Key international commitments concerning the competitiveness policy
The United Nations Conference on Trade and Development (UNCTAD) was established with the aim of setting the rules pertaining to all aspects of development, including trade, aid, transport, finance and technology, and currently has 195 member states. UNCTAD, together with other UN agencies, measures progress in attaining the SDGs of the 2030 Agenda. In its report on Montenegro, UNCTAD notes that Montenegro is a member of the World Trade Organisation (WTO) since April 2012 and a signatory to the Free Trade Agreements (FTA) with the EU, CEFTA 2006, EFTA, Ukraine and Turkey. The agreement officially entered into force on 22 February 2017 when it was, according to the standard procedure, ratified in 2/3 of the WTO member states.
Apart from the set of measures aimed at ensuring access to commodity markets, streamlining, harmonisation and standardisation of border procedures, the Agreement envisages the obligation to set up a national body to facilitate coordination and monitor its implementation – the National Trade Facilitation Committee, established in May 2015 as a standing multi-agency platform composed of the representatives of all relevant state authorities and the industry tasked with ensuring coordination and cooperation among the stakeholders towards full and effective implementation of the Agreement. The Committee operates under the principle of co-chairing between the Ministry of Finance and the Ministry of Economy.
The Trade Facilitation Strategy 2018-2022 and the detailed Action Plan for its implementation were adopted in 2018 with the aim to facilitate, harmonise and reduce time and cost of cross-border trade procedures. To achieve this strategic goal, the Strategy set five operational objectives with accompanying measures to be implemented by relevant authorities – the Customs Administration, the Administration for Food Safety, Veterinary and Phytosanitary Matters and the Border Police, in collaboration with the private sector. Thus, all the commitments undertaken by the Additional Protocol 5 to the Central European Free Trade Agreement (CEFTA Additional Protocol 5) were consolidated, including the commitments concerning facilitation of trade stemming from the EU accession process. The application of measures to facilitate trade as envisaged by the Strategy will help remove administrative inefficiencies and bottlenecks in cross-border trade, which is expected to have a direct positive impact on export growth and fostering competitiveness.
The Free Trade Agreement takes note of the significance of good corporate management and corporate social responsibility for sustainable development, reconfirming its goal that businesses are encouraged to observe internationally recognised guidelines and principles in that regard, such as OECD Guidelines for multinational enterprises, OECD Principles of Corporate Governance. OECD provides substantial support to governments to respond to new trends and challenges, such as corporate governance, information economy, etc.
CORRELATION WITH THE SDGs BY 2030
SDG 4. Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all
SDG 7. Ensure access to affordable, reliable, sustainable and modern energy for all
SDG 8. Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all
SDG 9. Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation
SDG 10. Reduce inequality within and among countries
SDG 12. Ensure sustainable consumption and production patterns
COMPETITIVENESS POLICY AND THE NATIONAL SUSTAINABLE DEVELOPMENT STRATEGY BY 2030
Montenegro undertook by 2030 to:
– increase competitiveness of Montenegrin companies through measures to foster resource-efficiency and develop SME and entrepreneurship in Montenegro (SDG 8 (8.1, 8.2, 8.3, 8.5), 9 (9.2, 9.3), 17 (17.1, 17.3, 17.14)) towards reducing administrative barriers and boosting the competitiveness of Montenegrin economy GCI, DB, HF.
– further improve local entrepreneurial infrastructure and the environment conducive to entrepreneurship and SME development (SDG 8 (8.3, 8.4, 8.10)) towards curbing the informal employment, increasing SME investments in innovation by 10%, significantly increasing exports, increasing the number of SMEs predominantly providing information society services, located within business zones, etc.
– implement incentive programmes to enable more affordable, available and accessible finance for entrepreneurs and SMEs, particularly innovative and export-oriented businesses (SDG 8 (8.3, 8.10), 17 (17.9, 17.14)), through tailored grant programmes and effective absorption of EU funding, fostering new direct investments in priority sectors in line with sustainable development principles and with the special focus on the northern region.
– upgrade product and service quality in the context of generating green jobs (SDG 2 (2.3, 2.4, 2.5), 12 (12.2), 17 (17.1, 17.14)) by fostering creative branding and marketing of domestic products, increasing the number of clusters and companies involved in clusters through provision of adequate development support and increased export of goods.
 UNCTAD Multi-year Expert Meeting on TRADE, SERVICES AND DEVELOPMENT-Enhancing productive capacity through services, Geneva, 1–2 May 2019, Country paper: Montenegro
Chapter 3 – Freedom to provide services enables functioning of the European internal market and includes the right of establishment in any Member State. Upon accession, Montenegrin business entities (natural persons and legal entities) will enjoy freedom to provide services in any member state without the need to be established in those member states. The right of establishment will allow Montenegrin business entities to launch, start and perform business activity on a sustained and continued basis in one or more EU Member States. This chapter covers three areas: mutual recognition of qualifications, the right of establishment and freedom to provide services, and postal services. This chapter was opened on 11 December 2017 at the Intergovernmental Conference held in Brussels.
Chapter 20 – Enterprise and industrial policy aims at creating an enabling environment for producers and entrepreneurs by supporting their competitiveness and fair participation in business activities in Europe and globally. In line with the recommendations of the Mid-term Review of the Industry Policy by 2020, for the period 2016-2018, the Ministry of Economy drafted the revised document Industrial Policy 2019-2023, thus completing all the actions required under the only closing benchmark, alongside the obligation to continuously monitor and report on the progress achieved in its implementation, and to continuously align with the revised industrial framework in the EU, with the particular focus on the forthcoming EU Industrial Policy by 2030. Chapter 20 is most strongly correlated with sustainable development goals 8 (Decent work and economic growth), 9 (Industry, Innovation and Infrastructure) and 12 (Responsible consumption and production).
Some obligations in the area of competitiveness policy stem indirectly from chapters 19, 25 and 26, particularly in the context of implementing the S3 (Smart Specialisation Strategy), where one of the key goals pursued is to increase Montenegro’s competitiveness.
In preparation for participating to the European trimester, each year Montenegro adopts the Economic Reforms Programme.
JOINT CONCLUSIONS OF THE ECONOMIC AND FINANCIAL DIALOGUE BETWEEN THE EU AND THE WESTERN BALKAN COUNTRIES HELD ON 19 MAY 2020
Montenegro is invited to use fiscal policy to mitigate the crisis-induced impact on growth and employment; Ensure smooth and effective support to the private companies and their employees affected by the crisis, in particular micro, small and medium-sized enterprises, and to provide incentives for businesses and employees in the informal economy sector to register and to facilitate their transfer to the formal economy. Take measures to preserve employment including by ensuring short-time work schemes and flexible working arrangements, as well as through increased provision of active labour market policies to facilitate transition to work and support workers at risk of job loss.
JOINT CONCLUSIONS OF THE ECONOMIC AND FINANCIAL DIALOGUE BETWEEN THE EU AND THE WESTERN BALKAN COUNTRIES HELD IN MAY 2019
Montenegro is invited to:
– Improve the regulatory environment by developing publicly available guidance on the practical implementation of each law that affects the business environment.
– Develop a comprehensive strategy providing reliable benchmarking tools allowing for the continuous assessment and reduction of the informal economy, including undeclared work.
– Increase labour market participation, in particular for youth, women and the low skilled, by strengthening employment activation measures, including through better provision of upskilling and reskilling measures.
Small Business Act index – 3.83 (2019)Global Competitiveness Index – World Economic Forum Doing Business – The World Bank The Global Innovation Index
Cornell University, INSEAD, WIPO (World Intellectual Property Organisation), Knowledge Partners
Competitiveness policy in Montenegro is based on the key principles set in the Development Directions 2018 – 2021 to improve the business environment, develop small and medium-sized business, diversify the economic activity while increasing productivity, applying state-of-the-art ICT and attracting foreign direct investments. Other goals include more jobs generated within the SME sector and in the processing industries, and their increased shares in exports and in GDP through greater FDI inflow. Montenegro is the 73 most competitive country in the 2019 edition of the Global Competitiveness Index of the World Economic Forum (WEF). The variables are organized into twelve pillars with the most important including: institutions; infrastructure; ICT adoption; macroeconomic stability; health; skills; product market; labour market; financial system; market size; business dynamism; and innovation capability. The World Bank’s 2020 Doing Business report identifies key barriers to ease of doing business, and by extension to the overall competitiveness of Montenegrin economy, in the areas of starting a business, getting electricity, paying taxes, and registering property, which affected Montenegro being ranked 50 out of 190 countries. In order for competitiveness to be evenly distributed geographically, the relevant document is the Regional Development Strategy as an instrument for implementing Development Directions and monitoring indicators broken down by regions, with regional reporting on competitiveness index for local self-governments.
Medium-term Government Work Programme 2018-2020 also deals with the competitiveness policy within its priority 1: Montenegro – A country of economic growth and new jobs and envisages support to SMEs and entrepreneurs by providing information on how to put incentives to best use to develop one’s business, by improving the existing and creating new programmes and credit lines to boost business development. The MGWP also envisages putting in place the assumptions for creating an environment more conducive to investments, business growth and job generation, with adequate support to women’s entrepreneurship.
As envisaged by the Smart Specialisation Strategy, Montenegro will focus on fostering innovation in business to ensure synergies between innovation and the industry for increasing competitiveness in 4 policy areas: food production, green energy, health tourism and IT. The Cluster Development Incentives Programme 2017-2020 envisages subsidies for innovative clusters as structural or organisational groups of independent entities (such as innovation start-ups, SMEs and research and knowledge organisations, non-for-profit organisations and other related business entities), intended to foster innovation activity through promotion, sharing of premises, knowledge and expertise, and effective contribution to knowledge transfer, networking, dissemination of information and collaboration among business entities and other organisations within a cluster.
The EC 2019 Report on Montenegro takes note of the improved labour market outcomes, positive export dynamics and financial sector developments (solvency and liquidity ratios improved). Montenegro has made some progress and is moderately prepared in terms of its capacity to cope with competitive pressures and market forces within the EU. In their report, the IMF noted migration and labour shortages in the key industrial sectors as well as low activity levels as main challenges for improving competitiveness. The room for improvement is seen in provision of access to finance for small businesses which remains difficult chiefly due to relatively strict terms for obtaining loans. The private sector development is still limited due to shortcomings in the business environment, judiciary, and the existence of informality.
Implementing the priority reform measures under the Economic Reforms Programme 2020-2022 will overcome the impediments to competitiveness and inclusive growth. The reforms are overseen by the Competitiveness Council set up by the Government in 2017. After the high growth of 4.7% in 2017, Montenegrin economy had the real growth of 5.1% in 2018. The MONSTAT data show the growth continued in 2019 at the rate of 3.1% for the first six months (Q1 3.0%; Q2 3.2%). Seen by the type of business activity, the strongest growth was recorded by construction, retail, tourism and transport sectors. The ERP takes stock of the geopolitical risks in immediate and more remote surroundings which increase security threats for the global economy in terms of lower investments, reduced tourism turnover and economic downturn, with possible spill-over effect of lower growth rates to other economies.
To assuage the adverse impacts of the COVID-19 on the economic activity in the country and the deteriorated financial status of the most vulnerable populations in Montenegro, on 19 March 2020 the Government of Montenegro adopted urgent measures. At its session held on 24 April 2020, the Government adopted the second package of measures for the economy. These include, inter alia:
Financial support instruments – new credit lines provided by the Investment and Development Fund designed so as to complement the Government support measures, with the Revision of the IDF’s 2020 Work Plan to include urgent credit support for liquidity for entrepreneurs, small, medium and large enterprises to respond to the adverse impacts of the COVID-19 crisis and the streamlined procedures for granting loans.