investing in montenegro 2010

Transcription

1 investing in montenegro 2010

2 This conference is supported by Map of Montenegro

3 Foreword Foreword Foreword by Dragisa Burzan Montenegrin Ambassador to the United Kingdom It is my great pleasure to welcome you here today for the Montenegrin Investment Forum Prime Minister Milo Đukanović has brought today to London a strong government delegation of senior ministers and officials, which illustrates the commitment our government has to attracting investment into the country. And the presence here today of representatives of the World Bank, the European Commission, the UNDP, the UK s Foreign Office and of course our hosts, the European Bank for Reconstruction and Development, further illustrates the support my country enjoys today as an active and fully engaged member of the international community. But today it is the private sector who we are inviting to Montenegro. We are very grateful for the support of Adriatic Properties D.O.O for supporting today s event as our primary partners and for making it possible. I also extend the sincere thanks of the Montenegrin Embassy and Government to Savills, Broadband Montenegro, Prva Banka and Porto Montenegro for sponsoring the day s activities. The overwhelming opinion of those that I have spoken to who have invested into the country is that their only regret is that they had not done so earlier. The Montenegrin government has done much to attract and assist the would-be investor and continues to do so which I believe is reflected by my country s showing in the World Bank s Doing Business Report 2010, where, out of 183 countries, Montenegro was ranked an impressive 27th for protecting investors, 43rd for getting credit, 46th for employing workers, and 47th for trading across borders. Significantly, the NATO Summit has approved the request of Montenegro for Membership Action Plan (MAP) for Montenegro, which is the final step before becoming a member. In addition, the Montenegrin Stabilisation and Association on agreements has been ratified by all member countries of the EU, meaning we will hopefully become an official candidate for the EU this year. In a difficult world landscape during the global downturn, Montenegro has fared exceptionally well in continuing to attract investors. Preliminary data from the Central Bank of Montenegro suggests that net FDI reached EUR million in 2009 significantly higher than the expected 300 million, and over 50% more than in This is testament to the investment community continuing to register and act upon its interest in the country, and our government remaining committed to maintaining and encouraging the investor. This commitment is exemplified by The Property Relations Law which introduced the same treatment of foreign citizens as nationals for acquiring movable and immovable property and the Council for the Elimination of Business Barriers, established in 2008, which simplified administrative procedures relating to market entry and exit, including online registration of companies, taxes and contributions, construction permits, and review of technical documentation. In addition, market exit procedures have been significantly reduced, and two-way communication with entrepreneurs was established via a web portal. I hope the above demonstrates a serious commitment from a progressive country cementing its role on the international stage, however, it barely does justice to the beautiful country of Montenegro a country thriving since independence, bursting with opportunity, and ready and eager to welcome you as investor or visitor to see for yourself. Lord Byron said upon seeing Montenegro for the first time, At the moment of the creation of our planet, the most beautiful merging of land and sea occurred at the Montenegrin seaside. We hope that you will come for yourselves to see what he saw and invest into the Adriatic s finest jewel. Dragisa Burzan Montenegrin Ambassador to the United Kingdom April INVESTING IN montenegro 1

4 INTRODUCTION Contents Introduction Introduction by Atam Sandhu, Chief Executive, Developing Markets Associates The overwhelming sense that you get when you arrive in Montenegro for the first time, as I did recently, is the effortless, almost exaggerated, picture postcard scenery around every corner as you drive through Sveti Stefan, Perast or Tivat. Granted, this is idyllic, I m told, but you still haven t seen the mountains for skiing, Europe s longest rapids for white water rafting, Europe s deepest canyon, the Balkan s largest lake, the forests and, of course, the UNESCO listed town of Kotor. That was the sense I d left with, one of overwhelming natural beauty, and that s the feeling that we first-time visitors shared with one another on the plane as we left for the UK. But it is not just its natural beauty that impresses. Montenegro has a sophisticated, hard-working population, an underdeveloped, vast range of opportunities for the would-be investor and a progressive, investor-friendly government and institutions who work proactively with the FDI community. The level of English spoken is impressive and the quality of service, quite exceptional in comparison with anywhere I have visited. The country has, like every other nation, gone through its difficulties in the past 18 months of global uncertainty, but despite the economic uncertainty it has increased its share of FDI over that period and now offers an incredibly wide range of real investment opportunities for the international community. Within infrastructure development, tourism, agriculture and energy there are numerous offerings, many of which you will hear about today. Those already engaged in the country are enjoying the benefits of what it has to offer an environment conducive to doing business, a vibrant, optimistic population, an abundance of breathtaking scenery and historic architecture and an increasingly glowing global reputation. To accompany today s forum, this Montenegrin Investment Report 2010, provides an overview of Montenegro s economy, a socio-political history of the country as well as a sector specific focus analysing barriers and incentives and identifying specific investor and business opportunities. I hope that you will find the report to be a useful accessory to today s proceedings, which promise to be both thought provoking and productive, with key speeches from both government and business leaders. Lastly, I feel certain that what you hear today will encourage you to take a closer look at the investment opportunities Montenegro has to offer. They are as numerous and varied as its natural delights. Atam Sandhu Chief Executive Developing Markets Associates Contents Economic overview 4 Political history 8 Privatisation and Foreign Investments 10 SEctors 12 TOURISM 13 ENERGy 14 INFRASTRUCTURE 16 TELECOMS 17 FINANCIAL ServICES 18 KEY contacts 20 Publisher: Chris Gerrard Contributors: Jake Allen, Sarah Hugo, Marjan Juncaj, Robyn Kingston, Jennie Wengrovius Art Director: Steven Jones Conference Coordinators: Amy Slonje, Barbara Monteiro Joint CEOs: Leon Isaacs, Atam Sandhu Correspondence Developing Markets Associates Ltd (DMA), 150 Tooley Street, London, SE1 2TU info@developingmarkets.com web: DMA acknowledge the assistance of all the individuals and organisations who have contributed to his publication. The views expressed herein are the opinions of the authors, and do not necessarily represent the Embassy of Montenegro, the Government of Montenegro or DMA. All rights reserved. No part of this publication may be reproduced or transmitted in any form without the written permission of the publisher. Published by Developing Markets Associates Ltd (DMA) Printed by Wyndeham Grange. Picture credits: istockphoto.com Developing Markets Associates Ltd 2 INVESTING IN montenegro INVESTING IN montenegro 3

5 Economic Overview Economic Overview Economic overview Montenegro is situated in the western part of the Balkan Peninsula along the Adriatic coast. It borders Croatia to the north and Albania to the south. It is a country known for its unparalleled natural beauty, with Norwegian-type fjords washed by warm Adriatic waters and rugged peaks. Montenegro is a small country with an area of 5,019 square miles and a population of 672,000. In 2009, Montenegro s GDP was US$6.64 bn with a GDP per capita of US$ 9,800. In 2006 and 2007 the country achieved GDP growth rates of 8.6% and 10.7% respectively which continued strongly into 2008 with 6.9% growth. In 2007, Montenegro achieved a record fiscal surplus of more than 6% of GDP, which remained at 1% of GDP in These achievements have positioned Montenegro as one of the fastest growing European countries. Montenegro is predominantly service based, with services accounting for 54.6% of GDP in Key economic objectives are sustainable development, rule of law, and an increase in living standards through the development of an open market economy. Montenegro s legislation has been brought in line with World Trade Organisation (WTO) requirements, and negotiations for full membership are nearing completion. The country is well integrated into regional and global trade and, since 2000, Montenegro has implemented a Free Trade Agreement (FTA) with Russia and Central Key economic objectives are sustainable development, rule of law, and an increase in living standards through the development of an open market economy European countries (CEFTA). Cooperation with neighbouring countries has increased, particularly in the areas of cross-border projects. Many Montenegrin products are admitted without quotas or custom fees to the EU (agricultural products, baby beef products and textile products) and other preferential measures have recently been extended. Montenegrin economic policy is heavily geared towards membership of the European Union (EU). Structural reforms and the creation of a favourable business environment will underpin this aim, and they remain a government priority. Measures are being put in place to achieve an alignment of the economic system with the standards of the EU. These include: comprehensive structural reforms with an emphasis on the completion of privatisation; support to SMEs and the promotion of public-private partnership (PPPs); maintaining and strengthening the openness of the economy; enhancing competitiveness through the The small size of Montenegro, coupled with its relatively high potential, should help the country to take advantage of the expected global recovery efficient use of existing natural and human resources, balancing local economic development; and reducing barriers to businesses while putting in place clear business-oriented regulations. Following independence, efforts have been made to attract foreign investors to tourism as well as large infrastructure projects, including highways, new energy facilities, water, and waste management. The last few years have seen substantial capital inflows, adoption of the Euro as the sole legal tender, a restructuring of the banking sector, significant privatisation, strengthened market infrastructure, and progress in fiscal consolidation. Impact of the global financial crisis Like most countries globally, the Montenegrin economy was affected by the global financial and economic crisis. As elsewhere in the Western Balkans, the crisis reached the country later than in Western Europe : only starting to be felt in the last quarter of The crisis fully hit Montenegro during GDP contracted by 4% in 2009 and the budget deficit and public debt deteriorated to 3% and 39% of GDP respectively. In the first three quarters of 2009, imports contracted by a third year on year while exports declined by a similar amount. The drop in aluminium prices, combined with a drop in global demand, affected production in the largest aluminium exporting company, KAP. After years of boom lending, the banking sector s credit to the economy significantly contracted, with non-performing loans rising. However, the response to the financial crisis by the authorities has been prudent and systematic, and has aimed to both support the economy and protect citizens. The first rescue package, adopted as early as December 2008, was Euro 350 million and included an increase in capital expenditures, a reduction in the rate of social contributions, the elimination of certain fees, and subsidies for electricity payments for SMEs and households. The authorities implemented measures to stabilise the banking system and maintain adequate levels of bank liquidity, including a law authorising the government to provide direct support to banks in the form of credit lines and re-capitalisation. Furthermore, they protected savers by providing a 100% guarantee on all deposits, which was a unique measure in the region, as other governments only increased the guaranteed limit. This response maintained confidence in the banking system. Throughout 2009, macroeconomic policy has been driven to a large extent in response to the financial crisis. It focused on implementing a more prudent fiscal policy and accelerating structural reforms in several sectors. It included developing a more marketoriented approach by involving the private sector through PPPs, reducing the fiscal burden on labour to increase competitiveness, and developing the legislative framework for the financial system with the adoption of legislation based on EC directives. The Central Bank has contributed to macroeconomic stability in its timely adaption of monetary policy to the new circumstances. The authorities maintained dialogue with foreign parent banks regarding liquidity support, detailed bank by bank contingency plans, increased the banknote inventory of the central bank, and arranged contingent credit lines. In many respects Montenegro fared better than its neighbours: FDI inflows in the Montenegrin economy continued, in fact even increased, largely due to sale of part of the Electric Power Company of Montenegro (EPCG); a much feared dramatic decline in tourism did not materialise; and the level of remittances was largely unaffected by the crisis. Outlook 2010 is expected to be a challenging year, particularly because of the continuing fragile external environment. GDP may see a further small contraction, though the government hopes for a mild recovery from the beginning of the year. By 2011 the Montenegrin economy is widely expected to reach a solid recovery, and the IMF expects medium-term growth to reach 4%. The small size of Montenegro, coupled with its relatively high potential, should help the country to take advantage of the expected global recovery, provided the right policies are in place. The country, as with most of its regional neighbours, should accelerate the transition from the previous growth model towards a more sustainable one. Further efforts are needed to make public finances more sustainable and to enhance structural reforms. Long-term, the main challenges will be overcoming the relatively narrow base of Montenegrin economy, largely dependent on such industrial producers as KAP and the steel producer Niksic Steel Mill and tourism, as well as strengthening the overall administrative capacity. Continuing the EU approximation process with clear prospects for eventual EU membership will maintain investors confidence and provide necessary support to structural reforms, including through the existing mechanism of the Investment Promotion Agency (IPA). Business environment Some successful policies have been implemented enabling the creation of a competitive business environment in Montenegro: From 2001 onwards, the government has used fiscal policy to develop a tax system based on low tax rates, a broad tax base, and a minimum of tax exempt entities. Thus, corporate income tax is the lowest in the region at 9% and there is no double taxation on profits paid by subsidiaries to parent companies. The VAT rate of 7% is 4 INVESTING IN montenegro INVESTING IN montenegro 5

6 ECONOMIC OvERvIEW ECONOMIC OvERvIEW applied on some categories of products and services, otherwise it is 17%. As of 2010, the income tax is equal to the corporate income tax, i.e. 9%. In order to improve access to finance, the government restructured the banking sector. There are currently eleven banks operating in the country, with the share of foreign capital exceeding 80%. Despite the crisis, the banking system remained liquid, and foreign banks have remained committed to supporting their subsidiaries. The Property Relations Law introduced the same treatment of foreign citizens as nationals for acquiring movable and immovable property, with some limitations for the agricultural land, providing for long-term leasing as an alternative. The Council for the Elimination of Business Barriers was established in 2008; it simplified administrative procedures pertaining to market entry and exit, including online registration of companies, taxes and contributions, construction permits, and review of technical documentation. Market exit procedures have been significantly reduced, and two-way communication with entrepreneurs was established via a web portal. According to the Doing Business Report 2010 by the World Bank, in Montenegro achieved reforms in more than three of the ten doing business categories, a success it shares with only 37 other countries in the world. The reforms were noted, in particular, in the following areas: starting a business, dealing with construction permits, employing workers, and paying taxes. The country s improvement in creating a business friendly environment was reflected in its overall Doing Business Report 2010 ranking of 71st out of 183 countries, which reflects a move up from its position of 77th in the 2009 Report. Moreover, as far as protecting investors, Montenegro was ranked a high 27th; getting credit, 43rd; employing workers, 46th; and trading across the borders, 47th. According to the Transparency International Corruption Perception Index 2009 (CPI), Montenegro is ranked as 69 out of 180 countries and is positioned better than any other Western Balkans country. STRUCTURE OF GROSS value ADDED AND GROSS DOMESTIC PRODUCT AT CONSTANT PRICES % 7.5% 10.8% 8.5% table 1: COMPARATIvE EASE OF DOING BUSINESS montenegro Eastern Europe & central asia Procedures (number) Time (days) Cost (% of GNI per capita) Min. capital (% of GNI per capita) Procedures (number) Time (days) Cost (% of GNI per capita) 1, Difficulty of hiring index (0-100) Rigidity of hours index (0-100) Difficulty of redundancy index (0-100) Rigidity of employment index (0-100) (2) Redundancy costs (weeks of salary) Procedures (number) Time (days) Cost (% of property value) Strength of legal rights index (0-10) (3) Depth of credit information index (0-6) (4) Public registry coverage (% of adults) Private bureau coverage (% of adults) Extent of disclosure index (0-10) Extent of director liability index (0-10) Ease of shareholder suits index (0-10) Strength of investor protection index (0-10) oecd av erage 54.6% STRUCTURE OF SERvICES 34.2% 25.3% agriculture, hunting, forestry and fishing industry construction services tax es on products less subsidies on products source: statistical office of montenegro monstat Payments (number per year) Time (hours per year) Profit tax (%) Labor tax and contributions (%) Other taxes (%) Total tax rate (% profit) Documents to export (number) Time to export (days) Cost to export (US$ per container) 775 1, , Documents to import (number) Time to import (days) Cost to import (US$ per container) 890 1, , Procedures (number) Time (days) Cost (% of claim) % 16.1% 16.7% wholesale and retail trade real estate, renting and business activities transpor t, storage and communication hotels and restaurants other services source: statistical office of montenegro monstat Time (years) Cost (% of estate) Recovery rate (cents on the dollar) (1) higher values represent more rigid regulations. (2) the rigidity of Employment index is an average of the three indices. (3) higher scores indicating that those laws are better designed to expand access to credit. (4) higher values indicating that more credit information is available from a public registry or private bureau. (5) higher values indicating greater disclosure, greater liability of directors, greater powers of shareholders to challenge the transaction, and better investor protection. source: world Bank doing Business 2010 report. 6 investing in MonTEnEgro investing in MonTEnEgro 7

7 Political History Political HISTORy Political History From romantic RESISTANCE to a modern democratic state Montenegrin Independence, achieved in 2006, was the culmination of long held aspirations. Slavic tribes settled in the territory of current Montenegro during the 6th and 7th centuries AD. The state (known as Zeta in the 11th-14th centuries) maintained independence until the end of the 15th century, when Montenegro became the last country in the Balkans to be invaded by the Ottoman Empire. Unlike many of its neighbours however, Montenegro was never conquered completely. Montenegro developed a special autonomy and established the foundations of independence and statehood long before it became internationally recognised in 1878 under the provisions of the Berlin Congress. In 1918, Montenegro became a part of a large Balkan federal state, which, in its various forms, existed throughout the 20th century, for the most part under the name Yugoslavia and latterly, Serbia. The modern phase of the pro-independence movement, which dates back from the end of the 20th century, has been closely associated with the current Prime Minister of Montenegro and the leader of the ruling Democratic Party of Socialists (DPS) Milo Djukanovic, who began to distance himself from the Serbian Milosevic regime in the mid-1990s. Djukanovic and his supporters projected a pro-reform, pro- The clear foreign policy priority of the country s leadership is Montenegro s integration into euro-atlantic institutions Western course, which soon became intertwined with the pro-independence aspirations always present in Montenegrin society. Montenegro made its way towards independence gradually and peacefully, which was a remarkable achievement both for the newly independent state and for the Balkans on the whole, which still remembered the bloody disintegration of the former Yugoslavia in the 1990s. The country became formally independent on 3 June 2006 following the holding of a referendum on independence, an option envisaged by the Constitutional Charter of the State Union of Serbia and Montenegro, created in 2002 with the active involvement of the European Union. On 12 June 2006, the EU Foreign Ministers recognised the referendum result and announced that EU members would individually recognise Montenegro and establish diplomatic relations with it. Serbia recognised Montenegro as an independent state on 15 June 2006, and the resolution of pending issues with Serbia proceeded smoothly, including succession and the division of assets. In 2007 the country adopted its new Constitution, which was prepared in line with European standards. Montenegro is a parliamentary republic, with a functioning separation of powers between a onechamber Parliament, which has 81 MPs who are elected every four years, a directly elected President, a Prime Minister at the helm of the government, and an independent judiciary. During its first four years as an independent country, Montenegro has not only survived all manner of real or perceived threats, but has proven itself to be both an economically viable state with the potential to grow rapidly and a politically stable state, in fact one of the most stable states in the region. Thus it is of little surprise that international recognition of the new state was swift and wide. Montenegro became a member of the United Nations on 28 June 2006 the same month it proclaimed independence. It joined the EBRD in September 2006 and the IMF and World Bank in January On 11 May 2007 Montenegro was admitted to the Council of Europe and negotiations on WTO membership are very close to completion. In the domestic arena, the ruling pro-reform pro- European DPS convincingly won the first general elections after independence in 2006 as well as the presidential elections in It further enhanced its success during the early elections held at the end of March The governing coalition currently enjoys a sufficient majority in the national Parliament to continue its pro-reform course. The clear foreign policy priority of the country s leadership, and the main guarantee of its long-term stability, is Montenegro s integration into Euro-Atlantic institutions. This process is progressing very well: the country signed the Stabilisation and Association Agreement with EU in 2007 and formally applied for EU membership on 15 December In April 2009 the EU Council invited the European Commission to submit its Opinion on Montenegro s application, which is currently being prepared and is due to be released in autumn If positive, it will pave the way to the formal status as an EU candidate country, which will provide further encouragement to foreign investors. In December 2009, the Council of EU granted Montenegrin visa holders free regime for the travel to and through Schengen countries. Montenegro s next foreign policy priority, vital to its political stability and economic prospects and, at the same time, a direct contribution to the stability of the Balkans, is regional cooperation. Montenegro participates constructively with its regional neighbours, both on the multilateral level and in bilateral relations and signed the agreement establishing a regional free trade area within the framework of an enlarged CEFTA (effective 1 May 2007). It is also a signatory to the Energy Community Treaty and has signed the European Common Aviation Area Agreement. The country also actively participates in the Regional Cooperation Council and in the South East Europe Cooperation Process (SEECP). In recognition of the country s role in promoting regional cooperation, Montenegro has been trusted with the chairmanship of a whole range of regional initiatives for , including SEECP, CEFTA, MARRI, CEI, and AII. 8 INVESTING IN montenegro INVESTING IN montenegro 9

8 Privatisation Privatisation KEY INDICATORS The privatisation programme for 2010 includes Nikšić-based Ferrous Metallurgy Institute, oil company Montenegrobonus, tourist companies HTP Budvanska Rivijera and HTP Ulcinjska Rivijera, tobacco company Duvanski Kombinat, ship repairing Adriatic Shipyard AD Bijela, publisher Pobjeda, Institute for physiotherapy, rehabilitation and rheumatology led by Dr Simo Milošević. Barska Plovidba, strategic companies Luka Bar, Montenegro Airlines, and railway transport and maintenance companies Zeljeznički Prevoz Montecargo and Zeljeznička Infrastruktura. The list also includes companies, for which tenders have already been announced, including agricultural producer Montepranzo- Bokaprodukt, insurer Lovcen and port operator dealing with cargo Kontejnerski Terminal that emerged from Luka Bar. The authorities also intend to sell their shares in 14 companies on the stock exchange. well as privatisation methods and principles of specific companies. Since 2004, this model has provided for efficient realisations, simplified procedures, and an intensification of activity in a large number of small and medium-sized enterprises. Foreign Direct Investments Investment facilitation in Montenegro, including policy advocacy, proactive promotion, and aftercare is the mandate of Montenegrin Investment Promotion Agency (MIPA) and Foreign Investors Council. They define the Foreign Direct Investment Incentives Strategy and the development of FDI policy. Privatisation and Foreign Investments Montenegro s laws on foreign investments and on free trade zones have been fully harmonised with the agreements of the WTO. During privatisation, procedures were established to provide equal conditions for all potential local and foreign investors. Montenegro has positioned itself as a regional leader in terms of the implementation of legal and institutional mechanisms for creating a favourable investment environment for foreign investors. Privatisation The private sector has a very large share in the economy: 85% of the value of Montenegrin companies has been privatised. Privatisation of remaining assets, including energy and tourism, is expected to contribute to better economic performance, increased competitiveness, and the generation of higher revenues for the government. The privatisation process was initiated by the transformation of companies capital, including capital evaluation and development of transformation programmes for each company individually. It included the assignment of shares to employees by combining free-of-charge distribution and the ability to purchase shares at discounted prices. The Montenegro has positioned itself as a regional leader in creating a favourable investment environment for foreign investors KEY INDICATORS The most important investments in the privatisation process so far have been: Brewery, Nikšić (Inter-Brew, Belgium), the industry of bearings, Kotor (Daido metal Japan), Jugopetrol, Kotor (Hellenic Petroleum, Greece), hotel Maestral (Hit-Nova Gorica), Montenegrobanka, Podgorica (Nova Ljubljanska Banka, Slovenia), Telekom Crne Gore (Deutsch Telelecom-Magyar Telecom), Podgorička banka, AD Podgorica joint stock company (Societe Generale, France), KAP Aluminium Plant, Podgorica and Bauxite Mines, Nikšić (CEAC/Rusal, Russia), Crnagoraput AD Podgorica joint stock company (Strabag, Austria), Port Operator Marina Bar (Multi Capital Marina, Lithuanian-Latvian consortium), Local insurance Lovcen Osiguranje (Triglav, Slovenia) and A2A, Italy (acquired 43.7% stake in EPCG Energy Utility Company). Among the latest important investors involved in the projects in Montenegro are Aman Resorts from Singapore, Kempinski hotels from Germany, and PM Securities owned by a Canadian businessman Peter Munk. 1,200,000 1,000, , , , ,000 0 initial mass voucher privatisation process enabled 436,880 Montenegrins to become share owners, participating in 27% of the total capital of Montenegrin companies. This privatisation model resulted in both the acceleration of the privatisation process and accelerated development of capital markets and financial institutions in Montenegro. The higher quality of bids and stronger competition resulted in accomplished privatisations and piqued the interest of reputable foreign investors. The privatisation process is regulated by the Economy Privatisation Law and managed, controlled, and implemented by the Privatisation Council, which is accountable to the government for its work. According to law, privatisation in Montenegro is conducted by the following methods: sale of shares, sale of business assets of a company, issuance of shares to the employees of a company, exchange of shares for privatisation vouchers, registration of new shares by means of the increase in capital, debt-for-shares exchange, joint venture in which a company being privatised invests fixed assets, and a combination of these methods. The most recurrent model applied in the privatisation has been the sale of shares and assets by public auction, public tender, or by putting shares up for sale on the stock exchange. Annual Privatisation Plans enabled the definition of privatisation objectives as INVESTMENT CHANNELS Foreign Direct Investment Direct Investment Abroad Net Direct Investment Source: Central Bank of Montenegro (CBCG) 76,279 38,725 50, ,921 FDI has mainly been channelled through the privatisation process. The main recipient sectors changed as the country progressed from one stage of transition to another. A few years ago the banking industry attracted the largest portion of FDI; later, telecommunications became particularly attractive as the government decided to completely privatise the sector. As a result of the real estate boom and flourishing tourism, the construction sector grew significantly in 2007 and In 2009 the energy sector was the highlight, while upcoming initiatives will focus on tourism and infrastructure, including the construction of road infrastructure, thermal energy and hydro energy capacities, regional water supply systems, and the systems for solid and liquid waste disposal. According to preliminary data from the Central Bank of Montenegro, total FDI inflow for the period January- November 2009 amounted to EUR mn, 21.4% year-on year growth, and 31.3% of the projected GDP. Net FDI reached EUR mn, significantly higher than the expected 300 mn and 51.4% more than in The largest FDI inflow in 2009 resulted from the privatisation and recapitalisation of the energy utility EPCG as well as from the recapitalisation of banks. In 2009 EUR mn of Montenegro s inward FDI flow related to investments in local companies and banks, while EUR mn were invested in the form of intercompany debt. Real estate investments went down by 48.4% year on year at EUR mn. 466, , , , Jan-Nov Jan-Nov , INVESTING IN montenegro INVESTING IN montenegro 11

9 Economic Sectors and Opportunities TourisM Tourism remains the sector with the most dynamic development. Growth in tourism has had the accompanying effect of accelerated growth in other related sectors including transportation infrastructure, telecommunications, food processing, the furniture industry, and other areas. The diversity of natural wealth, offering a unique blend of plateaus, high-mountains, and sea scenery within a compact territory, represent a huge potential for diversified tourist offerings in Montenegro. It is possible to take a swim in the lakes or in the Adriatic Sea, go rafting down the river and skiing on the mountain slopes all in one day. Montenegro s coastline is 293km long and boasts 117 sand and pebbled beaches, stretching over 73km the main attraction for tourists. Tourist accommodation has a capacity of 150,000 beds, of which 37,000 are in basic-type facilities (hotels, motels, pensions and tourist villages). The concentration of tourists in the littoral area has always been high: in 2009 it received more than 95% of tourists. Nevertheless, the growing inflow of tourists, It is possible to take a swim in the lakes or in the Adriatic Sea, go rafting down the river and skiing on the mountain slopes all in one day particularly during peak season July-August, has started putting pressure on infrastructure and capacity which could result in a negative long-term impact. It is due to this that the government has introduced and been implementing a number of measures to respond to the evolving needs of both internal and international markets. The Strategy for Development of Tourism Until 2020, created with a vision of Montenegro as a tourist destination throughout the whole year, envisages development of new products, offering both diverse accommodation capacities for middle class and high end tourists and possibilities for new experiences in various regions of the country. The government pursues a sustainable approach, which takes into account social and cultural characteristics, as well as economic importance of TOURISTS By COUNTRy OF ORIGIN 35% albania Bosnia and herzegovina italy germany russia serbia 0% 2% 1% 1% the sector for sustainable economic growth while preserving biodiversity. The government has recently implemented a strategy for developing luxurious tourist offerings, such as yachting and golf, as well as rural nature oriented tourism, which is attracting reputable foreign investors. It seeks to promote regionally balanced tourism with a recognisable brand of Montenegro as a Mediterranean destination. Six clusters have been identified so far, reflecting the potential and the diversity of Montenegrin tourist offerings: 1. Budva Bar: beach tourism, 2. Ulcinj: beach tourism and tourism in nature as an international destination throughout the whole year, 3. Boka Kotorska: beach tourism, cultural and sport activities and wellness, 4. Skadar Lake: Cetinje: Tourism in nature, rural tourism and sport activities, 5. Bjelasica and Komovi Prokletije Plav, Rožaje: mountain area with national parks offering tourism in nature, sport activities, conferencing and wellness, 6. Durmitor Sinjajevina, Žabljak Plužine Šavnik: mountain area with Tara canyon and national parks offering tourism in nature, family tourism and sport activities. 3% 30% source: statistical office of montenegro monstat 10% slovenia France czech republic Usa 3% 1% other countries 14% TourisM statistics and outlook In the period , the revenues from tourism have increased from EUR 86 mn to EUR 480 mn. Direct and indirect contributions of the sector to GDP have been growing, in 2008 totalling EUR mn (or 22.4%), while its direct share in GDP was EUR mn (or 11.4%). The number of tourists visiting Montenegro in the first eleven months of 2009 increased by 1.9% year-onyear, while the number of overnights dropped by 2.8%. Foreign tourists accounted for 88.7% of total overnights. The authorities expect the number of tourists in 2010 to remain largely unchanged, projecting a marginal year-on-year increase of 1.1%, which should generate EUR 620 mn. The government s efforts will focus on development of the tourist industry with investments of EUR 80 mn for 6 large projects, including development of Saint Marko Island, Skocidevojka location, construction of Lido and Mediteran hotels in Ulcinj, and several new projects in the Bjelasica Mountains. investment opportunities in TourisM Investment in high-end tourism was marked with the opening of the new marina for large yachts in Tivat, in July 2009 by the Adriatic Marinas company, owned by Canadian businessman Peter Munk. The company announced further EUR 100 mn investments in the development and expansion of marina Porto Montenegro. The construction of a Four Seasons Hotel will be delayed for the time being due to the current economic conditions. Another important agreement was signed at the end of 2009 with Egyptian real estate developer Orascom regarding the sale of tourist company Lustica Development and valorisation of land on the Lustica Peninsula; EUR 1.1 bn will be invested over 12 years. The acquired property will be developed into a luxurious tourist centre including several hotels, a port, a golf course, restaurants, a hospital etc. It is expected to provide employment for approximately 10,000 people. The construction work will be launched immediately after the local authorities in Tivat endorse the urban plan for the location. For the upper end of the market, the sympathetically and beautifully restored vila Milocer, a former castle and a summer house of the royal family Karadjordjevic, and the newly restored and soon to be opened 15th century island of Sveti Stefan are two of the most beautiful secrets of the Adriatic. other major investment opportunities include: Velika Plaza 13 km long sand beach with an unobstructed view of the Adriatic Sea situated 12 investing in MonTEnEgro investing in MonTEnEgro 13

10 between the city of Ulcinj and the Island Ada Bojana. Destined to high luxury tourism, the development would include: development of a high level touristic area, construction of a small VIP airport, upgrading telecommunications, efficient energy and water supply, and coastal area protection. Mamula Island a beautiful islet 200 meters in diameter, accessible by boat as a day trip. The development concept includes a luxury hotel with exclusive leisure, food service and wellness facilities, situated in the existing 14th century fortress located on the island, as well as berths for small and medium size yachts. ENERGY Montenegro s strategy for developing its internal energy market reflects the general objectives of the energy policy of the EU. The main objective set by the strategy is to ensure sustainable, safe, and competitive supply of all energy sources together with energy efficiency measures and increased utilisation of renewable energy sources. The Montenegrin energy legislation and regulations are, to a great extent, harmonised with EU directives. Since its establishment in 2004, the Energy Regulatory Agency, pursuant to the Energy Law of the Republic of Montenegro, has performed the role of energy sector regulator. Jaz fields a hillside belonging to the cities of Budva and Tivat. Plans for the gradual development consist of an urban development concept, including a village complex offering accommodations, a water sport center, wellness facilities, food and beverage services. Buljarica mostly private land located between the cities of Bar and Budva. The majority of owners are members of a local landowners association interested in creating a joint venture with potential strategic partners participating as share holder partners. The development concept includes high quality residential accommodations, 4-5 star hotels and a tourist village (total of 6,500 beds). A marina is also planned, as is a business centre and an 18-hole golf course. Bigovo situated between the cities of Budva and Tivat and adjacent to the historic fishermen village, the site extends from the sea coast inland, with 38,940 square meters of land area. The development plan includes a leisure asset of the highest quality utilizing and maintaining the beautiful, natural surroundings. Kumbor located at the shores of Boka Kotorska Bay, 6 km from Herceg Novi, with many small beaches and nice restaurants on the seafront. The development envisages construction of a world class, unique multifunctional upscale tourism resort, including 4-5 star nautical and commercial amenities with leisure facilities. Valdanos located close to Ulcinj, southeast of Bar, is a former military vacation camp surrounded by olive trees which boasts an unobstructed sea-front view with exclusive privacy. The conceptual framework includes a five star resort, protection of the coastal area allowing up to 100 m2 of green surface per bed, and luxury tourism accommodations of a maximum of 4 floors. Mediteran located within a national park in Žabljak at 1,456 meters above sea level, is adjacent to and walking distance from the famous Black Lake and has spectacular views with soaring pines and towering mountains. The intention is to create a world-class resort that is intimate in feel and ecologically in harmony with nature. Montenegro s strategy for developing its internal energy market reflects the general objectives of the energy policy of the EU Energy production in Montenegro is based on primary resources, namely brown coal, lignite, and firewood, as well as on hydro-energy and industrial wood wastes, not on petroleum and natural gas. The thermal power plant Pljevlja, the hydropower plants Piva and Peručica, and a few additional small hydro power plants, generate electrical energy sufficient to satisfy almost two-thirds of the market (app. 4700GWh/year). Approximately a third of supplied energy is used by households. The largest industrial consumer of electrical energy is Aluminium Plant Podgorica (KAP), which uses some 44% of total gross electricity supply; another large energy consumer is Željezara Nikšić (Steelworks Niksic). The energy sector is characterised by unsatisfactory energy efficiency and considerable losses of electrical energy. However, there is significant energy generation potential. The estimated hydro potential of the main watercourses totals 9,846 GWh, of which less than 1,800 GWh, or only 17%, is harnessed at present. In addition, the potential of small water courses is between 800 GWh and 1,000 GWh. Coal is the most significant energy resource in Montenegro. Only 18.5 mn tons are categorised under exploitable, while Pljevlja and Berane basins represent a potential of mn and 158 mn tons respectively. The total potential of geological reserves has been determined in two separate offshore zones to amount to 7 bn barrels of petroleum and 425 bn m3 of natural gas. In the last decade, Renewable Energy Sources (RES) accounted for approximately 25% of the total primary energy balance of Montenegro, based on hydro, fuel wood and wastes. The government s strategy has also identified other potential for RES such as wind energy, solar energy, biomass and plant waste, and municipal solid waste. Montenegro is a signatory of Energy Community Treaty, Kyoto Protocol and participated proactively at the Copenhagen climate change summit. As an ecological state (one of few in the world that is officially defined as an ecological state in its Constitution), Montenegro is committed to reducing the emission of greenhouse gases by 20%; to increasing energy efficiency and reducing energy consumption by 20%; to increasing the share of renewable energy sources to 20% of total primary energy consumption, and of biodiesel fuel to at least 10%. In order to balance energy needs, development, and environmental protection, the government will seek construction of new electricity production sources, connection to the future Adriatic-Ionian gas pipeline, and, based on the cost effectiveness studies, possible exploitation of domestic natural gas and crude oil resources. Investment projects in the pipeline In January 2009 the electricity market was opened for all non-household consumers. The regulator adopted rules on qualified buyers of electricity, designation of the public electricity supplier and approval of market rules. The state electricity company (EPCG) has been restructured and five daughter companies established: four of them, dealing with generation, supply, distribution and construction, remained part of the holding company, while the transmission unit became a joint stock company. EPCG AD was partly privatised in 2009 by means of a capital increase and sale of 18.3% of its shares to Italian power company A2A, which now holds 43.7% stake in EPCG, acquired through several deals during 2009 including a purchase from the government, re-capitalisation and buy-out offers to minority shareholders. They are allowed to acquire majority control in EPCG over the next five years under the condition of implementing the investment programme. The government also signed an agreement with the government of Italy for connection of the electricity networks of the two countries through an undersea transmission cable with 1,000 MW capacity. The project, financed entirely by the Italian side, is worth EUR 720 mn, and will be implemented by the Italian company Terna and its local peer Prenos, which has been recently established by the transmission unit of power utility EPCG. Terna is to acquire 22% stake in Prenos through a EUR 30 mn recapitalisation. The project should be completed by The Italian government expressed its readiness to invest a total of EUR 5 bn in the Montenegrin energy sector. The construction of small hydropower plants is planned on ten separate water flows in three river basins (Savnička, Beranska and Plavska). The plants would reach up to 10MW, while the total investments are expected at about EUR 60 mn. Ten bidders have been short listed by the tender commission for concession granting. The tender combines a DBOT (Design-Build- Operate-Transfer) arrangement for water stream exploration and small hydropower plant construction. Another upcoming project is the revitalisation and modernisation of two small hydropower plants Glava Zete and Slap Zete. The undertaking is expected to go through a joint venture, worth EUR 16 mn, to be established between the Norwegian power company 14 INVESTING IN montenegro INVESTING IN montenegro 15

11 NTE and its Montenegrin peer EPCG. It is estimated that the annual production of the plants would increase threefold to 50 mn kwh following the modernisation. There is also a Greenfield potential in hydropower plants on the River Morača. The government has called for a pre-qualifying tender for the construction of four hydropower plants that would generate 721 mwh of electricity. The concession would be granted for 30 years. Maoce coal mine near Pljevlja in north-eastern Montenegro is also part of prequalification tender, which will close in May The tender awards a coal exploration concession and subsequent construction of a 500 MW thermal power plant that would operate for 40 years. In the area of oil and gas, the government passed a bill on the exploration for and production of hydrocarbons mid-march A call for tender for shelf exploration will be announced by mid Foreign companies such as Italian ENI, Russian Gazprom, Hungarian MOL, Slovenian Petrol, and Canadian Bankers Petroleum have already expressed their interest in taking part in the project. As mentioned above, some studies have estimated a potential of 7 bn barrels of oil and 425 bn m3 of gas near Ulcinj shore. TRANSPORTATION INFRASTRUCTURE Montenegro s road network is about 7,000 km, out of which 1,850 km are main and regional roads, 5,150 km are local and non-categorized roads. The density of the main and regional roads is 13km/100km2, and there are 312 bridges and 136 tunnels thereon. Currently, there are no highways, and only a third of the regional and main roads remain in good condition. The railway network is 250 km long and is single track, electrified, and of normal gauge. The track links the Port of Bar to Podgorica and then to Bijelo-Polje, where it continues up to Belgrade, the capital of Serbia, and Podgorica to Nikšić, with a link to Albania via Tuzi. Both tracks are for passengers and cargo transport. Currently, there are two airports in the country one in the capital city Podgorica and one in the seaside town Tivat. The Airport in Podgorica was fully reconstructed and modernised in Maritime transport is serviced through 4 passenger and cargo transport ports: Bar, Herceg Novi, Tivat, and Zelenika. Bar, with 95% of the share in passenger and freight transport, is the main port. The Zelenika harbour, 270m long and 92m deep, is used only for cargo transport. The Kotor harbour consists of the Kotor bay with the operative coast of 216m in length and 3 to 12.8 m in depth, and the Lipici terminal with a 75 m long operative coast and the small harbour of Bigovo, located on the open sea. In the first eleven months of 2009 road, railway and air transportation of passengers declined by 15.2%, 17.8% and 14.7% respectively, compared with the same period the previous year. The period-on-period increase in road cargo transport amounted to 27%, with the respective air and railway cargo transport declines being 20.2% and 45.2% (the latter measured in tonne-kilometres). Total turnover in ports amounted to 1,385 thousand tonnes in the first eleven months of 2009, thus being 22.6% lower than in the same period of the previous year. Ongoing projects In 2009 the government expected to start implementation of concession agreement with the Croatian consortium, consisting of Konstruktor Inzenjering, Tehnika, and Institut Gradjevinarstva Hrvatske (IGH), for the construction of the Bar-Boljare highway. Unfortunately, the concessionaire could not provide the required bank guarantees, and the government decided to launch talks with the secondranked tender bidder, the consortium of Greek Aktor and Israeli Housing and Construction Holding. The signing of the concession contract is expected in April Recently, an agreement has been signed with Chinese investors for a bypass around Budva. The government intends to spend EUR 47 mn in 2010 in order to maintain and build roads. The government s efforts to improve transport infrastructure have been supported by International Financial Institutions through co-financing of infrastructure projects, as well as through funds from the EU Instrument for Pre- Accession Assistance (IPA). Regarding rail transport, the national railway company has been unbundled into an infrastructure company (Montenegrin Railway Infrastructure or Željeznička infrastruktura Crne Gore ZICG) and an operator for maintenance and freight and passenger transport (Railway Transport of Montenegro or Zeljeznicki Prevoz Crne Gore ZPCG). Infrastructure management and traffic regulation remains state owned, while joint investment is sought for infrastructure maintenance on the basis of a long-term contract with the state. In June 2009, Montecargo was established after an emergency session of the shareholders assembly of Railway Transport of Montenegro. The tender issued in October for the sale of 87.6% stake in the company Montecargo has been extended until April The procurement tender called by EBRD for railways rehabilitation, in particular for TABLE 2: DEVELOPMENT OF TELECOMMUNICATIONS Jun 2009 Source: National Agency for Electronic Communications and Postal Services (EKIP) Sept 2009 ADSL number of users WiMAX number of users Fixed broadband penetration 5.50% 6.74% 7.31% Fixed broadband penetration 18.90% 19.81% 21.60% per household Financing sources 2,723 1,464 1,509 1,953 Number of Mobile Internet users total ProMonte T-Mobile m:tel Total G coverage Territory Population ProMonte 23% 72% T-Mobile 18 municipalities 70% m:tel 30% 65% the works on tunnels, is open until May The project is to be financed by part of an earlier approved EBRD loan to Montenegro s Railway Infrastructure Company. In the beginning of 2010, the Railway Infrastructure of Montenegro signed a contract with Austrian Swietelsky Bau on the reconstruction of the railway Belgrade-Bar (an 18km long portion from Bijelo Polje to Serbian border) in the amount of EUR 7.9 mn. The additional EUR 10 mn for the reconstruction of the railway in the north is provided from the Instrument for Pre-Accession Assistance (IPA). By the middle of 2011, new tracks should be in place from Kolašin to the border with Serbia. The railway connecting the industrial centre of Niksic with the port of Bar and the capital city of Podgorica will also benefit from a rehabilitation programme financed by the EUR 15 mn loan from the EBRD, which will be complemented by a EUR 0.95 mn grant from the EBRD s Western Balkans Fund and its Shareholder Special Fund as well as by the government of France. The restructuring of port operator Luka Bar in 2009 resulted in three companies Kontejnerski Terminal i Generalni Tereti, which deals with container and general cargo shipments, and Pomorski Poslovi and Obezbjedjenje i Protivpozarna Zastita, which are supporting companies. The state holds 54.05% stake in Kontejnerski Terminal i Generalni Tereti while the two other companies belong to Luka Bar. Separate calls for tender have been issued for all three companies, and the one for Kontejnerski Terminal i Generalni Tereti will close in April In December % of port operator Marina Bar was sold for EUR 2.2 mn to the Lithuanian-Latvian consortium Multi Capital Marina. Over the next five years the Baltic consortium will invest an additional EUR 12.2 mn and pay an annual concession fee of EUR mn. Major investment opportunities Montenegro Airlines was founded 15 years ago. It is registered for domestic and international passengers and charter traffic, as well as for the carriage of cargo and mail. The tender documentation for privatisation of the company is being prepared and companies from Russia, the UK and Israel have already shown their interest. Adriatic Shipyard Bijela is the largest ship repairing yard in Southern Adriatic. Established in 1927 it has built a wealth of experience, expertise and technical capacity. According to the Plan for Privatisation 2010, the tender documentation is being prepared. TELECOMMUNICATIONS The telecommunication sector in Montenegro has been completely privatised. The legislation and regulatory principles, ensured by the Agency for Electronic Communications and Postal Services (EKIP), are in line with EU regulatory framework for communications. Montenegro s telecommunications infrastructure has received substantial investments 16 INVESTING IN montenegro INVESTING IN montenegro 17

12 since 2000; digitalisation was completed in 2006 and a national fibre optic transmission network and a high capacity, packet-switched Multiprotocol Label Switching (MPLS)-based network known as MIPNet has been implemented. The fixed-line market in Montenegro is dominated by Montenegro Telecom (Crnogorski Telekom), which was privatised in 2005 with majority owner Hungary s Magyar Telekom (a subsidiary of Deutsche Telekom). The company offers fixed-line voice, data transmission, internet access, mobile telephony services, and Broadband TV (IPTV). In 2009, mobile operator m:tel was authorised to operate a public fixed telephony network, while ten service providers were authorised to offer public fixed voice telephony services. There are three mobile network operators providing GSM/WCMDA services in Montenegro: ProMonte, T-Mobile and m:tel. According to the telecommunication agency, the penetration levels are among the highest in Eastern Europe, at 201.1% in February Mobile broadband services are encouraged based on expanding WCDMA/HSDPA networks. Broadcasting is available via pay TV platforms including cable TV, Multichannel Multipoint Distribution Systems (MMDS) and satellite TV, as well as free-to-air (FTA) terrestrial broadcasting. The Broadcasting Agency and the Broadcasting Law of April 2004 regulate the market. The broadcasters include public broadcaster Radio Television of Montenegro (RTCG) and a number of private broadcasters that include TV IN, NTV Montena and Pink M. Broadband is becoming more common in Montenegro as competition improves affordability of the service. The government also stimulated internet usage by deploying PCs and broadband internet access in schools and education institutions. According to the data of the Regulatory Agency, the number of broadband users has registered strong growth since 2005, reaching 44,615 users in September There are 13 licensed internet service providers, of which six are active: Montenegro Telecom, MontSky, Mina Infomont, T-Mobile, ProMonte and m:tel. The internet domain (.me) is administered by the company domen, created by partners Afilias, GoDaddy. com and ME-Net in 2007; the three also provide registry services supporting the new domain. ADSL is the most popular technology for broadband services even though other technology platforms are available. There are five providers holding WiMAX licences for fixed wireless access, including Telekom Serbia, Broadband Montenegro, T-Mobile, ProMonte and Verat. The potential of ICT for social and economic development has been recognised by the government, and the Ministry for Information Society was established in The ministry developed the Strategy for Information Society Development of Montenegro for the period and, besides its implementation, is responsible for e-government and IT infrastructure. Financial Services Banking System The Central Bank of Montenegro was established in November 2000 and is responsible for the monetary and financial stability and functioning of the banking system. The Bank supervises and regulates the banking sector and provides macroeconomic analysis and recommendations on economic policy to the government. Montenegro s financial sector has not avoided the global financial crisis but has withstood the turbulence. The Law on Measures for the Protection of the Banking System provided guarantees from the government for household and companies deposits. Moreover, foreign banks provided additional liquidity to their subsidiaries. The Central Bank implemented a set of measures to protect the system from the risks of rapid credit growth. Therefore solvency ratio was increased, ceilings on credit growth were introduced, and the reserve requirement base was broadened. In addition, the Credit Registry that enabled banks and microcredit financial institutions to gain insight into the indebtedness of legal entities and private individuals became operational. These actions prevented banks from pursuing more risky strategies and created buffers for the turbulent developments in the international financial markets. The new Law on Banks foresees a compulsory capital increase, which should additionally strengthen the banking system and increase its ability to cope with various potential shocks that the system may be exposed to in the future. Montenegro s financial sector has not avoided the global financial crisis but has withstood the turbulence In order to maintain financial stability, the IMF advised supervisory and regulatory vigilance and further strengthening of the Central Bank effectiveness by adoption of a new Central Bank Law and legislation on banks and bankruptcy, as well as close cooperation between banks and supervisors. The banking sector in Montenegro is serviced by 11 licensed banks. According to the figures of the Central Bank, the aggregate of banks assets and liabilities at the end of November 2009 amounted to EUR 3,077.3 mn, which represents a 3.4% increase compared to December Total deposits amounted to EUR 1,869.6 mn end- November 2009, registering a drop of 6% compared to December The share of households represents 43.7% of total deposits. From September 2008 onwards households started withdrawing their deposits. Confidence was restored in June 2009 and has registered a timid growth since then. The total volume of trade on both Montenegrin stock exchanges increased from EUR mn in 2008 to EUR mn in 2009 Loan levels, after an impressive growth of 25.8% during 2008, progressively declined from October 2008, reaching EUR 2,554.9 mn at the end of November, a drop of 9.2%. Yet a month on month increase of 0.6% from October to November 2009 might signal the end of the downward trend. Insurance sector Insurance sector expanded by 6.1% year on year in the first ten months of 2009 following an 18% annual growth in 2008 (latest data from the Agency for Insurance Surveillance), A total of EUR 54 mn in premiums was reported in January-October The industry is dominated by the car insurance segment though life insurance is developing fast and grew by 5% in the first ten months of At the end of 2009 there were 11 insurance companies. Recently, however, the insurance watchdog has revoked the operating licence of mid-sized insurer Magnat Osiguranje, bringing the number of active players to ten. The market is highly concentrated, with Lovcen Osiguranje holding 61% of the market share; 91.8% of Lovcen Insurance is controlled by the Slovenian insurance company Triglav. The second largest insurer is Sava Montenegro, which is 100% controlled by Slovenian Sava Insurance. The sector is still relatively small in Montenegro and accounts for approximately 3% of GDP and has the potential for further growth, particularly in the area of property insurance, as the companies are ready to offer insurance policies with increased risk. Capital markets The total volume of trade on both Montenegrin stock exchanges increased from EUR mn in 2008 to EUR mn in The markets were positively influenced by the sale of a minority stake in power utility EPCG in There were 58,776 transactions concluded, and the main traded securities included company shares, privatisation investment fund shares and bonds (Old Currency Savings bonds, Restitution Fund bonds and local self-government bonds). In 2009, company shares accounted for 93.7% of the total turnover, while various bonds and investment funds represented 4.0% and 2.3% respectively. The merger of the two stock exchange markets (NEX Stock Exchange and Montenegro Stock Exchange) is expected to take place in 2010, with the objective of giving impetus to capital market development through the arrival of new investors, turnover, and liquidity increase. In the long run, the single Montenegrin stock exchange will be integral to the regional Balkan capital markets. The value of all three stock exchange indices (NEX 20, NEX PIF and MOSTE) declined from August 2007 onwards. The slow increase from mid-january 2009 was followed by a confirmed recovery in May INVESTING IN montenegro INVESTING IN montenegro 19