Economy of Montenegro
Encyclopedia
Economy of Montenegro
is mostly a service based economy, currently in process of economic transition
. Economy of this small Balkan state is recovering from impact of Yugoslav Wars
, decline of industry following the breakup of SFRY, and UN
economic sanctions
.
made its first steps towards an industrial economy only at the turn of the 20th century. The causes for this relative delay lay in the small population, lack of raw materials, underdeveloped transport network and comparatively low rate of investment. However, this delay in industrialisation had its positive effects - Montenegro survived as a specific ecological oasis.
The first factories were built in Montenegro in the first decade of the 20th century, followed by wood mills
, an oil refinery
, a brewery
, and electric power plants. This brief evolution of industrial economy was interrupted by new wars - First Balkan War
(1912–1913), followed by World War I
and World War II
. Between the two world wars, agriculture
maintained its dominant position in the national economy, while the sole remaining industrial plants were wood mills, tobacco
factories, breweries, and salt works
.
, aluminum, coal mining
, forestry
and wood processing, textiles and tobacco manufacture was developed, while trade, international shipping, and particularly tourism became increasingly important by the late 1980s.
program, which had begun in 1989, was interrupted. The disintegration of the Yugoslav market, and the imposition of UN sanctions in May 1992 were the causes of the greatest economic and financial crisis in Montenegro since World War II. During 1993, two thirds of the Montenegrin population lived below the poverty line, while frequent interruptions in relief supplies caused the health and environmental protection to drop below the minimum of international standards. The financial losses under the adverse effects of the UN sanctions on the overall economy of Montenegro are estimated to be approximately $6.39 billion. This period was marked by the second highest hyperinflation
in the history of humankind (3 million percent in January 1994).
Due to its favourable geographical location (it had access to the Adriatic Sea
and a water-link to Albania
across Lake Skadar) Montenegro became a hub for smuggling activity. The entire Montenegrin industrial production had stopped, and the republic's main economic activity became the smuggling of user goods - especially those in short supply like petrol and cigarettes, both of which skyrocketed in price. It became a de facto legalized practice and it went on for years.
and began severing ties with Serbia
. He blamed policies of Slobodan Milošević
for the overall decline of the Montenegrin economy. The Montenegrin government adopted the German mark
in response to resurgent inflation, and insisted on taking more control over its economic fate. This eventually resulted in creation of Serbia and Montenegro
, a loose union in which the Montenegrin government assumed predominant responsibility for its economic policies.
This was followed by implementation of faster and more efficient privatization, passing of reforming legislation, introduction of a VAT
and adoption of the euro
as Montenegro's legal tender. The government established a medium-term plan of economic reforms, popularly referred to as "The Agenda".
Despite implementation of reform laws and privatization of most of publicly owned companies, the living standard of Montenegrins did not improve significantly during this period. The government, with Milo Ðukanović still as the Prime minister, blamed the slow progress on Serbia. Some arguments used to support this position were that foreign debt was higher in Serbia by one third, that unemployment was significantly lower in Montenegro. It was also argued that troublesome cooperation of Serbian government with the Hague war crime tribunal
, ongoing Kosovo status process and general political turmoil in Serbia were hampering Montenegro's attractiveness to investors and delaying its progress towards full membership in European Union
and NATO.
A referendum
was held on May 21, 2006 in which the people of Montenegro voted by a slender majority in favour of Montenegrin independence from Serbia.
. Efforts have been made to attract the foreign investors into tourism greenfield investments, as well as in large infrastructure projects, both needed to facilitate the tourism development.
Montenegro has experienced a real estate boom in 2006 and 2007, with wealthy Russians
, Britons
and others buying property on Montenegrin coast. Montenegro received, as of 2008, more foreign investment per capita than any other nation in Europe. Due to foreign direct investment, the Montenegrin economy has been growing at a very fast pace in recent years. However, Late 2000s recession
will inevitably slow down the growth, as the biggest greenfield investments (development of Velika Plaža
, Ada Bojana
, Buljarica
, Jaz Beach
, construction of Belgrade–Bar motorway
, new power plants) may be postponed. The recession is also hitting hard on Podgorica Aluminium Plant
, the biggest single contributor to GDP, and a major exporter.
Montenegro
Montenegro Montenegrin: Crna Gora Црна Гора , meaning "Black Mountain") is a country located in Southeastern Europe. It has a coast on the Adriatic Sea to the south-west and is bordered by Croatia to the west, Bosnia and Herzegovina to the northwest, Serbia to the northeast and Albania to the...
is mostly a service based economy, currently in process of economic transition
Transition economy
A transition economy or transitional economy is an economy which is changing from a centrally planned economy to a free market. Transition economies undergo economic liberalization, where market forces set prices rather than a central planning organization and trade barriers are removed,...
. Economy of this small Balkan state is recovering from impact of Yugoslav Wars
Yugoslav wars
The Yugoslav Wars were a series of wars, fought throughout the former Yugoslavia between 1991 and 1995. The wars were complex: characterized by bitter ethnic conflicts among the peoples of the former Yugoslavia, mostly between Serbs on the one side and Croats and Bosniaks on the other; but also...
, decline of industry following the breakup of SFRY, and UN
United Nations
The United Nations is an international organization whose stated aims are facilitating cooperation in international law, international security, economic development, social progress, human rights, and achievement of world peace...
economic sanctions
Economic sanctions
Economic sanctions are domestic penalties applied by one country on another for a variety of reasons. Economic sanctions include, but are not limited to, tariffs, trade barriers, import duties, and import or export quotas...
.
History
As a relatively small principality and kingdom, MontenegroMontenegro
Montenegro Montenegrin: Crna Gora Црна Гора , meaning "Black Mountain") is a country located in Southeastern Europe. It has a coast on the Adriatic Sea to the south-west and is bordered by Croatia to the west, Bosnia and Herzegovina to the northwest, Serbia to the northeast and Albania to the...
made its first steps towards an industrial economy only at the turn of the 20th century. The causes for this relative delay lay in the small population, lack of raw materials, underdeveloped transport network and comparatively low rate of investment. However, this delay in industrialisation had its positive effects - Montenegro survived as a specific ecological oasis.
The first factories were built in Montenegro in the first decade of the 20th century, followed by wood mills
Woodworking
Woodworking is the process of building, making or carving something using wood.-History:Along with stone, mud, and animal parts, wood was one of the first materials worked by early humans. Microwear analysis of the Mousterian stone tools used by the Neanderthals show that many were used to work wood...
, an oil refinery
Oil refinery
An oil refinery or petroleum refinery is an industrial process plant where crude oil is processed and refined into more useful petroleum products, such as gasoline, diesel fuel, asphalt base, heating oil, kerosene, and liquefied petroleum gas...
, a brewery
Brewery
A brewery is a dedicated building for the making of beer, though beer can be made at home, and has been for much of beer's history. A company which makes beer is called either a brewery or a brewing company....
, and electric power plants. This brief evolution of industrial economy was interrupted by new wars - First Balkan War
First Balkan War
The First Balkan War, which lasted from October 1912 to May 1913, pitted the Balkan League against the Ottoman Empire. The combined armies of the Balkan states overcame the numerically inferior and strategically disadvantaged Ottoman armies and achieved rapid success...
(1912–1913), followed by World War I
World War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
and World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
. Between the two world wars, agriculture
Agriculture
Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...
maintained its dominant position in the national economy, while the sole remaining industrial plants were wood mills, tobacco
Tobacco
Tobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as a pesticide and, in the form of nicotine tartrate, used in some medicines...
factories, breweries, and salt works
Salt evaporation pond
Salt evaporation ponds, also called salterns or salt pans, are shallow artificial ponds designed to produce salts from sea water or other brines. The seawater or brine is fed into large ponds and water is drawn out through natural evaporation which allows the salt to be subsequently harvested...
.
SFRY-era
The economy made major progress only after World War II, as Montenegro became part of the SFRY. In the period following World War II, Montenegro experienced a period of rapid urbanization and industrialization. An industrial sector based on electricity generation, steelSteel mill
A steel mill or steelworks is an industrial plant for the manufacture of steel.Steel is an alloy of iron and carbon. It is produced in a two-stage process. First, iron ore is reduced or smelted with coke and limestone in a blast furnace, producing molten iron which is either cast into pig iron or...
, aluminum, coal mining
Coal mining
The goal of coal mining is to obtain coal from the ground. Coal is valued for its energy content, and since the 1880s has been widely used to generate electricity. Steel and cement industries use coal as a fuel for extraction of iron from iron ore and for cement production. In the United States,...
, forestry
Forestry
Forestry is the interdisciplinary profession embracing the science, art, and craft of creating, managing, using, and conserving forests and associated resources in a sustainable manner to meet desired goals, needs, and values for human benefit. Forestry is practiced in plantations and natural stands...
and wood processing, textiles and tobacco manufacture was developed, while trade, international shipping, and particularly tourism became increasingly important by the late 1980s.
Post-Yugoslavian Period
The loss of previously guaranteed markets and suppliers following the breakup of Yugoslavia left the Montenegrin industrial sector reeling as production was suspended and the privatizationPrivatization
Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...
program, which had begun in 1989, was interrupted. The disintegration of the Yugoslav market, and the imposition of UN sanctions in May 1992 were the causes of the greatest economic and financial crisis in Montenegro since World War II. During 1993, two thirds of the Montenegrin population lived below the poverty line, while frequent interruptions in relief supplies caused the health and environmental protection to drop below the minimum of international standards. The financial losses under the adverse effects of the UN sanctions on the overall economy of Montenegro are estimated to be approximately $6.39 billion. This period was marked by the second highest hyperinflation
Hyperinflation
In economics, hyperinflation is inflation that is very high or out of control. While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases...
in the history of humankind (3 million percent in January 1994).
Due to its favourable geographical location (it had access to the Adriatic Sea
Adriatic Sea
The Adriatic Sea is a body of water separating the Italian Peninsula from the Balkan peninsula, and the system of the Apennine Mountains from that of the Dinaric Alps and adjacent ranges...
and a water-link to Albania
Albania
Albania , officially known as the Republic of Albania , is a country in Southeastern Europe, in the Balkans region. It is bordered by Montenegro to the northwest, Kosovo to the northeast, the Republic of Macedonia to the east and Greece to the south and southeast. It has a coast on the Adriatic Sea...
across Lake Skadar) Montenegro became a hub for smuggling activity. The entire Montenegrin industrial production had stopped, and the republic's main economic activity became the smuggling of user goods - especially those in short supply like petrol and cigarettes, both of which skyrocketed in price. It became a de facto legalized practice and it went on for years.
Divergence from Serbian Influence
In 1997, Milo Đukanović took control over the ruling party DPSDemocratic Party of Socialists of Montenegro
The Democratic Party of Socialists of Montenegro is the ruling social-democratic political party in Montenegro....
and began severing ties with Serbia
Serbia
Serbia , officially the Republic of Serbia , is a landlocked country located at the crossroads of Central and Southeast Europe, covering the southern part of the Carpathian basin and the central part of the Balkans...
. He blamed policies of Slobodan Milošević
Slobodan Milošević
Slobodan Milošević was President of Serbia and Yugoslavia. He served as the President of Socialist Republic of Serbia and Republic of Serbia from 1989 until 1997 in three terms and as President of the Federal Republic of Yugoslavia from 1997 to 2000...
for the overall decline of the Montenegrin economy. The Montenegrin government adopted the German mark
German mark
The Deutsche Mark |mark]], abbreviated "DM") was the official currency of West Germany and Germany until the adoption of the euro in 2002. It is commonly called the "Deutschmark" in English but not in German. Germans often say "Mark" or "D-Mark"...
in response to resurgent inflation, and insisted on taking more control over its economic fate. This eventually resulted in creation of Serbia and Montenegro
Serbia and Montenegro
Serbia and Montenegro was a country in southeastern Europe, formed from two former republics of the Socialist Federal Republic of Yugoslavia : Serbia and Montenegro. Following the breakup of Yugoslavia, it was established in 1992 as a federation called the Federal Republic of Yugoslavia...
, a loose union in which the Montenegrin government assumed predominant responsibility for its economic policies.
This was followed by implementation of faster and more efficient privatization, passing of reforming legislation, introduction of a VAT
Value added tax
A value added tax or value-added tax is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the "value added" to a product, material or service, from an accounting point of view, by this stage of its...
and adoption of the euro
Euro
The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,...
as Montenegro's legal tender. The government established a medium-term plan of economic reforms, popularly referred to as "The Agenda".
Despite implementation of reform laws and privatization of most of publicly owned companies, the living standard of Montenegrins did not improve significantly during this period. The government, with Milo Ðukanović still as the Prime minister, blamed the slow progress on Serbia. Some arguments used to support this position were that foreign debt was higher in Serbia by one third, that unemployment was significantly lower in Montenegro. It was also argued that troublesome cooperation of Serbian government with the Hague war crime tribunal
International Criminal Tribunal for the former Yugoslavia
The International Tribunal for the Prosecution of Persons Responsible for Serious Violations of International Humanitarian Law Committed in the Territory of the Former Yugoslavia since 1991, more commonly referred to as the International Criminal Tribunal for the former Yugoslavia or ICTY, is a...
, ongoing Kosovo status process and general political turmoil in Serbia were hampering Montenegro's attractiveness to investors and delaying its progress towards full membership in European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
and NATO.
A referendum
Montenegrin independence referendum, 2006
The Montenegrin independence referendum was a referendum on the independence of the Republic of Montenegro from the State Union of Serbia and Montenegro that was held on 21 May 2006.The total turnout of the referendum was 86.5%...
was held on May 21, 2006 in which the people of Montenegro voted by a slender majority in favour of Montenegrin independence from Serbia.
Post-independence
Following the independence referendum, Montenegro's economy has continued to transform into a more service-based one, with the proclaimed goal of becoming the elite tourist destination, and joining the European UnionEuropean Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
. Efforts have been made to attract the foreign investors into tourism greenfield investments, as well as in large infrastructure projects, both needed to facilitate the tourism development.
Montenegro has experienced a real estate boom in 2006 and 2007, with wealthy Russians
Russians
The Russian people are an East Slavic ethnic group native to Russia, speaking the Russian language and primarily living in Russia and neighboring countries....
, Britons
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
and others buying property on Montenegrin coast. Montenegro received, as of 2008, more foreign investment per capita than any other nation in Europe. Due to foreign direct investment, the Montenegrin economy has been growing at a very fast pace in recent years. However, Late 2000s recession
Late 2000s recession
The late-2000s recession, sometimes referred to as the Great Recession or Lesser Depression or Long Recession, is a severe ongoing global economic problem that began in December 2007 and took a particularly sharp downward turn in September 2008. The Great Recession has affected the entire world...
will inevitably slow down the growth, as the biggest greenfield investments (development of Velika Plaža
Velika Plaža
Velika Plaža is a beach in Ulcinj Municipality, Montenegro. It stretches from Port Milena in Ulcinj to Bojana River, which separates it from Ada Bojana.-Overview:...
, Ada Bojana
Ada Bojana
Ada Bojana is an island in the Ulcinj Municipality in Montenegro.The name Ada means island in Turkish language.The island is created by river delta of Bojana River. The legend says it was formed by gathering river sand around a ship sunk at the mouth of Bojana river, but it is more likely to be a...
, Buljarica
Buljarica
Buljarica is a beach in the Budva Municipality of western Montenegro. It is about from Petrovac in the direction of Bar, The beach is long.-Geography:Buljarica has development potential to rival that of famed Velika Plaža of the south Montenegrin coast...
, Jaz Beach
Jaz Beach
Jaz is a beach in the Budva Municipality in Montenegro. It is located 2.5 km west of Budva city. It consists of two parts, one 850 m long and the other, formerly a nudist beach, 450 m long...
, construction of Belgrade–Bar motorway
Belgrade–Bar motorway
Belgrade–Bar motorway , is a future motorway in Serbia and Montenegro. The motorway will connect Serbian capital of Belgrade and Bar, Montenegro's main seaport...
, new power plants) may be postponed. The recession is also hitting hard on Podgorica Aluminium Plant
Podgorica Aluminium Plant
Podgorica Aluminium Plant is an aluminium processing plant, located on the southern outskirts of Podgorica, Montenegro.-Overview:...
, the biggest single contributor to GDP, and a major exporter.
External links
- Montenegro Economy and Financial News
- The Njegoskij Fund Public Project >> Country Profile on Montenegro
- CIA World Factbook - Montenegro
- A New Playground for the Rich - slideshow by The New York TimesThe New York TimesThe New York Times is an American daily newspaper founded and continuously published in New York City since 1851. The New York Times has won 106 Pulitzer Prizes, the most of any news organization...