Branimir Gvozdenovic, Deputy Prime Minister of Montenegro: MONTENEGRO A CHALLENGE TO INVESTORS

Branimir Gvozdenovic, Deputy Prime Minister of the Government of Montenegro:
MONTENEGRO A CHALLENGE TO INVESTORS
Budva, June 17, 2003



Dear Ladies and Gentlemen,
Dear Participants of the Business and Investment Summit,
Welcome to Budva,
Welcome to Montenegro a Challenge to Investors!

With regard to its complexity, the reformist conception embraced by Montenegro represents a radical and comprehensive transformation of the social and economic system of the country. None of the parameters that may assist in the achievement of developmental objectives of Montenegro has been overlooked. In the creation of the reform paths, special attention has been given to interdependence of the following areas in the triangle: economic development administrative/government system fiscal balance. Because of the strong interrelation among the reform components, the Government of Montenegro, in conjunction with the civil sector, international institutions and key social entities, has translated its reform program into the Economic Reform Agenda. This strategic document of the Government defines the feasibility of the reform through time limits, precisely stated tasks and recognition of implementing parties.

The awareness of the actual situation and problems is the first condition for creating the roads that can make such situation better. The reform objectives rely on the awareness of high natural, economic and intellectual capacities of Montenegro and the affirmed commitment that Montenegro must catch up with European democratic and economic standards. Such motivation, on the other hand, requires facing with existing weaknesses and a series of restrictive and politically unpopular actions. This Government shall not replace actual changes with cosmetic ones, nor buffer the reform by closing the eyes before imperative changes. The decisiveness of the Government to confront, without reservation, the obstacles on its reformist course, has been grounded in the high degree of trust gained from the public at the last parliamentary and presidential election, but also in the ever more noticeable public readiness in Montenegro to accept the Governments reform program as its own program for the transformation of the overall society, in which they will actively participate.

The Economic Reform Agenda identifies a number of key preconditions for ensuring economic growth of Montenegro:
- Ownership transformation with intensive privatization, motivated by the fact that the direct owner's interest is the key driving force for inciting business interest in further capital multiplication;
- Stimulation of entrepreneurship as mass promoter of economic growth;
- Liberalization of economy, along with building macro-regulatory role of the Government which excludes protectionism;
- Development of an efficient administrative-government system, with streamlined procedures of communication between citizens and commercial entities, on one part, and the state, and state and administrative authorities, on the other;
- Optimization and balancing of fiscal system through broadening of taxpayer base and reduction of tax rates; reallocation of expenditure items in the budget to the development support and sustainable social policy;
- Development of legally stable environment, with consistent mechanisms of application of law and regulations;
- Absolute protection of ownership, with completion of restitution process;
- Investment attraction creating conditions to attract foreign and domestic investors, based on profit logic and guarantee of stable business environment.

It has to be noted that the reform process has not started with this Government. Monetary stability, provided by the introduction of German mark and later euro, the performed mass voucher privatization, considerable degree of liberalization of foreign trade, reduction of customs tariffs, enactment of a set of new systemic laws, improved fiscal control represent a significant starting point for the work of this Government. It is a fact that the results of the started reform would have been even more significant at the end of its previous mandate had the political turbulences and obstructions not taken up such a large degree of energy of Montenegrin society and key development players.

Although a series of basic reformist steps is still lying ahead, it might well be said that the reform project is gaining an externally visible form there are important projects for strategic privatization, encouraging entrepreneurship, stabilizing financial system, reconciling revenue and expenditure items in the budget, implementing the adopted laws and preventing gray economy.

The privatization process for 2003 foresees tender privatization of companies with state ownership: aluminum complex in Podgorica (the tender for processing facilities is underway and will last until June 30), steel plant in Niksic, tobacco company in Podgorica, wood industry and hotel industry.

The tenders for the Adriatic shipyard Bijela, Plantations, Electric Power Company of Montenegro, Railways of Montenegro, Port of Bar etc. are in preparation, and the one for Telecom Montenegro is imminent.

The privatization plan for 2003 envisages the sale of all the shares that the state and the state funds hold in partially privatized companies, by going through stock exchanges or looking for a strategic partner.

This is where you can find a challenge to your investments.

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Now, let me introduce you briefly to the specific projects in which you can take part, the projects that make it evident that Montenegro is a challenge to investors a challenge to yourselves.

Within the road infrastructure there are some capital projects, such as the Sozina Tunnel, that will connect the sea to the continent, Podgorica to the Port of Bar and be a source of new income for the surrounding area, known by its vineyards and fishing, as well as for the whole of Montenegro and the region. The completion time for the construction of the tunnel and access roads is the end of the next year. Tourists who visit our coast will be able, by using this tunnel done by the highest world standards, to reach the pearl of the world flora and fauna - the Lake Scutari, Podgorica, Cetinje and beautiful Montenegrin mountains. The other magnificent project is the Verige Bridge, spanning across the Kotor Bay.

Regional balancing in the development of the northern and southern parts of Montenegro is planned to be achieved through a number of stimulating projects appropriate for these areas. The road Risan Zabljak links the sea and the most elevated town in Europe - Zabljak, the peaks of Mt. Durmitor and the doors of the Kotor Bay. The road HercegNovi Trebinje is the road that is en evidence of our constant wish to be a good host, but not less a participant in regional integrations and an implementing party in good projects. The by-pass around the city of Podgorica will enable the tourists coming by car to reach their destinations easier and quicker.

About 1.5 million people who visit Montenegro come by railways. Our ambition is to raise this figure to 3 million. That is why we invest in infrastructure and we invite you to assist us in that. By providing Intercity trains the quality of these services will be significantly increased.

Montenegrin airports in Podgorica and Tivat have finally become the ownership of the state of Montenegro since a couple of months ago. This is not a political issue, but the issue of economic interest. That is why we invite you, if you find it of economic interest, to negotiate with us about making investments in the airports. That is the best connection with Montenegro and the business that must pay off.

Montenegro has centuries long sea shipping tradition. Our fathers, grandfathers and great-grandfathers sailed over the world seas. The time that is behind us has left serious traces on the shipping industry. That is why we want to rehabilitate it now - we are setting up a new company "Crnogorska Plovidba" (Montenegro Shipping) and are looking for a partner. We have the base - a part of financial resources, and experienced, educated and highly professional seamen. A lot is expected from the Port of Bar, the natural position, specialized staff and capacities of which promise high competitiveness in the region, just the same as from the Shipyard "Bijela".

Multi-municipal water supply and waste water disposal project for the Montenegrin Coast is in the stage of qualitative analysis and promises that, after several failures caused by our oversights as well, it will eventually be carried out in the right way.

The future of Montenegro with respect to energy sector relies on ecological, healthy energy. Programs of revitalization and maintenance of the existing capacities of the Electric Power Company of Montenegro have been prepared and we expect concrete offers and assistance from investors. Montenegro possesses the highest hydro potential per capita in Europe and our ambition is to convert the constant power deficit, that will amount to 1.3 billion of kWh (kiloWatt hours) this year, into the possibility to become exporters of electricity, produced on the principles of sustainable development and environmental protection.

Montenegro has available about 10 bilion KWh/year (kiloWatt hours) of hydropower potential, of which only 17% is used presently.

You can see some of possible new sources of electricity, based on the principle of small hydropower plants. Please note that although these projects have been carefully drafted, we are ready to listen to any useful suggestion or direction that may help us in making adequate decisions.

In connection with hydro potential, we are ready to consider the use of ore resources, solar energy and wind energy because any useful suggestion might help in coming to right decisions that are vital to our future.

Why have I discussed infrastructure at this length? Because these investments make it possible to develop our two strategic sectors tourism and agriculture.

The value of agricultural output in Montenegro is EUR 250 million in agricultural production + EUR 202 million in agroindustries, which comes to EUR 680 per capita annually.

Agricultural zones that we have defined are:
Coastal Zone which gives: olives, figs, citruses, vegetables, salt and fish
Central Zone with its: milk, meat, grapevine, fruits, vegetables, honey, fish and tobacco
Mountainous Zone known for: livestock raising, forestry, honey, medical herbs and fish.

Comparative advantages of Montenegro in agriculture are: favorable agro-climatic conditions for specific types of products; soil, water and air fully preserved from pollution; availability of free area to increase production per surface unit; existence of local market and tourist demand; specific products and organic agriculture.

The aims of the new food incentive policy in Montenegro are: creation of favorable economic environment; development of agriculture through extension of loans; and putting domestic and foreign producers in the same economic position.

We are encouraging domestic and foreign investments also by exerting efforts to: make transition from grants to commercial projects; affirm recognizable Montenegrin products MADE IN MONTENEGRO; modernize plant and livestock production, construct new processing facilities; achieve high finalization and pursue organic food production.

These are the reasons for you to make investments in agriculture, new plantations and processing plants because Montenegro is a challenge to investments in agriculture.

Today we are in Budva, the capital of our tourism. One of great potentials of Montenegro in the area of tourism lies in the fact that on a relatively small geographic area there are possibilities to develop diverse tourist products for new target groups and enrich our offer to all the guests who want to spend their vacation in the sea, on the mountains or on both of them.

In November 2001, out Government adopted the Master Plan of development of tourism created in the co-operation between the Montenegrin Ministry of Tourism and one of our foreign partners DEG, under the auspices of the Government of Germany. Since then, the Government adopted many regulations relating to the tourist policy intended to create a favorable environment for foreign investments that will improve the overall infrastructure, modernize our hotels and stimulate development of new destinations.

We are aware that currently we cannot satisfy the growing demand by European tour-operators for three- and four-star hotels. We are planning to modernize our hotels and invite you to invest in these unique pearls on the Mediterranean.

The goal is to go up from the present 4 million of night stays to 11 million of night stays in 2010, and from 115 million euros in earnings from tourist industry to 600 million. At this moment, our hotels have about 30,000 beds, but to plan is to reach 70,000 by 2010. Of course, of higher category as well. That is where we expect to work together with you. In that way the contribution of tourism to the GDP may increase from 10% to 30% in the following 6 years.

Montenegro, as a tourist destination, may be divided in five different areas: Bay of Kotor - ideal for the development of nautical tourism, the Budva Riviera, encompassing the coast from Bar to Budva, national parks Lake Scutari, Mount Biograd, Durmitor and Lovcen mountains and skiing areas, and the Ulcinj Riviera, including the longest and widest unspoiled beach on the Adriatic Sea, counting from Slovenia to Albania, as an interesting mixture of Western and oriental spirit.

Nearly 100 hotels, with about 26,000 beds, are ready to be privatized in a transparent procedure, under precisely defined legislative and institutional framework. We are confident that these projects may be of interest to you.

I want to assure you that any expressed interest in investment engagement in tourist industry in Montenegro will be responded to in the shortest possible time and you will have a serious and reliable partner in the Government of Montenegro.

The Government of Montenegro is making efforts to find favorable loan funds that would be used for the reconstruction, modernization and increase of quality of economically viable hotel complexes that should be situated, according to the opinion of the tourists, on various city and other attractive locations, in order to increase competitive position of the strategically important tourist industry and make hotel complexes attractive to strategic investors in the already started privatization process.

The project, that is very important to us, comprises renovation of 19 hotels with 4,139 rooms and 7,873 beds. Preliminary estimates are that the total budget for the project will be 46 million euros, based on previous estimates made by largest hotel companies and the CAPEX study. Investors have already expressed large interest in this project. We are ready to act quickly and look forward to receiving your enquiries. Significant multiplied effects in agriculture and other areas are expected from the projects like this one.

In this area, again Montenegro is a challenge to investors!

Out of the projects that you can see, let's say few more words about the tourist complex "Velika Plaza" (Large Beach) Ulcinj.

Through the several "Greenfield" environmental projects related to new summer and winter resorts intended for foreign direct investments, we feel sure that the "Velika Plaza" project, related to the largest, totally unspoiled sandy beach (12 km), will arouse considerable interest on the part of investors.

The development plan foresees the construction of 6 development units, with 5,000 new beds each. Among the buildings there will be a spacious green belt and ecologically protected natural zone. The total investment might exceed 1 billion euros. More detailed plans can be obtained from the Ministry of Finance and DEG (German Investment and Development Fund), who is our partner in this project.

Montenegro gives much importance to its educational system, that is now changing as it should be able to generate radically different expert profiles who, regardless of the field of specialty, need to acquire basic skills in modern business disciplines, such as management, marketing, ICT, etc. Thus, Montenegro is also a challenge to investors in the sphere of education - universities, colleges, and educational institutions.

In addition to being an ecological state, Montenegro plans to adopt a special strategic document that will contain guidelines and time schedule for its development as an information society, as a prerequisite for full integration in ongoing global development processes. Implementation of projects related to the production of IT services and software has already started. New initiatives are welcome. Montenegro may well be a challenge to IT investors.

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For quite a long time, we have been living in the belief that the beauty of our coast, impressive dignity of our mountains, landscape variety, historical steadiness, rich cultural heritage and traditional hospitality - are sufficient to make foreign investors wish to carry out their business ideas on this land. Now we know that the business logic raises completely different issues. The capital will come to where there is no fear of non-market related circumstances, where money can be multiplied as much as allowed by knowledge and competition, where business people are not classified into "ours" and "theirs", where the state consistently complies with its obligations and its own laws, where it is not more difficult to obtain a paper then make a profit, and where democracy is a business category. Once these and similar conditions are satisfied, the investor will consider business options and opportunities and make a choice. Eventually, if he makes a positive decision, he will be happy for starting a business right here in Montenegro, while enjoying all the privileges of its magnificent natural scenery and traditional hospitality!

By making practical steps and pragmatic measures, the Government of Montenegro is trying to follow the mentioned logic: through the preparation and adoption of laws affirming ownership rights, through the reduction of tax rates and the creation of new labor legislation. We are implementing business barrier elimination schemes and anti-bureaucratic schemes. We are seeking to create conditions for contractual management, and will establish a project team for monitoring the project Montenegro - a Challenge to Investors. Foreign investors are given national treatment and tax and customs tariff relief project for serious investors in Montenegro is currently under preparation. Example Industrial Park in Bar!

If we have missed anything, it is not the result of not being prepared to remove investment barriers, but of the fact that the full model of an attractive business destination may be finalized with you assistance only.

With the implementation of the Economic Reform Agenda, the GDP will rise, in absolute terms, from 1.221 billion euros (one billion two hundred and twenty one million) in 2002 to 1.618 billion euros (one billion six hundred and eighteen million) in 2006. It is planned to invest 90 million euros in this year and, with your assistance, this figure will be 100% higher in 2006.

It is our obligation to make everything done towards attracting the investors available to the public. This meeting should demonstrate, inter alia, what we have planned to do to encourage investments in Montenegro. As you have seen, there are concrete projects, but there is also readiness to embrace other ideas. Finally, the role of the Government is to ensure that such projects and ideas are not halted due to any administrative or non-material restrictions. In other words, we want that the success of a business venture in Montenegro be influenced only by the quality of the business idea and capability of those who are carrying it out.

There is no doubt that Montenegro will proceed on its reformist course. We understand that we need support from the international community in order to succeed and reach the planned goals, but the kind of support that is founded on the fact that Montenegro realizes that it is a part of that same international community and understands and accepts its rules as civilization achievements. Montenegro needs investments and investors that will foster our economic growth and enable new employment. Montenegro wants to be of commercial interest to all those who follow business logic and wants to prove them its readiness and openness to put the potentials of this country in the function of the development as soon as possible.

Its your turn now!