Despite the constitutional crisis in Montenegro, there is still a steady inflow of diverse foreign direct investments, and the country's GDP is expected to increase, yet Harrisons Head of Montenegro Milan Keker remains cautious.
"Montenegro is going through a severe constitutional crisis," Keker points out. "Politics is a driving force permeating every layer of society, so the continued lack of consensus in parliament puts everything on hold." He adds that "the war in Ukraine obviously does not add to the positive side of the equation, and bleak – albeit well-deserved – feedback from the EU regarding the country's accession and harmonization process obviously pressures businesses nationwide."
"Montenegro’s situation is peculiar since it is the smallest country in the former Yugoslavia, which became independent quite recently," Keker continues. "It is quite obvious that the time since the country became independent was not utilized by the political elites to establish proper institutions that would secure the continued defense of the social contract. This became quite obvious since the elections in 2020 when the equilibrium of political power shifted for the first time in decades."
According to Keker, this has an undeniable impact on businesses. "Still, we see a steady inflow of foreign direct investments, which are critical for Montenegro," he says. "At this time, this factor is mainly driven by our geopolitical location and the fact that the country is still cheap, welcomes investments, and actually depends on them." However, he notes, "we are, of course, cautious with forecasts about 2023. I hope that the institutional crisis will be resolved at the latest by the end of the second quarter of 2023, as there will be general elections by that time."
In terms of legislative updates, Keker reports that, in the last two years, the Parliament worked in a permacrisis mode. "There were many months without any significant piece of legislation being discussed, except the COVID-19 related regulations," he says. "This year was marked with a reshuffle of the government in the first half of the year creating a loose majority in the parliament. Legislative processes suffered as comprehensive legal reforms, albeit urgently necessary, are missing," he explains. "Even in cases where such comprehensive reforms were attempted, such as the introduction of the 'Europe now' social program, their practical implementation showed planning deficiencies."
Generally, "we are in the process of harmonizing our laws with EU law," Keker says, "but we don’t do it properly, because there is an inherent misunderstanding of the factors which should be taken into consideration when transposing certain legal concepts to this jurisdiction. These factors include differences in mentality, culture, size of the market, its development, habits of the population, and so on."
As for the transactional trends, Keker notes that "there is an interesting shift to Western Europe and American capital being injected into the Montenegrin economy. Traditionally, Russian, Ukrainian, and Middle-Eastern capital prevailed over the last 10 years, but now it seems to be changing." According to him, there is also an increase in the influx of Israeli capital which traditionally operates in Belgrade. "BIG fashion recently acquired the largest mall in the country and is also looking at others," he notes. "We also still see a lot of investments in the coastal area, mainly into hospitality and residential apartments for sale."
Lastly, Keker highlights that a GDP growth of 3% is expected in the country for 2023. "It seems optimistic and, given the irrational public spending, overall, we shouldn't be so hopeful."