April 2012

A QUARTELY REPORT #40

CEED Consulting

Business EnvironmentMacroeconomic OutlookBanking SectorPrivatization and InvestmentsCapital MarketBusiness NewsEconomic FreedomIn the SpotlightComing Up

ISSN 1800-8623

2

Business environment: In order to resolve the problem of liquidity in the Montenegrin economy a new Law which will set deadlines for payments, has been proposed. If adopted, new deadlines for payments will be settled together with penalties for not obeying them.

Economic freedom: The importance of having well defined and strongly protected property rights is now widely recognized by economists and policymakers. It is strongly allied to the economic freedom of a country, which represents the fundamental right of every human being to be in control of his or her own work and property. The International Property Rights Index 2012 (IPRI), was published by the Property Rights Alliance in order to promote the importance of the issue.

Macroeconomic Outlook: The first quarter of 2012, at a macroeconomic level, was mostly characterized by negative trends: a fall in industrial production (19.7 % during the period January- February 2012), budget revenue fell (in January it was 18% lower than projected). The wages increased by 2% in February compared to January. Additionally, the net FDI inflow in 2011 decreased by 29.5% in comparison with 2010.

Banking sector: The Chief Economist’s of the CBCG, report stated that the banking sector recorded a positive trend during the third quarter of 2011, partly due to the improvement of the loan portfolio, i.e. the fact that the percentage of non-qualitative loans within the total number of loans was reduced. Also, positive trends were recorded in the number of deposits made at banks, and within the basic coefficient of bank operations. The banking sector achieved positive financial results; a total of €9.5 million. The actual situation in the banking system, in terms of solvency and liquidity is satisfactory.

Expert’s opinion: In the context of upcoming Government of Montenegro measures to increase budget revenues, we bring opinion of profesor Petar Ivanovic on taxes: “Taxes Should be Reduced, not Increased!”

Capital Market: In the first quarter of 2012, Montenegrin capital market has been characterized by negative trends, followed by decrease of trade volume and number of transaction in comparison to the same period of 2011 which indicates to the fact that the capital market crisis has not been over yet. The greatest turnover was recorded in the area of company shares, followed by investment funds and bonds. The most important innovation is the adoption of new methodologies for calculating of indices, which aim is the appropriate presentation of the capital market situation.

Privatization and investments: The Government of Montenegro adopted a new Privatization plan in 2012; this defined which companies were to be privatized either through public tender, through the stock exchange, through public auction or through private-public partnership. The main privatization objectives are to increase the competitiveness and efficiency of company performance, to encourage foreign investment and entrepreneurship in all fields, to increase employment and to improve the overall standard of living.

In the Spotlihgt: Montenegro in EU Accession Negotiation Process

We introduce: Green Entrepreneurship

Interview: Mr. Pedro Gomes Pereira, Regional Manager for the Mediterranean at Martifer Solar

GeoGraphic information

Area 13,812 km²Position 41º52’ - 43º42’ lat., 18º26’ - 20º22’ longLength of border 614 kmCoast line 293 kmLength of beaches 73 kmClimate MediterraneanAverage temperatures of air 27.4Co (summer) 13.4C o (winter)

Maximum sea temperature 27.1Co

Average num. of sunny days 240Major Cities Podgorica (Capital), Niksic, Bijelo Polje, Bar

Border crossinG

Albania Bozaj Croatia Debeli brijeg

Serbia Kula,Vuče, Dračenovac, Dobrakovo,Čemerno, Ranče, Bijelo Polje, Bar

Bosnia and Herzegovina Vilusi, Vracenovici, Scepan Polje, MetaljkaSea border ports and piers: Bar, Kotor, Budva and Zelenika

monteneGro General info

MBO SummaryWelcome

to the forty edition of montenegro Business outlook.

mBo is quarterly publication of pertinent economic indicators presenting a

comprehensive view of montenegro’s

business environment. This publication is

intended to serve international business people seeking

investment opportunity in montenegro.

We welcome your comments.

population

Population in country (2011) 625,266Number of households 194,795Source: Monstat Census 2011

transportation

Airports Podgorica and Tivat

Ports Bar (line to Italy: Bar-Bari, Bar-Ancona) and Kotor (line to Italy: Kotor-Barleta)

Railways Bar – Beograd and Podgorica- NiksicTotal railways length 249 kmTotal highway lenght 5,174 km

national parks

Durmitor 39,000 haBiogradska gora 5,650 haLovcen 6,220 haProkletije 21,647 haSkadar Lake 40,000 ha

Kralja Nikole 27a/4, Business Center “Čelebić”,

Podgorica, Montenegro Phone/Fax: +382 (0) 20 633-855,

+382 (0) 20 620-611

web site: www.ceed-consulting.com e-mail: info@ceed-consulting.com

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April 2012

Prepared by: Mr. Darko Konjević, Montenegro Business Alliance (MBA)

economy statistics

Source: Ministry of Finance, Central Bank of Montenegro, Monstat, Montenegrin Investment Promotion Agency (MIPA), Employment Agency of Montenegro

Business Registration Statistics (Number of registered companies in Montenegro, as of 1st April, 2012)

Joint Stock Company 357Limited Liability Company 25,921Part of a Foreign Company 434General Partnership 61NGO 293Limited Partnership 434Entrepreneur 16,982Institution 1,114Other 110Total 45,706

Tax Rates

Value Added Tax 17%, 7% and 0%

Corporate profit tax 9%Personal income tax 9%

Business Environment in Montenegro Business EnvironmentMacroeconomic OutlookCapital MarketBanking SectorPrivatization and InvestmentsEconomic FreedomBusiness NewsIn the SpotlightComing up...

Selected indicators 2011 2012

Population (625,082 in 2003) 625,266

Real GDP (billion)* 3.273 3.386Real GDP growth* 2.5% 3.5%Inflation rate(average annual CPI) 2011/ Jan-Feb 2012

0,1% 4,2%

Unemployment rate 2011/ March 2012 11.56 % 13,58%

Net FDI (million) 2011 389 no data

* Ministry of Finance Bulletin, Data Base, Estimates

Official currency Euro

Business statistics and data

Source: Commercial Court

The first quarter of 2012 has continued to show negative trends in the Montenegrin economy. Problems with liquidity and debts were exacerbated by extreme weather conditions during the whole month of February, and this further contributed to the slowing down of economic activity. Problems with the repayment of guarantees provided for the Aluminum plant remained an issue; it also continued to affect the overall stability of the Montenegrin economy. The Ministry of Finance announced that a review of the budget will probably take place in April. This is due to the fact that expected income was not recorded and expenses were higher than planned. Also it was announced that new taxes would be introduced, particularly taxes relating to the use of cell phones, electricity and cable TV.

This quarter was not characterized by any significant changes in legislation. However, representatives of the Social Democratic Party proposed a new law to set deadlines for payments. The main reason for proposing this law was that liquidity issues are generally related to late payments. The draft law proposes that payments should be made within 30 days of purchases or services provided, and that there should be an option to extend the deadline for up to 60 days if desired. In the case that companies are listed as small companies, according to the Law on Accounting and Auditing, deadlines for payments can be extended for up to 90 days.

This law applies to both public sector and private companies. If the new law is adopted, all companies and public sector institutions will suddenly appear in the list of debtors which will be submitted to the tax authorities. The tax authorities are responsible for ensuring that the law is adhered to. The penalty for not obeying the law is at the minimum level €1,000 or between 5% and 10% of the contract. This law is still being debated and its adoption is pending.

The average earnings (gross) in Montenegro in February 2012 were €739, while the average earnings without taxes and contributions (net) were €495. If we compare the average wage in Montenegro to the neighboring countries we can see that the highest net average wages are in Slovenia €1,000 and Croatia €800 while the lowest is in Serbia €330. In other countries the level of net wages is as follows: Albania and Macedonia €380, Bulgaria €390, Bosnia and Herzegovina €450 and Romania €480.

Montenegro’s total external trade during the period January-December 2011, according to final data, was €2,277.7 million, which indicated a growth of 14.6% in comparison with the same period of last year. Exports amounted to €454.4 million, which was an increase of 37.5% in comparison with the same period of last year. Imports totaled €1,823.3 million, an increase of 10% when compared with the same period of last year.

The coverage of imports by exports was 24.9%; an increase when compared with the coverage level for the same period of last year which was recorded as 19.9%.

The structure of exports, in accordance with the SITC (Standard International Trade Classification), showed that the most highly represented products were manufactured goods. These were classified mainly by material (Section 6), and were worth a total of €219.4 million (which was made up of: non-ferrous metals worth €182.4 million and iron and steel worth €27.4 million).

The structure of imports, in accordance with SITC classification rules (Standard International Trade Classification), showed that the majority of products belonged to Section 0 – food and live animals worth €351.9 million. This was made up of: meat and meat products worth €74 million, and cereals and cereal products worth €57.1 million. The main trading partners for exports on an individual basis were: Serbia (€79.8 million) Hungary (€76.9 million) and Croatia (€45.9 million). The main trading partners for imports on an individual basis were: Serbia (€514.5 million), Greece (€144.7 million), and Bosnia and Herzegovina (€142.5 million). The highest volume of external trade was carried out with CEFTA and with various EU countries.

The second quarter of 2012 will be characterized by adjustments made to improve the current economic situation; the Government will make adjustments to the budget in a review that has been announced for April. Further budget cuts may still be made in the area of expenses in order to finance unexpected costs that may arise during this period. The Ministry of Finance has announced that it does not expect at this point to increase taxes (VAT, personal income tax and corporate profit tax).

4

The International Property Rights Index 2012 (IPRI), was published by the Property Rights Alliance in April. Sixty-nine international organizations partnered with the Washington, DC-based Property Rights Alliance and its Hernando de Soto Fellowship program to produce the sixth annual IPRI. Some of the great economic disparities between countries that have strong property rights and those that do not, appear as a result of the International Property Rights Index.

For the first time this year Montenegro was included in the ranking, according to IPRI. It was awarded 72nd place.

There are three measures that the IPRI utilizes in order to achieve its final score. The first one includes the legal and political environment, the second one relates to physical property rights, and the third concerns intellectual property rights.

The section regarding the legal and political environment includes judicial independence (70th place), rule of law (68th place), control of corruption (61st place) and political stability (90th place); overall Montenegro was awarded 54th place out of 130 ranked countries. The physical property rights section includes the protection of physical property rights (59th place), registering property (88th place) and access to loans (37th place); here Montenegro was ranked as 52nd out of 130 ranked countries. The section on intellectual property rights includes the protection of intellectual property rights (65th place), patent protection (0) and copyright piracy (60th place); in this section Montenegro was ranked as 109th out of 130 ranked countries.

All of the rankings are observed from the perspective of global ranking. According to regional rank, Montenegro was placed 13th out of 24 countries.

In comparison with other countries in the region, Montenegro was ahead of Macedonia (87th), Albania (102nd), Serbia (113rd) and Bosnia and Herzegovina (107th). However, Slovenia (49th) and Croatia (65th) were awarded higher positions.

According to the IPRI`s report scale which ranges from 0 to 10, with 10 representing the strongest level of property rights protection and 0 reflecting a complete non-existence of secure property rights in a country, Slovenia was placed higher than Montenegro because it had better scores in the areas of legal and political environment and also in the field of intellectual property rights; Croatia had a much better score in the field of intellectual property rights, as is shown in Graph 1.

Montenegro had the best score in the field of physical property rights when compared with Serbia, Bosnia and Herzegovina, Macedonia, Slovenia, Croatia and Albania; it achieved an overall result of 6.3 according to the official scale. Montenegro was ahead of Serbia, Bosnia and Herzegovina, Macedonia and Albania in the field of legal and political environment and obtained a score of 5.3.

Except for Slovenia and Croatia, Macedonia had the best score in the field of intellectual property rights; it achieved a score of 4.

Graph 1: Regional countries’ scores, by IPRI

Source: www.internationalpropertyrightsindex.org

The final overall IPRI score is the average of the total component scores, as shown in Graph 2 (legal and political environment, physical property rights and intellectual property rights). According to the overall final score, Slovenia was placed highest with a score of 5.9, followed by Croatia 5.3, Montenegro 5.1, Macedonia 4.,7, Albania 4.4, Bosnia and Herzegovina 4.3 and Serbia 4.2. All of the figures were calculated according to the scale (0-10) which was used in the IPRI report for 2012.

Graph 2: Overall score, by IPRI

Source: www.internationalpropertyrightsindex.org

The fact that Montenegro was placed 72nd indicates that it still has a substantial amount of work to do on improving its policy regarding property rights if its goal is to achieve economic growth and prosperity. It also needs to develop and intensify its activities in the area of intellectual property where it scored the lowest marks.

Montenegro’s results, as shown in the International Property Rights Index, provided the country with guidelines for taking future action and for carrying out research in areas of weakness. Acting on these results would help to improve economic development and growth in general; they would also ensure better results in the future. The Center for Entrepreneurship and Economic Development is the partner of the Property Rights Alliance in Montenego.

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Economic FreedomProperty Rights and Economic Freedom

In an economically free society, individuals are free to work, produce, consume, and invest in any way that they please; with that freedom they are both protected by the state and also unconstrained by the state. With a view to achieving that aim, some important analyses have been carried out by the International Property Rights Index (IPRI) to provide guidelines for taking future necessary steps in order to increase economic freedom and overall economic growth.

5.3

6.3

3.7

5.3 5.74.8

6.45.6 5.7

4.2

5.1

3.54.1

5.2

3.3

4.4

5.7

44.3

5.4

3.4

0

1

2

3

4

5

6

7

Legal and Political Physical Property Rights Intellectual Property Rights

Montenegro Croatia SloveniaBosnia And Herzegovina Serbia MacedoniaAlbania

5.1

4.2

4.3

4.7

5.9

5.3

4.4

0 2 4 6

Overall score by country

Albania

Croatia

Slovenia

Macedonia

Bosnia and Herzegovina

Serbia

Montenegro

5

April 2012

Macroeconomic Outlook

Graphic 3. Budget structure

Business EnvironmentMacroeconomic OutlookCapital MarketBanking SectorPrivatization and InvestmentsEconomic FreedomBusiness NewsIn the SpotlightComing up...

Graphic 5. Average salary without taxes and contributions (in €)

Planned Budget of

Montenegro_ 2012 (in

million EUR)

Revenues 1210.07

Expenditures

1252.72

Deficit-42.65

EUR 506EUR 484

EUR 473EUR 479

EUR 475EUR 476

EUR 475EUR 477EUR 477

EUR 483EUR 484

EUR 505EUR 495

450 460 470 480 490 500 510

Feb-11Mart-11

Apr-11May-11Jun-11

July-11Aug-11Sept-11Oct-11Nov-11Dec-11Jan-12Feb-12

Source: MONSTAT, Ministry of Finance of Montenegro

Graphic 4. Inflation (CPI Index)

Feb-11, -0.1

Mar-11, 0.8

Apr-11, 0.8

May-11, 0.6

Jun-11, 0.0

July-11, -0.3

Aug-11, 0.3

Sept-11, 0.2

Oct-11, 0.3

Nov-11, 0.2

Dec-11, 0.0

Jan-12, 0.8

Feb-12, 2.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

Source: MONSTAT

Source: MONSTAT, Employment Agency of Montenegro

REAL SECTOR

Industrial production: recorded a fall of 19.7% during the period January- February 2012 in comparison with the same period last year. The main reason for this decrease in industrial output was that electricity production went down by 39% due to unfavorable hydro meteorological conditions.Tourism: during the period January- February 2012, 28,019 tourists (70.8% foreigners) visited Montenegro, thus recording a fall of 10.2% in comparison with the same period last year. On the other hand, 114,046 bed-nights were achieved, which represented an increase of 2%. Construction: according the latest available data, the total value of completed construction projects totaled 95,569,000 in the fourth quarter; 48.8% above last year’s average.

Inflation The annual rate of inflation, as measured by the Consumer Price Index (CPI), was 4.2% during the period January- February 2012. Price increases in certain product areas and in services, particularly alcoholic beverages and tobacco (23.3), health care (8.2%) and transport (7%), were obvious. The price increases were due to the fact that, from 1st January, 2012, excise tax on cigarettes increased from 13 to 15 cents, and fuel prices also went up at the end of March.

Employment and WagesAt the end of February, there were 162,035 employed and 31,495 unemployed (14,800 of which were women). The unemployment rate at the end of March was 13.58%. Average earnings (without taxes and contributions) in Montenegro were €495.

In comparison with January 2012, average earnings without taxes and contributions (net) decreased by 2% in February 2012.Average earnings without taxes and contributions (net) in February 2012, when compared with figures in February 2011, fell by 2.2 %. However, they increased by 2.3% in comparison with average monthly earnings without taxes and contributions (net) in 2011. Bearing in mind that consumer prices in February 2012 increased by 1%, in comparison with January 2011, the overall result has been that real earnings, without taxes and contributions (net), have decreased by 3% in comparison with same period of last year.

PUBLIC FINANCE

BudgetAccording to the Law on the Budget of Montenegro for 2012, revenue is projected to be €1,210,074,101.60. Expenditure is projected at €1,252,724,789.74, thus suggesting a potential deficit of €42,650,688.14.

Meanwhile, the macroeconomic situation, the Ministry of the Finance of Montenegro has announced that the national budget will be reviewed. Current budget revenue in January 2011 amounted to €48.7 million, thus showing a decrease of 11.7% in comparison with same month last year, or a decrease of 18.0% in comparison with its projected value. Budget expenditure amounted to €63.9 million, thus showing a year-on-year increase of 27.3% in January 2011. In January 2011, the Montenegrin budget recorded a deficit of €15.28 million, or 30% of its projected value for 2012. Public debt in January amounted to €1,473.2 million (43.3% of GDP).

INTERNATIONAL ECONOMIC RELATIONS

Foreign Direct Investments (FDI)According to the latest available data, net FDI inflow amounted to €389 million in 2011, a fall of 29.5% when compared with 2010.

Total FDI inflow amounted to €494.7 million. When looking closely at the FDI inflow structure, it is evident that the largest influx came from investment in local companies and banks along with the sale of real estate (€157.7 million and €184.3, respectively). FDI influx in the form of intercompany debt amounted to €132.6 million, while influx due to the withdrawal of residents’ capital invested abroad amounted to €20.1 million.

Total FDI outflow amounted to €105.6 million which, in comparison with 2010, was 4.9% higher. The largest outflow was seen in the withdrawal of non-residents’ investments (€73.2 million), while €32.4 million related to residents’ investments abroad.

External TradeThe total amount of foreign exchange realized during the period January- February 2012 amounted to €257.45 million. Total exports amounted to €51.15 million, thus recording a fall of 26.1% in comparison with the same period last year. Total imports, with a combined total value of €206.30 million, recorded a slight increase of 1.5%. The export-import ratio of 24.8% remained the same as last year’s average level (24.9%). Montenegro is most import-dependent on Serbia, Greece, Bosnia & Herzegovina, Croatia and China. The most important export markets for Montenegro are: Croatia, Serbia and Bosnia & Herzegovina. Mineral fuels, mineral oils and products resulting from their distillation (27.6%), meat and edible meat offal (4.7%), inorganic chemicals (3.6%), and pharmaceutical products (3.4%) are the most imported products.

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Total Bank Assets and Liabilities

Total bank assets amounted to €2,809.7 million at end-December 2011, thus recording a decline both at a monthly level (1.7%) and at an annual level (4.5%).

At end-November and end-December 2011, within the structure of the total bank assets, loans accounted for the main share (about 67%), followed by monetary assets and deposits. Depository institutions represented about 23%, Graph 6. Within the structure of the total bank assets, at end-December the greatest monthly decrease was recorded in the area of factoring and forfeiting operations (19.5%), and at end-November 2011 the greatest decline was seen in monetary assets and deposits with depository institutions (4.5%).

In December 2011, within the area of bank liabilities, deposits accounted for the main share (64.7%), followed by loans (18.8%) and total bank capital (10.9%). The remaining (5.6%) represented a variety of other liabilities. In relation to the previous month, financial derivatives recorded an increase (11.8%).

Total bank capital amounted to €305.2 million at end-December 2011, and recorded an increase at a monthly level (6.4%) and decline at the annual level (1.8%).

Deposits

Total deposits amounted to €1,817.1 million at end-December 2011. When observing data from November and comparing it with December figures, it is evident that deposits declined by 0.8%, while comparing to December 2010, increased to 1.5%.

In November and December 2011, within the deposit maturity structure, time deposits were dominant (61%), while time deposits accounted for 39%. Within the structure of time deposits, the largest area that recorded deposits was the sector offering a maturity period of 3 months to 1 year (about 54%).

This was followed by the sector offering a maturity period of up to 3 months (about 21%, Graph 7. Observed on a sector by sector basis, within the deposit structure, deposits made by individual persons were still dominant and represented a percentage share of about 56.0% , Graph 8.

Household Deposits

Total household deposits amounted to €1,033.4 million at end-December 2011, and recorded an increase at a monthly level (0.7%). Comparing to December 2010, they increased by 8.6%.

At end-November and end-December 2011, within the maturity structure of household deposits, time deposits were dominant, while demand deposits accounted for 32.0%, Graph 9.

Loans

At end-December 2011, total loans granted by banks amounted to €1,955.8 million, thus recording an increase of 0.9% in comparison with the previous month and 11.1% less than in the previous year. This figure should not be interpreted as a 11.1% decrease in granted loans, because a portion of loans was displaced into balance sheets of parent banks, factoring companies, and the like.The loan-to-deposit ratio amounted to 1.08 at end-December 2011. This was less than it had been the previous month (1.06) but had improved in comparison with December 2010 (1.23).

Within the structure of total loans disbursed, corporate and household loans were 92.0% less dominant in November and December 2011; the remaining 8% refers to banks, other financial institutions, public owned organizations, non-profitable organizations and various others.

Interest rates

In December 2011, the weighted average lending effective interest rate (lending interest rate) was 9.73% and remained almost at the same as level as it had been the previous month. The weighted average deposit effective interest rate (deposit interest rate) was 3.03% in December 2011, and recorded a slight increase on a month to month basis.

Graphic 10. Interest rates, period-end, in %

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Banking Sector

Graphic 8. Structure of deposits by sectors

Graphic 6. The structure of total banks’ assets

Graphic 7. Structure of deposits

67.8 66.1

24.0 22.2

8.2 11.70

20

40

60

80

November 2011 December 2011

LoansMonetary assets and deposits with depository institutionsOther asset items

22.0

53.4

19.0

5.6

20.7

54.9

19.0

5.4

0 20 40 60

Up to 3 months

From 3 months up to 1 year

From 1 to 3 year

Over 3 years

November 2011 December 2011

Graphic 9. The maturity structure of household deposits

67.8 67.4

32.2 32.6

0.0

80.0

November 2011 December 2011

Time deposits Demand deposits

4.5

29.8

5.0

56.1

1.3

3.4

4.7

29.3

4.5

56.9

1.3

3.3

0 10 20 30 40 50 60

Financial institutions

Non-financial institutions

General Government

Households

Non-profitable organisations

Other

November 2011 December 2011

Source: Bulletin of the Central Bank of Montenegro (December 2011, January 2012).

9.78 9.73

3.08 3.030

10

November 2011 December 2011

The weighted average lending effective interest rate The weighted average deposit effective interest rate

7

April 2012

Expert’s opinion Author: Prof. PhD Petar Ivanović

Regarding taxes, I object to them being increased for at least ten reasons:

First, a tax increase would slow down economic development. Tax in the economy is the same as fat in our blood vessels. Blood cannot flow through veins nor can it carry the oxygen needed for the development of any individual if it encounters obstacles such as fat. Businesses cannot work smoothly and generate profit, without which function a society cannot develop, if they face obstacles such as high taxes. I don’t know any top athletes who have fat in their blood. If we want a top level economy, we have to cut taxes; we cannot increase them!

Second, the problem is not about the percentage figure, but about the base level. In order to attract a higher level of income into the budget, economic growth should be higher; in other words, people need to work harder and to earn more! A number of research projects that have been carried out show a negative correlation between tax increases and economic growth, and vice-versa; that there is a positive correlation between tax decreases and economic growth. The expectation of increasing the budget by increasing taxes, without the economy feeling any consequences, is rather like a skier looking down a hill as an avalanche approaches from behind, or like a pedestrian looking to the right down a road as a lorry approaches from the left. We are presently looking the in the wrong direction! Our focus should not be on tax increases, but should rather be on the issues that are preventing us from achieving more. And many of the reasons that are preventing us from achieving more can be found within the jurisdictions of the institutions whose existence requires tax increases.

Third, an increase in taxes would reduce Montenegro’s competitive advantage. Montenegro has been the leader in the region, measured in terms of the speed of company registration, requirements for founding capital, a stable currency, low taxes etc. Due to the fact that Montenegro was more competitive than other countries in the region during the last five years, it managed to attract €3.7 billion in direct foreign investments. More recently, however, its competitive advantage has started to fade as others have become faster and more efficient. If this component of its competitiveness (relatively low taxes) is lost, its future expectations will diminish significantly.

Fourth, an increase in taxes would not diminish the informal economy, but would have quite the opposite effect. Prohibitions, restrictions, complicated procedures and high taxes, are the most common causes of an informal economy. With the elimination of prohibition, the simplification of procedures and a reduction in taxes, the causes of an informal economy are removed. If our real goal is to abolish the informal economy, then let us cut down on taxes!

Fifth, an increase in taxes would protect unproductive jobs whilst endangering productive jobs. An analysis of numerous institutions shows that administrative costs in Montenegro are both high and

excessive. Such administrative costs are financed through the budget. Is it more important to preserve productive or unproductive jobs for the sake of Montenegro’s future economic development? What is more important: administration or entrepreneurship? To protect those who consume or to protect those who produce and generate?

Sixth, an increase in taxes would cause an increase in the level of inflation. This statement is not even opposed by those who support an increase in taxes. However, the dangers brought by inflation are very well known.

Seventh, an increase in taxes would attack the spending power of every individual citizen. Citizens would not only pay more for products, but would also be able to buy less as their purchasing power would drop; they would have to give up buying some products or services. Overall, the total level of demand would decrease.

Eighth, an increase in taxes would reduce company investments in Montenegro. There is a great difference between VAT and sales tax. If VAT were increased, the price of all products would increase; production costs would also consequently be much higher. If we add a decrease in demand to growing costs, it is not difficult to conclude that the revenue of many companies in Montenegro would fall as a result. As a consequence companies would find it difficult to repay loans, and would find it even more difficult to invest into new projects.

Ninth, the proposed tax increase represents a growth of 11.76%, not just of 2%. An increase from 17% to 19% is not “just increase of 2%”. In that case the level of tax would be 17.34%, but this is actually an increase of 11.76%! An increase of 11.76% in taxes is a huge hit, a shock, and a massive disruption; it is not just a meaningless increase.

Tenth and finally, an increase in taxes would not solve any of the essential problems in Montenegro, but would only postpone them.

Before making any decisions, economists, even politicians, must make a full cost-benefit analysis. Their decisions will be considered as meaningless if the result does not create greater benefits than it does costs. That is why it seems to me that all of those in favour of raising taxes are misled by their own failure to understand economics, by their failure to understand the problems associated with sustainability and with the development of the economy, by the numerous losses and irreparable damage that would occur, and by the fact that such damage would go way beyond any short-term benefits that may be achieved; even if that achievement were simply self-satisfaction, such as: “We have accomplished our goal- the budget balances!” Source: Daily news Pobjeda (March 18, 2012)

The fact that less income than expected has come in than was originally budgeted for, has recently sparked a number of heated arguments. The resulting dilemma is: should taxes be raised or not? The Ministry of Finance estimates that, at present, there is a deficit in the budget of €30 million and that such an amount could be retrieved by increasing, in the first place, value added tax from its current level of 17% to 19%. Since the Ministry does not have the courage to directly propose this, the responsibility for such a proposition must be passed to the International Monetary Fund, and presented to the public with some level of pressure. It is a frequently overlooked fact that loans are not usually imposed, but are rather independently sought after of requested! Therefore, the safest way to resist “pressure from international financial institutions” is to not request loans from them in the first place.

One of the principles of economic liberalism is to advocate for low tax rates. Judging by comments that one reads at the present time, the number of people who support economic liberalism in Montenegro is on the increase. That is great! I hope that the same principles and arguments will be also be used during future discussions concerning other issues.

Taxes Should be Reduced, not Increased!

8

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Graphic 12. MONEXPIF

Graphic 11. MONEX20

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Atlas Mont Eurofond HLT MIG Moneta TrendVolume 657,177 10,727 3,525 0 212,131 113,138Shares 11,589,42 582,014 344,354 0 3,302,900 2,665,036

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Graphic 13. Turnover structure

80.4%

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Shares PIFs units Bonds

Graphic 14. Turnover in PIF’s

Trade on the Stock Exchange

Turnover on the Montenegrin stock exchange during the first quarter of 2012 amounted to only €6.64 million, which was a decline of 37% in comparison with the same period in 2010. The average monthly turnover during the first quarter of the current year was only €2.21 million, which was much lower than the monthly turnover average in 2011. This indicates that the capital market crisis is not yet over. The decline in the turnover of the stock exchange during the first quarter of 2012 was also followed by a decrease in the number of completed transactions. During the first quarter of 2012, a total number of 1,618 transactions were completed, which was 60% less than during the same period in 2011.

During the first quarter of 2012, three types of security were traded: company shares, privatization-investment fund shares and bonds, including government bonds and ministry of finance bonds. The greatest turnover was recorded in the area of company shares (80.4%), followed by investment funds at 15.0%. The total turnover of bonds amounted to 4.6%. At the same time, only the turnover of privatization-investment fund shares increased; a percentage increase of 27.9 was recorded in comparison with the same period in 2011.

Taking into consideration shares from a single company, the highest monthly trade volumes were achieved in March, during the first quarter of 2012, when the Aluminum Plant shares reached a total of 3.98 million through block transactions.

Stock Exchange Indices

The Montenegrin stock exchange uses the two indices MONEX20 and MONEXPIF. In March 2012, the Montenegrin Board of Directors adopted a new methodology for calculating the indices MONEX20 and MONEXPIF. Its aim was, through the adoption of a new methodology, to better present the current situation of the index within the market. The new methodology for calculating the index is available on the official website of the Montenegrin stock exchange.

MONEX20

The value of the Montenegro Security Exchange, MONEX20, upon which MSE’s 20 most liquid companies are traded, has increased since the beginning of 2012, although there have been a few oscillations at times. The highest value reached by MONEX20 during the first quarter of 2012 was recorded on March 24th at a level of 9,807 points. The lowest value was recorded on January 20th at a level of 8,662 points. Variations in the value of the index have influenced all of the fluctuations shown by the shares represented in this index, particularly those belonging to Telekom Montenegro, Jugopetrol Kotor, the Aluminum Plant and Prva Banka.

MONEXPIF

The value of this index has declined since the beginning of 2012, but has also shown some oscillations at times. It reached its highest level on February 2nd with a total of 4,273 points, while the lowest point was recorded on March 14th with a total of 3,745 points. The value of the index was influenced in such a way that a similar trend was evident in all of the privatization investment funds.

Privatization – Investment Funds on the Stock Exchanges

The total volume of trade that involved PIF shares during the first quarter of 2012 amounted to €0.99 million, an increase of 27.9% in comparison with the same period in 2011 (about €0.78 million in trade volume). A significant increase in turnover in the privatization-investment fund was the result of a block transaction of Atlas Mont shares worth €278,500.During the first quarter of 2012, there were a total of 385 transactions comprising a total number of 18.4 million shares. The most actively traded shares during this period were Atlas Mont shares. The privatization-investment fund "MIG" JSC Podgorica changed its name to the "Society for the Management of Tasks and of Real Estate Management MIG" JSC Podgorica. From 27th March its shares will be traded on the free stock market on an auction basis.

9

April 2012April 2011

Insurance of a New generation.

KOTOR

Plav

1 concern

21 target markets

40insurance companies

20,000employees & agents

7,500,000 customers

16,500,000 contracts

10

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Montenegro in EU Accession Negotiation ProcessWhat are the negotiations about?

The negotiations determine the conditions under which each applicant country will join the European Union. On joining the Union, applicants are expected to accept the

"acquis", i.e. the detailed laws and rules adopted on the basis of the EU's founding treaties.

The negotiations focus on the terms under which applicants will adopt, implement and enforce the acquis, and, notably, on the granting of possible transitional arrangements which must be limited in scope and duration. Under similar arrangements in previous accession negotiations, new Member States have been able to phase in their compliance with certain laws and rules by a date agreed during negotiations.

For the purposes of the negotiation process, the overall legal acquis of the European Union is divided into 35 thematic chapters, which are referred to as negotiation chapters. The formal opening of the negotiation process is followed by an analytical overview and evaluation to establish the degree to which harmonization of national legislation with the Acquis Communautaire, known as screening, is required. The main purpose of the screening process is to determine the differences that exist between the national legislation and the acquis communautaire; this applies to every chapter with which the national legislation needs to be harmonized by the date of accession. After the screening has been completed, a decision on the opening of negotiations for individual chapters, depending on the evaluated readiness of the candidate country, is made. With the opening of negotiations for individual chapters, the substantive phase of the negotiations begins. During this phase, the subject of negotiations is the conditions under which the candidate country will adopt and implement the acquis communautaire in each respective chapter. After agreement has been reached between the EU and the candidate country on the individual chapters of the negotiations, and once the set benchmarks have been met, the respective chapters are considered temporarily closed.

Where is Montenegro in the EU Accession Negotiation Process?

At the beginning of December 2011, the European Council launched the accession process with Montenegro with a view to opening accession negotiations in June 2012, providing that certain conditions related to the rule of law were met. By the end of December 2011, Montenegro appointed Mr. Aleksandar Pejović as Chief negotiator. In February 2012 a decision was made to establish a negotiation structure for Montenegro’s accession to the European Union. Following this, six new official bodies were established. They are as follows: State Delegation, College for Negotiations, Negotiating Group, Working Groups on Individual Negotiating Chapters, Office of the Chief Negotiator and a Secretariat for the Negotiating Group. Working groups for Chapter 23, Judiciary and Fundamental Rights, and for Chapter 24, Justice, Freedom and Security, will be the first two to be established. The establishment of the structures for conducting negotiations was followed by the formation of working groups for Chapter 23 (Judiciary and Fundamental Rights) and for Chapter 24 (Justice, Freedom and Security). Consultations with experts from the Croatian negotiating team, responsible for Chapters 23 and 24, took place in March with the aim of getting a better picture of the forthcoming screening and negotiations. With regard to the European Council’s conclusions, made in December 2011, the European Commission will deliver its opinion regarding Montenegro at the opening accession negotiations in June 2012. The report will refer to seven key priority areas, identified as the European Commission Opinion, on Montenegro’s progress from 2010.

Montenegro and EU in timeframe:

15 October 2007 - Montenegro signed the Stabilisation Association Agreement (SAA).15 December 2008 - Montenegro submitted its application for EU membership.12 April 2010 - Montenegro submitted answers to the Commission’s questionnaire.9 November 2010 - European Commission replied to the answers provided in the questionnaire in a positive manner.17 December 2010 - Montenegro received official candidate status.12 October 2011 - Commission recommended the start of negotiations.9 December 2011 - In order to open negotiations with Montenegro in June 2012, the European Council instructed the Council to discuss Montenegro’s progress regarding implementing reforms with a special focus on the rule of law and on fundamental rights; particularly in the fight against corruption and organized crime. Based on reports of the Commission, this will be presented in the first quarter of 2012.

What is the negotiation process?

Accession negotiations are a process by which a candidate country accedes to the European Union and adopts its founding treaties. The close of accession negotiations is followed by the signing of an international treaty between the EU Member States and the candidate country. This is called the Accession Treaty. Participants involved in the negotiation process are the candidate country on one side and the EU Member States on the other. During the course of negotiations, the negotiating position of the EU is represented by the Presidency of the Council of the European Union, on behalf of the Member States. Negotiations on behalf of the candidate country are conducted by the State Delegation for Negotiations. Apart from the Head of the State Delegation (in most cases elected at a ministerial level), the State Delegation for Negotiations of the candidate country includes a Chief negotiator and a negotiating team.

Negotiations with each applicant proceed on the basis of their own merits. The pace of each set of negotiations depends on the degree of preparations made by each applicant country and also on the complexity of any issues that need to be resolved. For this reason, it is not possible to estimate the likely length of the negotiation process in advance.

Negotiating positions are approved unanimously by the Council. The results of the negotiations are incorporated into an accession treaty. This is submitted to the Council for approval and to the European Parliament for assent. After signature, the accession treaty passes to the member states and to the applicant country/ies for ratification. This involves, referenda. When ratification takes effect, the applicant country becomes a member state on the date of its accession.

11

April 2012

Green Enterpreneurship

We introduce

Environmental protection and sustainable ecological production are two of the main challenges of the 20th century. Today’s population faces problems which are, to a great extent, the consequence of human activity and that are caused by our desire for profit, higher standards and a better lifestyle.

Climate change, economic and energy crises are all responsible for creating a need to radically change the way we stimulate so-called "green economies" both in social and economic terms. The concept of a green economy involves an extensive use of resources as it refers to a whole branch or sector; ‘green entrepreneurship’. This concept, however, provides each one of us with an opportunity to start up our own business and to gain profit from the principles of sustainable development. By definition, the term green economy places a focus on low levels of carbon emissions, the efficient use of natural resources, and on the issues of social inclusion and wider economic benefit. A green economy creates great opportunities for sustainable development such as providing ways of increasing income, reducing poverty and improving our quality of life.

One of the most important international events this year in the field of sustainable development is the United Nations Conference on sustainable development, Rio +20, which will be held from 20-22 June, 2012, in Rio de Janeiro. Representatives from most countries will participate in the conference. The major themes of the conference will be: the green economy within the context of sustainable development and poverty reduction, and institutional frameworks for sustainable development.

The National Council for the Sustainable Development of Montenegro, along with various professional teams, is working on preparing a document that the government will adopt for its official platform at the Rio +20 Conference.

The government is making efforts to strengthen the competiveness of the domestic economy, particularly in the SME sector, whilst simultaneously promoting sustainable business. This gives a clear message that the concept of green technologies such as energy efficiency, renewable energy and waste management, will be promoted in order to fulfill the obligations that are set out in the constitution and which define Montenegro as an ecological state.

According to the United Nations Environment Program (UNEP), green entrepreneurship is defined as “a business model based on sustainable production, on the consumer and on the practice of saving, and is a response made to different challenges that have emerged over past decades”.

The objective of every economic policy should be to create a favorable business environment, one which contributes to the development of a green entrepreneurship, and thus the national economy, through sound and environmentally friendly ways of doing business. Entrepreneurs are a driving force in any economy. They generate new jobs and create new values. “Green entrepreneurship integrates environmental, economic and social axes at the very core of business, or as others might say, it provides innovative solutions to the way goods and services are produced and consumed.”

By adopting the Declaration on Montenegro as an Ecological State in September 1991, the importance of having an awareness regarding natural resources and of being committed to preserving them has been clearly articulated. This awareness has also been expressed through various constitutional standards, as Montenegro is now defined as an “ecological state”; something that has created very good conditions for developing green entrepreneurship.

The development of green entrepreneurship could be very significant for Montenegro due to it having a number of comparative advantages. It will hopefully help to create better conditions for the utilization of available resources (mineral resources, forest resources, protected natural areas, tourism resources, energy resources,

agricultural resources, and fishery resources) and also to stimulate employment.

The recent "Study for the Development of Green Entrepreneurship in Montenegro", prepared by Center for Entrepreneurship and Economic Development (CEED), aimed to review the current situation regarding the development of green entrepreneurship in Montenegro. It also looked at opportunities for improvement. The Study results showed that the application of the concept of green entrepreneurship in Montenegro lags behind other developed countries in terms of growth and development potential. The Study showed that the sectors of energy, waste management, organic agriculture, eco-tourism, recycling and organic food production, in particular, were of interest for the development of green entrepreneurship.

The Ministry of Economy in Montenegro is currently implementing two projects linked to the energy sector:

• Energy efficiency in Montenegro• Renewable energy sources in Montenegro

The Study also concluded that in order to further develop the concept of green entrepreneurship it would be essential to promote it and to educate people about it. The quick integration of this concept into the education system, especially into higher education, would directly increase the awareness of future entrepreneurs regarding the importance of this type of business. In that sense, the better promotion of green entrepreneurship is necessary, along with more favorable conditions, in order to implement it successfully and to achieve results and desired effects.For more details or for obtaining the copy of the Study, please send e-mail to:ceed@t-com.me.

12

MBO Interview Mr. Pedro Gomes Pereira, Mediterranean at Martifer Solar

MBO: The group Martifer Solar is currently present in more than twenty countries and is pursuing a worldwide expansion process. Could you introduce us to your company’s previous work and also to its plans for the future?

Martifer Solar started up in 2006, but only became truly active in the PV market during the second half of 2007. It started to operate mainly in the Iberian market and completed about 38MW worth of installations in less than a year in the Spanish market. In 2008, it started to expand internationally and began working in Italy, Belgium and Greece. From that time onwards, the company also entered several other markets, mainly in Europe, but also some in America, Asia and Africa. All of this new business was based on its reputation of sound financial capability and on its track record in the renewable energy sector. At the present time, Martifer

Solar has installed more than 200MW worldwide, and has accessed more than 20 countries spreading over four continents. In 2011 it was ranked as being in the top 10 worldwide, on the basis of its installed capacity. Such exponential growth, translated into operational revenue, was worth 293€ million in 2011, and represented more than 50% of the Martifer Group’s total turnover. Currently, the company’s goal is to consolidate its presence in most of the markets where it already has a presence, but it would also like to continue with its international expansion worldwide. The company is particularly interested in taking on new markets such as the Middle East, South America and Asia.

MBO: Why did you choose Montenegro recently as a destination?

Our relations with Montenegro started as a result of an invitation by MIPA to be part of an international delegation of potential investors in Montenegro.We were pleased to see that great effort had been put into our visit and that the approach made to us by MIPA and by the Government was direct and straight forward. There was a clear aim to bring investment into the country in a variety of areas and this included the area of renewable energy. Encouraged by a very close relationship between the Government and potential foreign investors, we realized that it would be possible for us to play an important role in the market; namely that we would bring to the country our knowledge, whilst simultaneously adding significant value to the existing infrastructure in the energy field.

At this moment we deem Montenegro to be a market with high potential and are fully committed to adding solar photovoltaic to the current energy-mix, under what we consider to be a win-win relationship for all involved parties. We definitely look forward to starting our first project in the country and are working closely with MIPA and with the Minister of Economy in order to achieve this goal in the near future.

MBO: What do you expect to gain from this market? In what way you plan to achieve your goals?

Despite Montenegro’s small size, we have identified several advantages which may result in it becoming an international case study for solar energy production and for sustainability policies in the area of renewable energy. The number of sunny hours for the greatest part of Montenegro averages above 2000h/year. In coastal areas this figure reaches up to 2500h/year. Such high potential, in terms of solar radiation, is present and must be used. At this moment, there is also a political will to diversify the current mix of renewable energy types and to improve the current regulatory framework.

Moving forward from the above favorable context, we believe that we could combine these conditions to become successful pioneers in bringing solar energy to Montenegro; not only based on our international experience in this field, but also on our commitment to transferring our knowledge to the country. This would enable Montenegro to continue developing this industry in a sustainable way in the future.

Mr. Pedro Gomes Pereira, Regional Manager for the

Mediterranean at Martifer Solar

Born in Coimbra, Pedro Pereira was raised in Porto, where he graduated in Business Administration & Management at the Catholic University of Portugal.

After completing his five-year degree in 1998 at the age of 23, he started working in Porto, as an IT consultant, for the company CPC-CG (currently Indra). In 2002 he decided to broaden his experience by joining an international group

- SonaeIndústria - where he worked as Project Manager during the implementation (roll out) of a model of integrated supply chain in many premises of the group in Germany and France.

After 7 years of professional experience, Pedro Pereira decided to interrupt his career to start a full-time MBA at the ESADE Business School in Barcelona. After the MBA, he embarked in a new experience in the Business Development area abroad, specifically in the renewable energy sector. He became part of Martifer Solar during the summer of 2007, a newly created company within Martifer group.

Pedro Pereira was appointed as General Manager of Martifer Solar Srl, a company founded in Milan in January 2008 and dedicated to the development, construction, operation and maintenance of solar photovoltaic (PV) plants, which became operational in March of the same year. Since 2010, Pedro Pereira is the Managing Director for Italy and the Regional Manager for the Mediterranean Area, taking also part of the Board of Directors of the Greek and the Romanian subsidiaries. Since 2008, Pedro Pereira has participated in several PV-sector conferences as speaker and moderator; hegaveseveral interviews to the media (TV, radio, newspapers and Internet) and has played an important role in lobbying not only through PV associations, but also directly with the media, mainly against the Renewable Energies regulatory framework changes approved by different Governments in the past years.

Biography:

13

April 2012

MBO: How do you see the future of renewable energy?

The Martifer Group’s experience in renewable energy started in the wind sector, namely with the manufacture of wind towers. This was based on the group’s experience and leadership in the steel construction industry. Later, the company entered the areas of solar, wave and bio-fuel energy. The company approach was industrial in nature, but also included other renewable energy types in the area of energy generation.

Since 2010, the company has decided to focus on its purely industrial activities; on the production of metal constructions and on solar energy, which have become the two core business areas. In a nutshell, every country is aware of the urgent need to decrease the use of carbon-based energy sources. Several countries have already committed to specific quotas for renewable energy within their overall energy mix, and to reducing their levels of greenhouse gas emissions to decrease their energy consumption levels, as a result of the Kyoto Directive. The crisis that occurred in North Africa and in the Middle East, in Spring 2011, highlighted the danger of oil and gas dependency on other countries. Furthermore, the Fukushima nuclear accident led most countries to withdraw from their nuclear plans. All of this just reinforced the need to increase investment in renewable energy.

While Western Europe has played an important role regarding its incentive schemes to date, it is now time for other countries to contribute in such a way that PV may finally attain a level of grid parity. If this were to be achieved, no further incentives would be required at a level of general distribution. Meanwhile, the current macro-economic context, along with the recent changes in the overall regulatory framework, has not helped the industry in terms of investment; within the industry, the perceived level of risk has actually increased.

There is a clear trend for further price reductions in terms of demand. However, there is also pressure in the opposite direction regarding increases in supply. Within this context, several bankruptcies have occurred. Together with a high level of consolidation activity, these events have helped to restore the balance in the industry. For the strongest players, new business models will be required. These will have to go far beyond typical incentive schemes in order to succeed. It is on this basis that Martifer Solar proposes to enter Montenegro.

MBO: What are the benefits of solar energy? Why people should start to replace other viable energy sources with solar energy, and why should the Government provide incentives for such types of development?

First of all, the sun may be used as more than just a heating source (solar thermal), but also as an electricity source (solar PV).This is the main focus of our company. The sun is actually one of the most inexorable and promising available resources. Unlike other renewable sources, PV is one of the most desirable ways of generating energy; it is easily accessible at a consumer level, is easy to predict and it can be made to mirror higher levels of usage at peak times. In addition to that, it is not an invasive type of technology as it can be implemented in total harmony with the environment, and does not produce any noise. The main problem of PV is its cost level. Therefore, the need for incentives are paramount in order to scale down the effect of its high costs.

This should smooth the way to reaching grid parity, something which is, at present, almost attainable in some countries where both electricity prices and solar radiation costs are high. In fact, thanks to the incentive schemes of some countries, mainly in Europe, reductions in system prices have been as impressive as around 75% during the last four years!

Whilst providing incentives for the development of solar energy, governments are actually contributing to the diversification of their energy mix. They are also simultaneously increasing their autonomy of energy production, based on renewable energy sources; thus they are substituting carbon-based sources, which are often imported, with renewable energy. This, in turn, allows them to meet their renewable energy quotas, whilst reducing their levels of fossil fuel consumption and decreasing their levels of greenhouse gas emissions.

Moreover, such incentives allow the development of a healthy industry, create employment and increase the turnover of many related activities in the long run. In fact, an important part of such incentives concerns the state in terms of taxes paid through the whole supply chain.

All in all, considering all of the economic, social and environmental benefits which are very difficult to quantify, the differential effect could be virtually zero. That is, the whole investment put into supporting solar incentives could well be completely paid back.

MBO: What are the main advantages of your company? Why would someone choose Martifer Solar over other similar companies?

FMartifer Solar is involved in the development, construction, operation and maintenance of PV plants, as well as in the manufacture and distribution of PV components. This includes the production of modules in its cutting edge production line, tracking systems, fixing structures, and parking decks, amongst others various items. Such an integrated approach allows the company to provide 360º solutions to the market in the PV field. It has a great deal of experience in the solar sector and belongs to a listed group with more than 3,000 employees who focus on metallic constructions and solar energy. At the moment, Martifer Solar is present in 21 countries and has installed more than 200 MW worldwide. Its work includes all kinds of different types of technology and installations. Martifer Solar is flexible, innovative and fast.

It has a sound balance sheet which provides security both to investors and financiers. Its broad experience in the PV sector allows it to provide custom-made solutions for clients at competitive prices combined with high quality standards. Finally, the company also has a social conscience which results in it leaving a strong footprint wherever it works; namely it brings in clean energy, transfers its own knowledge to others and provides long term employment opportunities to local communities whenever possible.

14

O p e n T e n d e r s

Montenegro Plans to Sell 11 Companies in 2012

The Privatization Council, chaired by the Montenegrin Prime Minister, Igor Luksic, has adopted a new privatization plan for 2012. It envisages the sale of 11 companies that are currently owned by the state. Companies that will be privatized through public tender include the following: the newspaper and publishing company Pobjeda, Montekargo-Podgorica, Montenegro Airlines, the container terminal and general cargo depot at Bar, and the country’s

own railway infrastructure. The Montenegrin government also plans to sell the Adriatic shipyard at Bijela this year, as well as the Zora Dairy in Berane, the hotel group Budvanska Rivijera situated on the Ulcinjska Riviera, the Ferrous Metallurgy Institute in Niksic and the Piva Electrode Factory in Plužine. It has been announced that numerous sites, business organizations, and military and tourist complexes will be offered to interested parties on a lease basis following a public-private partnership model. In this way, the Government of Montenegro will try to lease Ada Bojana, Ulcinj’s Velika Plaza (Great Beach) and some tourist facilities in the Bjelasica and Komovi mountain areas. Montepranzo-Bokaprodukt in Tivat, the Montenegrin Postal Service, the Kumbor-based Orijen Batallion barracks and Mamula Island will also be offered up for lease.Source: www.gov.me

Montenegro Calls for an Auction for the New Steel Mill

Montenegro has announced that a public auction will take place for the sale of the insolvent steel mill, Zeljezara Nikšić. The starting price has been lowered to €15 million. Applications for participation in the auction should be made by 27th April; the auction is scheduled to take place on 30th April. This is the third attempt that has been made to sell the plant since the beginning of the year; on the two previous occasions the starting prices were set at €30 and € 21 million respectively. There were no bids on either occasion.

Luštica Development Project to Start by the End of the Year

Luštica Development, a subsidiary of the Swiss-based Orascom Development, expects to receive all necessary permits and to begin developing the first phase of its €1.1 billion Luštica Bay tourism project in Montenegro by the end of the year, according to Orascom CEO, Samih Saviris. Founded in 2008, Luštica Development AD is a joint venture between Orascom Development Ltd. (90%) and the Government of Montenegro (10%). The aim of the project is to create and operate an integrated holiday resort that offers a wide range of amenities including 8 hotels, 1,600 apartments, 750 villas, a downtown area with all necessary facilities including shops, schools and medical services, 2 marinas, water sports opportunities, a conference centre, a Thalasso centre and an 18-hole golf course. The first phase of the project is scheduled to open at the end of 2013. Source: www.mipco.me

The Privatization Council announced a call for the sale of part of the property belonging to the hotel-tourism company, Ulcinj Riviera, through public auction. The starting price was set at €1.2 million. The auction will provide funds to implement a social program which will help, in some way, to resolve the problem of redundant employees. Applications and signed draft contracts should be returned by 13.00 on 12th April. A public auction will take place on 20th April, 2012, at 12.00.

Last year, the tender for the sale of 63.52% of the HTP ‘Ulcinjska Rivijera’ shares failed as no bids were submitted. The share owners who offered up shares for sale were the State of Montenegro (10.14%), the Investment-Development Fund (7.64%), the Pension-Disability Insurance Fund(25.29%), the Employment Agency (8.43%) and the Compensation Fund (12%). Source: www.pobjeda.me

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Montenegro Airlines to be Privatized in 2012

The Montenegrin Government has decided to go ahead with the privatization of Montenegro Airlines this year, 2012. The decision follows a difficult year for the country’s own national carrier in 2011. Montenegrin Prime Minister, Igor Lukšić, said that the airline will be offered to investors through public tender. Montenegro Airlines has become costly to maintain since the Government agreed to provide €400,000 to support it each month to cover operational costs and to write off its debts to Podgorica and Tivat airports.In order to pay off the debt owed to the Serbia and Montenegro Air Services Agency, the government has offered, in exchange, ownership of the Park Hotel in Bijela. Earlier in 2011, the Government wrote off an additional debt of €3.2 million and ordered the country’s two international airports to lower their fees to Montenegro Airlines. Recently, however, there has been discontent amongst pilots due to the late payment of salaries. Source: www.balkans.com

Public Auction for HTP ‘Ulcinjska Rivijera’ AD Ulcinj

I n v e s t m e n t s

15

April 2012

Reservoir Capital to Investigate Potential Hydroelectric Development Sites in Montenegro

Reservoir Capital Corporation has established an office and has contracted advisors to investigate potential hydroelectric development sites in Montenegro. The company has a particular interest in the Lim river, just across the border from the company's Brodarevo Projects in Serbia. An office has formally been opened by Mr. Roman Waschuk, the Canadian Ambassador to Serbia, Montenegro and FYR Macedonia. He also introduced the company to the Ministry of Sustainable Development and Tourism officials. The President and CEO of Reservoir Capital, Miljana Vidović said, "We are grateful for the continued support of the Canadian Embassy. We are also very pleased to be extending our new business efforts in the region to complement our existing bases in Serbia and Bosnia. Montenegro is a very mountainous country with a lot of undeveloped hydroelectric potential and has recently established a new legal framework for renewable energy which meets European Union standards." Source: www.mipco.me

EBRD is considering granting a €65 million loan to Crnogorski Elektroprenosni Sistem

The European Bank for Reconstruction and Development is considering granting a syndicated loan of up to €65 million for Crnogorski Elektroprenosni Sistem in order to upgrade Montenegro's power network, news channels reported, apparently citing an EBRD press release. The loan would also go to creating an electricity transmission infrastructure that would link Montenegro and Italy.

The proposed project includes the construction of a new substation at Lastva on the Adriatic coast, the diversification and strengthening of the existing network around Lastva, and the construction of a new line from Lastva to Pljevlja in northern Montenegro. The project is linked to the planned construction of an undersea cable from Italy to Montenegro. The EBRD board of directors will decide on 25th April whether or not to grant the loan to CGES. Source: www.mipco.me

German and Russian Companies Show Interest in Investing in Tourism in Montenegro

Zeljka Radak Kukavicic, the Deputy Minister of Sustainable Development and Tourism, said that German and Russian companies are interested in investing in adventure tourism and other related activities in Montenegro. She added that one possibility was the development of a camp near the Nevidio canyon and another was to create a kite surfing park at one of the beaches at Velika Plaza. She added that such initiatives generated revenue and benefits for the local population, created new jobs and promoted the protection and maintenance of the natural beauty of the area. Source: www.mipco.me

China will not Give Up on the Bar-Boljare Motorway in Montenegro

According to the Chinese Ambassador to Montenegro, Zhi Zhaolin, Chinese companies will not give up on the Bar-Boljare motorway. He added that Chinese companies are still having intensive discussions with Montenegrin officials regarding the construction of the motorway in Montenegro.

Zhaolin said that the Minister of Transport and Maritime Affairs of Montenegro, Andrija Lompar, had talked to Chinese companies and banks about the construction of the motorway. He said that he expected that the talks would have a positive effect on cooperation regarding the construction of infrastructural facilities in Montenegro. Source:www.mipco.me

Privatization and Investments

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Privatization and Investments

Two Development Projects in the Port of Bar

The officials in the Port of Bar are currently working on two development projects that involve putting the undeveloped port land into lease in order to build production, warehouse and infrastructure facilities. One project anticipates finding the partner for construction and development of the new liquid cargo terminal, while other refers to construction of production capacities in free zone area. Both projects, due to the crisis conditions, require financial and technical incentives and adjustments to the potential partner needs. Source: www.b92.net

Montenegro to Start Negotiations with SOCER

The Privatization and Capital Projects Council instructed the Tender Committee for valorization of former military property of the locality Orijen battalion in Kumbor to start negotiations with the first-ranked bidder State Oil Company of Azerbaijan Republic – SOCAR. Just to remind, the two bids were delivered to the tender: NCH Consortium consisted of 5 legal entities: NCH New Europe Property Fund II,L.P.(NEPF II); NCH Balkan Fund,L.P.(NCH Balkan);SAPTE SPICE S.A.(SAPTE SPICE);VEL PITER S.A.(VEL PITAR) i Bay View Investments D.O.O.(BVI) and State Oil Company of Azerbaijan Republic(SOCAR). After reviewing the bids, the tender committee decided SOCER to be the first-ranked bidder.

The Company offered 1€/m2 annually and variable part of 5% annual revenue. It also offered the investments in the amount of €18.86 million in first, €21.47 million in second, €17.26 million in third year and total investments of €258 million in the 8-year period.Source: www.pobjeda.me

Montenegro is to be Connected to the South Stream Gas Pipeline

Montenegro is to be connected to the South Stream gas pipeline, owned by the Russian energy giant, Gazprom. A representative of Gazprom said in a statement, "The parties have discussed technical opportunities to connect Montenegro to the South Stream Project, after it showed that it was interested at the end of last year. We have decided to work on a feasibility study which will allow us to build a gas pipeline that bends to Montenegro." It is estimated that the South Stream pipeline will carry up to 63 billion cubic meters of gas to Central and Southern Europe. Source: www.balkans.com

Porto Montenego Announces Three Major New Developments

Porto Montenegro, which is on course to become the largest and most advanced marina in the Mediterranean, has announced three major new developments along with the creation of two strategic partnerships:

During 2012 Porto Montenegro will start the construction project required to double its present marina capacity from an existing 185 to 370 berths. With more than 50 of the new berths reserved for yachts over 45 meters and with a capacity of up to 150 meters LOA, it will become one of the largest yacht ports in the Mediterranean, and will have the greatest capacity for super-yachts. Source: www.mipa.co.me

1) The ground-breaking building of a bespoke luxury hotel along with exclusive residences, a yacht club and a comprehensive spa facility; to be constructed in partnership with Regent Hotels and Resorts‚ one of the most prestigious global luxury hospitality brands. 2) The re-development of a yacht repair and refit facility in cooperation with ASY Bijela in the Bay of Kotor; just across the bay from Porto Montenegro.3) The doubling up of Porto Montenegro’s current port capacity from 185 to 370 berths. Inspired by Venetian aesthetics, the Regent Porto Montenegro – designed by Reardon Smith Architects and Pisano Atelier – will consist of around 80 units including hotel rooms, suites and multi-room residences, ranging from studios to penthouses with rooftop terraces and private pools. Facilities will include two swimming pools, restaurants, cafés, a library bar, a cigar lounge, and various function rooms in addition to a signature Regent spa and fitness center.

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April 2012

18

Business EnvironmentMacroeconomic Outlook

Capital MarketBanking Sector

Privatization and InvestmentsEconomic Freedom

Business NewsIn the Spotlight

Coming up...

Business newsMontenegro and China Sign Cooperation Agreements on Economy, Agriculture, Culture, Wine Export

Montenegro and China signed agreements on agriculture, economy, wine export and culture, on 30th March, in Podgorica. These agreements are expected to lead to even closer relations between the two countries and reflect a strong determination to boost already good and friendly mutual relations at all levels. It is an important fact that China’s foreign investments amounted to US $ 68 billion in 2011, and represented China as the world's fastest-growing major economy. Montenegro is, therefore, very interested in attracting Chinese investors; many have already been invited to take part in projects related to thermal and hydro power plants, tourism, maritime and road infrastructure. The Chinese Vice-Premier said that Montenegro had been a great partner to date, both politically and economically.Source: www.gov.me

IPA 2011 Financing Agreement Signed in Podgorica

The Chief Negotiator for EU accession and the Director for Montenegro, Croatia, Macedonia, Turkey and Iceland at the Directorate General for Enlargement, signed the IPA 2011 Financing Agreement worth €43 million. It consists of €25.5 million in grant aid from the EU and €16.5 million contributed by the Government. The agreement envisages the implementation of 16 projects, all in areas that are of significant importnace regarding Montenegro’s EU bid. The IPA programme for Montenegro includes 3 priorities and 16 projects; all of these are to be enforced in the areas of rule of law, public administration reform, environmental protection, transport, agriculture and rural development, and social issues. The biggest project within the agreement, which is worth €9 million, is the construction of a waste-water treatment system for the municipalities of Bijelo Polje and Cetinje. Source: www.seenews.com

Set of Trainings within the Network of Mentors for Women Entrepreneurs

With the purpose of supporting entrepreneurship and private sector development in Montenegro, the center for Entrepreneurship and Economic Development (CEED) in partnership with the Montenegrin Chamber of Commerce, financially supported by the EU (DG Enterprise and Industry), have started the project “Network of Mentors for Women Entrepreneurs in Montenegro”. The objective of the national network of mentors for women entrepreneurs is to encourage and inspire women to develop their own businesses through personal and professional development. Within the project, a set of trainings aimed to improve business skills are planned to be held by the end of the year. The next training Employment and Motivation of Key People in a Company is to be held on 28th of April, 2012 in Podgorica. Source: www.visit-ceed.org.me

Montenegro and Azerbaijan to Strengthen Cooperation

Bilateral cooperation between Montenegro and Azerbaijan is very good; it should, however, be strengthened in the near future in areas such as the economy, culture and tourism. The appointment of a non-resident Montenegrin ambassador to Azerbaijan and the opening of an Azerbaijani diplomatic office will contribute to enhancing political dialogue and to promoting overall cooperation between the two countries. Azerbaijani investors are interested in Montenegro which has become a very attractive business destination.Source: www.gov.me

Gross Premiums for Insurance Amounted to €4.557 Million

Gross premiums for insurance in Montenegro, in January 2012, amounted to €4.557 million. The dominant share of insurance that is not life insurance was still the major component of the gross premium total and represented 89.78%. The figure represented by life insurance was 10.22%. In the overall structure of gross premiums, the largest share was held by Lovćen which represented 44.4%. This was followed by Sava Montenegro with 17.18% and then Delta Generali with 12.88%. The three insurance companies that represented the highest total premiums on 31st January 2012, collectively held 74.47% of the market share.Source: www.portalanalitika.me

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April 2012

International Food Fair in Budva

During the three days of the International Food Fair in Budva, which took place from 21st- 24th March, a number of small and medium enterprises were introduced, as well as companies engaged in the food industry, hotels and other numerous entrepreneurs. The diversity and quality of products presented at the International Food Fair confirmed that agriculture is one of the most important sectors for the economic development of Montenegro, and that organic production definitely does have a future.Source: www.mipco.me

Montenegro Supports the Entrepreneurial Spirit of Young People

The Prime Minister recently awarded the Best Ideas Prize for the project ‘Your Idea-Your Business’. The inititive was organized by the Small and Medium-sized Enterprise Development Directorate, the Employment Agency of Montenegro and the Investment-Development Fund, and was supported by T-com. The Prime Minister stated that the ‘Your Idea, Your Business’ Project proved that Montenegro, as a society, was aware of the value, innovativeness, creativity and entrepreneurial spirit of young people. Projects like this inspire future generations to be self-confident, capable and ambitious in order to succeed in a fast-changing global economy. Source: www.gov.me

Montenegro Ranked 46th in ICT Global Listing

According to the latest ICT report, published by the World Economic Forum (WEF), Montenegro was awarded 46th place out of 142 countries. Out of a total of ten areas, Montenegro achieved its best result in the area of skills in sub-index readiness; here it took 28th place. This shows that Montenegro is one of the regional leaders in ICT, together with other ex-Yu countries; Slovenia 37th place, Croatia 45th place, Bosnia and Herzegovina 84th place, Serbia 85th place, Macedonia 66th place and Albania 68th place.Source: www.gov.me

Montenegro and India are Ready to Cooperate

India is ready to cooperate with Montenegro in all fields, especially in the field of politics and economy. In addition, officials from India were impressed with the progress Montenegro had made during its six years of independence; this also confirmed the progress it had made towards reaching its goals of EU and NATO membership. It is important for both countries to improve bilateral relations through the enhancement of economic cooperation, primarily in the areas of tourism and agriculture, and also in the energy sector. It was also emphasized that the formation of a mixed economic committee with India, including a framework for the intensification of economic contacts, was very important.Source: www.balkans.com

Fuel Prices Reach Record High

The price of all fuel was most recently changed in Montenegro on 27th March; new record levels were reached. Petrol has gone up by six cents and diesel by five cents per liter. Unleaded Eurosuper 98 has risen to €1.52 per liter and Eurosuper 95 is now €1.49 per liter. Eurodizel and Eurodizel, both of which are intended for commercial purposes, will be sold at €1.36 or €1.15. Heating oil will be sold at €1.07. Maximum retail fuel prices in Montenegro will be harmonized every second Monday, and will depend on changes in the prices of petroleum products on international markets (Mediterranean Platt’s Ground) and on the currency exchange rates between the Euro and the American dollar. Source: www.portalanalitika.me

The First Building Society in Montenegro

Italy's Intesa is ready to support the establishment of the first building society in Montenegro, according to the Chairman of the Board of Directors of the Montenegrin Fund for Solidarity Housing Development. One of the largest banks in the world, Intesa, is ready to become a shareholder of the future building society with a 30 percent stake.

Source: www.balkans.com

Business newsBusiness news

Montenegro joins WTO

On 29 April 2012, Montenegro became the 154th country to join the World Trade Organization (WTO) after the protocol signed on 17 December entered into power. WTO membership will certainly send a positive signal to foreign investors, cementing Montenegro as a place where rules and practices of international trade and commercial law are respected.Source: www.gov.me

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After 15 years of experience, today CEED Consulting is the leading business consulting company in Montenegro which helps clients improve their business operations, further develop and perfect both their service and product and meet the need of their customers. We integrate our business development and project management services, providing solutions for setting up and growing your business activities in Montenegro. Focusing on customer care, our team emphasizes quality of service, which we are continually striving to improve. Loyalty and dedication transpire through our unique and professional approach to advising our clients.Implementing international standards of business practice, CEED Consulting relies on its expert knowledge of the local market to provide tailored solutions based on accurate and timely information.

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Dragana RadevićMihailo Zečević Darko Konjević

Jefimija Pavićević Vesna Bojanović

Jelena MeđedovićJasna Žarković

Biljana Janković Zoran Popović

ASSOCIATECharlotte Rimmer, Editor

30th Nautical Show in Montenegro01-06 May 2012, Tivat

The 30th Nautical Show will be held at its new home in Porto Montenegro from May 1 – May 6, 2012. This event is a tribute to the best in nautical, camping and recreational equipment and is expected to host around eighty vessels from the world’s finest brands.

The Adriatic Fair organizes this prestigious event – the only one of its kind in Montenegro – with the participation of a large number of local and international exhibitors. Aside from manufacturers and distributors of yachts, sailboats, powerboats, charter agencies, finance companies and insurance companies, there will also be manufacturers and distributors of sports, camping and recreation equipment in attendance this year.

United Nation Conference on Sustainable Development Rio +20 20-22nd June, 2012, Rio de Janeiro, Brazil

The most important international event of the decade – United Nation Conference on Sustainable Development, known as Rio+20 will be held from 20 to 22 June 2012 in Rio de Janeiro, Brazil. The Conference will focus on two themes: (I) Green economy in the context of sustainable development and poverty reduction and (II) Institutional framework for sustainable development.

As a part of national preparations for this major event, the Government of Montenegro held two-day national conference on “How to reach sustainable development and ‘green’ economy in Montenegro?” The Conference was jointly organized by the National Council for Sustainable Development and UNDP in Montenegro, in cooperation with the Austrian Agency for Development and Cooperation and the NGO Greens of Montenegro and was attended by all relevant social actors and stakeholders. The aims of the Conference in Kolašin were to consider and, if possible, reconcile the meaning of sustainable development and “green” economy in terms of Montenegro, with the focus on the sectors of tourism, energy and agriculture and to improve the draft document which will be the base platform for the participation of Montenegro in Rio.