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Pytheas Montenegro Report 2011


July 2011 Report on Investing in Montenegro, from Pytheas Investors Service Ltd.

July 2011 Report on Investing in Montenegro, from Pytheas Investors Service Ltd.

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  • 1. Investing in Montenegro,the pearl of the Adriatic. July 2011 Version 04 Copyright © 2011 Pytheas Limited July 2011 1
  • 2. “At the moment of the creation of our planet, the most beautifulmerging of land and sea occurred at the Montenegrin seaside...when the pearls of nature were sworn, an abundance of them werestrewn all over this area…” Lord ByronFrom the top of Mount Lovćen: “Am I in Paradise or on the Moon?!” Bernard Shaw Copyright © 2011 Pytheas Limited July 2011 2
  • 3. Copyright © 2011 Pytheas Limited July 2011 3
  • 4. Map of Montenegro Copyright © 2011 Pytheas Limited July 2011 4
  • 5. Location & National Symbols Flag Coat of Arms Copyright © 2011 Pytheas Limited July 2011 5
  • 6. It is Pytheas opinion that Montenegro could become the business bridge of Europe across the Adriatic, both a business hub and an economic gateway; an exclusive destination for Europeans andother nationals that seek to invest in a holiday, a retirement home or an investment home! Copyright © 2011 Pytheas Limited July 2011 6
  • 7. Why Montenegro■ At the borders of the old and new ■ Liberal trade regime; Europe; ■ Customs exemptions for■ An EU candidate state; investments in goods imported as■ The Euro (€) has been its official investors’ deposits; currency since 2001; ■ Free access to EU markets;■ Political stability; ■ FTA zones and also to the■ Reformed according to the EU Russian market (only 1% of the legal framework for investment; custom evidence);■ Relatively developed ■ The quality and diversity of its telecommunication infrastructure; natural and anthropological■ One of the most competitive values, makes it a most attractive corporate tax regimes in Europe; tourist and permanent living destination;■ No restrictions on profit, dividend ■ Land laws that give foreign or interest; investors equal status with local■ Significant tax reliefs and ones, i.e. with full deeds and titles concessions; to land and real estate. Copyright © 2011 Pytheas Limited July 2011 7
  • 8. Slide(s)About Montenegro Geography 9 - 10 Demographics 11 - 12 Government 13 - 14 Climate 15 Ports 16 Yachting Marinas 17 Nature beyond conception 18 - 33 History and culture 34 - 42 Copyright © 2011 Pytheas Limited July 2011 8
  • 9. Geography■ Montenegro is a smaller, predominantly mountainous state in southwest Balkans (Southeastern Europe).■ It borders Croatia and Bosnia and Herzegovina to the northwest, Serbia to the northeast, Albania to the south and the Adriatic Sea (across Italy) to the west.■ The length of its borders are 614 km; with, Croatia 14 km, Bosnia and Herzegovina 225 km, Serbia 203 km and Albania 172 km.■ The length of the coastline is 293,5 km with 56.9 km of beaches and 16.1 km of island coast. Copyright © 2011 Pytheas Limited July 2011 9
  • 10. Geography (continued) ■ Its surface area is 13,812 km² (Sicily is 25,460 km² and Cyprus is 9,251 km²). ■ By its geographical position, it belongs to Southern Europe. ■ The two furthermost points of the country are only 190 km apart in a straight line, but between them the northbound air streams of Africa meet the southbound from the Polar circle. ■ The distance between capital Podgorica and Rome is around 500 km by air, from Paris and Berlin it is around 1,500 km, from Moscow almost 2,000 km, and 7,500 km from New York. Hotel Sveti Stefan, Sveti Stefan Copyright © 2011 Pytheas Limited July 2011 10
  • 11. Demographics ■ The population of Montenegro is 620,029 (2011 census). ■ The capital is Podgorica (formerly Titograd) with 185,937 inhabitants, Nikšić 72,443, Bijelo Polje 46,051, Bar 42,048, Berane 33,970, Pljevlia 30,786, Herceg Novi 30,864 (2011 census) . ■ Ethnic groups: Montenegrin 45%, Serbian 29%, Bosniak 9%, Albanian 5%, other (Muslims, Croats, Roma) 12% (2011 census). ■ Population growth rate: - 0.777% (2010 est.) Montenegrins in national costumes ■ Birth rate: 11.09 births/1,000 population (2010 est.) Copyright © 2011 Pytheas Limited July 2011 11
  • 12. Demographics (continued)■ Urban population: 63% of total population (2011).■ Rate of urbanization: - 0.8% annual rate of change (2005-10 est.).■ The official language of Montenegro is Montenegrin. It became the official language in October of 2007.■ Standard Serbian, Bosnian, Albanian, and Croatian are also spoken and are officially recognized languages.■ It is a multi-ethnic and multi- confessional community (vast majority Christian orthodox, the rest are Islamic, Roman Catholic, Majorettes in the old city of Kotor Jewish, Protestant and other).. Copyright © 2011 Pytheas Limited July 2011 12
  • 13. Government■ Montenegro is a parliamentary representative democratic republic whereby the Prime Minister is the head of the government.■ Executive Power  Government;  The Government is appointed by majority vote of the Parliament;  The Prime Minister submits to the Parliament the Governments Program including a list of proposed ministers – the resignation of the Prime Minister will cause the fall of the Government.■ Legislative Power  Parliament (4-year term) and Government.■ Judicial Power  Independent of Executive and Legislative;  It includes a constitutional court composed of five judges with nine-year terms and a supreme court with justices that have life terms.■ The President (5-year term) is the head of state.  The President performs some executive and legislative functions in addition to ceremonial duties. Copyright © 2011 Pytheas Limited July 2011 13
  • 14. Government (continued) ■ Igor Lukšić is the current Prime Minister of Montenegro and Head of Government. The current members of the cabinet were elected on 29 December 2010; and supported by a ruling coalition of DPS, SDP, DUA, HGI and BS. ■ Montenegro’s local government has 21 municipalities.  The municipal authorities are the Municipal Assembly and the Mayor;  The Municipal Assembly (4-year tem) is the representative body of the citizens of the Municipality;  The Mayor (4-year term) is the Map of Montenegro municipalities executive body of the municipality. Copyright © 2011 Pytheas Limited July 2011 14
  • 15. Climate■ Montenegro has a rather diverse climate,  The South part is characterized by Mediterranean climate with long, hot and dry summers, and gentle rainy winters.  The Central and northern part is characterized by mountain climate, and  The utmost North part by continental climate, with small, considerably equilibrated quantities of rainfalls, and great daily and yearly amplitudes of temperature.■ Average temperature of the air is 27.4°C in the summer and 13.4°C in the winter; 180 average sunny days per year. At Rafailovići, Budva Copyright © 2011 Pytheas Limited July 2011 15
  • 16. Ports ■ International Seaports  Bar;  Kotor;  Herceg Novi;  Tivat;  Zelenika. ■ International Airports  Podgorica;  Tivat. Port of Bar, a view Copyright © 2011 Pytheas Limited July 2011 16
  • 17. Yachting Marinas ■ Yachting Marinas  Ulcinj;  Sveti Nikola, Bar;  Budva;  Herceg Novi;  Kaliman, Tivat;  Kotor;  Meljine;  Kordić, Prčanj;  Risan;  Zelenika. Mega-yacht marina (under construction), Tivat Copyright © 2011 Pytheas Limited July 2011 17
  • 18. Nature beyond conception ■ Although small in area, nature has produced here unique contrasts that is truly beyond conception. ■ The diversity of its, geological background, areas, climate and landscape, as well as the position of Montenegro in the Balkans and on the Adriatic, provide conditions of very high biological diversity, making Montenegro one of the hot spots of European and world biodiversity. ■ The Parliament of Montenegro, in 1991, adopted the Declaration whereby Montenegro got Ada Bojana beach, Ulcinj proclaimed the first ecological state in the world. Copyright © 2011 Pytheas Limited July 2011 18
  • 19. Nature beyond conception (continued)■ Over a span of only 100 km in a straight line, three natural environments are distinguishable: the seaside, the Karstic field zone and the high mountain region.■ A most attractive resource is the 313 km long coastline with 117 natural sandy and rocky beaches and 8 small islands – The longest beach is at Ulcinj (12 km) also the longest natural sandy beach on the Mediterranean.■ The seaside is a very narrow strip of land (2 to 10 km wide), separated from the inland by high and steep dolomite mountains of Rumija, Sutorman, Mogren beach, Budva Orjen, and Lovćen. Copyright © 2011 Pytheas Limited July 2011 19
  • 20. Nature beyond conception (continued)■ The abundance of underwater caves, shipwrecks, cliffs and rich marine life make Montenegro a scuba diving heaven.■ The fauna of the Montenegro sea (although not yet fully investigated) includes over 300 species of algae, 40 species of sponges, 150 species of crustaceans, 340 species of mollusks, and almost 400 species of fish, with 3 species of marine turtles and 4 species of dolphins, the economically important Norway lobster and petrified sponge. Several species of whales are also occasional visitors. Shipwreck at the area of Ţanijce Copyright © 2011 Pytheas Limited July 2011 20
  • 21. Nature beyond conception (continued) ■ With the longest fiord of South Europe, Fiord Kotor (Boka Kotorska), which is 28 km long and 30 meters deep, surrounded by mountains which are 1.900 meters above sea level – a stunning dolomite rock walled chasm with its entrance in the town of Herceg Novi, decorated with small fishing shelters, picturesque villages and islands all the way to Kotor, one of the prettiest, unspoiled existing medieval towns; founded by the ancient Greeks (named Kattaro), fortified by the Byzantines (named Askrivion), later ruled by Fiord Kotor, a view the Venetians and today a UNESCO world heritage site. Copyright © 2011 Pytheas Limited July 2011 21
  • 22. Nature beyond conception (continued)■ Numerous caves and sinkholes, some of which are particularly beautiful (cave Lipska, cave Đalovića), while others are among the deepest in the Balkans (sink holes at Vjetrena brda in Durmitor, Duboki do in Lovćen) – characterized by an exceptionally complex and rich fauna, with many endemic and relict forms.■ There are 40 lakes in Montenegro and its rivers have still remained the purest of Europes.■ Lake Skadar, (also called Lake Scutari) can vary between 370 km2 and 530 km2, of which 2/3 is Cave Lipska, Cetinje in Montenegro and 1/3 in Copyright © 2011 Pytheas Limited July 2011 22
  • 23. Nature beyond conception (continued) Albania. Declared a national park in 1983, is one of the largest bird reserves in Europe, having 271 bird species, among which are some of the last curly pelicans in Europe.■ The Tara is the longest river in Montenegro (150 km). The canyon of the river is about 80 km long cut between the mountains of Sinjajevina and Durmitor, the average depth is about 1,000 meters, and reaches a maximum depth of 1,600 meters which makes it the deepest and longest canyon of the world after the Grand Canyon. Lake Skadar, a view Copyright © 2011 Pytheas Limited July 2011 23
  • 24. Nature beyond conception (continued) ■ Additional canyons include that of Morača and Cijevna rivers, Piva, Mrtvica and Komarnica and gorges such are Ibarska, Tifranska and Đalovića. ■ Eighty percent of the territory of Montenegro is comprised of forests, natural pasturelands and meadows. Notably there are more than 54 peaks higher than 1,900 meters (two at 2,522 m). ■ A total of 2,833 plant species (3,650 including subspecies), many of them unique, grow in Montenegro which makes up nearly a quarter of the entire European flora! All that in a mere Edraianthus montenegrinus, Durmitor 0.14% of the continents territory. Copyright © 2011 Pytheas Limited July 2011 24
  • 25. Nature beyond conception (continued)■ Characteristic flora includes, the Alpine flower Edelweiss, the endemic Edraianthus montenegrinus, Edraianthus glisichi, Edraianthus pulevici, Wulfenia blecicii, Durmitor mullein, Potentilla montenegrina, Draba betriscea, and many relict glacial species.■ There are 305 protected bird species in Montenegro. Some of the rarest nesting birds include the Dalmatian Pelican, Ferruginous Duck , White Eyed Pochard, Scops owl, the Black Crowned Night Heron and the European nightjar. Potentilla montenegrina, Durmitor Copyright © 2011 Pytheas Limited July 2011 25
  • 26. Nature beyond conception (continued)■ Other characteristic bird fauna includes, Pyrhocorax graculus, Antus pratensis, Prunella collaris, Phoenicurus ochruros, Golden Eagle, Griffon Vulture, Wall Creeper. There are also a number of glacial relicts among the bird fauna, including Snow Finch, Horned Lark and Alpine Accentor.■ With its 271 bird species, Lake Skadar is a real attraction for birdwatchers and nature lovers – since 1995 it has been a designated Wetland of International Importance by the Ramsar Convention as a habitat for water birds. Grey Heron, Lake Skadar Copyright © 2011 Pytheas Limited July 2011 26
  • 27. Nature beyond conception (continued)■ Especially interesting bird species at Lake Skadar are the, Dalmatian Pelican colonies, Pygmy Cormorant (the biggest world colony of approximately 2,000 bird pairs), Whiskered Tern, Great Cormorant, Ferruginous Duck, White-tailed Eagle, Grey Heron.■ There are five ornithological reserves at Lake Skadar (at, Manastirska tapija, Grmozur, Omerova gorica, Crni zar, Pančevo oko), four bird-watching towers (at, Stanaj, Radus, Plavnica and Zabljacke) and several organized bird-watching tours offered by the Lake Skadar Pygmy Cormorants at Lake Skadar National Park. Copyright © 2011 Pytheas Limited July 2011 27
  • 28. Nature beyond conception (continued) ■ Mountain forests occupy 54% of the territory, with natural forests covering about 45% of the land, making Montenegro one of the most forested countries in Europe. ■ Fir Abies alba, Spruce Picea excelsa and Mugho Pine Pinus mugo, Abieto-Picetum, Picetum abieti montenegrinum, Heldreich (Whitebark) Pine, Pine Pinus peuce are some of the coniferous species. ■ Beech Fagetum forests, Chestnut forests, Macquis and Evergreen Oak, Mountain Maple Acer heldreichii are only some of At Mrtvica Canyon the species. Copyright © 2011 Pytheas Limited July 2011 28
  • 29. Nature beyond conception (continued)■ There is maybe no other country in Europe where the nature lover can enjoy so many activities (rafting, freshwater and deep sea fishing, climbing, hunting, hiking, caving, skiing, etc.) within a most diverse morphological environment, in an easily accessible area in terms of distance; four national parks and a number of other places of unique flora and fauna, some of which protected by UNESCO.■ The five national parks are Lake Skadar National Park, Lovćen National Park, Durmitor National Park, Biogradska Gora National Park and National Park Tara Canyon, a view Prokletije. Copyright © 2011 Pytheas Limited July 2011 29
  • 30. Nature beyond conception (continued)■ National Park Biogradska Gora, a 5,650 ha area reserve, in the municipality of Kolašin, contains 26 different habitats of plants with 220 different plants, 150 kinds of birds and 10 kinds of mammals and 86 kinds of trees some more that 500 years old. In the waters of the Park exist three kinds of trout and 350 kinds of insects. Also large mountain slopes and tops, glacier lakes at altitude of 1,820 meters, forests, all in a most unique and complex geological and morphological environment. Biogradsko Lake, National Park Biogradska Gora Copyright © 2011 Pytheas Limited July 2011 30
  • 31. Nature beyond conception (continued)■ National Park Durmitor is in the Northwest of Montenegro, in the municipality of Ţabljak, limited by rivers Piva and Tara between which there are 23 mountain tops over 2,300 meters of altitude; a 39,00 ha area reserve. It includes part of Tara Canyon which is 1,600 meters above river level, dense forests, 17 glacier lakes and the highest peak in the country, Bobotov Kuk at 2,522 m. Durmitor National Park boasts 1,500 kinds of flora, 314 protected animals including 163 kinds of birds. Crno Jezero (Black Lake), Durmitor Copyright © 2011 Pytheas Limited July 2011 31
  • 32. Nature beyond conception (continued)■ National Park Lovćen is in the Southwest of Montenegro in the cliff area of Dinara Alps, a 6,220 ha area reserve. Due to the influence of two extreme climatic zones in a rather small area, Mediterranean and Continental, nature here formed a unique habitat. There are 1,158 plant species out of which four are endemic and 200 bird species. The park is dominated by mountain Lovćen and by the mausoleum of Petar II Petrović Njegoš. It has two mountain peaks, Štirovnik (1,749 m) and Jezerski Vrh (1,657 m). View of the Bay of Kotor from National Park Lovćen Copyright © 2011 Pytheas Limited July 2011 32
  • 33. Nature beyond conception (continued)■ National Park Prokletije is in the Southeast of Montenegro. Most of the 1,052 ha reserve is within the territories of Plav and Roţaje with glacial lakes (Hridsko, Visitorsko, Ropojansko, Tatarijsko, Bjelajsko, the Vizier), larger and smaller streams, springs and rivers, underground aquifers and mountain ponds (Treskavac, Koljindarsko). There are also numerous hills, ravines, steep slopes, river valleys, alpine type and numerous peaks over 2,000 meters above sea level (at Carnation-Bjelički). Lake Hridsko, National Park Prokletije Copyright © 2011 Pytheas Limited July 2011 33
  • 34. History and culture■ Montenegrins have accumulated a rich cultural and historical heritage, which dates from the pre-Romanesque, Gothic and Baroque periods.■ Montenegro has been influenced by both eastern and western civilizations – whether these were Greeks, Illyrians, or Romans, Byzantines, Venetian, Slavs, Austro-Hungarians or Ottomans, they all left their mark forming a most interesting multicultural society.■ The historical roots of Montenegro lie long before the arrival of the Slavs in the Balkans in the 6th and 7th century Ancient city of Dioclea, Podgorica AD. Copyright © 2011 Pytheas Limited July 2011 34
  • 35. History and culture (continued) ■ The first recorded settlers of present-day Montenegro were Illyrians; the Illyrian Kingdom emerged during the 3rd century BC with its capital at Skadar, named Docleata. ■ Prior, during the 6th and 7th centuries BC substantial Greek colonies were established on the Montenegrin coast (Apollonia, Epidamnus, Lissus, Kattaro). ■ Celts are also known to have settled there in the 4th century BC. ■ In 9 AD the Romans (and Byzantines) conquered the region. Roman mosaics (4th century BC), Risan Copyright © 2011 Pytheas Limited July 2011 35
  • 36. History and culture (continued)■ Slavs colonized the area after the 6th century AD, forming a semi-independent principality called Doclea, that was involved in Balkan medieval politics with ties to Rascia (Raška) and Byzantium and to a lesser extent Bulgaria.■ Doclea (or Duklja) gained its independence from the Byzantine Empire in 1042 – the Byzantine influence in art and architecture is especially felt in continental part of Montenegro.■ Over the next few decades, it expanded its territory to neighboring Rascia and Bosnia and also became recognized as Reţevići Monastery, Petrovac a kingdom. Copyright © 2011 Pytheas Limited July 2011 36
  • 37. History and culture (continued)■ Its power started declining at the end of the 11th century and by 1186, it was conquered by Stefan Nemanja and incorporated into Serbian realm.■ The newly acquired land, then called Zeta, was governed by the Serbian Nemanjić dynasty.■ After the Serbian Empire collapsed in the second half of the 14th century, another family, the Balšićs, came to prominence.■ Coastal Montenegro from 1420 to 1797 was a province of the Venetian Republic. The Venetian territory was then centered around the area of the Bay of Ostrog Monastery, Nikšić Kotor, and included the towns of Copyright © 2011 Pytheas Limited July 2011 37
  • 38. History and culture (continued) Kotor, Risan, Perast, Tivat, Herceg Novi, Budva, and Sutomore.■ The Montenegrin coastal region is especially known for its cultural monuments, such as the Cathedral of St. Tryphon, the basilica of St. Lucas (over 800 years), Our Lady of the Rock (Scrpjelo), the Savina Monastery and many others.■ The name "Montenegro" meaning Black Mountain was first mentioned in the 15th century.■ Montenegros resistance to Ottoman attacks (15th century), which in the end resulted in Kotor Venetian Walls, a view Copyright © 2011 Pytheas Limited July 2011 38
  • 39. History and culture (continued) strengthening its statehood, marks this time period.■ Renowned about their bravery Montenegrins forced Giuseppe Garibaldi to state: “Montenegro undoubtedly takes one of the first places; the legendary heroism of its people brings honor to mankind”.■ The printed word in Montenegro goes way back in history. Thirty- eight years after the Gutenbergs Bible, in 1494 the first book was printed in the Crnojević printing press in Cetinje – “Oktoih”, a precondition for the future development of literature in Montenegro. First book published in the Balkans, Cetinje (1494) Copyright © 2011 Pytheas Limited July 2011 39
  • 40. History and culture (continued)■ In the 15th century it remained the only officially unconquered and free oasis, surrounded by the powerful Ottoman empire and the Venetians.■ Montenegro was internationally recognized as a state in 1878. Its capital at the time was Cetinje.■ On 1 August 1910 during the reign of King Nikola I of the Petrović Dynasty was declared a Kingdom.■ From 1918 to 1941 it was part of the Kingdom of Yugoslavia.■ After World War II, it became one of the six republics of the Socialist Federal Republic of Hussein Pasha Mosque, Pljevlja Yugoslavia. Copyright © 2011 Pytheas Limited July 2011 40
  • 41. History and culture (continued)■ In 1992, after the breakup of Communist Yugoslavia and the introduction of a multi-party political system, it became part of the Federal Republic of Yugoslavia (FRY).■ In 2003 the FRY was renamed to Serbia and Montenegro and officially reconstituted as a loose union.■ At a referendum held on 21 May 2006, the majority of its citizens voted for its independence.■ Today it is an independent state internationally recognized.■ UN received Montenegro as the 192nd country member on 27 July Church Gospa od Skrpjela, Perast 2006. Copyright © 2011 Pytheas Limited July 2011 41
  • 42. History and culture (continued)■ The culture of present-day Montenegro is as pluralistic and diverse as its history and geographical position would suggest.■ A very important dimension of Montenegrin culture is the ethical ideal of “Čojstvo i Junaštvo”, roughly translated as "Humanity and Bravery“ – another result of its centuries long warrior history, it is the unwritten code of chivalry that stipulates what is required to deserve a true respect of the people. Amongst other, in the old days of battle, it resulted in Montenegrins fighting to the death as being captured was Montenegrins in national costumes, Cetinje considered the greatest shame. Copyright © 2011 Pytheas Limited July 2011 42
  • 43. Slide(s) Slide(s)The Economy – General 44 - 57The Economy – Sectors & Bodies Banking 58 - 66  Minerals & Mining 113 - 119 Insurance 67 - 71  Agriculture & Forestry 120 - 123 Capital Market 72 - 75  Transport & Foreign Trade 76 - 82 Communications 124 - 129 Hospitality & Tourism 83 - 94  Education 130 - 133 Real Estate & Construction 95 - 104  Healthcare 134 - 137 Industrial 105 - 112  Environment 138 - 141 Copyright © 2011 Pytheas Limited July 2011 43
  • 44. The Economy – General ■ Montenegro is a small, open, middle-income economy. Despite a medium level of wealth, the countrys economic strength is limited by the small size and concentrated nature of its economy. ■ Notably, Montenegro does not issue its own currency, but has been using the Euro as legal tender since 2002 and maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions. ■ As with other smaller economies, River Tara, a view the crisis reached the country Copyright © 2011 Pytheas Limited July 2011 44
  • 45. The Economy – General (continued) with a lag, only starting to be felt in the last quarter of 2008. Officially the crisis fully hit Montenegro during 2009. As a Montenegro Real GDP Growth result the GDP growth rate in Year % 2009 was -5.7%. 2005 4.2■ Previously, in 2006 and 2007 the country achieved GDP growth 2006 8.6 rates of 8.6% and 10.7% 2007 10.7 respectively which continued strongly into 2008 with 6.9% 2008 6.9 growth. 2009 -5.7■ In 2007, Montenegro achieved a 2010 1.1 record fiscal surplus of more 2011 2.0* than 6% of GDP, which remained at 1% of GDP in 2008 Source: IMF, Pytheas Emerging Markets Research – positioning it at the time as one * Estimate of the fastest growing European countries. Copyright © 2011 Pytheas Limited July 2011 45
  • 46. The Economy – General (continued)■ Since its independence in 2006, Montenegro has experienced an economic and financial roller coaster ride. The country’s abundant potential attracted large capital inflows, an increasing share of which were debt creating.■ Wealth effects made real estate lending and absorption booms mutually reinforcing, and overstretched the nascent financial sector’s ability to guard against risks. The economy began to overheat and then, as elsewhere, the inflows juddered to a halt. The result was a sharp decline in output. Šareni Pasovi, National Park Durmitor Copyright © 2011 Pytheas Limited July 2011 46
  • 47. The Economy – General (continued) # Montenegro Macroeconomic Indicators, selected 2009 2010 2011 1 Nominal GDP (€ million) 2,981 3,023 3,111 2 GDP real growth rate (%) -5.7 1.1 2.0 3 Inflation (%) 3.4 0.5 4.0 4 Unemployment rate (%) 11.5 12.2 12.0 5 Current account balance (€ million) -896 -775 -761 6 Current account balance as % of GDP (%) -26.2 -25.6 -24.5 7 External debt (€ million) 2,781 3,000 3,089 8 External debt as % of GDP (%) 93.3 98.9 99.3 9 Net FDI, in current prices as % of GDP (%) 35.8 17.9 15.4 10 Net FDI, in current prices (€ million) 1,066 542 480 11 Gross domestic savings as % of GDP (%) -6.2 -6.7 -4.7 12 Gross national savings as % of GDP (%) -3.1 -3.6 -2.5 Source: Montenegro Ministry of Finance, CBME, MONSTAT, IMF, EUROSTAT, Pytheas Emerging Markets Research 2010 = Estimate 2011 = Projections Copyright © 2011 Pytheas Limited July 2011 47
  • 48. The Economy – General (continued)■ Huge vulnerabilities were accumulated during the boom when the authorities did not take the opportunity to sufficiently strengthen policy buffers. With policy space exhausted at the beginning of the crisis, the authorities were forced to adopt unconventional policies to mitigate its effects.■ During the boom the Central Bank of Montenegro raised the cost of credit through higher reserve requirements and tightened supervisory and prudential standards, but credit growth was hardly dented. In the Fall of 2008, banks suffered from a simultaneous run on deposits, loss of access to financing, and deterioration in asset quality.■ The early surpluses largely reflected temporarily buoyant tax collections from high imports. Initially, they were placed in the domestic banking system, thereby enabling further credit extension. Then at the peak of the boom period, the fiscal stance relaxed (through tax cuts and public sector wage increases), leading to a structural fiscal deficit of some 6% of GDP in 2008.■ The remaining fiscal buffers were quickly exhausted in the crisis, while large loan guarantees to the aluminum and steel companies created Copyright © 2011 Pytheas Limited July 2011 48
  • 49. The Economy – General (continued) substantial new contingent liabilities. By 2009 public and publicly guaranteed debt had risen to nearly 55% of GDP.■ Excessively restrictive employment protections and an unduly rigid centralized collective bargaining system remained in place contributing to fast wage growth, limiting the flexibility of the corporate sector, and stifling new hiring, thus raising unemployment.■ Privatization occurred later than elsewhere in Eastern Europe, and in consequence the interest of bidders was more limited. Katun Gudţaljine on Bjelasica mountain Copyright © 2011 Pytheas Limited July 2011 49
  • 50. The Economy – General (continued)■ Privatization – The responsible body to manage, control and supply the privatization process implementation as well as to propose and coordinate all activities necessary for the capital projects application in Montenegro is the Montenegro Privatization and Capital Investment Council. Progress in large-scale privatization has been so far mixed:  The tender for the sale of a 54% stake and a 30-year concession in the port operator, Marina Bar, was concluded successfully in early 2010.  A tender for acquiring a long-term concession on the Bijela port infrastructure and the area surrounding the Bijela shipyard was launched in June 2010.  The government has also issued a tender for the privatization of the Railways Cargo Company (MonteCargo).  However, the tender for the sale of the majority stake in the port operator, Kontejnerski Terminal, failed.  Furthermore, the partial re-nationalization of the aluminum conglomerate KAP became effective in November 2009 with the state acquiring a 29% stake in the plant and a 31% stake in the related Nikšić Bauxite mine in exchange for a guarantee worth €135 million. Copyright © 2011 Pytheas Limited July 2011 50
  • 51. The Economy – General (continued)  HTP “Budvanska Riviera“ AD Budva, In September 2009 the Government transferred an 18.3% stake in EPCG, the state-owned vertically integrated power utility, to Italy’s AZA. The Government also signed a €720 million agreement for the construction of an undersea power transmission line with Italy. The project, which is expected to make Montenegro an important node in the regional power market, will be implemented jointly by the Italian company Terna and the recently unbundled Montenegrin transmission system operator, Prenos.  The concession agreement to construct the Bar-Boljare motorway, signed in 2009, has not yet closed and construction has been severely delayed, mainly attributed to the failure of the first-ranked bidder to provide all the required documents and the length of the negotiations.■ As per the relevant Government plan, the following companies are to be privatized within 2011:  “Montepranzo“ Boka – Produkt AD Tivat,  “Montenegro Airlines” AD Podgorica, and  “Institute Dr. Simo Milošević” AD Igalo . Copyright © 2011 Pytheas Limited July 2011 51
  • 52. The Economy – General (continued)■ Additional tenders (date has not yet been defined) shall be also published for:  Railway Transport of Montenegro AD Podgorica,  Railway infrastructure of Montenegro AD Podgorica,  Adriatic Shipyard AD Bijela,  Port of Bar AD Bar,  “Pobjeda“ AD,  “Zora” AD Berane,  HTP “Ulcinjska Riviera” AD Ulcinj,  Ferrous Metallurgy Institute AD Nikšić,  “Barska plovidba” AD Bar, and  Montenegrobonus LLC Cetinje.■ Also within the privatization process through Public Private Partnership, investors shall be selected for the following tourism and hospitality projects: (a) Ada Bojana, (b) Velika Plaţa, (c) Njivice, (d) Utjeha, (e) Buljarica, and (f) Jaz. The same with the real property belonged to the military: (a) “Mediteran” Zabljak, (b) “Bigovo – Traste” Kotor, (c) Mamula, (d) Rakite, and (e) Kumbor. Copyright © 2011 Pytheas Limited July 2011 52
  • 53. The Economy – General (continued) ■ The large industrial sector legacy enterprises were sold to smaller investors who lost access to new financing during the global crisis, forcing the government to retake a significant equity stake in the aluminum plant in exchange for extending loan guarantees. ■ In addition to the deposit run, the sudden stop in capital inflows also dried up financing for corporates just as the prices of their key export products began to fall sharply. With the very large contractions in industry, the decline in GDP (6%) would have been even worse but for the The old town of Budva ability of the tourism sector to mostly withstand the downturn. Copyright © 2011 Pytheas Limited July 2011 53
  • 54. The Economy – General (continued)■ A tentative recovery is taking hold, following the global crisis that exerted heavy blows upon the economy. In 2010, a good tourism season was followed by resumed metal production, while heavy rains in the region boosted electricity production and exports. After contracting for almost two years, industry began to grow again in the second half of 2010. Nevertheless, industrial production at end-2010 was still considerably below its pre-crisis peak. Expected large-scale infrastructure foreign direct investment has so far not materialized and construction activity remains depressed. Overall 2010 GDP growth is estimated at 1.1%, keeping output below its 2008 level.■ The needed rebalancing of the economy has begun. Inflation and wage growth decelerated sharply and the current account deficit halved to around 26% of GDP in 2010. While most of the improvement was due to a weather related boost in electricity exports and rebounding metals production, the nascent adjustment in costs has also improved competitiveness. The improved fundamentals have also contributed to the September 2010 debut Eurobond issuance of €200 million, subsequent spread tightening, and a further €180 million issuance in April 2011. Copyright © 2011 Pytheas Limited July 2011 54
  • 55. The Economy – General (continued)■ Fiscal consolidation has commenced. Reflecting mainly significant capital expenditure cuts, the 2010 fiscal deficit is estimated to have declined by 1.5% of GDP to 3.9%, though, loan guarantees of 3.6% were extended to industrial companies. Going forward, the authorities aim at balancing the budget in 2012 and achieving a sizeable surplus thereafter in order to bolster sustainability, lower financing risk, and boost the economy’s resilience to shocks. A durable fiscal adjustment should encompass both revenue and expenditure measures, especially steps to curb the public sector wage bill. An early implementation of pension reform would also strengthen the public finances, as would further efforts to avoid expenditure arrears and direct budget support to private companies.■ In the banking sector, confidence has begun to return, as evidenced by increasing deposits, though they are still below their levels in the third quarter of 2007. However, non-performing loans have not yet leveled off – stagnant lending at the current juncture primarily reflects the dearth of creditworthy projects. Copyright © 2011 Pytheas Limited July 2011 55
  • 56. The Economy – General (continued) ■ In an effort to prevent and mitigate systemic risks in the financial system in the future and to ensure its preservation, improvement, control and stability but also for better promotion of coordination and exchange of information between authorities in the financial sector, amongst other, the Montenegrin Government established the Financial Stability Board and the European Systemic Risk Board. Along the same lines the Financial Stability Council Law was adopted. At Rijeka Crnojevića Copyright © 2011 Pytheas Limited July 2011 56
  • 57. The Economy – General (continued)■ Although the recovery is gaining momentum, limited policy space and incomplete reforms pose risks to the outlook. Montenegro must step up efforts to reconstitute fiscal, external, and financial buffers and to address rigidities in product and labor markets.■ Noting the importance of strengthened competitiveness for securing external stability, structural reforms remain a top policy priority.■ Greater flexibility in wage setting and employment protection would support job creation in the private sector, while addressing unemployment and poverty traps would boost labor participation and market attachment.■ Improvements in the business environment and investment climate are also part of the unfinished agenda. Copyright © 2011 Pytheas Limited July 2011 57
  • 58. Banking ■ The banking system comprises of the Central Bank of Montenegro (Centralna Banke Crne Gora), which is the regulatory and supervisory authority for the banking institutions – the banks, and the Micro-Credit Financial Institutions (MFIs). ■ According to the relevant law the main objective of the Central Bank of Montenegro is to establish and maintain a sound banking system and monetary policy, including safe and efficient payment systems. The Millenium Bridge, Podgorica Copyright © 2011 Pytheas Limited July 2011 58
  • 59. Banking (continued) ■ The Banking sector in Montenegro Banks – Ranking by Total Assets (2009) Montenegro is completely# Name Total % privatized. There are eleven Assets banks operating in the country,1 Crnogorska Komercijalna Banka 840,732 27.8 and all of them are in private2 NLB Montenegrobanka 515,213 17.0 ownership with the share of3 Hypo-Alpe Adria Bank 507,189 16.8 foreign capital exceeding 80%;4 Prva Banka Crne Gora 367,222 12.1 three are locally-owned while the5 Podgorička Banka 240,234 7.9 other eight are part of6 Erste Bank 181,911 6.0 international banks and other entities, corporate and private.7 Atlas Banka 160,123 5.38 Hipotekarna Banka 100,103 3.3 ■ The Montenegrin banking sector was severely hit by the global9 Komercijalna Banka 71,799 2.4 financial crisis. As a result non-10 Invest Banka Montenegro 24,250 0.8 performing loans as a percent of11 First Financial Bank 16,457 0.5 gross loans increased from 3.2% Total 3,025,233 100.0 at end-2007 to 21% at end-2010.Source: Central Bank of Montenegro, Pytheas Emerging Markets Copyright © 2011 Pytheas Limited July 2011 59
  • 60. Banking (continued) Montenegro Banks – General, Year 2009 (€000) Total Total Net Est. Foreign Ownership# Name Assets Liabilities Profit1 Atlas Banka 160,123 131,319 1,161 2002 Local (IBM Atlas Group)2 Crnogorska Komercijalna Banka 840,732 781, 637 -11,834 1997 OTP Bank (Hungary)3 Erste Bank 181,911 159,074 195 2009 Erste Bank (Austria)4 First Financial Bank 16,457 11,157 -1,706 2008 Restis Group (Greece)5 Hipotekarna Banka 100,103 79,257 1,571 1991 Foreign & local entities6 Hypo-Alpe Adria Bank 507,189 447,970 -18,315 2006 Bayern LB (Germany)7 Invest Banka Montenegro 24,250 8,758 303 1961 Local (IMB Atlas Group)8 Komercijalna Banka 71,799 50,642 1,159 2003 Komercijalna Banka (Serbia)9 NLB Montenegrobanka 515,213 479,104 1,401 1995 NLB Group (Slovenia)10 Podgorička Banka 240,234 209,525 -1,903 1906 Societe Generale (France)11 Prva Banka Crne Gora 367,222 335,054 6,339 1901 LocalSource: Central Bank of Montenegro, Pytheas Emerging Markets Research Copyright © 2011 Pytheas Limited July 2011 60
  • 61. Banking (continued) ■ During the boom the Central Bank of Montenegro raised the Montenegro Banking Sector – Distribution of cost of credit through higher Bank Credit by Borrower (%) reserve requirements and # Borrower 2007 2008 2009 2010 tightened supervisory and 1 Private companies 60.6 59.2 56.4 54.8 prudential standards, but credit 2 Citizens 34.5 35.8 36.6 37.1 growth was hardly dented. In the Fall of 2008, banks suffered from 3 Government 1.4 1.0 1.3 2.1 a simultaneous run on deposits, 4 State-owned cos 1.0 1.0 1.9 2.7 loss of access to financing, and 5 Funds 0.6 0.4 1.2 0.1 deterioration in asset quality. 6 Banks 0.2 0.1 0.0 0.0 ■ The authorities implemented several measures to stabilize the Financial 7 Institutions 0.9 0.8 0.3 0.4 banking system, including a law 8 Credit cards 0.9 1.3 1.7 2.2 authorizing the government to provide direct support to banks in 9 Other 0.0 0.4 0.6 0.6 the form of credit lines and re- capitalization. Source: Central Bank of Montenegro, IMF Copyright © 2011 Pytheas Limited July 2011 61
  • 62. Banking (continued) ■ The government provided such Montenegro Banking Sector – Distribution of support in two cases: Bank Credit by Economic Sector (%)  (a) a loan of €44 million for the # Sector 2007 2008 2009 2010 financially troubled Prva Banka, 1 Households 35.1 36.4 38.3 39.3 and 2 Trade 26.1 22.6 22.8 22.9  (b) a guarantee of €150 million to 3 Construction 9.0 7.2 7.8 8.1 cover KfW Bankgruppe’s and European Investment Bank’s. 4 Services, 8.6 7.7 5.9 7.4 Tourism, etc. loans to Montenegrin banks used Agriculture, for providing finance to small and 5 Hunting, Fishing 1.0 0.6 0.3 0.4 medium-sized enterprises 6 Mining, Energy 1.0 1.6 2.2 2.5 (SMEs). 7 Transport, 3.6 3.1 2.6 3.0 ■ A package of laws in the communications 8 Finance 2.8 2.5 2.4 1.7 financial sector was approved in 9 Real Estate 3.6 4.2 4.4 3.0 July 2010, including a new law on the central bank and a new10 Public services 2.9 2.0 2.6 3.1 deposit protection law.11 Other 6.3 12.1 9.1 9.0 Source: Central Bank of Montenegro, IMF Copyright © 2011 Pytheas Limited July 2011 62
  • 63. Banking (continued)■ Stress testing results of the banking system sensitivity to crisis showed that four banks needed to provide additional capital. Another two banks performed recapitalization, although the diagnostic assessment findings and stress testing results did not point to the recapitalization need.■ Total non-performing assets of banks amounted to €509.3 million at end-2010 and made up 17.3% of total assets; showed a year-on-year increase of €164.6 million or 47.7%. Simultaneously, the share of non- performing assets to total assets grew by 5.91%.■ Liquidity of the banking sector in 2010 was satisfactory which was largely contributed to the conservative lending policy.■ Banks’ liquid assets amounted to €562.7 million at end-2010; showed an increase in one year period of €101 million or 21.92%. Liquid assets to total assets ratio amounted to 19.11% (15.26% at end-2009).■ Liquid assets to short-term liabilities grew in 2010; attributed to a significantly faster increase in liquid assets as compared to short-term liabilities of banks. Simultaneously, short-term loans to short-term liabilities ratio declined and it was 48.44% on aggregate level due to decrease in loan portfolio in the previous year. Copyright © 2011 Pytheas Limited July 2011 63
  • 64. Banking (continued) # Montenegro Banking Sector – Selected Financial Ratios (%) 2007 2008 2009 2010 CAPITAL ADEQUACY 1 Regulatory capital as % of risk-weighted assets 17.1 15.0 15.7 15.9 2 Capital as % of assets 8.0 8.4 11.0 10.6 ASSET QUALITY 3 NPLs in % of gross loans 3.2 7.2 13.5 21.0 4 Provisions, in % of NPLs 73.6 55.6 46.3 30.7 5 Provisions, in % of total loans 2.3 4.0 6.3 6.4 6 NPLs net of provisions, in % of capital 7.9 32.0 52.5 102.8 EARNINGS AND PROFITABILITY 7 Gross profits ROAA 0.8 -0.6 -0.6 -2.7 8 Gross profits ROAE 10.5 -6.6 -6.9 -27.0 9 Net interest margin 3.0 3.8 4.9 4.910 Gross income, in % of average assets 7.0 5.1 5.3 5.4 LIQUIDITY11 Liquid assets, in % of total assets 18.1 11.2 15.3 19.112 Liquid assets, in % of short-term liabilities 32.0 20.9 25.8 32.913 Deposits, in % of assets 70.3 60.1 60.3 60.814 Loans, in % of deposits 107.4 140.5 131.4 122.9Source: Central Bank of Montenegro, IMF Copyright © 2011 Pytheas Limited July 2011 64
  • 65. Banking (continued) ■ Total MFIs assets and liabilities amounted to €58.7 million in December 2010 – same level as it was at the beginning of 2008; Montenegro Micro-Credit Financial Institutions – General, Year 2009 (€000) annual decline in MFIs assets amounted to 22.1%. Total Total Net # Name Assets Liabilities Profit ■ At 2010 year-end, total MFI loans amounted to €43.5 million which 1 Agroinvest VFI 52,212 40,151 73 represented a year-on-year decline of 33.9%. 2 Alter Modus 16,493 11,487 289 ■ MFI granted loans for start-up of 3 Klikloan 1,745 598 -117 small entrepreneurial programs but under very unfavorable 4 Montenegro 3,194 1,908 256 conditions – MFI average Investments weighted effective interest rates 5 Ozmont 1,786 1,192 143 reached 28.0% in December 2010, while nominal interest Source: Central Bank of Montenegro rates amounted to 19.2%. Copyright © 2011 Pytheas Limited July 2011 65
  • 66. Banking (continued) ■ Useful links (alphabetically): ► Association of Montenegrin Banks ► Chamber of Economy of Montenegro ► Central Bank of Montenegro ► MONSTAT ► Montenegrin Employers Federation ► Montenegro Deposit Protection Fund ► Montenegro Ministry of Economy ► Montenegro Ministry of Finance ► Securities & Exchange Commission Montenegro Fortress Lessendro, Lake Skadar National Park Copyright © 2011 Pytheas Limited July 2011 66
  • 67. Insurance ■ The institution responsible for supervision and control of insurance in the country is the Insurance Supervision Agency of Montenegro (ISA), which is independent of any other governmental body. ■ The ISA supervises performance of affairs from the area of insurance, aimed at encouraging the insurance market development and ensuring adequate protection of the insured. Its basic goals are to protect the interests of the insured and related beneficiaries, and increase Old town of Kotor, a view sustainability and reliability of the insurance market. Copyright © 2011 Pytheas Limited July 2011 67
  • 68. Insurance (continued) Montenegro Insurance Sector – Gross Premium by Company (May 2011) Non Life Insurance Life Insurance Total # Name Amount (€) % Amount (€) % Amount (€) % 1 Swiss Insurance 95,699.78 2.13 95,699.78 1.81 2 Lovćen Insurance 2,391,662.46 53.20 2,391,662.46 45.32 3 Sava Montenegro 847,464.76 18.85 847,464.76 16.06 4 Uniqa Non-Life Insurance 544,156.27 12.10 544,156.27 10.31 5 Delta Generali Insurance 616,665.87 13.72 616,665.87 11.68 6 Lovćen Life Insurance 99,291.67 12.70 99,291.67 1.88 7 Wiener Staedticshe Life Insurance 77,470.69 9.91 77,470.69 1.47 8 Uniqa Life Insurance 143,664.96 18.37 143,664.96 2.72 9 Merkur Insurance 49,655.12 6.35 49,655.12 0.9410 Grawe Insurance 384,418.59 49.16 384,418.59 7.2811 Atlas Life 9,444.76 1.21 9,444.76 0.1812 Delta Generali Life Insurance 17,995.20 2.30 17,995.20 0.34 Total 4,495,649.14 100.00 781,941.99 100.00 5,277,591.13 100.00Source: Insurance Supervision Agency of Montenegro Copyright © 2011 Pytheas Limited July 2011 68
  • 69. Insurance (continued)■ The insurance sector in 2010 in comparison with the previous year had shrunk. However, liquidity and solvency of insurance companies are characterized as satisfactory.■ Gross insurance premium amounted to €62.8 million at end-2010 ; a 4.4% annual decline. Non-life insurance premiums were still dominant (86.5%) with a declining trend, result of non-life insurance gross premiums decline (5.4%).■ Insurance companies faced the problem of aggravated collection during this period resulting to, the reversal of a number of insurance policies, an increase in requests for insurance surrenders and a decline in the number of active insurance policies.■ Moreover, increase in competition in the insurance market during 2010 influenced a decline in concentration. Notably, three insurance companies with the highest insurance premiums had a market share of 77.5% at end-2010, a 1.4%dicline since the previous year.■ Total share capital of insurance companies amounted to €39.2 million at end-2010, an increase of 13.1% since end-2009. Copyright © 2011 Pytheas Limited July 2011 69
  • 70. Insurance (continued)■ There was an increase of foreign capital share by 1% at end-2010 compared to the previous year.■ At end-2010, the solvency margin of insurance companies amounted to €21.8 million and guarantee reserves to €23.9 million. The guarantee reserve to solvency margin ratio amounted to 109.4% at end-2010 indicating a satisfactory solvency■ Liquidity ratio at end-2010 was to 3.5 and thus indicated that liquid funds of insurance companies were 3.5 times higher to their short term liabilities. Old town of Bar, a view Copyright © 2011 Pytheas Limited July 2011 70
  • 71. Insurance (continued) ■ Useful links (alphabetically): ► Insurance Supervision Agency of Montenegro ► MONSTAT ► Montenegro Ministry of Finance ► National Bureau of Insurers of Montenegro Town of Cetinje, a view Copyright © 2011 Pytheas Limited July 2011 71
  • 72. Capital Market ■ The Montenegro Stock Exchange or Montenegroberza (MNSE) was founded in 1993, and is a member of the WFE, Capital Market – Indices Growth Rates (%) FESE and FEAS. It is the sole stock exchange in Montenegro, Year Moste Nex 20 Nex PIF following the merger with the 2004 -12.3 106.9 42.9 NEX Stock Exchange. 2005 302.2 287.7 404.9 ■ Trading on the MNSE consists of 2006 98.4 84.5 119.4 short and long term securities, 2007 77.1 89.3 120.8 six investment funds, bonds, and shares from government funds 2008 -71.2 -70.7 -85.1 portfolios. The MONEX20 nad 2009 36.1 45.9 20.1 MONEXPIF are the principal 2010 -18.0 -0.5 -3.5 stock indices of the Montenegro Stock Exchange. Source: Montenegro Stock Exchange Copyright © 2011 Pytheas Limited July 2011 72
  • 73. Capital Market (continued)■ Year 2010 was characterized by a decline of indices; the Montenegro Stock Exchange had its lowest turnover since 2004.■ Privatization and recapitalization of the Montenegrin Electric Enterprise (EPCG) led to a short-term recovery of the capital market. However, negative trends were also evident in 2010 which reflected in a further decline in the value of indices and significantly lower turnover and number of transactions; indicating that negative effects of the crisis at the Montenegrin capital market were still present.■ In addition, the highest decline in turnover in the region in 2010 was reported at the Montenegrin Stock Exchange.■ During 2010, there was a turnover of €54.8 million by all Montenegrin stock exchanges achieved through 19.8 thousand transactions. Compared to end-2009, the turnover declined by 86.5% or €351 million, while the number of deals performed declined by 66.3%.■ The average monthly turnover at end-2010 amounted to a mere €4.6 million, a significant decline compared to €33.8 million at end-2009. The largest portion of turnover was through secondary trade, while only 4.1% of turnover was reported through primary trade. Copyright © 2011 Pytheas Limited July 2011 73
  • 74. Capital Market (continued) ■ In trade structure, the highest turnover in 2010 was from trade with company shares (61.4%), various types of bonds (25.2%), while the participation of mutual investment funds’ share in total turnover was 13.5%. Town of Ulcinj Copyright © 2011 Pytheas Limited July 2011 74
  • 75. Capital Market (continued) ■ Useful links (alphabetically): ► Central Depository Agency of Montenegro ► MONSTAT ► Montenegro Ministry of Finance ► Montenegro Stock Exchange ► Montenegro Ministry of Finance ► NEX Montenegro ► Securities & Exchange Commission Montenegro Perast, a view Copyright © 2011 Pytheas Limited July 2011 75
  • 76. It is Pytheas opinion that Montenegro could become the tradinggateway of the Western Balkans; with duties lower than the regional average and an economy which is amongst the most liberal of Europe and Central Asia. Copyright © 2011 Pytheas Limited July 2011 76
  • 77. Foreign Trade■ While continuing its pursuit of WTO accession, Montenegro retains an open trade regime with low duties. Today, based on its 5% simple average MFN applied tariff, Montenegro’s economy is among the more liberal ones in Europe and Central Asia (ECA). Based on the latest MFN applied tariff, it ranks 18th out of 181 countries (where 1st is least restrictive). Similar to the majority of other countries in its comparator groups, Montenegro is more protective of its agricultural goods (11.1% tariff) than of its non-agricultural goods (4% tariff). Montenegro’s maximum MFN applied tariff, excluding alcohol and tobacco, is 79.9% which is much lower than the regional average of 159.7%. However, only 5% of its tariff lines have zero MFN duties, which again it is much lower than the regional average of 28.2%.■ Based on Montenegro’s simple average overall rest of the world tariff (including preferences) of 10.6%, the country’s exports face a less favorable trading environment than the average ECA country (9.7%). As is the case for most countries, Montenegro’s non-agricultural exports have better access to international markets (9.7% tariff) than its agricultural products (16.3% tariff). Copyright © 2011 Pytheas Limited July 2011 77
  • 78. Foreign Trade (continued) ■ Due to its undiversified export structure (aluminum, steel, and fuel products compromise about 60% of the country’s export receipts with aluminum alone accounting to about 1/3 of the total, Montenegro is very vulnerable to swings in commodity prices. ■ It’s imports are more diversified than its exports. However, oil accounts for about 8% of total imports, and machinery and motor vehicles are also significant items in the import bill. Thus, due to high fuel prices and the need to upgrade its capital A view of Alipašini izvori, Plav stock, Montenegro has run a high import bill in recent years. Copyright © 2011 Pytheas Limited July 2011 78
  • 79. Foreign Trade (continued) ■ Total foreign trade for 2010 was €1,987.7 million, a 2.9% increase from the previous year. Montenegro – Main Trade Partners (2010) Exports corresponded to €330.4 million (a 19.3% increase # Partners € million % compared to 2009) and imports World 978,6 100 to €1,657.3 million (a 0.2% 1 EU27 727,4 74,3 increase from the previous year). 2 China 61,1 6,2 Non-ferrous metals (€130.8 3 Brazil 54,2 5,5 million) and iron and steel (€19.4 4 Russia 50,9 5,2 million) together represented 5 Turkey 27,4 2,8 more than 45% of exports, while 6 USA 15,0 1,5 machinery and transport 7 Switzerland 11,0 1,1 equipment (€340.6 million) and 8 Egypt 8,7 0,9 food and live animals (€324.2 9 Albania 6,5 0,7 million) together represented 10 Japan 3,4 0,3 more than 40% of imports. Source: MONSTAT Copyright © 2011 Pytheas Limited July 2011 79
  • 80. Foreign Trade (continued) ■ In exports, main foreign trade partners were,  Serbia (€74.9.million),  Greece (€56.4 million), and  Italy (€ 48.8 million). ■ In imports,  Serbia (€432.6 million),  Bosnia and Herzegovina (€432.6 million), and  Germany (€117.1 million). ■ Main regional foreign trade partners were countries members of CEFTA and the EU. Ţabljak in winter, a view Copyright © 2011 Pytheas Limited July 2011 80
  • 81. Foreign Trade (continued) ■ Montenegro has  A CEFTA and a Free Trade agreement with Russia;  A Trade agreement with EU countries under the Autonomous Trade Preferences;  A Stabilization and Association agreement with the EU;  A Trade agreement with EFTA countries (Switzerland, Norway, Iceland, Lichtenstein);  Free Trade agreements with Albania, Serbia, Bosnia and Herzegovina, Bulgaria, Croatia, F. Y. R. Macedonia, Moldova, and Romania;  An asymmetric Free Trade agreement with Turkey. Mausoleum of Petar II Petrović Njegoš, Lovćen Copyright © 2011 Pytheas Limited July 2011 81
  • 82. Foreign Trade (continued) ■ Useful links (alphabetically): ► MONSTAT ► Montenegro Chamber of Economy ► Montenegro Customs Administration ► Montenegro Investment Promotion Agency ► Montenegro Ministry of Economy ► Union of Free Trade Unions of Montenegro Town of Herzeg Novi, a view Copyright © 2011 Pytheas Limited July 2011 82
  • 83. As per the latest economic impact research study from the WorldTravel & Tourism Council and Oxford Economics, Montenegro will bethe fastest growing Hospitality & Tourism economy in the world overthe next ten years with regard to Hospitality & Tourism’s contribution to GDP and employment. Copyright © 2011 Pytheas Limited July 2011 83
  • 84. Hospitality & Tourism ■ Hospitality and Tourism is accorded the highest development priority of all industries and represents one of the most important branches of the Montenegrin economy, generating multiple effects. ■ Montenegro is small in area, but its comparative natural advantages, its richness in cultural and historical sights and others features, make it one of the most attractive receptive tourist destinations. ■ Against a backdrop of global tourism decline, Montenegro’s tourism sector continued to Old city of Kotor, a view expand in 2009 and 2010. Copyright © 2011 Pytheas Limited July 2011 84
  • 85. Hospitality & Tourism (continued) ■ Montenegro will be the fastest growing Hospitality & Tourism economy in the world over the next ten years with regard to Hospitality & Tourism’s contribution to GDP and employment, according to the latest economic impact research from the World Travel & Tourism Council (WTTC) and Oxford Economics. ■ The WTTC/ Oxford Economics forecasts also rank Montenegro as being the fastest growing destination worldwide for Hospitality & Tourism investment growth, as well as placing Winter sunset at Hotel Sveti Stefan, Sveti Stefan Montenegro in 2nd place (behind Brazil) for visitor export growth. Copyright © 2011 Pytheas Limited July 2011 85
  • 86. Hospitality & Tourism (continued)■ In 2010, Hospitality & Tourism’s total contribution to GDP, including its indirect and induced impacts, was 15.7%. This share is projected to rise to 17.2% in 2011 and to 36.3% by 2021 – an increase of 12.4% per annum over the next ten years. This will take Travel & Tourism’s total contribution to GDP to €1.9 billion a year by 2021 (a forecast based on constant 2011 prices and exchange rates) – up from an estimated €593.8 million in 2011.■ The direct industry alone is projected to grow its share of GDP from 8.1% in 2011 to 14.8% in 2021 – an annual growth of 10.9% – with the actual contribution rising to €782.1 million over the ten-year period from 278.3 million in 2011.■ The trend is also expected to be similar for Hospitality & Tourism’s total contribution to employment, estimated at 13.9% in 2010, and which is set to increase to 15.1% this year – accounting for some 26,000 jobs across the Montenegrin economy. By 2021, Travel & Tourism is expected to be supporting as many as 62,000 jobs – one in every three jobs – representing a growth of 9.4% a year over the coming decade Copyright © 2011 Pytheas Limited July 2011 86
  • 87. Hospitality & Tourism (continued) Montenegro Hospitality & Tourism contribution to the Economy – Growth# Average Real Growth per Annum 2011 - 2021 (%) GDP: Direct Contribution1 The direct contribution to GDP is expected to be €278.3mn (8.1% of total GDP) in 2011, 10.9 rising by 10.9% p.a. to €782.1mn (14.8%) in 2021 (in constant 2011 prices). GDP: Total Contribution2 The total contribution, including its wider economic impacts, is forecast to rise by 12.4% p.a. 12.4 from €593.8mn (17.2% of GDP) in 2011 to €1,915.1mn (36.3%) by 2021. Employment: Direct Contribution3 Hospitality & Tourism is expected to support directly 12,000 jobs (6.9% of total employment) 8.0 in 2011, rising by 8.0% p.a. to 25,000 jobs (13.3%) by 2021. Employment: Total Contribution4 Total contribution to employment is forecast to rise by 9.4% p.a. from 26,000 jobs (15.1% of 9.4 total employment) in 2011 to 62,000 jobs (33.2%) by 2021. Visitor Exports5 Visitor exports are expected to generate €633.8mn (44.8% of total exports) in 2011, growing 9.4 by 12.4% pa (in nominal terms) to €1,558.8mn (46.3%) in 2021. Investment6 Related investment is estimated at €192.1mn or 33.4% of total investment in 2011. It should 16.4 rise by 16.4% p.a. to reach €876.4mn (or 50.8%) of total investment in 2021.Source: World Travel & Tourism Council Copyright © 2011 Pytheas Limited July 2011 87
  • 88. Hospitality & Tourism (continued) ■ The coastal region of Montenegro accounts for about 96% of the total accommodation Montenegro Tourism Seasonality (2009) capacity; this region comprises of # Month Overnights % Herceg Novi (20.4%), Kotor 1 July 1,974,061 26.1 (5.2%), Tivat (3.3%), Budva 2 August 2,934,772 38.9 (43.3%), Bar (11.8%) and Ulcinj 3 Year Total 7,552,006 100.0 (12.3%). ■ Single villages of municipality of Source: MONSTAT Budva, such as Bečići, Miločer and Sveti Stefan, Petrovac, Montenegro Tourism Regional Distribution and Accommodation (2009) concentrate the largest numbers # Region Beds Overnights of accommodation facilities. However, when it comes to their 1 Coastal 167,394 7,244,830 structure and level of 2 Central 3,575 207,676 accommodation facilities in this 3 Mountain 2,663 99,500 particular territory is below satisfactory to bad, as it is Source: MONSTAT Copyright © 2011 Pytheas Limited July 2011 88
  • 89. Hospitality & Tourism (continued) dominated by complementary accommodation facilities (76%), i.e. private houses and rooms for rent. Organized licensed hotels are only about 19% of this region. The same picture is more or less repeated for the rest of the coastal region.■ The central region accounts for 2.1% of the total accommodation; Podgorica (0.8%), Cetinje (0.3%), Nikšić (0.3%), other (0.7%). Their level again with a few exceptions is poor.■ The mountain region accounts for 1.5% of Montenegro’s total accommodation; Ţabljak (0.6%), Splendid Hotel & Casino, Bečići Copyright © 2011 Pytheas Limited July 2011 89
  • 90. Hospitality & Tourism (continued) Kolašin (0.5%), Plav (0.2%), other (0.2%). Despite the fact that this region has immense tourist reception potential, paradoxically, it represents the least developed area – the tourist product is poor and insufficiently attractive, without associated tourist infrastructure to match its rich natural attractions .■ Pytheas Hospitality & Tourism conservatively estimates that Montenegro could accommodate more than 350,000 beds. The coastal region will continue to maintain its distinctive dominance in the future but with emphasis placed on quality Ţabljak ski resort, a view rather than quantity. Copyright © 2011 Pytheas Limited July 2011 90
  • 91. Hospitality & Tourism (continued) Montenegro Hotel Beds by Category (2009) Montenegro Hotel Capacity by Category (2009) 3.3% # Category Hotels % Rooms % Beds % 8.3% L/5-star 1 L/5-star 4 1.6 370 2.6 1,075 3.3 A/4-star 25.6% 2 A/4-star 67 26.4 3,604 25.3 8,391 25.6 B/3-star 35.5% 3 B/3-star 85 33.5 3,883 27.2 8,921 27.3 C/2-star D/1-star 4 C/2-star 78 30.7 5,091 35.7 11,629 35.5 27.3% 5 D/1-star 20 7.9 1,303 9.1 2,708 8.3 Total 254 14,251 32,724 Source: MONSTAT, Pytheas Emerging Markets Research Copyright © 2011 Pytheas Limited July 2011 91
  • 92. Hospitality & Tourism (continued) ■ In 2010, the number of tourists visiting Montenegro amounted to 1,263,000 or 4.6% more than in 2009. The number of tourist overnights amounted to 7,964,900 or 5.5% more than in the previous year. The number of domestic tourists’ overnights increased by 15.3%, while foreign tourists accounted for 6,977,900 overnights, or 4.2% more than in 2009. ■ The majority of overnight stays was in seaside resorts (96%), followed by mountain resorts (1.5%), the capital city (1.4%) and other tourist resorts (1.1%). Hotel Avala, Budva Copyright © 2011 Pytheas Limited July 2011 92
  • 93. Hospitality & Tourism, Opinion It is Pytheas’ opinion that Montenegro has the potential to become one of the world’s exclusive tourist destinations – there are just a few places in the world where the eternal struggle of natural elements has shaped the face of the earth with such passion and fascination thus alone providing an unparalleled tourism product. The quality of capacity must be however raised, tourist attractions developed, a new image created and distribution and training reinforced! Additionally, infrastructure related issues such are, direct flights, road improvement, water supply and waste management, require immediate upgrading… Copyright © 2011 Pytheas Limited July 2011 93
  • 94. Hospitality & Tourism (continued) ■ Useful links (alphabetically): ► Budva Tourism Organization ► MONSTAT ► Montenegro Airlines ► Montenegro Ministry of Sustainable Development and Tourism ► Montenegro Tribune ► National Tourism Organisation of Montenegro ► Strategic Framework for Developing Sustainable Tourism in Northern & Central Montenegro ► Tourism Master Plan of Montenegro ► Visit Montenegro Bianca Spa & Resort, Kolašin Copyright © 2011 Pytheas Limited July 2011 94
  • 95. Real Estate & Construction ■ Real Estate & Construction is a most significant industry. Analysis of historical data of real estate prices for the Montenegrin coast shows that immediately after independence, in relation to 2005, real estate prices grew by about 130% on average m² (for residential and commercial). ■ Rising overseas interest in Montenegro’s real property market especially between end- 2006 and end-2008 has sparked a boom in the sale of real property for residential and hotel development; although it subsided in the past two years Astra Montenegro, Budva largely because of the global financial crisis. Copyright © 2011 Pytheas Limited July 2011 95
  • 96. Real Estate & Construction (continued) ■ Montenegro boasts a mix of historic properties full of local charm and character, and increasingly, a range of modern new build resort schemes targeting international holiday home buyers. ■ With the country in transition, many of these projects have been slow in coming to fruition. Indeed, until recently, Montenegro has remained an undeveloped market in respect of international standards of resort development. ■ Some of these proposed schemes comprise significant Porto Montenegro (mock-up), Tivat scope in terms of scale of Copyright © 2011 Pytheas Limited July 2011 96
  • 97. Real Estate & Construction (continued) development and proposed amenities. They include branded hotel operations, an extensive range of high end facilities for guests and prospective home owners, with services and leisure amenities such as marinas, spas, retail areas, restaurants and bars, beach access, golf courses and casinos.■ Montenegro’s hospitality sector is gradually attracting international brands, with Aman resorts already operational in Montenegro and hotels brands Hilton, Marriott, Banyan Tree and Kempinski reportedly entering the market. Atlas Capital Centre, Podgorica Copyright © 2011 Pytheas Limited July 2011 97
  • 98. Real Estate & Construction (continued)■ Given the rapid increase in land value in recent years with the exception of the past two years, special attention should be given by jurisdictional government ministries and municipalities to reduce complicated and drawn- procedures when purchasing land and when building new out structures.■ Lengthy and complex bureaucratic procedures and delays in rendering permit decisions are reported to be among the most significant problems in the area of real estate and construction.■ While bureaucratic processes are an issue with almost every aspect of government administration, it affects the real estate and construction sectors perhaps more than any other business sector. Slow government administration can cause construction projects to be delayed or abandoned altogether. Bureaucracy can also have a detrimental affect on property values and discourage current and future investors.■ There is an immediate need to improve coordination between individual government agencies, municipalities, and the central government authority in all phases of the permitting process. Copyright © 2011 Pytheas Limited July 2011 98
  • 99. Real Estate & Construction (continued)■ The absence of, incomplete, or slow adaptation of zoning laws and detailed urban plans on the municipal level cause confusion and make it difficult, or even impossible, to understand the parameters which investors/developers require to work on a given development project – uncertainty about what can and cannot be built on a certain parcel of land can lead to widespread confusion and inconsistency in the development of certain areas of Montenegro, particularly along the coast. Greater transparency in this area is necessary to inhibit corruption.■ Additionally, there are frequent problems with the slow speed at which municipalities provide the necessary services and infrastructure (i.e. roads, sewer and water connections) for new construction projects. Also the level of professionalism and ability of the administrative staff of the local municipalities to work with large, international investors needs to be improved.■ Finally, there is lack of correct and/or updated information within the Land Registry, which provides access to important information about land ownership and history of ownership to owners and potential buyers. Copyright © 2011 Pytheas Limited July 2011 99
  • 100. Real Estate & Construction (continued) ■ Despite the recent expansion of the real estate sector foreigners own only 1.39% land in Montenegro. If we exclude owners from the former republics of Yugoslavia this percentage is only 0.05. ■ In 2010, construction cost of new dwellings increased by 1.8% in relation to 2009; a 9% increase in the sales price of land and a 0.1% increase in constructions costs were also observed during this same period, all others costs decreased by 2.0%. The number of sold dwellings of new construction increased by 5.5% Tre Canne (artist’s impression), Budva in comparison to 2009. Copyright © 2011 Pytheas Limited July 2011 100
  • 101. Real Estate & Construction (continued) Montenegro Construction Sector – Main Cities General Data (2010) Out of which Number of Covered Total cost # City dwellings area (m²) per m² (€) Land Construction Other costs per m² (€) cost per m² (€) per m² (€) 1 Podgorica 714 40,882 1,137 247 776 114 2 Bar 37 2,576 1,479 443 769 267 3 Budva 46 2,475 1,714 346 1,220 148 4 Nikšic 144 9,238 752 114 558 80 5 Other 74 4,543 1,296 299 861 136 Total 1,015 59,714 1,272 291 835 146 Source: MONSTAT Copyright © 2011 Pytheas Limited July 2011 101
  • 102. Real Estate & Construction (continued) Montenegro, Main Real Estate Development Projects (Alphabetically)# Name Location Description Developer/ Owner Status Hotel, marina, casino, sports and leisure, residential. Under1 Astra Montenegro Budva Mirax Group Project website construction Commercial, leisure, residential. JV Atlasgroup & Under2 Atlas Capital Centre Podgorica Project website Capital Investment construction Luštica Hotels, golf, marina, sports and leisure, residential. JV Orascom Development &3 Lustica Under study Development Project website Government of Montenegro Hotels, conferencing, marina, golf, sports and leisure, J. and N. Rothschild, Under4 Porto Montenegro Tivat residential. Project website B. Arnault and O. Deripaska construction Hotel, spa, marina, casino, sports and leisure,5 Sveti Marko island Kotor Bay Metropol Development Under study residential. Project website Hotel, convention center and exhibition hall,6 The Adriatic Fair Budva Jadranski Sajam Budva Under study commercial, leisure, residential. Hotel, residential, conferencing, commercial, sports7 The Adriatic Project Budva Orion Real Estate Partners Under study and leisure. Project website Commercial and leisure facilities, residential. Under8 TQ Plaza Budva Tradeunique Project website construction Hotel apartments, commercial and leisure facilities, Under9 Tre Canne Budva Fab Live residential. Project website construction Hotel, sports and leisure, residential. Under10 Velika Plaţa Ulcinj Government of Montenegro Project website tenderSource: Pytheas Emerging Markets Research Copyright © 2011 Pytheas Limited July 2011 102
  • 103. Real Estate & Construction – Remark Despite the acknowledged efforts of the Government of Montenegro to promote and place special emphasis on sustainable development, architectural monstrosities both in terms of zoning and architectural design that are completely alien to the Montenegrin environment and heritage have been observed in several occurrences in the name of profit maximization and ignorance. Implementing and adhering to well‐devised zoning codes at the governmental and municipal level is critical to ensure future investments and prosperity in this most beautiful country. Architectural monstrosity should be eliminated! Architectural uniformity in all areas has to become a way of life! Tradition and heritage has to be protected at all cost! Copyright © 2011 Pytheas Limited July 2011 103
  • 104. Real Estate & Construction (continued) ■ Useful links (alphabetically): ► Architectural Atlas of Montenegro ► Contemporary Expression of Traditional Houses in Montenegro ► ECO Lodge concept for Montenegro ► MONSTAT ► Montenegro Ministry of Sustainable Development and Tourism ► Montenegro Investments ► Montenegro Investment Opportunities Guide The Adriatic Fair (artist’s impression), Budva Copyright © 2011 Pytheas Limited July 2011 104
  • 105. Industrial sector ■ Over the last 50 years, the Manufacturing and Mining sectors have been the chief carriers of the economic development of Montenegro. During this period, the growth of the power industry, metallurgy (steel and aluminum), and transportation infrastructure became the basis for the overall development. ■ The three major industrial sectors are the manufacturing sector, the utilities sector (electricity, gas and water), and the mining sector. Ţeljezara (steel factory) Nikšić, Nikšić Copyright © 2011 Pytheas Limited July 2011 105
  • 106. Industrial sector (continued)■ Industries in Montenegro include metal processing, engineering, wood- processing, textile manufacture, chemicals, leather and footwear, apparel, household appliances, construction, and machinery. Production within the “manufacturing sector” represents 76.4%23 of the total industrial production.■ Montenegro processes and finishes agricultural products. The country has fish-processing plants, flour mills, dairies, slaughterhouses, bakeries, breweries, juice factories, fruit processing factories, wineries, medicinal herb processing plants and other.■ Electricity is mainly produced at, Pljevlja Thermo Power Plant, Perućica Hydro-power Plant and Piva Hydro-power Plant.■ Industrial output in Montenegro grew by 17.5% in 2010, thus stopping the 2008 and 2009 declining trend and consequently contributing to Montenegro’s economy gradually exiting recession. The respective increases in mining and quarrying and electricity, gas and water supply amounted to 58.7% and 51.1%, while manufacturing industry recorded a 3% decline. Copyright © 2011 Pytheas Limited July 2011 106
  • 107. Industrial sector (continued)■ The highest increase was recorded in the extraction of energy producing materials (96.1%), manufacturing of machinery and equipment (53%) and electricity, gas and water supply (51%). The branches severely affected by the crisis were the manufacturing of leather and leather products with a decline in production of 76.9%, as well as the manufacturing of rubber and plastic products (-40.4%), the manufacturing of transport equipment (-20.3%) and the manufacturing of textile and textile products (-14.8%). Moreover, there is a significant decline (-14.7%) in the manufacturing of basic metals and metal products.■ Industry was the sector of the economy that was most severely hit by the global financial crisis. Its output decline in 2009 exceeded 30%. The crisis strongly hit the Montenegrin metal industry, as well as the related mining industry. In addition to the inherited problems, these particular branches have faced the additional problem of placing their products in international markets. Copyright © 2011 Pytheas Limited July 2011 107
  • 108. Industrial sector (continued) ■ Coal has been the most significant energy resource in Montenegro. The Pljevlja and Berane basins have confirmed reserves of 185 million and 158 million tons respectively. ■ Oil and natural gas reserves have been determined in two separate offshore zones amounting to 7 billion barrels of petroleum and 425 billion m³ of natural gas, however, exploitation of these resources has not yet commenced. ■ In the last decade, energy production is based on brown coal, lignite, and firewood, as The Podgorica Aluminium Plant, Podgorica well as on hydro-energy and industrial wood wastes. Copyright © 2011 Pytheas Limited July 2011 108
  • 109. Industrial sector (continued)■ The coal-fired Pljevlja Thermal Power Plant, the hydro-power plants at Piva and Perućica, and various smaller hydro-power plants, produce electricity for almost 2/3 of the domestic market requirements which are approximately 4,700 GWh per year. The two hydro-power plants of Piva and Perućica in 2010 produced 2,449 GWh of electricity.■ About a third of the supplied energy is used by households; the largest industrial consumers of electricity are the Podgorica Aluminium Plant (with some 44% of total gross electricity supply) Pljevlja Thermal Power Plant, Pljevlja and the Nikšić Steel Factory. Copyright © 2011 Pytheas Limited July 2011 109
  • 110. Industrial sector (continued)■ Notably the Government of Montenegro intends to develop the country’s untapped hydropower potential through Public-Private Partnerships. As a priority, the Government wants to develop the Morača River potential through a series of four hydroelectric-power plants (238 MW) and an annual production of 693 GWh.■ Renewable Energy Sources (RES) account for approximately 25% of the total primary energy balance of Montenegro and that mainly corresponds to the hydro- power plants. Pljevlja Thermal Power Plant, Pljevlja Copyright © 2011 Pytheas Limited July 2011 110
  • 111. Industrial sector (continued) ■ The government’s strategy has also identified other potential for RES such as wind energy, solar energy, biomass, plant and municipal waste. However, despite numerous discussions with international companies active in this particular field nothing has materialized so far. Hydro-power Plant Piva, Pluţine Copyright © 2011 Pytheas Limited July 2011 111
  • 112. Industrial sector (continued) ■ Useful links (alphabetically): ► Elektroprivreda Crne Gore AD Nikšić ► MONSTAT ► Montenegro Investment Promotion Agency ► Montenegro Privatization and Capital Investment Council ► Montenegro Ministry of Economy ► Oil & Gas Montenegro ► Rudnik Uglja AD Pljevlja ► The Maoče Basin Project ► Ţeljezara Nikšić Aqueduct at the old town of Bar Copyright © 2011 Pytheas Limited July 2011 112
  • 113. The Montenegro’s mineral production is expected to remain modest.Because of Podgorica Aluminium Plant’s (KAP) dominant presencein the mineral industry of Montenegro, the success or failure of theGovernment assistance program to KAP will largely determine the overall picture of the industry’s financial health. Copyright © 2011 Pytheas Limited July 2011 113
  • 114. Minerals & Mining ■ Montenegro’s mineral industry includes the mining and processing of bauxite, industrial minerals, and lignite. In 2008, Montenegro’s mining and quarrying made up only 1.2%. ■ In 2009, Montenegro saw significant declines in the production of all its mineral commodities. Compared with that of 2008, production of bauxite decreased by 93%; crude steel, by an estimated 75%; alumina, by 73%; gravel and lime, each by 49%; lignite, by 45%; aluminum, by 41%; and salt, by 33%. At Vučje ski resort, Nikšić Copyright © 2011 Pytheas Limited July 2011 114
  • 115. Minerals & Mining (continued)Montenegro – Production of Mineral Commodities (Metric tons unless otherwise specified) # Commodity 2006 2007 2008 2009 METALS 1 Alumina 236,740 240,186 220,426 58,528 2 Aluminum, metal, ingot, primary 121,762 124,060 107,457 63,960 3 Bauxite 659,370 667,053 671,811 50,000 4 Iron and steel, crude steel 163,165 173,849 201,670 50,000 INDUSTRIAL MINERALS 5 Gravel (m³) 82,933 92,914 146,381 74,368 6 Lime 8,118 7,089 9,839 4,997 7 Salt (Water evaporated) 5,000 20,000 25,200 17,000 Stone excl. quartz and quartzite, crude: 8 Ornamental marble rocks (m³) 43,057 51,186 50,084 30,000 9 Crushed and broken (m³) 98,360 161,970 179,521 120,000 10 Other stone products (m³) 54,191 60,165 109,436 51,373 MINERAL FUELS & RELATED MATERIALS Coal: 11 Brown 10,000 7,000 - - 12 Lignite 1,502,334 1,195,515 1,740,076 957,164 Source: US Geological Survey Copyright © 2011 Pytheas Limited July 2011 115
  • 116. Minerals & Mining (continued)■ Production of alumina and aluminum decreased as Montenegro’s only alumina and aluminum plant, Kombinat Aluminijuma Podgorica (KAP), faced financial losses owing to high production costs and reduced demand and prices for aluminum as a result of the world financial crisis. Montenegro’s production capacity of 120,000 tons³ was not significant with respect to world production, but KAP was very important for the economy of Montenegro. The En+ Group of Russia [which owned KAP’s majority shareholder, Central European Aluminum Co. (CEAC)] reported that KAP and the Nikšić Bauxite Mines (which were also controlled by CEAC) accounted for about 15% of Montenegro’s GDP and more than 50% of its exports (2009).■ In November 2009, the Government of Montenegro and En+ Group signed an agreement in which the Government granted assistance to KAP in return for one-half of the shares controlled by CEAC. The agreement included sovereign guarantees of up to €135 million for KAP’s existing and future debt, a reduction in En+ Group’s investment obligations in KAP to be made during the next 5 years (to €39 million from €125 million), and the linking of electricity prices to the price of Copyright © 2011 Pytheas Limited July 2011 116
  • 117. Minerals & Mining (continued) Montenegro – Structure of the Mineral Industry in 2009 (Thousand metric tons) Major Operating Companies and Annual# Commodity Location (Majority Equity Owners) capacity Kombinat Aluminijuma Podgorica1 Alumina (Central European Aluminium Co. = 29.365%, Podgorica 280 Government of Montenegro = 29.365%) Kombinat Aluminijuma Podgorica2 Aluminum primary (Central European Aluminium Co. = 29.365%, Podgorica 120 Government of Montenegro = 29.365%) Nikšić Bauxite Mines3 Bauxite Kursko Brdo 700 (Central European Aluminium Co.) Rudnik Uglja A.D. Pljevlja4 Coal Pljevlja 2,000 (Government of Montenegro = 31%) Zebjezara Nikšić A.D.5 Steel crude Nikšić 380 (MN Specialty Steels Ltd = 90%)Source: US Geological Survey Copyright © 2011 Pytheas Limited July 2011 117
  • 118. Minerals & Mining (continued) aluminum on the London Metals Exchange through 2012. The electricity price-structuring agreement was to apply to KAP’s electricity tariffs incurred since January 1, 2009. In exchange for these concessions, the Government received one-half of CEAC’s shares in KAP, which made the Government and CEAC the two leading shareholders in the company with 29.365% of shares each. The Government also agreed that CEAC could release up to 2,300 of the 3,900 workers at KAP and the Bauxite Mines Nikšić.■ Crude steel production was estimated to have decreased by 75% to 50,000 tons in 2009. Zeljezara Nikšić A.D. announced in April 2009 that it would stop production and cited a lack of raw materials as the reason for the shutdown, although most likely the difficult market conditions created by the world financial crisis were a primary reason for the reduction of steel production.■ Coal production in Montenegro was not significant by world standards but was an important fuel source for domestic electricity production. Rudnik Uglja A.D. Pljevlja’s mine at Pljevlja produced all the country’s coal and supplied the Pljevlja thermal power plant (TPP Pljevlja). Copyright © 2011 Pytheas Limited July 2011 118
  • 119. Minerals & Mining (continued) ■ Useful links (alphabetically): ► Bauxite Mines Nikšić ► Elektroprivreda Crne Gore AD Nikšić ► MONSTAT ► Montenegro Investment Promotion Agency ► Montenegro Privatization and Capital Investment Council ► Montenegro Ministry of Economy ► Oil & Gas Montenegro ► Rudnik Uglja AD Pljevlja ► The Maoče Basin Project Ancient Roman bridge Moštanici, Nikšić Copyright © 2011 Pytheas Limited July 2011 119
  • 120. Agriculture & Forestry ■ Agricultural land accounts for 38% (518.067 ha) of the total territory of Montenegro. The greatest share in the agricultural land resources consists of pastures and grassland (88%), which are used extensively. Covering a relatively small area, the Montenegrin agriculture is very diversified – from growing olives and citrus fruits along the coast, to the cultivation of early season vegetables and tobacco in the central region to extensive livestock breeding in the Northern area. ■ On the other hand, commercial Grape harvesting at Plantaţe vineyards, Podgorica production of wheat, maize, Copyright © 2011 Pytheas Limited July 2011 120
  • 121. Agriculture & Forestry (continued) sugar beet and oil crops is practically nonexistent, which essentially differentiates the Montenegrin agriculture even from countries in its closest surroundings. The structural features are rather unfavorable: small family farms, fragmentized and plotted holdings with low productivity, resulting in low competitiveness for the majority of agricultural products.■ The agriculture of Montenegro has also its advantages, which are reflected in unexhausted land resources, low use of chemical agents – which offers an opportunity for organic production for a vast range of crops.■ The wood processing industry, together with forestry, should have represented a more significant economic activity. The raw materials and considerable capacities constitute a good basis for a much larger level of production, as well as a greater share in the total domestic product, export and employment.■ Forests are one of the most significant potentials of Montenegro, and they cover 620,871 ha. Out of the total area of land categorized as forest, only one third of it could be used as raw production materials. Copyright © 2011 Pytheas Limited July 2011 121
  • 122. Agriculture & Forestry (continued)■ The high wood (privately and state owned) covers an area of 257,857 ha, which represents 41.53% of the total area of Montenegro that are under forest.■ National parks with 12,457 ha of forest represent 2% of the total forests. Forests owned by the state cover an area of 500,041 ha, which represents 67.25% of total forestland, while privately owned forests cover 243,568 ha, or 32.75%. At Alipašini izvori, Plav Copyright © 2011 Pytheas Limited July 2011 122
  • 123. Agriculture & Forestry (continued) ■ Useful links (alphabetically): ► MONSTAT ► Montenegro Ministry of Agriculture and Rural Development Njeguška pršuta, Njeguši Copyright © 2011 Pytheas Limited July 2011 123
  • 124. Transport & Communications ■ The network of roads in Montenegro is around 7,000 km, out of which 1,850 km relate to main and regional roads, whereas 5,150 km relate to local and non-categorized roads. About 92% of the regional and main roads are paved but only 50% of the local or uncategorized ones are paved with asphalt. There are 312 bridges and 136 tunnels. Notably, more than 2/3 of the regional and main roads are more than 25 years old. ■ Montenegro has no highways. The Ministry of Transportation Train over bridge Slijepac plans to re-launch new tenders Copyright © 2011 Pytheas Limited July 2011 124
  • 125. Transport & Communications (continued) for the construction of the South- North corridor, a highway that will eventually connect the Port of Bar with Serbia and launch a new one for the West-East corridor.■ Montenegro has two airports, in the capital Podgorica (fully reconstructed in 2006) and in the coastal city of Tivat.■ The Montenegro railway network is 250 km long and is single track, electrified and normal gauge. The track links the Port of Bar to Podgorica then Bijelo- Polje (and then up to Belgrade, the capital of Serbia) and Podgorica to Nikšić, with a link to Road tunnel in rock formation, Pluţine Copyright © 2011 Pytheas Limited July 2011 125
  • 126. Transport & Communications (continued) Albania via Tuzi. Both tracks are for passengers and cargo transport; currently the Podgorica to Nikšić track is under restructuring.■ There are four passenger and cargo transport seaports, i.e. Bar, Herceg Novi, Tivat, and Zelenika.  The most important port is the port of Bar with 95% of the share in passenger and freight transport. Its capacity is from 14 to 20 boats depending on the both type and size.  The Zelenika harbor (with 270 m and 92 m in depth) is used only for cargo transport, with selling and warehousing being the main activities.  The Kotor harbor with the operative coast of 216 m in length and 3 to 12.8 m in depth.■ Means of transport showed different results. The number of passengers in road transport declined by 20.7% in relation to the 2009, and the road freight transport declined by 7.1%. Railway passenger transport declined by 8.6% (measured by passenger km), while railway freight transport increased by 49.9% (measured by ton kms). The total number of passengers in air transport amounted to 1,205.5 thousand or 26% more than in 2009, and the air freight transport increased by 46.1%. Copyright © 2011 Pytheas Limited July 2011 126
  • 127. Transport & Communications (continued) Marine freight transport (measured by ton miles) declined by 12.4% in relation to the comparative period of 2009. Total turnover in ports amounted to 1,758.7 thousand tonnes or 18.7% more than the turnover recorded in 2009.■ Development of the telecommunication market in Montenegro is very similar to other developing countries in the region. The most important indicators show positive trends in comparison with previous years. The telecommunication sector is 100% private. There are two fixed phone providers, T-Mobile and M:tel and three mobile phone operators, Norwegian Telenor, T-Com and M:tel).■ The network is 100% digitized, with a fiber-optic base. There are two international switches that have been working as transit switches. These are used for the transition of traffic from the local switches that are placed in other Montenegrin municipalities. Complete communication between switching capacities is organized by using solely fiber-optic cable that guarantees high quality communication. Copyright © 2011 Pytheas Limited July 2011 127
  • 128. Transport & Communications (continued) ■ Montenegro has a significant potential for ICT sector investments. This is especially true for the Internet service area, which will be developing very fast with the increase of the educational level of Montenegrin citizens. At this point there are fifteen licensed Internet Service Providers in Montenegro, only four of which are currently operating and those are: T-Com Montenegro, MontSky, M-tel and MNNews. The largest two are: T- Com Montenegro and Montsky. Ferry in Kotor harbor Copyright © 2011 Pytheas Limited July 2011 128
  • 129. Transport & Communications (continued) ■ Useful links (alphabetically): ► Adriatic Shipyard Bijela ► MONSTAT ► Montecargo ► Montenegro Airlines ► Montenegro Ministry of Transportation and Maritime Affairs ► Montenegro Ministry of Information Society and Telecommunications ► Port of Bar ► Port of Bar Container Terminal & General Cargo ► Railway Transport of Montenegro Mala Rijeka bridge over river Tara Copyright © 2011 Pytheas Limited July 2011 129
  • 130. Education ■ The Education in Montenegro is regulated by the Ministry of Education and Sports. ■ Education starts in either pre- schools or elementary schools. Children enroll in elementary schools at the age of 6 for nine years. ■ The educational system is uniformed. The school curriculum includes the history and culture of all ethnic groups. The language of instruction is Montenegrin (Serbian, Bosniak, Croatian), and so is Albanian in some elementary and secondary schools where there is significant University of Montenegro, Podgorica presence of Albanians. Copyright © 2011 Pytheas Limited July 2011 130
  • 131. Education (continued)■ Elementary education in Montenegro is free and compulsory for all the children between the age of 6 and 14, when children attend the nine- year school.■ Secondary schools are divided in three types, and students attendance depends on their choice and elementary school report:  Gymnasium lasts for four years and offer general and broad education. It is considered a preparatory school for college, and hence the most prestigious.  Professional schools last for three or four years and specialize students in certain fields, while still offering relatively broad education.  Vocational schools last for three years, without an option of continuing education and specialize in narrow vocations.■ Tertiary level institutions are divided into Higher education and High education level faculties. Colleges and art academies last between 4 and 6 years (one year is two semesters long) and award diplomas equivalent to a Bachelor of Arts or a Bachelor of Science degree.■ Post-graduate education is offered after tertiary level and offers Masters degrees, Ph.D. and specialization education. Copyright © 2011 Pytheas Limited July 2011 131
  • 132. Education (continued)■ In Montenegro, the national accreditation body is the Council for Higher Education, which is appointed by the Government. The Council is responsible for assuring high quality higher education in Montenegro and it advises the Government and assists the institutions in improving and sustaining the quality of their activities.■ Montenegro signed the Bologna Declaration undertaking the obligation to become a member of the uniformed European system of higher education. The first generation of students enrolled in accordance with the Bologna system were in the academic year 2004/2005.■ There are three universities in Montenegro:  The University of Montenegro (state-owned) founded in 1974 and organized in 20 Faculties.  The Mediterranean University (private) founded in 2006 and organized in 6 faculties.  The University of Donja Gorica (private) founded in 2009 and organized in 6 faculties. Copyright © 2011 Pytheas Limited July 2011 132
  • 133. Education (continued) ■ Useful links (alphabetically): ► Education Trade Union ► ENIC Montenegro ► Mediterranean University ► MONSTAT ► Montenegro Ministry of Education and Sport ► Montenegrin Academy of Sciences and Arts ► Pedagogical Center of Montenegro ► University of Donja Gorica ► University of Montenegro The first public school in Montenegro (1832), Cetinje Copyright © 2011 Pytheas Limited July 2011 133
  • 134. Healthcare ■ Montenegro has a good standard of compulsory, state funded healthcare. All citizens are entitled by law to equal access to healthcare – the state fund covers most medical services including treatment by specialists, hospitalization, prescriptions, pregnancy and childbirth and rehabilitation. ■ The Ministry of Health is responsible for overseeing the system and the Republican Health Fund is in charge of the insurance fund and executing government policy. ■ Public healthcare institutions are Institute Igalo, Herceg Novi organized through a network of Copyright © 2011 Pytheas Limited July 2011 134
  • 135. Healthcare (continued) primary, secondary and tertiary health care consisting of 18 medical centers, 7 general hospitals, 3 special hospitals, the Clinical Centre of Montenegro, the Institute for Health and the Pharmaceutical Institute of Montenegro. The state fund covers most medical services including treatment by specialists, hospitalization, prescriptions, pregnancy and childbirth and rehabilitation.■ Employers must register their employees with the health insurance fund when a new employee commences work. Employees and employers pay 13.5% into the healthcare fund, which is split with the employer paying 6% of employee salaries and the employee paying 7.5%. Dependant family members are covered by the contributions paid by employed family members. The unemployed, old age pensioners and people on long-term sickness benefit or maternity leave do not have to pay healthcare contributions. Note that foreigners immigrating to Montenegro without jobs must produce proof of private health insurance in order to obtain their residence permit.■ Self-employed persons and farmers must pay the full 13.5% contribution rate, this is calculated according to the taxable revenue from self-employment, and the base cannot be lower than the average Copyright © 2011 Pytheas Limited July 2011 135
  • 136. Healthcare (continued) wage in the country for the month that the contribution is paid in.■ The private sector comprises a larger number of medical centers, dental centers, wholesale medicines and pharmacies. Private Montenegrin clinics are normally well equipped and doctors are well trained.■ Both state and private healthcare providers are still limited in the range of acute health services they can provide for patients, but in a case which is not critical, they offer an adequate medical service. Nikšić General Hospital, Nikšić Copyright © 2011 Pytheas Limited July 2011 136
  • 137. Healthcare (continued) ■ Useful links (alphabetically): ► Institute Igalo ► MONSTAT ► Montenegro Ministry of Health ► Montenegro Strategy for Healthcare Development First state hospital in Montenegro (1873), Cetinje Copyright © 2011 Pytheas Limited July 2011 137
  • 138. Environment ■ In 1991, the Montenegrin Parliament adopted a declaration on Montenegro as an “Ecological State”, in Montenegro’s Constitution the country is defined as a “democratic, civic and ecological state.” ■ Protection of the environment in Montenegro is under frequent changes because of the country’s emerging character. In a very short period, however, after its independence, Montenegro improved substantially the protection and conservation of its natural assets and sustainable use of biological Lake Škrčko, Durmitor National Park resources. Copyright © 2011 Pytheas Limited July 2011 138
  • 139. Environment (continued) Status of adoption and ratification of Multilateral Environmental Agreements in Montenegro # Convention Signed Ratified 1 The Convention on the Protection and Use of Transboundary Watercourses and International Lakes 2 Protocol on Water and Health 3 Protocol on Civil Liability 4 The Aarhus Convention 5 RAMSAR Convention ✓ ✓ 6 Law of Non-Navigational Uses of International Watercourses 7 Convention on Long-range Transboundary Air Pollution ✓ 8 The Convention on Environmental Impact Assessment in a Transboundary Context 9 Protocol on Strategic Environmental Assessment ✓ 10 Convention on Biological Diversity ✓Source: UNDP Copyright © 2011 Pytheas Limited July 2011 139
  • 140. Environment (continued) ■ Significant progress has been made in the development of legislature, building up more efficient institutional framework and improvement of the system of protection and management the natural/ biological resources. ■ By joining the Convention on Biological Diversity in June 2006, Montenegro has committed to protect the overall biological and genetic diversity in the manner prescribed by the Convention. Based on the Convention, the first National Strategy and Action Plan for the period 2010 – 2015 was adopted, on 29 July 2010. Turjak peak, Bjelasica mountain Copyright © 2011 Pytheas Limited July 2011 140
  • 141. Environment (continued) ■ Useful links (alphabetically): ► Center for the Protection and Research of Birds of Montenegro ► MONSTAT ► Montenegro Ministry of Sustainable Development and Tourism ► National Parks of Montenegro Lake Plav (Plavsko jezero), Plav Copyright © 2011 Pytheas Limited July 2011 141
  • 142. Slide(s)Tax Environment General 143 - 146 Personal Income Tax 147 - 150 Corporate Tax 151 - 154 Value Added Tax 155 Double Tax Treaties 156 Copyright © 2011 Pytheas Limited July 2011 142
  • 143. Tax environment – General ■ Montenegro’s favorable tax regime, together with an open stance toward foreign investors, is a key feature of the country’s business model aspiring to establishing the country into an international business hub. ■ The Montenegrin tax system is a flat thus simple. ■ The Corporate Income Tax is 9%, the lowest in the region. ■ The VAT rate amounts to 17%, however some categories of products and services have a VAT of only 7% and some with 0 rate. Walls of the old town of Budva, a view ■ Personal income tax is also 9%. Copyright © 2011 Pytheas Limited July 2011 143
  • 144. Tax environment – General (continued)■ Residential tax incentives  The property tax for buildings used as a place of residence can be reduced by 20% of the annual tax base, including 10% for each family member. However, the tax reduction cannot be more than 50% of a taxpayers tax liability.  Where the total tax base for all specific assets of a taxpayer is not more than €5,000 (if assets are not used for obtaining the income), immovable property tax is not paid■ Incentives for non-developed areas  Newly incorporated companies in the production sector are exempt from paying corporate income tax during the first three years starting from the day they start business activities in an undeveloped municipality. The first year of this tax exemption begins on the day of registration in the Central Register of the Commercial Court. A newly incorporated company is not eligible for this tax relief if the founder or co-founder transfers his existing taxable business to the exempt company that performs the same activities as the existing company. And a legal entity formed as a result of any status changes or by a merger or a division of an existing legal entity shall not be considered a newly incorporated company and consequently shall not be entitled to this tax relief. Copyright © 2011 Pytheas Limited July 2011 144
  • 145. Tax environment – General (continued) Montenegro – Principal Tax Rates # Tax Rate (s) 1 Personal Income Tax 9% (flat rate) 2 Corporate Tax 9% (flat rate) VAT Standard rate 17% 3 Lower rate 7% Zero rate 0% Proportional tax ranging between 0.08 % - 0.8 % 4 Property Tax of the immovable property’s market value Source: Montenegro Ministry of Finance Copyright © 2011 Pytheas Limited July 2011 145
  • 146. Tax environment – Remark■ Montenegro’s favorable tax regime, together with an open stance toward foreign investors, is a key feature of the country’s business model, however, there are issues understanding the complex tax codes and procedures within the tax system.■ More consistency in the application of rules and regulations, with regards to the tax code, would reduce a major business barrier. Variability in the tax code creates additional legal and financial insecurity for employers.■ The same inconsistency in the central government’s regulatory bodies can also be felt on the local level, where municipalities are known to charge fees that are not in accordance with Montenegrin law. This can be witnessed with fees charged for the use of commercial facilities, municipal and local roads, as well as tourist fees. These fees often replace another fee that has been removed, and are assessed in an attempt to collect additional tax revenue. These fees can vary from municipality to municipality. Copyright © 2011 Pytheas Limited July 2011 146
  • 147. Personal Income Tax ■ The personal income tax rate in Montenegro is 9% (previously 12%). ■ Rates of tax and contributions from and on personal earnings applicable as of January 1st 2010 are as follows:  Tax and contributions from personal earnings,  Personal income tax 9%  Contributions for pension and disability insurance 15%  Contributions for health insurance 8.5%  Contributions for unemployment insurance 0.5% Monastery of St. Djordje, Dobrilovina Copyright © 2011 Pytheas Limited July 2011 147
  • 148. Personal Income Tax (continued)  Contributions on personal earnings,  Contributions for pension and disability insurance 5.5%  Contributions for health insurance 3.8%  Contributions for unemployment insurance 0.5%.■ A new type of contributions, paid to the Labour Fund has been introduced, being paid by the employer at the rate 0.2%, while surtax is paid at same rates as previous years.■ The personal income tax of 9% is levied on salaries and other types of personal income, including income from dividends. Certain income, however, such as income from services, is subject to tax at the rate of 15% on the tax base that is equivalent to 60% of income.■ Resident individuals are taxed on worldwide income; nonresidents are taxed only on Montenegro-source income.■ An individual is resident if he/she is in Montenegro for 183 days or more in a calendar year or if his/her centre of vital interests is in Montenegro.■ Joint tax returns are not permitted. Copyright © 2011 Pytheas Limited July 2011 148
  • 149. Personal Income Tax (continued)■ Taxable income comprises income from employment, business and professional income, investment income (dividends, interest and royalties); and income from immovable property.■ Capital gains are taxable in Montenegro.■ There are no deductions or allowances in Montenegro.■ No capital duty.■ No stamp duty.■ No capital acquisitions tax.■ Real property tax is levied on the owner/user of property at rates ranging from 0.08% to 0.8%. Deductions are available.■ A 3% tax is levied on the inheritance of real estate. An exemption is available for the transfer of property as a gift or inheritance to children, parents or a spouse.■ No net wealth/net worth tax.■ Social security contributions due by employee are levied at a rate of 24%. These include contributions for pension (15%), health (8.5%) and unemployment (0.5%). Copyright © 2011 Pytheas Limited July 2011 149
  • 150. Personal Income Tax (continued) ■ Montenegro tax year is the calendar year. ■ Employment income is taxed via withholding by the employer. An annual income tax return is due for other income by 30 April following the tax year end. ■ Individuals that receive only employment income do not file an annual return. Individuals that receive income from several sources file annual income tax, with tax paid during the year deducted from the final tax due. A penalty of 0.03% per day is imposed for late payment of tax. Fort Arza, Herceg Novi Copyright © 2011 Pytheas Limited July 2011 150
  • 151. Corporate Tax ■ Montenegro corporate income tax is a flat 9%; the main rate of 9% applies to both domestic and foreign companies. ■ A company that is registered in Montenegro, or that has its management and control in Montenegro, is deemed to be resident for tax purposes. Resident companies are taxed on worldwide income; nonresident ones are taxed only on Montenegro-source income. ■ Taxable income is based on accounting profit, further adjusted for tax purposes, by nondeductible expenses, Walls of the old Town of Budva, a view nontaxable income, tax depreciation, etc. Copyright © 2011 Pytheas Limited July 2011 151
  • 152. Corporate Tax (continued)■ Dividends paid between residents are subject to withholding tax but are not included in taxable income. Dividends received from abroad are included in taxable income, but a resident taxpayer can claim a tax credit for foreign tax paid.■ Capital gains are included as normal income and taxed at the standard rate of tax.■ Tax losses may be carried forward for 5 years. The carry-back of losses is not permitted.■ There is no surtax or alternative minimum tax.■ An ordinary tax credit is available for foreign income taxes paid. The credit is limited to the amount of Montenegro tax attributable to the foreign-source profits.■ There is no holding company regime.■ A 3-year tax holiday is granted to companies registered in underdeveloped areas. Copyright © 2011 Pytheas Limited July 2011 152
  • 153. Corporate Tax (continued)■ Withholding tax  A 9% withholding is levied on dividends paid to residents and nonresidents, unless the rate is reduced under a tax treaty.  A 9% withholding tax is levied on interest paid to nonresidents, unless the rate is reduced under a tax treaty.  Royalties paid to nonresidents are subject to withholding tax of 9%, unless the rate is reduced under a tax treaty.  Service fees paid to nonresidents for market research, advisory and audit services, as well as on income from the lease of movable and immovable property, are subject to withholding tax of 9%.■ There is no branch remittance tax and no capital duty.■ The municipal authorities levy a surtax of up to 15% on an employees salary.■ Real property tax is levied on the owner/user of property at rates ranging from 0.08% to 0.8%.■ Social security contributions due by employer are levied at the rate of 9.8%. These include contributions for pension (5.5%), health (3.8%) and unemployment (0.5%). Copyright © 2011 Pytheas Limited July 2011 153
  • 154. Corporate Tax (continued)■ There is no stamp duty.■ A transfer tax of 3% is levied on the transfer of immovable property.■ Transactions between related parties (Transfer Pricing) must be at arms length. The comparable uncontrolled price method may be used, but in the absence of any direct comparables, the taxpayer may use the cost-plus or the resale price method.■ There are no specific thin capitalization rules, but interest paid to a nonresident (whether or not related) must be on arms length terms.■ No control on foreign companies.■ No disclosure requirements.■ Montenegro tax year is calendar year.■ Consolidated returns are not permitted; each company must file a separate tax return. Monthly advance payments are due, based on the results of the previous year. Tax returns must be filed within 3 months after the year end. A penalty of 0.03% per day is imposed for late payment. Copyright © 2011 Pytheas Limited July 2011 154
  • 155. Value Added Tax ■ There are two Value Added Tax (VAT) rates that are applied in Montenegro:  Standard tax rate of 17%, and  Reduced tax rate of 7%  Also, a zero VAT rate is applied on export transactions and on delivery of medicines and medical supplies which are funded by the Republic Health Insurance Fund. Exemptions exist for financial services, the sale of land, etc. ■ VAT is levied on the supply of goods and services and imports. ■ Taxpayers with revenue in excess of EUR 18,000 must The old town of Herceg Novi, a view register. VAT must be filed and paid monthly. Copyright © 2011 Pytheas Limited July 2011 155
  • 156. Double Tax Treaties The following countries have double-tax treaties with Montenegro:  Albania  Finland  Netherlands  Belarus  France  Norway  Belgium  FYRO Macedonia  Poland  Bosnia  Germany  Romania Herzegovina  Hungary  Russia  Bulgaria  Slovakia  Iran  Slovenia  China  Italy  Sri Lanka  Croatia  Korea  Sweden  Cyprus  Kuwait  Switzerland  Czech Republic  Latvia  Turkey  Denmark  Malaysia  Ukraine  Egypt  Moldova  UK Copyright © 2011 Pytheas Limited July 2011 156
  • 157. Slide(s)Investment Environment General 158 - 160 International Memberships 161 Exchange Control 162 Investment Funds and Firms 163 - 165 Free Zones 166 - 167 Acquisition of Real Estate 168 - 172 Labor Environment 173 - 178 Registration of Companies 179 - 183 Investment Opportunities 184 - 190 Copyright © 2011 Pytheas Limited July 2011 157
  • 158. Investment Environment – General ■ Over 4,900 foreign-owned firms are registered and operating in Montenegro; foreign investors come from 107 countries, with no single country dominating investment. ■ Since independence in 2006, the government has adopted a liberal investment framework, thus,  There are no distinctions made between domestic and foreign companies.  Foreign companies can own 100% of a domestic company, and  Profits and dividends can be A view of Fiord Kotor repatriated without limitation or restrictions. Copyright © 2011 Pytheas Limited July 2011 158
  • 159. Investment Environment (continued) ■ Net inflow of foreign direct investments in 2010 amounted to about €543 million, which is about 50% less than 2009 (during 2009 total FDI figures about €1.1 billion, approximately 45% higher than 2008). This is still a relatively high FDI inflow considering the lack of major privatizations in year 2010 (unlike in 2009 when the EPCG was privatized). A view of the Bay of Kotor Copyright © 2011 Pytheas Limited July 2011 159
  • 160. Investment Environment (continued) ■ Useful links (alphabetically): ► Ada Bojana ► Bjelasica and Komovi ► Montenegro Investment Promotion Agency ► Montenegro Coastal Zone Management Agency ► Montenegro Investment Opportunities Guide ► Montenegro Public Procurement Directorate ► The Maoče Basin Project ► Velika Plaţa St. Johns fortress, Kotor Copyright © 2011 Pytheas Limited July 2011 160
  • 161. International Memberships Montenegro – International Memberships (Selection)# Organization Year # Organization Year1 United Nations 2006 10 Permanent Court of Arbitration 20062 International Atomic Energy Agency 2006 11 World Bank 20073 International Civil Aviation Organization 2007 12 International Monetary Fund 20074 World Intellectual Property Organization 2006 13 Council of Europe 20075 International Telecommunication Union 2006 14 Central European Free Trade Agreement 20076 World Customs Organization 2006 15 Southeast European Cooperation Process 20067 International Labour Organization 2006 16 European Travel Commission 20068 International Maritime Organization 2006 17 Stability Pact for South Eastern Europe 19999 International Criminal Court 2006 18 Southeast European Cooperation Process 2007Source: Montenegro Ministry of Foreign Affairs and European Integration Copyright © 2011 Pytheas Limited July 2011 161
  • 162. Exchange Control ■ As of 2006, the Exchange Control Law has been abolished; hence, residents and nonresidents may hold and manage assets and liabilities in any foreign currency and in any foreign country, including freely convertible and transferable balances with banks. ■ There are no exchange control restrictions. Fisherman at Kalimera, Ulcinj Copyright © 2011 Pytheas Limited July 2011 162
  • 163. Investment Funds & Firms ■ An Investment Fund Company in Montenegro must be either a shareholding company or a limited liability company founded for the sole purpose of establishing and managing the Investment Fund and cannot perform any other activity; it can manage one or more Investment Funds. ■ The Investment Fund Company can be founded by domestic and foreign legal entities and/or private individuals. ■ Founders of the Investment Fund Company cannot be:  A broker or a dealer performing Lake Skadar, a view on behalf of the Investment Fund Copyright © 2011 Pytheas Limited July 2011 163
  • 164. Investment Funds & Firms (continued) Company mediation activities in trading with securities from the Investment Fund portfolio;  An insurance company with which the fund is insured.■ Domestic legal entities in capital of which state capital participates with 50% or more and their related parties cannot be the founders or acquire shares of the Investment Fund Company; Additionally, the same party cannot be the founder of more than one Investment Fund Company.■ Its Head Office must be registered in the territory of Montenegro. A view of Skadar Lake Copyright © 2011 Pytheas Limited July 2011 164
  • 165. Investment Funds & Firms (continued)■ The cash amount of the initial capital of the Investment Fund Company that manages only one Investment Fund cannot be lower than €125,000.■ If the Company manages more Investment Funds, cash part of the initial capital must be increased for €75,000 prior to the submission of application for managing each following Investment Fund.■ As of 2006, investment funds in Montenegro must not be listed on the official list of the Montenegro Stock Exchange, but they are obligated to publish appropriate reporting. A view of Lake Skadar, Lake Skadar National Park Copyright © 2011 Pytheas Limited July 2011 165
  • 166. Free Zones ■ Under the Law on Free Zones of Montenegro the foreign legal and natural persons are enabled a free incorporation of a company with business activity in, international trade, export of domestic products and services, provision of financial and non- financial services, management, consulting services and other. ■ Business operation in the zone is prohibited to companies with an ecologically controversial production and for those, which are engaged in defence industry. ■ The first Free Zone in Montenegro is at the Port of Bar. St. Tryphon Cathedral, Kotor Copyright © 2011 Pytheas Limited July 2011 166
  • 167. Free Zones (continued)■ The main reliefs:  Exemption from the 9% corporate income tax.  For goods, entered into free zone, no customs, customs fees and 17% Value Added Tax is paid – this is also valid for import of goods for construction and maintenance of buildings, infrastructure and equipment in zone or warehouse.  For import of goods and export abroad, there are no contingents, permissions or other limitations of external trade traffic.  Investment of capital in the area of zone or warehouse, transfer of profits and participations is not restricted.  No tax on real estate and on property, which is owned by the company in the zone.  Legal protection of users and managers is specially ensured with the order, according to which their property can not be a subject of nationalization and expropriation.  For employees in the company within the zone, only pension and disability (6%) and health insurance (4%) must be paid. Copyright © 2011 Pytheas Limited July 2011 167
  • 168. Acquisition of Real Estate ■ The new amendment to the relevant real property Law, which took effect in 2009, has introduced a more liberal regime to foreigners rights to acquire real estate in Montenegro. ■ The new law allows both foreign natural persons and legal entities to acquire ownership rights to land, apartments and residential buildings, and business premises. ■ Furthermore, reciprocity of rights to purchase for Montenegrin citizens abroad is no longer required. Moreover, the certificate proving that the real Porto Montenegro Marina Real Estate complex, Tivat estate is necessary for Copyright © 2011 Pytheas Limited July 2011 168
  • 169. Acquisition of Real Estate (continued) conducting business activity in Montenegro is no longer a prerequisite. The law, however, does impose certain restrictions that stipulate that foreigners cannot acquire ownership rights over the natural resources, real estate in public ownership, culture heritage and real estate in the state border line zone.■ In addition to these restrictions, foreign natural persons may acquire forestry and agriculture land of not over 5,000 m², provided that the real estate being purchased is a residential building located on that land.■ A foreign company can acquire rights to real estate in Montenegro, such as company facilities, places of business, apartments, living spaces and land for construction. Additionally, foreign persons can claim property rights to real estate by inheritance in the same manner as a domestic citizen and can transfer their funds freely after fulfilling all liabilities and obligations such as income tax, return of funds invested in initial capital, share in net assets and obligations in the case of a contract ending.■ Property tax is levied on real estate in Montenegro. The owner of the property (including a foreign person or company) must pay this tax Copyright © 2011 Pytheas Limited July 2011 169
  • 170. Acquisition of Real Estate (continued) which is set by the municipal tax authorities. This tax is levied on the market value of the property and the rates range from 0.08 % to 0.80% (as at 31 December of the preceding year). In most cases, the tax rate on buildings is 0.2%.■ Property transfer tax at 3% is payable by the purchaser on the acquisition, except on the transfer of newly built property.■ The transfer of real estate is exempt from property transfer tax if the real estate is contributed as equity on the initial incorporation or increase in capital of a company or is transferred as part Mamula island Copyright © 2011 Pytheas Limited July 2011 170
  • 171. Acquisition of Real Estate (continued) of a merger, corporate acquisition, or division of an existing company. The tax base for property transfer tax is the value stated in the purchase agreement. Only in cases where the value from the purchase agreement is unrealistic, that is, is not close to market value, will the municipal market value calculation be applied. The property transfer tax shall not be paid when the real estate is included in the companys capital as a contribution in kind.■ The transfer of the property must be reported to the tax authorities by submitting the tax return within 15 days from the date the Sale and Purchase agreement is signed.■ Transfer of newly built property located in Montenegro is subject to VAT at 17%. Lease of residential real estate is not subject to VAT.■ Capital gains from the sale of real property owned by a legal entity are not taxed separately in Montenegro. The tax law states that capital gains are consider as income which the taxpayer realized from the sale or other assignment of the land, building facilities, property rights, shares in capital and stock values. Capital gains are included in the taxable income of the company when making the annual tax balances. Copyright © 2011 Pytheas Limited July 2011 171
  • 172. Acquisition of Real Estate (continued)Buying real property in Montenegro – A process diagram Perform due Place a deposit Appoint Agree on the main diligence and get between €1,000 and lawyer points of the SPA copy of title €10,000 Sign a reservation Open a local bank Sign SPA in local Raise funding agreement account county court Pay the balance as Submit proof of Pay the purchase per SPA through own acquisition at Land tax local bank account RegistryCopyright © 2011 Pytheas (Montenegro) D.O.O. Copyright © 2011 Pytheas Limited July 2011 172
  • 173. Taxes and contributions on employee wages that are paid to the government are in excess of 60% of net employee salaries.The high payroll tax and rate of contribution to the pension and healthcare systems makes it very challenging to hire additional employees. It also causes companies to constantly reassess their costs with respect to maintaining current employees as well as hiring newemployees. Often these assessments result in not hiring new labor or having to consider going through the complex process of dismissing current employees. Copyright © 2011 Pytheas Limited July 2011 173
  • 174. Labor Environment ■ The Montenegrin labor market has a rather descent tradition of social dialogue. ■ Montenegro ranks averagely in the world in terms of university degree holders in relation to the population, however, basic education is one of the country’s most attractive economic assets (literacy rate amongst youth is higher than 99%). ■ Labor costs are significantly lower in Montenegro compared to the EU average. ■ Legislation provides for minimum wages.Source: MONSTAT ■ Montenegro is a member of the International Labor Organization. Copyright © 2011 Pytheas Limited July 2011 174
  • 175. Labor Environment (continued)■ The labor force in Montenegro is rather old, inflexible and insufficiently educated and trained. Workers do not have the knowledge and skills required in a modern economy that is able to resist the challenges of globalization, while only a very small percentage about 3% of the unemployed people participate in some form of training. Comparisons with other countries show that the labor market in Montenegro is still insufficiently flexible, i.e. that it is insufficiently adaptable to the changes in the market.■ As per the Employment Agency of Montenegro,  The largest share of employees is employed in the services sector (more than 75%), agriculture about 9% and industry about 15%.  The private sector is the largest generator of employment (more than 60%).  Only about 6% of employed persons have a second job.  The average working experience of employed persons is about 15 years.  Employees work on average 2,200 hours per year.  Almost half of the unemployed is ready to work as unregistered employees.  More than 17% of registered employees have partly registered wage. Copyright © 2011 Pytheas Limited July 2011 175
  • 176. Labor Environment (continued) ■ In Montenegro, there is a compulsory social insurance system (pensions and disability insurance, health insurance and unemployment insurance), Montenegro, Wage Contributions – Rates as of 2010 (%) defined in the existing Law on contributions for compulsory Types of social insurance which has been# Employees Employers Contributions in effect since 2008. Contribution Pensions and rates for mandatory social1 12.0 8.0 insurance are proportionate. disability insurance2 Health insurance 4.0 5.0 ■ Foreign nationals employed in Montenegro are required to pay Unemployment social security contributions,3 0.5 0.5 insurance unless international agreement Total 16.5 13.5 provides otherwise or they are insured under the regulations ofSource: Montenegro Ministry of Labor and Social Welfare another state. Rates of Copyright © 2011 Pytheas Limited July 2011 176
  • 177. Labor Environment (continued) contributions for compulsory social insurance for foreign nationals are:  Contribution rate for pension and disability insurance is 20.5%, out of which the employer’s contribution is 5.5% and employee’s is 15%;  Contribution rate for health insurance is 12.3%, out of which the employer’s contribution is 3.8% and employee’s is 8.5%;  Contribution rate for unemployment insurance is 1%, out of which the employer’s contribution is 0.5% and employee’s is 0.5%.■ Issues and challenges identified in regard to hiring employees as well as with employer‐labor relations include:  Complex procedures for hiring. Both local and foreign individuals, but especially foreign.  High taxes and contributions paid on employee wages.  Extremely incoherent and non‐fluid labor laws as laws are not coordinated with the current state of the labor market and its conditions.  Outsourcing labor is not prohibited nor is the practice of outsourcing recognized by current labor laws.  Lack of laws that protect employers with respect to employer‐labor Copyright © 2011 Pytheas Limited July 2011 177
  • 178. Labor Environment (continued) relations.  Employees are sometimes protected despite not fulfilling contractual obligations.  Employers are, at times, not allowed to break labor agreements even if there is no longer a need for certain positions within a company.  The need for a larger pool of skilled labor as a significant business challenge. Specifically, the areas of economics, law, human resources, electronics, energy, engineering, as well as people with English interpretation skills are in high demand.  The labor market would benefit greatly from more certified professional courses to train staffs and keep them qualified to conduct work according to the latest business standards which would help with increasing the skills of employed staffs.  There are not enough high‐quality employment agencies in Montenegro that could assist with identifying qualified candidates and refer them to companies seeking to fill vacant positions. Copyright © 2011 Pytheas Limited July 2011 178
  • 179. Registration of companies ■ Companies in Montenegro must be established and registered according to the provisions of the Business Organization Law. ■ New companies must file applications with the Central Registry of the Commercial Court. The registry is computerized; the legal time limit for registration is 4 days, but in practice, the registry completes the registration in 2 days. ■ Registration with the Institute for Statistics is also required. ■ Note that lawyers are no longer authorized to do the certification of corporate documents. Saint Loucas church. Kotor Copyright © 2011 Pytheas Limited July 2011 179
  • 180. Registration of companies (continued)■ The applicants certify company documents at the basic court and certify copies at municipalities; certification fees vary depending on the number of pages, documents, and so forth – the total cost is only: €21 (€13 for the court + copies of documents such as passport (each copy €2).■ The company seal or stamp is a core instrument in company in company legal transactions. The company must order a seal or stamp upon registering with the Company Registry because it is essential for subsequent company transactions. The seal is made on the day it is ordered.■ A single registration form is submitted to the tax authorities in order to register the company at: (a) the tax payers office held at the tax authorities; (b) Employment Bureau; (c) Health Fund; and (d) Pension Disability Fund.■ If the application form is completed correctly, the company tax number and VAT number certificate are issued in 2-3 days. The tax number always matches the company number. A tax inspection is not required before issuing the number. Copyright © 2011 Pytheas Limited July 2011 180
  • 181. Registration of companies (continued)■ Once the company is registered for income tax, the only required document is an application form, duly completed, signed, and stamped.■ The certificate of bank account set-up is required to register for taxes. The bank account is opened once the company is registered with the Company Registry and tax office and the Statistical Office.■ New reforms abolished the license and made it sufficient to have a notification. If the Company is engaged in trade, it pays the administrative fee in the amount of €8 within the municipal authority in charge of economic affairs for the notification. Copyright © 2011 Pytheas Limited July 2011 181
  • 182. Registration of companies (continued) Legal Business Entities that can be Registered in Montenegro# Type of Companies Minimum Capital Requirements Stock Company (Akcionarsko Društvo or A.D.).1 A stock company in Montenegro can be founded by at least two persons. The names and €25,000 social security numbers of all members of the management board and managing directors must be provided. Limited Liability Company (Društvo s Ograničenom Odgovornošću or D.O.O.).2 A limited liability company can be established by one or more persons within three €1 working days.3 Limited Partnership (Komanditno Društvo or K.D.). No minimum capital A limited partnership can be founded by one or more persons. requirement4 Partnership (Ortačko Društvo or O.D.). No minimum capital A partnership can be founded by one or more persons. requirement Sole Proprietorship (Društvo sa jednim vlasnikom).5 The law on business organizations defines sole entrepreneurs as persons who are neither No minimum capital in an employment nor an agent relationship. They are personally liable and must register requirement with the Commercial Court.6 Subsidiary. No minimum capital A subsidiary can be founded by one or more persons. requirementSource: Montenegro Investment Promotion Authority, Pytheas Emerging Markets Research Copyright © 2011 Pytheas Limited July 2011 182
  • 183. Registration of companies (continued) INVESTOR Application for approval of name and registration of company Obtain permission from Obtain residence and work appropriate authority according permits to nature of investment Copyright © 2011 Pytheas Limited July 2011 183
  • 184. Investment Opportunities Montenegro, Selection of Investment Opportunities by Industry# Industry/ Name/ Description Tourism Ada Bojana Located at the southernmost tip of Montenegro. The nearest international airport is in Podgorica (85 km). The 494 ha island is flanked on two sides by the Bojana River, connecting directly to Skadar Lake, and the Adriatic Sea on the other.1 Because of the sites unique natural environment and secluded private setting, the Government foresees the configuration and operation of an exclusive 4 to 5 star hotel/resort/village complex, reflecting contemporary Montenegrin architecture and including recreational facilities and services. The master plan for Ada Bojana envisions a capacity of up to 2,500 hotel beds within the current area designated for tourist development, and the Government anticipates that the resort, once developed, will be listed in the international hospitality industry as a top nature resort. Website Bigovo The Bigovo cove is situated between the cities of Budva and Tivat and adjacent to a historic fishing village. There is easy2 air access to the property via Tivats international airport (20 km from the site). The site is located on a peninsula and extends from the seacoast inland, almost fully across the peninsula to the Kotor bay side. The site encompasses 38,940 m² of land, with leisure facilities currently on 2,873 m². Ideas for the gradual development of Bigovo include a luxury leisure asset utilizing - and maintaining - the natural surroundings. Buljarica Located between the cities of Bar and Budva. The land is mostly private. The majority of owners are members of a local3 land-owners association, which is interested in creating a JV with potential strategic partners participating as shareholder partners. The developmental concept includes high-end residential accommodations, 4 -5 star hotels, and a tourist village (all totaling up to 6,500 beds). A marina is also planned, as is a business center and an 18-hole golf course.Source: Montenegro Investment Promotion Authority, Pytheas Emerging Markets Research Copyright © 2011 Pytheas Limited July 2011 184
  • 185. Investment Opportunities (continued) Montenegro, Selection of Investment Opportunities by Industry# Industry/ Name/ Description Tourism (continued) Jaz beach4 Located in the central part of the Montenegrin coast between Budva and Tivat. Plans consist of an urban development concept, including a village complex offering accommodations, a water sport center, wellness facilities, f&b services, etc. Kumbor5 Kumbor, a tourist resort belonging to the Herceg Novi Riviera, is located of Kotor Bay, 6 km from Herceg Novi. There are a number of small beaches and restaurants on the waterfront. The concept includes the construction of a world class, multifunctional upscale tourism resort, 4 to 5 star nautical and commercial amenities with leisure facilities. Mamula island Mamula presents a popular one-day trip destination accessible by boat. The island has a circular shape (200m in6 diameter) and coastline which consists of a rocky surface with a small beach section. The fortress located on Mamula currently has no facilities. The developmental concept includes a luxury hotel with exclusive leisure, food service and wellness facilities, and berths for small and medium size yachts. The Government prefers a PPP. Mediteran This tourism complex is located within the Durmitor National Park in Ţabljak (1,456 m above sea level). While it has7 direct access by paved road, the location evokes a feeling of isolation and connection with nature. It is adjacent to and walking distance from the famous Black Lake, and is completely surrounded by pine trees. Views from the site are of forest and mountains. The intention is to create a world-class resort that is intimate in feel, as well as conceptually, aesthetically, functionally, and ecologically in harmony with the natural physical location of the property.Source: Montenegro Investment Promotion Authority, Pytheas Emerging Markets Research Copyright © 2011 Pytheas Limited July 2011 185
  • 186. Investment Opportunities (continued) Montenegro, Selection of Investment Opportunities by Industry# Industry/ Name/ Description Tourism (continued) Valdanos Valdanos is located close to Ulcinj. This former military vacation camp, surrounded by olive trees, offers an unobstructed ocean-front view with exclusive privacy, an average of 240 sunny days. Airports are 68 km (Podgorica) and 86 km (Tivat)8 away. Valdanos Bay covers 4 km², and includes a pebble beach of approximately 100 meters in length and various low rise camp and general public service facilities. The conceptual framework includes a five star resort, protection of the coastal area allowing up to 100 m²of green surface per bed, luxury tourism accommodations of a maximum of four floors, and the protection of the ecological structure of the area. Montenegro is primarily interested in PPP projects. Velika Plaţa Located primarily on government-owned land between the city of Ulcinj and Ada Bojana Island, Velika Plaza (a 13 km9 long sandy beach is located at the southern tip of Montenegro. It is 87 km from Tivat International Airport and around 70 km from the capital Podgorica. Plans for the gradual development of the property include, the development of high- end tourist accommodations, the construction of a small VIP airport, upgrading telecommunication, efficient energy and water supply, and coastal area protection. Website Bjielasica and Komovi Region – Ski Resorts Eight Greenfield projects have been planned in and around Biogradska Gora National Park: (a) Mountain centre Zarski,10 (b) Mountain centregolf resort, (f) Mountain centre Komovi, (g) Ecoadventure park Kolašin 1600, (h) Cmiljace village Jelovica including a Torine, (c) Mountain centre Kolašin 1450, (d) Mountain centre Komovi, and (e) Mountain centre center. Biogradska Gora is located in the mountainous region of Bjelasica in the central part of Montenegro between the rivers Tara and Lim, and is surrounded by three municipalities: Kolašin, Berane and Mojkovac. WebsiteSource: Montenegro Investment Promotion Authority, Pytheas Emerging Markets Research Copyright © 2011 Pytheas Limited July 2011 186
  • 187. Investment Opportunities (continued) Montenegro, Selection of Investment Opportunities by Industry# Industry/ Name/ Description Transport Highway Bar to Boljare11 Montenegro intends to re-launch a prequalification tender forfinancing, construction, operation, and and implementation of a Public-Private Partnership contract involving the design, prospective bidders for the execution maintenance of a new highway running from Bar on the Montenegrin coast to Boljare on the northern border with Serbia. East-West Corridor Highway12 Montenegro is planning to launch a prequalification tender for prospective bidders for a new highway, theimplementation of a PPP involving the design, financing, construction, operation, and maintenance of the execution and Adriatic-Ionian highway (East to West), around 105 km long, connecting to the Croatian and Albanian portions of the same highway. Montenegro Railways – Rehabilitation of line E-7913 The Belgrade-Bar railway line (Е-79) was put into operation in phases, from 1958 to 1976. It has significant international and regional importance, especially for the development of business with Italy and South East Europe. Website Montenegro Railways – Rehabilitation of line Route 414 The line (Route 4) represents direct connection between ports located on the South Adriatic coast, Port of Bar and city of Belgrade, the Pan European Corridors X and VII (Danube River), connecting to TEN-T, as well as with C&EE. Website Montenegro Railways – Montecargo Montecargo, established in 2009, is the railway freight operator of Montenegro. The company‘s main source of cargo is15 the Port of Bar, the country‘s main seaport. Besides a narrow and winding road over the mountainous North region, the railway is the only alternative to transport goods from and into the country‘s hinterland and the neighboring larger economies. WebsiteSource: Montenegro Investment Promotion Authority, Pytheas Emerging Markets Research Copyright © 2011 Pytheas Limited July 2011 187
  • 188. Investment Opportunities (continued) Montenegro, Selection of Investment Opportunities by Industry# Industry/ Name/ Description Transport (continued) Montenegro Airlines Founded 14 years ago, Montenegro Airlines is registered for domestic and international passenger and charter traffic, as16 well as for the carriage of cargo and mail. The privatization of Montenegro Airlines incorporates a new issuing of shares, representing 30% of the current company value. Of this 30%, 5% will be offered on the stock market, while the remaining 25 % will be offered to a strategic partner. Website Port of Bar The Port of Bar spreads over 200 ha. The total length of the operational coast is 3.5 kilometers, aquatorium maximum depth of 14 m, and 120,000 m² are warehouses. In the port, there are five specialized terminals: for passenger traffic,17 general cargo, containers, solid and liquid bulk. Maximum capacity is about 5 million tons. The Government owns 54.05% of total shares, while the remaining proportion is divided between privatization funds (15.54%), workers (11.03%), citizens (18.33%) and other legal entities (1.05%). The port employs 1,371 workers. The average age of workers is 45. The sale of the state package of shares in the port shall be done on the basis of restructuring. Website Manufacturing Ţeljezara Nikšić Founded in 1957, Ţeljezara Nikšić is a steel mill whose production is based on electric arc furnaces; production capacity per annum is 360,000 tons (installed 400,000 tons). Renovated along the years, i.e. electric arc furnaces and a dust18 removal system (2010), waste water treatment plant (2010), cold rolling wire facility (1992), combined rolling mill (1982), it is different from most regional steel plants for its ability to produce quality steel. Amongst other, it also possesses all the necessary machinery for the production of concrete iron. The estimated investment for a complete modernization of the plant is estimated to be about €30 million. WebsiteSource: Montenegro Investment Promotion Authority, Pytheas Emerging Markets Research Copyright © 2011 Pytheas Limited July 2011 188
  • 189. Investment Opportunities (continued) Montenegro, Selection of Investment Opportunities by Industry# Industry/ Name/ Description Manufacturing (continued) Adriatic Shipyard Bijela The shipyard, established in 1927, is the largest ship-repairing and reconstruction yard in the southern Adriatic; of up to 120,000 dead-weight tons. It has two floating docks of 250 m and 184 m in length, an operating wharf of 1,120 m in19 total length, three tugs, a great number of cranes in different types and carrying capacities between 2,5 and 50 tons, extensive and various power plants, and up to date communication devices, as well as all necessary workshop capacities and equipment. It is also equipped for building smaller vessels such as barges, pontoons, work platforms etc. The yard also produces, piles, pipes (larger than 400 mm), reservoirs, etc. Website Electrode Factory Pluţine Electrode Factory Pluţine (EFP) started operations in 1986. Its main activity is the manufacture of consumables for welding, i.e. solid welding wire; cored wire electrode; coated electrodes for welding low-alloy and high-alloy steel;20 electrodes for welding casting pig of wire for couplings and joints; designed capacity is 5,000 tons, of which of construction nails; manufacturing and cast iron; special electrodes for welding prochrome steel; production 3,000 of coated electrodes, 1,500 of solid electrodes and 500 of other. It produces about 60 types of electrodes. The technological lines and equipment are in good condition despite the fact that the equipment of specific technological lines is old, and that there is a lack of spare parts due to the lack of funds for their procurement. Energy Hydropower plants on River Morača The Government of Montenegro intends to develop the Morača River potential through the installation of four21 hydroelectric-power plants for a total of 238 MW and an annual production of 693 GWh. Extensive geotechnical and hydrological studies, legal due diligence, a detailed spatial plan, and strategic environmental assessments have been completed. DBOT tenders for a number of small hydro plants will be also issued in the near future.Source: Montenegro Investment Promotion Authority, Pytheas Emerging Markets Research Copyright © 2011 Pytheas Limited July 2011 189
  • 190. Investment Opportunities (continued) Montenegro, Selection of Investment Opportunities by Industry# Industry/ Name/ Description Energy (continued) The Maoče Project – Coal Mine and Thermal Power Plant The coal basin of Maoče is located in North-Eastern part of Montenegro, about 15 km from the town of Pljevlja. The Government of Montenegro will award a concession for the exploitation of coal from the basin of Maoče – geological22 (123 million tons) and exploitation (109.9 million tons), and the construction of a thermal power plant of an estimated capacity of 500 MW. The annual production potential is 3,500 GWh. The term of the concession contract is 45 years, with a possibility of extension. Concession fees for the exploitation of the coal will be calculated as a percentage of revenues from the sale of electricity. The proposed business model is DBOMR. Website Oil & Gas A call for proposals is expected to be announced by the Government within 2011 for the exploration and production of oil and gas. Offshore and onshore parcels have been allocated. The awarded oil companies that will have the exclusive23 rights for the exploration and production (at their own risk and cost) will own the production possibility of getting twothe hydrocarbons. Royalty fees will be paid to the Government. The pertinent law envisages the and the right to export types of concession contracts: (a) an exploration concession contract, and (b) a production concession contract. Total duration of the exploration phase including the reserve verification phase is six years for land, and seven years for sea bed, where the duration of the production is 20 years with the possibility of extension for another 10. WebsiteSource: Montenegro Investment Promotion Authority, Pytheas Emerging Markets Research Copyright © 2011 Pytheas Limited July 2011 190
  • 191. Slide(s)Images of Montenegro People 192 Traditional villages 193 Flora and fauna 194 Landscape 195 Beaches and colours of the sea 196 Hotels 197 Activities 198 Sunsets 199 Copyright © 2011 Pytheas Limited July 2011 191
  • 192. People At Kotor Carnival, Kotor Montenegrin youth in folk costumes Farmer, Mala Crna Gora Montenegrin with gusle Montenegrinas shopping, Budva At the old town of Kotor Copyright © 2011 Pytheas Limited July 2011 192
  • 193. Traditional villages Village in Durmitor Village Rijeka Reţevica, Budva Dodoši village by Skadar Lake Village of Perast, Bay of Kotor Village Njegovudja, Ţabljak Village of Prcanj, Bay of Kotor Copyright © 2011 Pytheas Limited July 2011 193
  • 194. Flora and faunaNymphea alba, Lake Skadar Agaricales mushroom, Ţabljak Edelweiss, Durmitor White headed eagle, Durmitor Lynx, Durmitor National Park Brown bear, Pluţine Pelicans, Lake Skadar Copyright © 2011 Pytheas Limited July 2011 194
  • 195. Landscape Ţabljak, a view Biogradska Gora National Park, a view Stream in Durmitor Bay of Kotor Durmitor National Park, a view Prokletije National Park, a view Copyright © 2011 Pytheas Limited July 2011 195
  • 196. Beaches and colours of the sea Fort Arza, Herceg Novi Velika Plaţa, Ulcinj Prţno beach, Sveti Stefan Copacabana Beach, Ulcinj Queen’s beach, Sveti Stefan Snorkeling, Ulcinj Copyright © 2011 Pytheas Limited July 2011 196
  • 197. Hotels Hotel Sveti Stefan, Sveti Stefan Splendid Hotel & Casino, Bečići Bianca Spa & Resort, KolašinMaestral Resort & Casino, Sveti Stefan Hotel Villa Miločer, Sveti Stefan The Queen of Montenegro Hotel, Bečići Copyright © 2011 Pytheas Limited July 2011 197
  • 198. Activities Horseback riding, Ada Bojana Rafting in Tara river Mountain hiking, Durmitor Mountain-biking, Ţabljak Paragliding over Bečići, At Adventure Park Lovćen Copyright © 2011 Pytheas Limited July 2011 198
  • 199. SunsetsCollecting the fishing nets, Ada Bojana Sunset over frozen Lake Plavsko Sunset at the Bay of Tivat Snowmobiling at Kolašin Sunset at Bečići, Montenegro Kite surfing, Ada Bojana Copyright © 2011 Pytheas Limited July 2011 199
  • 200. Sources (Alphabetically)► Association of Montenegrin Banks ► Montenegro Customs Administration► Central Depository Agency Montenegro ► Montenegro Central Registry of the► Central Bank of Montenegro Commercial Court► Euraxess Montenegro ► Montenegro Department of Public► Europa Revenues► European Central Bank ► Montenegro Deposit Protection Fund► European Investment Bank ► Montenegro Employment Office► Europa ► Montenegro Investment Promotion Agency► Eurostat ► Montenegro Ministry of Agriculture and► Financial Times Rural Development► Government of Montenegro ► Montenegro Ministry of Culture► Institute of Accountants & Auditors of ► Montenegro Ministry of Economy Montenegro ► Montenegro Ministry of Education and► Insurance Supervision Agency of Sport Montenegro ► Montenegro Ministry of Finance► International Monetary Fund ► Montenegro Ministry of Foreign Affairs► MONSTAT and European Integration► Montenegrin Employers Federation ► Montenegro Ministry of Health► Montenegro Chamber of Economy Copyright © 2011 Pytheas Limited July 2011 200
  • 201. Sources (Alphabetically)► Montenegro Ministry of Human and ► National Bureau of Insurers of Minority Rights Montenegro► Montenegro Ministry of Justice ► National Parks of Montenegro► Montenegro Ministry of Information ► NEX Montenegro Society and Telecommunications► Montenegro Ministry of Interior ► OECD► Montenegro Ministry of Labor and Social ► Oil & Gas Montenegro Welfare ► Securities & Exchange Commission► Montenegro Ministry of Transportation Montenegro and Maritime Affairs ► Standard & Poor’s► Montenegro Ministry of Sustainable ► U.S. Geological Survey Development and Tourism► Montenegro Privatization and Capital Investment Council► Montenegro Public Procurement Directorate► Montenegro Secure Transaction Registry► Montenegro Stock Exchange► Moody’s Investors Service Copyright © 2011 Pytheas Limited July 2011 201
  • 202. DisclaimerThe above notes have been compiled to assist you; however, actions taken as a result of thisdocument are at the discretion of the reader and not of PYTHEAS. Copyright © 2011 Pytheas Limited July 2011 202
  • 203. Slide(s)Pytheas Investors Service General 173 - 174 Pytheas, The Organization 175 - 176 Pytheas main services, a diagram 177 Copyright © 2011 Pytheas Limited July 2011 203
  • 204. Bridge between business worlds!Copyright © 2011 Pytheas Limited July 2011 204
  • 205. Pytheas Investors Service Pytheas Investors Service was established as a vehicle for capital and investment to advise Pytheas’ clients on how to shape tomorrow’s business global map – to be a catalyst for growth, development and diversification by better positioning Pytheas’ clients in the global markets and in their quest for excellence. In close cooperation with the rest of Pytheas’ professional network, it assists and guides clients to clearly identify and establish appropriate investment opportunities through in- depth research and analysis of the worlds equities, industries, and markets. Copyright © 2011 Pytheas Limited July 2011 205
  • 206. Pytheas Investors Service Product experts, country specialists and industry analysts work in close unison and pool their talent to design, recommend, and, when appropriate, customize and fine-tune investment strategies that clients can act on in keeping with their portfolio preferences and imperatives. For more information: The breadth and quality of Pytheas pis@pytheas.net fundamental research and strategic advice, combined with its in-depth industry knowledge and geographic specialization, offer investor clients a wealth of information to evaluate and prioritize their investment decisions. Copyright © 2011 Pytheas Limited July 2011 206
  • 207. Pytheas, The Organization Like Pytheas, the ancient Greek explorer, scientist and businessman we provide access to markets inviting our partners to wander the paths and explore the places with a partner that possesses, knowledge of prevailing market dynamics, thorough industry expertise, and above all keen awareness of geographic idiosyncrasies… Our logo was borrowed from Pytheas and the ancient Greeks symbolizing the bridge between the worlds, representing both the doorway and passageway through to the understanding of cosmos. Copyright © 2011 Pytheas Limited July 2011 207
  • 208. Pytheas, The Organization Pytheas is an organization with global outlook, offering a wide range of sophisticated financial services to companies, governments, institutions, and individuals. Considered as one of the worlds premier organizations in providing For more information: access to emerging financial markets and economies in transition, Pytheas pytheas@pytheas.net services range from advising on corporate strategy and structure to raising equity and debt capital and managing complex investment portfolios. Copyright © 2011 Pytheas Limited July 2011 208
  • 209. Pytheas main services Emerging Strategic Investment Capital Markets Advisory Management Raising Research Business Investment PrivateDevelopment Banking Credit Distress Corporate EquityManagement Finance Finance Risk M&AManagementCredit Rating Asset Guidance Management Copyright © 2011 Pytheas Limited July 2011 209
  • 210. www.pytheas.netCopyright © 2011 Pytheas Limited July 2011 210
  • 211. See also by Pytheas on Montenegro► Montenegro – Credit Outlook (Oct 2009)► Montenegro – Tourism & Hospitality Industry, an Overview (July 2002)► General Conditions & Outlook for the Tourism Industry in Montenegro (Apr 2002) Copyright © 2011 Pytheas Limited July 2011 211