanovic Could you tell us more about further steps that the Ministry of Agriculture and Rural Development will take in order to make more favorable conditions for agricultural development in the upcoming year?

“The first step is the formation of a Sector for payment which is necessary to absorb EU funds in the medium and long term. It is necessary to select and train people, to prepare and adopt comprehensive legislation, to solve a series of organizational and logistical details.

Our second step is to strengthen international cooperation in order to launch as many useful projects and programs in agriculture as possible.

The third step refers to the completion of the first phase of the registry of agricultural producers and agricultural land. Of course, there will

be plenty of work in the normative part, to improve the organization of the Ministry and field work, since we have to maintain direct contacts with agricultural producers.

Increasing overall production, but also linking agriculture, tourism and trade, will be among future priorities of this Ministry. Our agro-budget is about eight million euros, seven million euros are accounted for subsidies, while additional money Montenegro will try to get from the IPA funds. Following relevant EU directives, our priority is to improve quality standards to be able to compete on EU markets, as well with EU products at domestic market. Also reaching EU standards in food safety is at the most importance to us.

Did you start taking some measures to improve international relations in order to apply these standards?

“It’s a fact that in the shortest time of all the countries of Central and Southeast Europe, Montenegro moved from the restoration of independence to the opening of accession negotiations with the EU. In mid-February of 2013, our delegation visited Brussels and I met with three commissioners of the European Union: Mr. Dacian Cioloş Commissioner for Agriculture and Rural Development, Mr. Tonio Borg Commissioner for Health and Consumer

Policy and Ms. Maria Damanaki Commissioner for Maritime Affairs and Fisheries. During the meetings with the commissioners we discussed opportunities that would result from the adoption of the Common Agricultural Policy as well as what Montenegro could get in the context of certain amendments of the policy, particularly having in mind the size of the country. Commissioner Cioloş agreed to visit Montenegro in the second half of the year, which will be an opportunity to further analyze what could be the priorities in the development of agriculture in Montenegro and what priority areas would be eligible for EU support.“ What are the major challenges that you will face in the future?

“The first challenge is to change the way of thinking. Should we continue to look at agriculture as an agro-social meter or will we create conditions for the development of agro-business? It is not a rhetorical, but crucial question, because the

change from one model to another will not be easy. We have to prepare our farmers for the use of EU funds.

The sooner we accept the concept of agriculture as a business we will increase the chances of long-term survival and development. However, conducting business in agriculture is not easy and reliance on incentives and subsidies will not give the

expected results. So to change the way of thinking is the major challenge facing us. The second challenge is to modernize our farmers.

In order to be competitive they need to implement new knowledge and skills, and technology as well. And the third one is full implementation of standards, particularly in the area of food safety. ” ■

In February you faced with an emergency situation-appearance of aflatoxins in milk. What are the lessons learned?

“The recent problem with high levels of aflatoxin in milk has helped us to understand how our food safety system and health of the citizens of Montenegro works. I am satisfied with our quick reaction and the fact that we have achieved a very good cooperation with both domestic producers and processors of milk, and with distributors and retail chains. We had to take some unpopular measures such as the suspension of processing of milk for a few days or those prohibiting the import, but we have shown that the health of citizens is our priority. I believe that we have gained the trust of the Montenegrin public, and that our services, having learned this practice, in the future will quickly react in similar situations. We will strive to raise the standards of food safety in Montenegro and the efficiency of our system in the future. ■

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Business News

Business News

Business News Ivanovic: To strengthen agricultural investments, not subsidies During the biggest international agricultural fair in the world, which has been held in Berlin for more than 70 years under the name “Green Week,” Montenegro was represented by the Minister of Agriculture of Montenegro dr Petar Ivanovic. „The system of subsidies and incentives must be changed. There is a need to strengthen investment in agriculture, it was concluded on the V Summit of Agriculture Ministers, which was held in Berlin, during the biggest international agricultural fair in the world, which has been organized in this German city for 70 years, and is called “Green Week” “ – said the for the Pobjeda newspaper Minister of Agriculture and Rural Development, Dr. Petar Ivanovic after returning from the summit.

country. Countries of the region are divided into free and partly free countries in the Report on political rights and freedoms, and Montenegro was assessed as free country, including those with political competition, respect civil liberties and human rights and have independent media.

Investors from Poland visited the Port of Bar Representatives of the Polish Impexmetal group today visited the Port of Bar, talked to the management of joint stock company, as well as with leaders of AD Container Terminal and General Cargo (CTGC), and discussed the possibilities for cooperation. Meeting with Polish investors was attended by the Mayor Zarko Pavicevic.

Source: Ministry of agriculture

Source: www.barinfo.me

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Eurostat: Montenegrin economy is growing quickly Montenegro is on fifth place among 36 countries by an average real GDP growth from 2008 to 2014, according to Eurostat.

Source: www.pobjeda.me

According to Arkadiusz Krezel, Chairman of the Board of Directors of the Polish group, Impexmetal consist of 72 companies. Headquarters are located in Warsaw, the largest number of companies are based in Poland, as part of the group and some companies are based in Italy, France, Spain, Brazil, China, Russia and India.

In the annual report of NGO Freedom House on political rights and freedoms, Montenegro was evaluated as a free

Source: www.cdm.me

Higher average growth rates of gross domestic product had, according to Eurostat data, only four countries - Turkey, Poland, Slovakia and Macedonia.

Free countries in the region are also Croatia and Serbia.

Minister Ivanovic said the summit had adopted a joint declaration in which it was emphasized the need to increase investment in agriculture.

Joint assessment of the Summit is that the system of subsidies and incentives must change, or investments in agriculture must be fostered. ■

Freedom House: Montenegro is a free country

its introduction, said Deputy Prime Minister and Minister of Information Society and Telecommunications Vujica Lazovic.

in the region is found in Croatia, 61 percent of the EU average, followed

by Montenegro with an average of 42 percent. Macedonia and Serbia are at a level of 35 percent of the European average, while Albania and Bosnia and Herzegovina are on 30 percent.

“PayPal” next year in Montenegro This year for Montenegro should be the last one without “PayPal” system for online payments because the country met all the conditions for

He said that Montenegro had recently removed all obstacles for “PayPal”, while a request for the establishment of the office of the company was sent in mid 2009. He added that, as things stand, Montenegro would get this system in a package with several other countries.

Source: www.vijesti.me

Montenegrin GDP 42 percent of the European average Gross domestic product GDP per capita in purchasing power standard in Montenegro last year was 42 percent of average in the European Union, while in 2010 and 2009 was 41 percent.

The highest GDP per capita in purchasing power standard in the EU has Luxembourg, and the lowest Bulgaria. GDP per capita in purchasing power standards in Luxembourg is two and half times higher than the European average and amounts to 271 percent, while Bulgaria has 46 percent.

Highest GDP per capita in purchasing power standards among countries

declaration on the accession of Montenegro, and it received the status of observer. Previously Montenegro Energy Charter Secretariat submitted a letter in which it showed interest in becoming a member.

The goal of the Energy Charter, which entered into force on 1988, is the creation of a stable, comprehensive and non-discriminatory legal basis for crossborder relations in the energy sector.

The Charter was signed by 54 countries of the former Soviet Union, Central and Eastern Europe, Asia and the Pacific. Members of the Energy Charter in the region are Croatia, Bosnia and Herzegovina, Macedonia, and Serbia is in the negotiation process.

Source: Ministry of economy

FORBES: Montenegro 45th on the list of best countries for business U.S. business magazine “Forbes” has published the latest list of countries most suitable for business, on which Montenegro is ranked 45th out of 141 countries.

- New projections by Eurostat for GDP growth in European countries confirm that the Montenegrin economy since 2008 has been growing faster than many other economies in Europe – was stated by the Ministry of Finance.

Source: Ministry of Finance

Kavaric: The Energy Charter Treaty contributes to energy policy The Energy Charter Treaty is one of the instruments that can contribute to a reliable energy policy of Montenegro, which is the motive to join the Treaty, said in Warsaw Montenegrin economy minister, Vladimir Kavaric.

The Ministry of Economy has announced that Kavaric at the Ministerial Conference of the Energy Charter had signed in Warsaw

In the first place as the most suitable country for business is ranked New Zealand, which has progressed from last year’s second place primarily due to transparent and stable business climate that encourages entrepreneurship, precised “Forbes”.

In second place is Denmark, followed

by Hong Kong, Singapore, Canada, Ireland, Sweden, Norway, Finland and the United Kingdom. When it comes to the former Yugoslav republics, Slovenia was ranked the best, on 23rd

place, followed by Macedonia (37th place), Croatia (47th place), BosniaHerzegovina (85th place) and Serbia (90th place).

The list was compiled based on 11 different categories of property rights, innovation, taxes, technology, corruption, freedom, investor protection and sto ck market operations.

Source: www.telegraf.rs

For CBC 2.3 million For the participation of Montenegro in the cross-border cooperation with Albania, Bosnia and Herzegovina, Croatian and Kosovo, the EU has provided to our country 2.3 million euros.

Montenegro’s chief negotiator with the EU, Ambassador Andrija Pejovic, after the government session, said that about 90 percent of the amounts was provided for projects, and 10 percent for technical support.

- As part of the process of European integration, the Montenegrin government yesterday adopted four financial agreements for funds from the IPA 2011 for participation of Montenegro in the cross-border cooperation with Albania, Bosnia and Herzegovina, Croatian and Kosovo.

The projects will be financed under the cross-border cooperation and are intended to nonprofit organizations and institutions, aimed at the preservation of the environment, tourism, natural and cultural heritage - explained Pejovic.

Source: www.pobjeda.me

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1 concern 21 target markets 40 insurance companies

20,000 employees & agents

7,500,000 customers 16,500,000 contracts

Insurance of a New generation.

Plav KOTOR

Editor in chief: Darko Pekić ceed@t-com.me MBO Team: Dragana Radević Mihailo Zečević Vesna Bojanović Jelena Međedović Jasna Žarković Biljana Janković Jovana Stojković ASSOCIATES Charles Brogden, Editor Marko Mihailović, graphic designer Front page picture : Stock images

Coming Up! UDG Research Day 2013

The UDG Research Day will be held on 4 April 2013 at the University of Donja Gorica. Within the Research Day representatives of MONSTAT and DAMAR will present their work while university and secondary school students and research associates of UDG will present their researches. All interested in attending the Research Day should send a mail to: istrazivanje@udg.edu.me latest by 02 April 2013.

Education and Development Conference (Belgrade, Serbia)

Traditional scientific meeting of the Center for Economic Research, “Education and Development” will be held on 30 May 2013 in the premises of Institute of Social Sciences (Belgrade, Serbia).

The deadline for entries is 25 April 2013.

The goal is to try to look at the problem of education with many different aspects, and to return the problem to the scene of social interests-pointing out the critical analysis of the existing training concept.

SEECEL Final Wrap-Up Conference And Visibility Event/Entrepreneurial Camp 10 –12 April 2013, Dubrovnik, Croatia

The South East European Centre for Entrepreneurial Learning (SEECEL) organizes Entrepreneurial Camp (10 –12 April 2013, Dubrovnik, Croatia). The goal of Entrepreneurial Camp is to support participating countries in their efforts to accommodate the EU’s recommendations for promotion of entrepreneurship as a key competence by specifically addressing entrepreneurship in early education.

More info about the Camp can be found on: http://www.seecel2013.com/