What do disco balls, Bordeaux wines and Russian oligarchs have in common? They were all present at billionaire hedge-funder Nat Rothschild’s 40th birthday bash in Montenegro last month.

For three days, this tiny country, squeezed between Albania, Bosnia-Herzegovina, Kosovo, Serbia and Croatia, had more wealth in the 400 guests at the party than its total gross domestic product. Those guests included Russian billionaire Oleg Deripaska, Lord Rothschild, and the Sawiris, Egypt’s richest family. But now the party is over, the real makeover of Montenegro begins.

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The Montenegrins must be in shock. The country only gained independence on June 3, 2006, following a referendum to separate from Serbia. The Russians arrived on June 4, ostensibly for a holiday to this picturesque country, but were soon building houses and setting up businesses. Within two years Budva, one of Montenegro’s seaside towns, was renamed Moscow-on-Sea. 

New generation of guests

Now, a few years down the line and Montenegro is planning for a new generation of guests, namely millionaires and billionaires, with the rebuilding of Porto Montenegro on the dramatic Adriatic coast.

This development will transform the port from a dilapidated and defunct ex-Communist naval base into a luxury marina. The promotional video demonstrates how the port has been purpose-built for super-yachts, vessels like Mr Deripaska’s Queen K, which is more than 60m long.

The development is set to eclipse Moscow-on-Sea, making way for “the Monte Carlo of the Adriatic”. Or as the then prime minister Milo Djukanovic said at the time of the development's opening: "This is better than St Tropez. This is not a place for mediocre investment projects. Montenegro will become one of the elite tourist destinations in the world.”

FDI track record

Foreign investment into Montenegro has been seismic given the diminutive size of the country. According to figures from the Montenegrin Investment Promotion Agency, from 2005 to 2009, FDI almost tripled from €384m to just over €1000m. Given that there are only 650,000 people who actually live there, this means there has been more than €1000 invested per Montenegrin.

The agency also calculates that there were almost 5000 foreign businesses in the country by the end of 2008 when only a few years before there were about 1500.

fDiMarkets’ data show there have been a few investments in industries such as renewable energy. For example, a wind-power plant is being built on state-owned land in Niksic through a joint-venture arrangement between Mitsubishi and Austrian-based Ivicom Consulting.

Tourism tip

But tourism is tipped to be the greatest sector for development opportunities. There have been FDI tourism-related investments in the form of retail outlets, yacht construction, hotel management services, as well as the actual hotels themselves. 

Of course, all is not quite as rosy as the myriad travel articles would have one believe. Apart from the small matter of allegations of tobacco smuggling against Mr Djukanovic (which he denies), there are challenges for the foreign investor: there is a paucity of skilled labour and complex and bureaucratic procedures for construction projects and tendering. 

The American Chamber of Commerce in Montenegro, in its report Business Challenges 2010, cited many of these concerns, which were specifically raised by its members.

It did, however, end on a more positive note: “There is increasing support in Montenegro to see greater improvement of its business environment and [to become] a significant place for international investors.”