DEVELOPMENT CHALLENGES
In 2006, Montenegro gained its independence and subsequently began a process of nation-building and structural reforms in the areas of public finances, prices and trade liberalization. Fuelled by foreign direct investment (FDI) and expansion of services in tourism, construction, retailing, banking and telecommunications, economic growth was exceptional in 2006-2008, reaching 9% annually on average. Today, Montenegro is an “upper-middle” income country with a GNI per capita of US$6,620 and is ranked 54th of 187 countries on the Human Development Index (HDI), with a “high” value of 0.771. However, the country still faces significant development challenges.
Poverty and inequality
Since 2003, the average poverty rate has only decreased slightly, from 12.2% to 10.8% in 2008. In addition, about 28% of the population was found to be economically vulnerable in 2008, living below 150% of the poverty threshold. Inequality is also high and increasing. Poverty is concentrated in the north of the country, where nearly one-third of the poor live. Ethnic minorities, in particular the Roma, are the most vulnerable population group with a poverty rate of 36%. Other groups at risk of poverty include displaced persons, the disabled, children, the elderly, pensioners, long-term unemployed, and women.
High unemployment
While unemployment has decreased dramatically, from 30.3% in 2005 to 18% in 2008, the rate remains high. Moreover, regional disparities are present in employment, with the largest share of the unemployed living in the northern region (11.4%) and the lowest in the southern region (4.4%). Contrary to other Balkan countries, men account for a greater proportion of the employed (55%) than women. Moreover, unemployment tends to be long-term (over 2 years), making up 62% of all unemployment and mainly affected those aged 50+. In 2007, the average period of unemployment was 3.7 years.
Skills gap
In 2007, the combined gross enrolment rate in primary, secondary and tertiary education was 80.7%, and adult literacy reached 97.7% in Montenegro. However, girls continue to experience marginalization in education, characterized by fewer years of study and poorer quality of education received. In addition, despite 18% of total budget expenditures being allocated for education in 2007, the quality of education has not kept pace with economic demands. This has resulted in a large population who lack the knowledge and skills to participate actively in society.
Weak public administration capacity
Montenegro also faces a capacity gap in its public administration system. Inadequate legislation, a complicated system and insufficient resources prevent social-protection systems from covering the most vulnerable persons. In addition, municipalities lack resources, infrastructure, responsibilities and decision-making authority to properly deliver public services. Public administrators also lack the training and skills necessary to be more independent and responsive to local needs.
KEY TRADE ISSUES
Product concentration, low productive capacity and a large trade deficit
The economic structure of Montenegro is largely concentrated on natural resources, including aluminium, iron and steel, and cooper. Aluminium and aluminium products alone make up two-fifths of the country’s total exports. This exposes the country to commodity price fluctuations, which caused a significant drop in exports during the financial crisis. The range of other internationally competitive products is small, and their value-added is low, due to the weak productive capacity of enterprises. Due to Montenegro’s dependence on imports of energy and high value-added products, the country also suffers from a large trade deficit – imports are five times greater than exports.
Market concentration and WTO accession
Montenegro’s integration into the world economy, as well as the benefits that derive from multilateral trading, is hindered by the fact that the country is not yet a member of the WTO. Montenegro submitted its application for WTO membership in 2004, but there is a pressing need to finalize the accession process to diversify the country’s market destinations. Today, Serbia is Montenegro’s main trading partner, accounting for 28% of the country’s exports. Another 56% of exports are directed to the EU-27.
Underdeveloped transport infrastructure
Transport infrastructure in Montenegro is characterized by relatively poor quality, owing to limited investments over the last 20 years. While Montenegro has a dense network of roads totalling approximately 7,000 km, 66% of regional and trunk roads, the most important roadways, are older than 25 years. Moreover, 50% of secondary and tertiary roads are in poor condition due to maintenance backlogs. Similarly, the railway infrastructure suffers from obsolete devices and equipment for traffic regulation and thus requires modernization.
Cumbersome regulatory and business environment
In terms of “ease of doing business”, the World Bank ranks Montenegro 56th of 183 economies, marking a substantial upgrade from 70th place of 175 countries in 2007. However, further improvement is required to create a more favourable regulatory and business environment, in particular in terms of property registration, tax collection and contract enforcement.
Statistics have been compiled by the World Bank, OECD and UNECE. Information has been adopted from: the Integrated United Nations Programme (2010-2015) for Montenegro; the 2010 United Nations report on “The MDGs in Europe and Central Asia: Achievements, Challenges and the Way Forward”; the 2009 UNDP National Human Development Report “Montenegro: Society for All”; and the 2009 OECD report on “Sector Specific Sources of Competitiveness in the Western Balkans: Recommendations for a Regional Investment Strategy”.