AmCham Montenegro

The American Time’s takes a moment with the Executive Director of AmCham in order to discover more about the perplexities of Montenegro’s business environment.

What opportunities exist outside tourism?

Certainly we can discuss opportunities beyond tourism; however, it is the sector that deserves the most attention. When I arrived [5 years ago] I was surprised to see that tourism only accounted for 20% of our GDP. There is still room for growth there and it deserves the attention it is getting from the government as well as investors. Obviously, for continued growth within the sector there needs to be better infrastructure: road, air, rail, utilities and so on. All things need to be well functioning as the hotel industry specifically requires great resources to function properly.

Outside tourism I would say agriculture and energy have potential. If you look at agriculture you see that it’s at the lowest level it’s been at for a very long time. I’m Montenegrin but born in Chicago and I see that a gallon of milk here costs more than it does the US; there’s something wrong with that. The major milk brands that are sold in the country are imported. This does not have to be.

On a different note I’ve noticed in the past few years there have been a lot of institutional investors interested in the capital markets. So it really does vary.

How do you feel about the current situation in Montenegro on one side and the current agricultural policy of the EU on the other with the integration process in between?

It’s a great question. I think there will be opportunities to integrate and funds available; but will Montenegro be ready to compete? This is the key question that time will determine. Right now goods are traded and there are no tariffs so effectively we are competing already but once the country joins the EU and they have to abide by their directives where laws have to mirror the Union’s than a different story presents itself.

What about ICT?

Montenegro absolutely has to get into the IT game, it is the future. At the elementary and high school level there needs to be more IT education from programming, designing and software engineering so that we have our own local base of highly skilled workers. We do have some firms already yielding tremendous results and delivering high value products and services. For example, a Turkish company purchased the container terminal in the Port of Bar and a local IT firm won the international tender for that terminal providing their software and hardware needs. It was a great win for the company as well as for the viability of the sector.

Montenegro has large trade deficit; IT might be a great way to offset this deficit.

Exactly, I don’t think we’ll ever be a global producer of anything, maybe Plantaze wines here in Podgorica but that may be all. We need something to help offset the massive trade deficit which is quite alarming. We import virtually everything. So I think agriculture and IT can contribute.

In your opinion, does the government recognize the need to develop these ICT skillsets? If so, are they doing anything to address this through certain programs?

Nothing off the top of my head although there has been talks.

We know that the government has just closed the bidding for offshore energy exploration; any thoughts on that?

Obviously, Montenegro needs to have more sources of energy; it’s a prerequisite to conducting business. We are going through tender procedures for energy exploration off the coast so we’ll see how that turns out. Clearly if there is an extractive amount available in these potential reserves this would mean a lot to the country.

You meet a lot of local business people as well as foreign investors. What are they sharing with you from their experiences in Montenegro?

Often when an investor first enters they want to know the experiences of existing businesses. Additionally, they are looking at what advocacy groups are in place and what is our communication like with the government. A lot of people come in initially excited about the country and its business environment; they consider it a hidden gem. But once they are here for a period they realize that it’s quite fragmented politically where there are 600,000 people, 24 separate municipalities, 81 parliamentarians, 16 ministries with 60,000 people employed by the government with only a few people with any significant say.

Getting back to municipalities, for example, if you want to build a hotel somewhere you have to work with the local municipality and the federal government and hope for synergy and alignment. As a result, a lot of times you’ll see a discrepancy between what the municipality wants and what the government’s agenda is. So, even though you hear the government saying they are trying to minimize business barriers, remove bureaucracy and keep costs low you eventually realize that each of these municipalities have essentially their own fiscal policies, taxes, budgets with most holding debt. This all equates to a headache for an investor.

Are there any municipalities that have their act together?

The mayor of Cetinje is really a pragmatic guy that’s working hard to develop and promote his city, which was the old royal capital of Montenegro. He’s taken initiatives to approach the government to regularize the taxes between them to facilitate a simple and attractive incentives package for investors.

As an advocacy group which pushes forward business concerns to the various ministries, are you finding them attentive to those concerns or ideas?

Some do listen quite closely and some of them we are developing our relations with. Currently we have five active advocacy committees that are focused on real estate, taxes, labor relations, intellectual property rights protection and health care. So our particular function as an Amcham in this region is very much active in helping establish the best business framework as opposed to an Amcham, for example, in Austria which focuses on a single sector and its promotion.

 

Where does your core focus lie?

We work a lot with the Minister of Sustainable Development & Tourism for real estate purposes. The Minister [Gvozdenovic] is someone that gets what we are trying to do and has an open ear to the topics we bring forth. In fact, just last week our real estate committee had a big meeting with him and the Minister of Finance and the Real Estate Administration regarding our cadastral system.

How is the cadastral system functioning?

It’s transitioning, so naturally there are a lot of moving parts but of course this is why we are having these types of meetings and as mentioned, they recognize the importance of this situation.

What were some other topics of concern regarding real estate?

There is no international standard for valuating property and there is a huge problem with municipalities and their utility connection fees. I think in downtown Budva the going rate was €350/m² just to connect the property with electricity. This was especially alarming for hotels where there is roughly a three month season. Based on this information many hotels were looking at an ROI of 30+ years. On the positive side what they’ve done was remove these fees for hotels that are 4 or 5 stars. The latest parliament session have agreed to remove the utility fees totally by 2016 and roll into a real estate tax base system.

Labor laws tend to be a contentious topic in former communist nations. How is your committee handling looking into this?

It’s a huge issue here with the lack of skilled labor and general labor regulations. Labor laws in former communist nations tend to be historically very restrictive following democracy. None the less, it’s a huge obstacle for investors.

Are there any current movements to address these concerns further?

Yes, they are looking at making more changes to the labor law. However, since it has already been amended six times they must draft a new labor law to meet EU criteria. We intend to take advantage of this opportunity to work in our 6 points.

Tell us about a quintessential success story?

I’ve been saying it for 5 years and I’ll continue to say it, Porto Montenegro depicts everything any country could ask from a foreign investment. It employs locals, created a service industry within the SME sector around Tivat, it has raised everyone’s property value in the area and is just an A-class investment to have associated with Montenegro. It remains a beacon of light for any potential investor considering Montenegro. When the principles of Porto Montenegro entered they were faced with huge risk as a relative first entrant. To mitigate that risk successfully, invest and continue to run a growing business enterprise represents what a good investment means by an investor. Importantly, it illustrates the government’s ambition as well; clearly they offered a tremendous amount of assistance for the project as well as great incentives to assist in the projects realization.

Although not a new investment you can look at the Telenor [Norwegian company] building. Once upon a time that was an investment that someone took a chance with and it paid off. You also see several foreign banks operating here successfully.

What advice would you impart to an investor considering Montenegro?

As an emerging nation there are clear opportunities that offer great returns that maybe one cannot realize in more developed nations. But be pragmatic. Weigh that potential return based on, what my former boss used to call, your “Aggravation Curve”. Recognize that you do need a level of patience which goes for every emerging country but certainly pay distinct importance to it. In the end, if you are willing to be on the ground and follow your investment and if you have a clear directive and research the market to understand the environment and depending on the project build a relationship with the local municipality, I think you can absolutely find a successful investment.

A quick example would be a friend of mine who rehabbed some old stone houses and apartments on the coast and turned them over with a 57% return. This amount of return is unheard of in the US, not in Montenegro.

You were a panelist at an event in Pristina, Kosovo where the 5 heads of the Western Balkan Amchams met. What was on the agenda that day?

The main objective was to look at common key challenges that all of us face in our respective countries. In the end we were looking at establishing a joint-advocacy platform to address these common issues. It was also a platform to share ideas and success stories from an advocacy point of view where certain countries were able to achieve a move that others may still be striving for. There is a project within the EU American Chambers which aims to promote a joint report creating a case for Europe; we’d like to do the same but for the Balkan region. Many countries in the region offer a particular sector of strength and by joining together we clearly have a voice to be heard. Frankly, the case for our region is tremendous when you look at the considerable growth stagnation in Western Europe. We are a part of Europe that offers that dose of comfort by virtue of being in Europe but we also represent the part with significant growth and investment potential.

Why Montenegro?

I’m going to be bold. I think Montenegro has the potential to be one of the best places to live in the world in the decades to come. It has fantastic weather, four seasons, great mountains, access to the Adriatic Sea and more so, it’s a safe and underpopulated nation leaving room for anything the future has in store.

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