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[1] 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.

[1] UNCTAD Multi-year Expert Meeting on TRADE, SERVICES AND DEVELOPMENT-Enhancing productive capacity through services, Geneva, 1–2 May 2019, Country paper: Montenegro

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. 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.

Montenegro was placed 73^rd, out of 141 economies, according to the 2020 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 to the overall competitiveness of Montenegrin economy (starting a business, getting electricity, paying taxes, and registering property) that affect its global ranking (50^th, out of 190 countries). According to the Global Innovation Index 2021 Report, published by the World Intellectual Property Organization (WIPO), ranking and measuring innovation potential of a specific country, based on research, political priorities and data accessibility, Montenegro is ranked 7th, out of 34 countries, belonging to the higher middle income level. Montenegro ranks 50th out of 132 countries (in terms of the overall score), whereas 33rd in Europe.

Implementing the priority reform measures under the Montenegro Economic Reform Program 2021-2023 will overcome the impediments to competitiveness and inclusive growth. The Program articulates economic policy of Montenegro for 2021 and relevant for the Mid-Term Review and represents the platform for dialogue with the European Commission in the EU integration process. Economic Reforms Programme 2021-2023 contains Mid Term macroeconomic framework, followed by a set of 20 specific and adequately placed priority structural reforms, aligned with the priorities set out in national and regional strategies, key documents in the process of European Integration, guidelines of the EC and Policy guidance of the Ministerial meeting held in May 2020. Projections of the macroeconomic indicators for the period 2021-2023 are based on assumptions of partial recovery of economic activity, return to the pre-crisis level, and further economic growth, in accordance with partial upkeep of investment activities and beginning of a new cycle, with sizable high share of exports and private spending. The average real economic growth rate in the period 2021-2023 will be 7.6 percent, whereby strong economic recovery of 10.5 percent is projected for 2021, while growth rates of 6.5 percent and 5.8 percent are projected for 2022 and 2023 respectively. The most important assumption of the trends projected in 2021 refers to tourism revenues reaching 65 percent of those generated in 2019. The main challenges in boosting competitiveness and ensuring long-term inclusive growth are (i) increase in activity in the labour market, (ii) strengthening of regulatory environment, and (iii) formalization of economy. The reforms are overseen by the Competitiveness Council set up by the Government in 2017 and amended by the Government Decision from February 11, 2021.

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 in response to the negative economic effects of the Coronavirus Pandemic. At its session held on April 24, 2020, the Government of Montenegro adopted the Second Package of Measures to Support the Economy. These include, inter alia:

1. Liquidity facilities including reduction of the VAT refund deadlines and extension of the customs guarantee exposure limit period for deferred payments of customs debt. During the first month of its implementation, through the Assistance Programme for the Economy and Employees in Response to the COVID-19 crisis support was provided to 15,030 business entities and entrepreneurs with total employment of 61,402 workers, with gross payment of EUR16,338,823.20. Aiming to preserve jobs, the support measures for suspended operations and affected businesses, alongside the subsidies for employee on paid leave on the grounds of care for children under 11 years of age and the employees who were imposed quarantine or isolation measures, received 50-100% gross wage subsidies for employees in respective industries. At the same time, the same measures stimulated new employment over the period April – September 2020 through subsidies in the amount of 70% minimum wage for every newly employed person during the first 6 months of employment.

2. 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.

After € 280 mil. in the first and € 40 mil. in the second package, the Government has adopted on July 23, 2020 the Third Package of Measures to Support the Economy, worth €1.22 bil. covering a period of four years. The third package of measures includes short-term and long-term measures. The purpose of short-term measures was to provide:

• Support to the tourism sector in the amount of €83,350,000;
• Agriculture and fisheries;
• Improving the competitiveness of the economy through 17 program lines and giving €10 mil. in grants in 2020 alone;
• Support to the economy through wage subsidies including tourism in the total amount of €2 mil;
• Support to the most vulnerable categories of the population in the amount of €8 mil.

Long-term measures for the development of tourism, IT sector, agriculture, fisheries, energy and transport were intended for:

• Development of information technologies with the ambition to grow this sector into an IT industry;
• Tourism as a strategic economic branch;
• Encourage agriculture and fisheries for the realization of investments in the total amount of €4 mil.;
• Energy.

The VAT rate will be reduced from 21% to 7% on the preparation and serving of food and non-alcoholic beverages in all catering activities for a period of one year.

The Government of Montenegro has adopted on October 15, 2020 the Information on the extension of the Wage Subsidy Program in order to mitigate the negative effects of the epidemic of the new Coronavirus Pandemic  (updated on October 22, 2020). Under the conditions defined by the Program, two months extension was approved for the Program implementation i.e. the payment of subsidies for October and November salaries. Under the II and III package of measures until October 2020, salaries for more than 73,000 employees in 15,500 businesses. The amount of disbursed funds reached EUR 50,000,000.

In terms of providing new forms of assistance to the most vulnerable individuals and legal entities, the Government is 28.01.2021. adopted a new package of Measures to Support the Economy for the 1^st Quarter of 2021, aimed at supporting the current employment rate, improving liquidity, increasing the number of tourists, enhancing agricultural stability and support for vulnerable groups. The estimated total direct and indirect fiscal impact of the implementation of measures is around € 163 mil, around € 43 mil. in direct budget allocations and € 120 mil. for the reduction and deferral of tax and other liabilities of economic entities.

Main support goals:

1. support for vulnerable categories of the population;
2. maintaining the current employment rate and supporting new employment;
3. enhancing the liquidity of SMEs;
4. creating conditions for increasing the number of tourists;
5. providing agricultural market stability.

As a result of the need to continue the support, due to consequences of the pandemic, the Government of Montenegro has adopted on April 29, 2021 Measures to Support the Economy for the 2^nd Quarter of 2021. The deadline for the implementation of Coronavirus Pandemic related state aid has been extended until December 31, 2021, while at the same time the limit of state aid per business entity has been increased from the previous €800,000 to €1,200,000. This enabled economic entities that reached the limit of €800,000 to receive additional direct support funds from this package. Measures to support citizens and the economy for the 2^nd Quarter are complementary to the measures from the 1^st Quarter, with specific emphasis on credit support. Ammendments to the Measures to Support the Economy for the 2^nd Quarter of 2021  from July 30, 2021 the amount of one-time support for the establishment of electronic fiscalization system was increased from € 450,000 to € 550,000 and support was extended to taxpayers who perform the activity of taxi transport and who harmonized their operations with the Ordinance on the form and structure of messages and security mechanisms for messaging fiscal invoice and the manner of delivery of invoices issued in case of interruption of the Internet connection (Official Gazette of Montenegro No. 054/20 of June 8, 2020 and 057/21 of June 1, 2021) and retail trade on stalls and markets, as of September 30, 2021. At the initiative of the Ministry of Finance and Social Welfare, the subject of Amendments to the Measures to support the economy and citizens for the second quarter of 2021 from October 14, 2021, the deadline for the establishment of the electronic fiscalization system has been extended, for the taxpayers of fiscalization covered by the measures until November 30, 2021.

At its session on February 17, 2022, the Government of Montenegro adopted two support programs of the Ministry of Economic Development in accordance with the 2022 Annual Work Program of the Government, aimed at improving the development of micro, small and medium enterprises and craftsmanship. The 2022 Competitiveness Enhancement Program (€ 4 mil.) provides two new program lines, with budget increased by 1 mil. The total of 4 million euros will be allocated by means of eight individual program lines, two new program lines and procurement of high value equipment, in order to further stimulate economic activity and its development component. Other program lines are intended for business beginners who will have at their disposal a package of financial and non-financial support, which will, compared to last year, in addition to entrepreneurial cycles of education, technical support in developing business plans and mentoring services, provide part of non-refundable financial support. Also, the novelties in program lines imply the introduction of additional components that refer to the introduction of international standards, support for digitalization, and stimulation of the circular economy. These funds, which will encourage MSME operations, will strengthen competitiveness and export potential, encourage the improvement of existing and the development of new services, and thus enable the creation of new jobs. Recognizing the need to improve the institutional and financial framework, 2022 Program for Enhancement of Craftsmanship was adopted (€ 200,000), according to the principle of reimbursement, and the maximum amount of approved support per applicant is € 12,000. This approach will contribute to increasing the number of craftsmen, strengthening competitiveness, improving business through financial support for the purchase of equipment and tools, but also financial support for organizing and participating in domestic and international fairs, all in order to share experiences and more efficient product placement.