Since its independence in 2006, the small Balkan nation of Montenegro has actively sought to reform its economy, attract foreign investors and join the EU. It was making great progress with strong double-digit economic growth, but fell into recession in 2009 following the global economic crisis.

Despite this, the country’s central bank reported that its total FDI actually grew in 2009 to €859, a 50% increase from 2008. It was the only country in the Balkans to do so, and its politicians credited this to sweeping reforms in tax, regulation and transparency. However, data from fDi Markets, which only includes greenfield investment, showed that the country was actually hit hard in 2009, with only one investment project. The figure in 2008 was 14.

Confidence prevails

Discrepancies aside, the country’s finance minister and deputy prime minister, Dr Igor Lukšić, is fully aware that Montenegro faces many challenges, but he is confident that the country will return to growth and continue to attract FDI. He points to several measures taken to spur growth, such as a flat 9% tax rate, reduction of red tape and privatising nearly 80% of state-owned assets. These efforts have been praised by the World Bank, which rates Montenegro as the 27th best country for protecting investors, while the IMF predicts its economy will grow by 4% in 2011.

Mr Lukšić says: “Last year we managed to achieve pretty good business rankings and our goal is to join the top performers. We’d like to continue our structural reforms, especially in health, pensions, education and state administration. It’s an ambitious agenda and we expect the support of international financial institutions.”

The sectors attracting the most foreign interest have been in tourism and real estate, due to Montenegro’s warm climate and coastal geographical location, but Mr Lukšić recognises that it is important to diversify the economy. On the agenda is more investment in infrastructure projects (such as a badly needed upgrade of its roads) as well as renewable energy. The construction of 10 hydropower plants is in the works, in which total investment is expected to reach €60m. There is also the possibility of a greenfield investment in another hydropower plant on the Morača River, and the government has already called for a pre-qualifying tender for the building of four plants. The concession would be for 30 years.

The country has also made efforts to curb corruption, and has gradually moved up Transparency International’s Corruption Perceptions Index. Yet its reputation for misconduct is still intact, and there remains an ongoing investigation by the Italian authorities into prime minister Milo Djukanović’s alleged involvement in cigarette smuggling and organised crime. Mr Lukšić believes that this reputation is unfair, and says the prime minister has co-operated fully with the Italian authorities.

Political stability

In addition, the government looks stable, as it survived a vote of no confidence on 14 April by a fairly safe margin. Local elections were held on 23 May in which the government stayed in power in the majority of municipalities.

Mr Lukšić says: “There is no reason for foreign investors to be worried. Montenegro has been characterised by long-term political ­stability, contrary to many other countries in the region. This will not be put into danger by any political manoeuvre. The no-confidence vote was politically motivated by the local ­elections.”