Economy of Montenegro

The economy of Montenegro is mostly a service based economy, currently in the process of economic transition. Montenegro's economy is recovering from the impact of the Yugoslav Wars, the decline of industry following the breakup of the Socialist Federal Republic of Yugoslavia, and UN economic sanctions.

History 

As a relatively small principality and kingdom, Montenegro made its first steps towards an industrial economy only at the turn of the 20th century. The causes for this relative delay lay in the small population, lack of raw materials, underdeveloped transport network and comparatively low rate of investment. However, this delay in industrialization had its positive effects - Montenegro survived as a specific ecological oasis.

The first factories were built in Montenegro in the first decade of the 20th century, followed by wood mills, an oil refinery, a brewery, and electric power plants. This brief evolution of industrial economy was interrupted by new wars - First Balkan War (1912–1913), followed by World War I and World War II. Between the two world wars, agriculture maintained its dominant position in the national economy, while the sole remaining industrial plants were wood mills, tobacco factories, breweries, and salt works.

SFR Yugoslavia era
The economy made major progress only after World War II, as Montenegro became part of the SFRY. In the period following World War II, Montenegro experienced a period of rapid urbanization and industrialization. An industrial sector based on electricity generation, steel, aluminum, coal mining, forestry and wood processing, textiles and tobacco manufacture was developed, while trade, international shipping, and particularly tourism became increasingly important by the late 1980s.

Post-Yugoslavia
Due to its favourable geographical location (it had access to the Adriatic Sea and a water-link to Albania across Lake Skadar) Montenegro became a hub for smuggling activity. The entire Montenegrin industrial production had stopped, and the republic's main economic activity became the smuggling of user goods - especially those in short supply like petrol and cigarettes, both of which skyrocketed in price. It became a de facto legalized practice and it went on for years.

Divergence from Serbian unity
In 1997, Milo Đukanović took control over the ruling party DPS and began severing ties with Serbia. He blamed policies of Slobodan Milošević for the overall decline of the Montenegrin economy. Resurgent inflation led the Montenegrin government to "dollarize" the economy, adopting the German mark unilaterally, and insisting on taking more control over the country's economic fate. This eventually resulted in creation of Serbia and Montenegro, a loose union in which the Montenegrin government assumed predominant responsibility for its economic policies.

This was followed by implementation of faster and more efficient privatization, passing of reforming legislation, introduction of a VAT. When the German mark was replaced by the euro, the latter became Montenegro's legal tender despite objections from Brussels. The government established a medium-term plan of economic reforms, popularly referred to as "The Agenda".

Despite implementation of reform laws and privatization of most of publicly owned companies, the living standard of Montenegrins did not improve significantly during this period. The government, with Milo Ðukanović still as the Prime minister, blamed the slow progress on Serbia. Some arguments used to support this position were that foreign debt was higher in Serbia by one third, that unemployment was significantly lower in Montenegro. It was also argued that troublesome cooperation of Serbian government with the Hague war crime tribunal, ongoing Kosovo status process and general political turmoil in Serbia were hampering Montenegro's attractiveness to investors and delaying its progress towards full membership in European Union and NATO.

A referendum was held on May 21, 2006 in which the people of Montenegro voted by a slender majority in favour of Montenegrin independence from Serbia.

Post-independence

Following the independence referendum, Montenegro's economy has continued to transform into a more service-based one, with the proclaimed goal of becoming the elite tourist destination, and joining the European Union. Efforts have been made to attract the foreign investors into tourism greenfield investments, as well as in large infrastructure projects, both needed to facilitate the tourism development.

Montenegro has experienced a real estate boom in 2006 and 2007, with wealthy Russians, Britons and others buying property on Montenegrin coast. Montenegro received, as of 2008, more foreign investment per capita than any other nation in Europe. Due to foreign direct investment, the Montenegrin economy has been growing at a very fast pace in recent years. However, Late 2000s recession will inevitably slow down the growth, as the biggest greenfield investments (development of Velika Plaža, Ada Bojana, Buljarica, Jaz Beach, construction of Bar-Boljare motorway, new power plants) may be postponed. The recession is also hitting hard on Podgorica Aluminium Plant, built in 1969 and the biggest single contributor to GDP, and a major exporter.

In the first half of 2012, Montenegro exported goods (mostly metals) worth 182,3 million €, which is 14,6% less than the same period the preceding year. The major export partners were Croatia (47,2 million €), Serbia (36,8), Bosnia and Herzegovina and Hungary (12,7). The import (mostly food, oil and electrical energy) was 864,9 million €, which is 2,6% more than the same period the preceding year. The major import partners were Serbia (249,2 million €), Greece (73), Bosnia and Herzegovina (59,8).

Banking sector of Montenegro is highly concentrated with high share of foreign capital. Banks in Montenegro usually operate as universal banks, providing retail and corporate banking products and services. During the recent years (2007-2016), the banks have been attracting deposits from both Montenegrin residents and non-residents. Most of the banks offer non-resident accounts, usually to both natural persons and legal entities.

Taxation 
An income Tax rate of 9% is applied for monthly personal gross income below EUR 751 per month, and a tax rate of 11% was applied for income above EUR 751. In 2013 it was a 15% rate. Additional income reported in the annual tax return is also subject to a flat 9% tax rate.

See also 
History of Montenegro
Economy of Serbia and Montenegro
Economy of Europe

Notes

References

External links 

Montenegro Economy and Financial News
The Njegoskij Fund Public Project >> Country Profile on Montenegro
CIA World Factbook - Montenegro
A New Playground for the Rich, a slideshow by The New York Times.

 
Montenegro