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Montenegro - Economy

Montenegro has natural resources, primarily bauxite, adequate water supplies, and a climate conducive to agriculture and tourism. The establishment of the bauxite-alumina-aluminum industry after World War II provided Montenegro with a core strategic industry, which has suffered from high production costs since the first energy crisis in 1973. In the 1960s, tourism began its initial growth, largely attracting visitors from Eastern Europe. War and sanctions in the early 1990s hit Montenegro hard, and recovery only really began after the end of the Kosovo crisis in 1999 and the adoption of the deutschmark (DM) in November 1999, which largely disconnected Montenegro's economy from Serbia and the Serbian dinar.

During the last few years, Montenegro has begun creating a business-friendly investment climate. The Euro replaced the DM on March 31, 2002. The country established the lowest corporate tax rate in the region (9%) and Standard & Poors confirmed the long-term (BB+) and short-term (B) credit rating for Montenegro in November 2008. It also confirmed the AAA rating, which concerns the transfer and assessment of convertibility. According to official statistics the inflation rate in 2008 was 8.4%. More than 85% of capital value in Montenegrin companies had been privatized by June 2009. The banking sector, telecommunications, and oil import and distribution in Montenegro are 100% privately owned. Capital structure analysis shows that the state still has shares in 65 companies, and in 53.8% of those the state has more than 50% ownership. The biggest improvement Montenegro has made has been in the area of tax policy. Montenegro introduced value added tax (VAT) in April 2003, and introduced tax rates of 17% and 7% (for tourism) as of January 2006. The lower VAT rate for tourism is to encourage growth in this strategic industry. Montenegro also decreased the personal income tax (PIT), and a 12% flat rate was implemented in January 2008; a 9% rate will be implemented in January 2010.

There has been a rapid growth in tourism and tourism investments, particularly along the Adriatic coast, in the years since independence. The independent World Travel and Tourism Council repeatedly has ranked Montenegro as the top-growing tourism destination in the world, with growth estimated at 10% annually through 2016. Net foreign direct investment (FDI) in 2008 reached $1.223 billion, which was almost ten times higher than in 2004, and investment per capita in Montenegro is one of the highest in Europe. However, investment has slowed recently, in part as a result of the global economic crisis. According to preliminary data from the Montenegrin central bank, the amount of foreign investment in the first quarter of 2009 was $279 million, which represented a decrease of 38% compared with the same period in 2008.

Renowned as the center of traditional Montenegrin cuisine, Cetinje is famous for its smoked ham (known locally as "prsuto") and its cheeses. Visitors come from far and wide to try the local produce and to appreciate the attractions of this historical city, which lies at the foot of Mount Lovc´en, the Black Mountain, from which Montenegro gets its name. As the old capital of Montenegro, the city grew rapidly but the Balkan wars and the First World War halted its expansion. Today, it has a population of 15,000 and relies on tourism to generate much of its income. Cetinje is on the verge of a revival but many of the city's entrepreneurs struggle to get the financing that they need to build their businesses.

Roads in Montenegro are often poorly maintained, especially in rural areas. Dangerous areas for road travel include a road called "Moraca Canyon," north of Podgorica. This is a twisting, two-lane road that is especially overcrowded in the summer. In the winter, the "Moraca Canyon" and northern parts of Montenegro are covered with snow, which may slow down traffic and make the road hazardous. Roads that lead to the Montenegro coastal areas are in better condition, but are overcrowded during summer season. Drivers should exercise extreme caution, as it is common for Montenegrin drivers to attempt to pass on winding roads and hills. Local drivers can be reckless and aggressive, and accidents are frequent.