MONTENEGRO THE IMPACT OF TRAVEL &TOURISM ON JOBSANDTHE ECONOMY

Transcription

1 MONTENEGRO THE IMPACT OF TRAVEL &TOURISM ON JOBSANDTHE ECONOMY

2 CHAIRMAN: Vincent A Wolfington Chairman Carey International Inc VICE CHAIRMEN: Jean-Marc Espalioux Chairman of Management Board & CEO Accor Jonathan S Linen Vice Chairman American Express Company EXECUTIVE COMMITTEE: Akbar Al Baker CEO Qatar Airways Peter Armstrong President & CEO Rocky Mountaineer Railtours David Babai Chairman Gullivers Travel Associates Sebastián Escarrer Vice Chairman Sol Meliá Manuel Fernando Espirito Santo Chairman Espirito Santo Tourism Edouard Ettedgui Group Chief Executive Mandarin Oriental Hotel Group Maurice Flanagan CBE Vice Chairman & Group President The Emirates Group Michael Frenzel Chairman TUI AG David House Group President American Express Company Richard R Kelley Chairman Outrigger Enterprises Inc Geoffrey J W Kent Chairman & CEO Abercrombie & Kent J W Marriott Jr Chairman & CEO Marriott International Inc David Michels Chief Executive Hilton Group plc Hilton International David Mongeau Vice Chairman CIBC World Markets Curtis Nelson President & COO Carlson Companies Michael Ness President The Travel Corporation Richard North CEO InterContinental Hotels Group PLC P R S Oberoi Chairman The Oberoi Group Henry Silverman Chairman, CEO & President Cendant Corporation Lalit Suri Chairman & Managing Director Bharat Hotels Ltd Jonathan Tisch Chairman & CEO Loews Hotels GLOBAL MEMBERS: Giovanni Angelini CEO & Managing Director Shangri-La Hotels & Resorts Gerard J Arpey President & CEO American Airlines Ted Balestreri Chairman & CEO Cannery Row Company Henrik Bartl Managing Director Head of Specialized Property Financing Aareal Bank AG Jürgen Baumhoff CEO Qatar National Hotels Company Gordon Bethune Chairman of the Board & CEO Continental Airlines Raymond Bickson Managing Director The Taj Group of Hotels Regis Bulot Chairman of the Board Relais & Chateaux Marilyn Carlson Nelson Chairman & CEO Carlson Companies Alun Cathcart Chairman Avis Europe Plc U Gary Charlwood Founder, Chairman & CEO Uniglobe Travel (International) Inc Jennie Chua Chairman & CEO Raffles International Hotels & Resorts David Clifton Managing Director Europe & Asia Interval International Fernando Conte Chairman & CEO Iberia, Airlines of Spain Glen Davidson Senior VP,Worldwide Travel Insurance & Related Services American International Group Inc Alain Demissy President of the Executive Committee Mondial Assistance Group Rod Eddington Chief Executive British Airways plc Rakesh Gangwal Chairman, President & CEO Worldspan Laurence S Geller Chairman & CEO Strategic Hotel Capital Naresh Goyal Chairman Jet Airways Maurice H Greenberg Chairman & CEO American International Group Inc Stelios Haji-Ioannou Chairman & Founder easygroup James Hensley President Allied Europe James Hogan President & Chief Executive Gulf Air Stephen P Holmes Vice Chairman Cendant Corporation Raimund Hosch President & CEO Messe Berlin GmbH André Jordan Chairman Lusotur SA Nuno Trigoso Jordão President & CEO Sonae Turismo Gestão e Serviços Sol Kerzner Chairman & CEO Kerzner International Ltd Nigel Knowles Managing Partner DLA J T Kuhlman CEO One&Only Resorts Krishna Kumar Vice Chairman The Taj Group of Hotels Hans Lerch President & CEO Kuoni Travel Holding Ltd David Lucas President & CEO Blue Wave Solutions Manuel Martin Partner CyberDodo Productions Ltd Wolfgang Mayrhuber CEO Lufthansa German Airlines Paul McManus President & CEO The Leading Hotels of the World Alan Mulally Executive Vice President The Boeing Company John M Noel President & CEO The Noel Group Tom Nutley Chairman Reed Travel Exhibitions Alan Parker Chief Executive Whitbread PLC Jean Gabriel Pérès President & CEO Mövenpick Hotels & Resorts Dionísio Pestana Chairman Group Pestana Fernando Pinto CEO TAP Air Portugal Wolfgang Prock-Schauer Chief Executive Officer Jet Airways David Radcliffe Chief Executive Hogg Robinson plc Kurt Ritter President & CEO Rezidor SAS Hospitality Peter Rogers President & CEO Diners Club International Carl Ruderman Chairman Universal Media Marty Salfen General Manager, Global Travel & Transportation Industry IBM Bruno Schöpfer Chairman of the Board Mövenpick Hotels & Resorts David Scowsill CEO Opodo Robert Selander President & CEO MasterCard International Per Setterberg CEO Global Refund Group Julian Sparkes Managing Partner - Travel Services Accenture Eric J Speck Executive Vice President & Chief Marketing Officer Sabre Holdings Corporation Jean-Cyril Spinetta Chairman & CEO Air France David Stein Chairman The Stein Group Barry Sternlicht Chairman & CEO Starwood Hotels & Resorts Ron Stringfellow CEO Tsogo Sun Group Sultan Ahmed Bin Sulayem Executive Chairman Nakheel Ian Swain President Swain Tours Kathleen Taylor President Worldwide Business Operations Four Seasons Hotels and Resorts José Antonio Tazón President & CEO Amadeus Global Travel Distribution Jeffrey Toffler Chairman Coventry Partners Mustafa Türkmen CEO & Managing Director Enternasyonal Tourism Investments Inc Daniela Wagner Managing Director, International Octopustravel.com Peter C Yesawich Chairman & CEO Yesawich, Pepperdine Brown & Russell HONORARY MEMBERS: Lord Marshall of Knightsbridge Chairman British Airways plc Sir Frank Moore AO Chairman Taylor Byrne Tourism Group Frank Olson Chairman of the Board The Hertz Corporation Gérard Pélisson Co-Chairman, Supervisory Board Accor SA Tommaso Zanzotto President TZ Associates Ltd CHAIRMAN EMERITUS: James D Robinson III General Partner RRE Ventures IMMEDIATE PAST CHAIRMAN: Sir Ian Prosser Retired Chairman InterContinental Hotels Group PLC WTTC Chairman (21-23) FORMER CHAIRMEN: Harvey Golub Retired Chairman & CEO American Express Co WTTC Chairman ( ) Robert H Burns Chairman Robert H Burns Holdings Limited WTTC Chairman ( ) PRESIDENT: Jean-Claude Baumgarten Correct as at 25 May WORLD TRAVEL & TOURISM COUNCIL 1-2 QUEEN VICTORIA TERRACE.SOVEREIGN COURT.LONDON E1W 3HA. UNITED KINGDOM TEL: +44 () or + 44 () FAX: +44 () or + 44 () enquiries@wttc.org

3 THE WORLD TRAVEL & TOURISM COUNCIL (WTTC) IS THE BUSINESS LEADERS FORUM FOR TRAVEL & TOURISM, WORKING WITH GOVERNMENTS TO RAISE AWARENESS OF THE IMPORTANCE OF THE WORLD S LARGEST GENERATOR OF WEALTH AND JOBS. With chief executives of more than 1 of the world s leading companies in membership, WTTC has a unique mandate and overview on all matters related to success in Travel & Tourism. WTTC is delighted to have collaborated with Montenegro s Ministry of Tourism to produce this report, which presents the first simulated Tourism Satellite Account for Montenegro. Undertaken by WTTC, together with our research partners Oxford Economic Forecasting, this report quantifies all aspects of Travel & Tourism demand, from personal consumption to business purchases, capital investment, government spending and exports. It then translates this information into economic concepts of production, such as gross domestic product (GDP) and employment, which can be compared with other industries and the economy as a whole to provide credible statistical information that will assist in policy and business decision-making. Results show that Montenegro is already attuned to Travel & Tourism thanks in no small part to the efforts of the Montenegrin Government and, in particular, the Ministry of Tourism. The industry currently represents 14.8 per cent of total GDP and is expected to increase its share by more than six percentage points to 21.1 per cent in 214. Similarly,Travel & Tourism in Montenegro today accounts for 14.9 per cent of total employment, and this is forecast to rise to 21.3 per cent by 214. The industry s strong role as a generator of wealth and employment across all parts of the country is difficult to match by any other single sector. It also acts as a catalyst for growth in other areas such as retailing and construction, which would decline if demand for Travel & Tourism were reduced. This significant contribution should not be underestimated, but neither should the industry s potential for growth be taken for granted. As illustrated in the Tourism Trends and Policy Framework sections of this report, several important challenges continue to limit Travel & Tourism s full potential for growth in Montenegro, and these must be addressed to ensure the long-term sustainable development of Montenegro s Travel & Tourism, with maximum benefits for all stakeholders. These challenges include the development of much needed infrastructure and human capital, the enhancement of product and service quality, and the acceleration of privatization which, in turn, will encourage investment. This report also sets out WTTC s recommendations on policies that we believe will help optimize the potential benefits of Travel & Tourism in Montenegro, ensuring longer-term sustainable development and spreading the benefits across all levels of the economy and the country. Montenegro s Travel & Tourism could do even better than the baseline forecasts suggest, as long as certain factors are assured: a favourable government fiscal policy, a climate that is conducive to business offering incentives for investment sustained and effective marketing and promotion, and policies that respect the environment and local cultures. WTTC stands ready to support the adoption and implementation of these policies. Jean-Claude Baumgarten President,World Travel & Tourism Council The World Travel & Tourism Council would like to express its sincere gratitude to the many individuals and organizations that contributed their knowledge, insight and data/information to the policy review effort. A complete list of contributors can also be found on the inside back cover.

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5 CONTENTS EXECUTIVE SUMMARY 4 FUTURE PROSPECTS 5 REALIZING THE POTENTIAL 11 ECONOMIC IMPACT 14 GROWTH 15 MONTENEGRO S TRAVEL & TOURISM AN OVERVIEW OF CURRENT TRENDS AND DEVELOPMENTS 17 TRAVEL & TOURISM SATELLITE ACCOUNT TOURISM SATELLITE ACCOUNTING 24 TSA CONCEPTS & STRUCTURE 26 TRAVEL & TOURISM S ECONOMIC IMPACT 28 TOTAL DEMAND 3 EMPLOYMENT 31 GROSS DOMESTIC PRODUCT 32 CAPITAL INVESTMENT 33 PERSONAL & BUSINESS 34 EXPORTS 35 GOVERNMENT 36 THE POLICY FRAMEWORK 37 APPENDIX SATELLITE ACCOUNT TABLES 5

6 EXECUTIVE SUMMARY THE IMPORTANCE OF TRAVEL & TOURISM TO THE REPUBLIC OF MONTENEGRO IS INDISPUTABLE. HOWEVER, THE INDUSTRY S POTENTIAL IS A LONG WAY FROM BEING FULLY TAPPED, AND BOTH GOVERNMENT AND INDUSTRY WILL HAVE TO OVERCOME A NUMBER OF CHALLENGES TO ENSURE THE RIGHT KIND OF GROWTH IN THE MEDIUM TO LONGER TERM. The Government of Montenegro clearly recognizes the potential contribution of Travel & Tourism to economic growth and social development across the country, as reflected by its adoption of the Tourism Masterplan. However, its full potential is still underestimated. And there is insufficient understanding of the need to nurture the industry to ensure it develops sustainably for the benefit of all stakeholders. In 24, the wider Travel & Tourism Economy is expected to contribute 14.8 per cent of Montenegro s GDP and account for 22,67 jobs, representing 14.9 per cent of total employment. Over the next ten years, Travel & Tourism in the republic is forecast to achieve annualized real growth of 9. per cent, in terms of GDP, and 4.5 per cent in terms of Travel & Tourism employment. This would take the share of both GDP and employment to over 21 per cent by 214. longer term. But there is still a long way to go before the destination regains the level of tourism demand it enjoyed prior to the outbreak of the Balkan war in 199. Tourist arrivals totalled less 6, in 23 and overnight volume was less than 4 million down from more than 11 million at the industry s peak in More significantly, arrivals and overnights from abroad accounted for only a 23 per cent share of the total, and more than one-fifth of the foreign count came from neighbouring Bosnia-Herzegovina. Montenegro now needs to adopt a cohesive, longterm strategy for sustainable development to ensure it attracts the right kind of tourism. The war in neighbouring states, followed by years of economic sanctions, caused a near collapse of Travel & Tourism demand, as well as placing a great financial strain on the Montenegrin tourism industry. This has resulted in an These are impressive figures. But even more impressive is the projected 1.3 per cent growth in total Travel & Tourism Demand which, if realized, would make Montenegro the fastest growing Travel & Tourism economy in the world over the coming decade out of 174 countries monitored by the World Travel & Tourism Council (WTTC) and its research partner, Oxford Economic Forecasting. Moreover, its impact could be even greater than forecast if the underlying policy framework is conducive to growth ie if the Montenegrin Government creates the underlying conditions for market confidence, dynamism and sustainability. However, this depends on the government recognizing and supporting Travel & Tourism as one of Montenegro s highest priority industries and employers, factoring it into all policies and decision-making. Recent trends, including the introduction of a number of new laws and economic reforms, augur well for Travel & Tourism s growth in the short, as well as the increasingly wide gap between Montenegro and competing destinations in terms of infrastructure and product development. On a positive note, the complete lack of new development during the 199s has helped Montenegro avoid some of the mistakes made by its competitors not least the exploitation and over-concentration of natural resources.today, these are a major part of the destination s tourism attraction. However, illegal construction along the coast, combined with a lack of effective controls from government, continue to be a major deterrent to sustainable growth and to foreign investment. 4

7 The priority now is to upgrade and expand Montenegro s tourism infrastructure, to modernize and improve hotels and other tourist facilities, and to enhance the competitiveness of its human capital. This will help to ensure that Montenegro captures a growing share of international visitor expenditure, contributing to boosting the country s exports and improving balance of payments. As the government progressively reduces its direct involvement in the industry, as well as accelerating the privatization of hotels and implementing tough fiscal policies, investors and tourism operators will increasingly be drawn by the investment opportunities the country has to offer. However, the government must guard against too rapid a withdrawal of public sector support, since this could work against the longterm interests of the industry and local communities. If managed effectively, Travel & Tourism can be an important catalyst for the development of other economic sectors within Montenegro, such as manufacturing, construction and the service industries. It can also help to protect the country s primary assets, namely its largely unspoilt natural and cultural environment. The government has already taken steps to establish a working partnership with the private sector. It now needs to ensure that this partnership works effectively that the private sector and local authorities are closely involved in the Travel & Tourism decisionmaking process so that full buy-in from all stakeholders is guaranteed for the future. Additional measures recommended in this report are intended to set the stage to help ensure the larger rewards that Travel & Tourism can bring over the short, medium and longer term. FUTURE PROSPECTS WHILE THE BASELINE FORECASTS FOR MONTENEGRO S TRAVEL & TOURISM OVER THE NEXT TEN YEARS ARE GENERALLY VERY POSITIVE, THEY NONETHELESS HIGHLIGHT A FEW WEAKNESSES THAT COULD HINDER TRAVEL & TOURISM S GROWTH. WTTC maintains these may prevent Montenegro from attaining its true Travel & Tourism potential in the medium to longer term. At the same time, greater co-operation between all leading policy-makers, as well as with the private sector, and better management of tourism growth, could help Montenegro do even better than the current forecasts suggest, maximizing the benefits and ensuring they are spread to all parts of the country and across all levels of the population. TOURISM PLANNING The Tourism Masterplan, which was developed jointly with the German Investment & Development Company, DEG, was adopted by the Montenegrin Government in November 21, and will be the base of all tourism planning in the foreseeable future. However, it is still very clear that not all ministries are fully committed to the plan, nor to its implementation, and there is a distinct lack of buy-in from some of the local authorities. In order to ensure greater support and commitment from all stakeholders, the government should initiate a more cohesive and co-operative approach to future tourism planning and development, involving all levels of government, the private sector and local communities.the recent decision to establish a Travel & Tourism Government Affairs Council is an important step in this direction, as is the strengthened partnership with the private sector and local authorities through the National Tourism Organization. In early 24, the government identified the Regional Development Plan for Ulcinj/Velika Plaza the 13-kilometre long stretch of sandy beach in the south of the country as its top priority in the further development of Montenegro s tourism. This should be promoted widely and expedited as quickly and smoothly as possible, helping to guide the development of other future regional plans and to instil confidence in potential foreign investors as to the country s tourism development potential. 5

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9 GOVERNMENT EXPENDITURES This new Tourism Satellite Account (TSA) shows that the Montenegrin Government allocates a very modest 2.7 per cent of its total expenditures to providing individual and collective government Travel & Tourism services to visitors, travel companies and the community at large.this is not only very low in comparison with Montenegro s major competitors it is also very low for a country in the early stages of developing, or redeveloping, its tourism. A projected increase of 4.3 per cent a year over the next ten years will mean that Travel & Tourism s share of government expenditures will still only be about 2.8 per cent in 214.Yet adequate spending by government is essential if Montenegro s Travel & Tourism is to avoid suffering a major competitive disadvantage over the coming years. INDUSTRY MEASUREMENT Although major progress has been made in this area, Montenegro s economic- and marketing-related Travel & Tourism research and forecasting are still inadequate, both in terms of quality and quantity. As a result, public sector analysis and related policies tend to overlook or understate the impact of the industry, or deal only with its smaller individual components.this is particularly true with regard to the grey market in Montenegrin tourism which, if included in national statistics, would probably put Travel & Tourism s contribution to GDP at close to 25 per cent instead of the 14.8 per cent currently estimated. This new TSA, developed by WTTC and OEF for Montenegro, provides a significant tool for planning and policy development. Updating the TSA on an annual basis will help to ensure that adequate data is available to factor Travel & Tourism into economic and employment strategies. It will also provide the National Tourism Organization with hard economic data to increase marketing and promotional efforts.this in turn will help raise awareness among public and private sector stakeholders of Travel & Tourism s full impact across the national economy not just on hotels, restaurants and retail business, but also on construction, real estate, agriculture and other sectors. INFRASTRUCTURE & PRODUCT SUPPLY The expansion and renovation of Montenegro s tourism infrastructure, particularly its hotel supply, is probably one of the greatest challenges facing the country s tourism industry today not to mention a critical competitive factor that could determine the growth of demand over the coming years. Although improving, current supply particularly in the three- to five-star categories is well below the level needed to meet current, let alone, future demand. Urgent investment is needed in this area to increase hotel bed capacity to the level required to meet the projected growth in tourism demand over the next ten years. Incentive schemes proposed by the government should be implemented without delay, in order to stimulate both local and foreign investment in quality infrastructure development. Potential investors from abroad also need to be reassured that adequate investment is being made whether by government or donor agencies to improve basic infrastructure, such as air access, roads, water and electricity supply, pollution-free waste-water collection and solid waste treatment facilities. TRANSPORT A number of important transport-related infrastructure projects in Montenegro will benefit Travel & Tourism and stimulate growth. These include the construction of the Sozina tunnel from Podgorica to Bar and the improvement of major roads to the north of the country. There are also concrete plans for improvements at Montenegro s two international airports, Podgorica and Tivat. However, several other areas still require urgent attention. These include further road improvements to facilitate access from local and international markets to major and smaller towns, as well as rehabilitation of the port of Bar. Not only could Bar attract more ferry business, but it could also become a port of call for cruise ships allowing passengers to disembark and make excursions to Montenegro s beaches, cultural and natural sites. 7

10 CAPITAL INVESTMENT In terms of real estate, property and development projects, challenges still remain that continue to hamper the attractiveness of Montenegro for both domestic and foreign investors. Investment in Travel & Tourism averages a healthy 14.8 per cent of total capital investment. Yet foreign investment, in particular, has been handicapped by a number of key issues notably the inadequacy of clear government policies and guidelines on questions of land ownership, and the lack of effective government controls on illegal construction along the coast. Without these constraints, the share would be much higher. Recognizing the power of international brands to attract high-yield markets and, thereby, to stimulate wealth and job creation, the Montenegrin Government should make strong efforts to address these problems, so as to reassure potential high-profile investors.thanks to the new Law on Restitution, which is expected to come into force in early 25, in line with the government's Agenda for Economic Reform, some of the main concerns relating to the privatization process should be rapidly resolved. However, care should be taken until then to clarify land ownership issues and remove red tape, as well as to ensure that fiscal policies such as taxation are not harmful to investment. MARKET AND PRODUCT DIVERSIFICATION In addition to gaining a share of major Travel & Tourism demand segments such as sun and beach, Montenegro has an unparalleled opportunity to develop innovative, alternative tourism products and experiences, which would at the same time help promote and protect its natural resources and generate higher yields. Given the small size of the country, government and the industry cannot afford to make the mistake of selling the country too cheaply just to compete with lowercost destinations and gain a quick return on investment. If too great a focus is placed on tour operator-led sun and beach tourism, Montenegro's image may suffer, making it that much harder to attract the higher-yield tourism it deserves. The great diversity and richness of its natural resources including its mountainous hinterland and fjord-type inlets in Kotor Bay offer seemingly limitless possibilities for special interest tourism, such as skiing, white-water rafting, fishing, sailing, bird watching and many other adventure and ecotourism activities. In addition, the country has a wide range of cultural attractions, with a heritage reflecting many centuries of fascinating history.these should all be promoted widely. The meetings, incentives, conferences and exhibitions (MICE) market is almost totally untapped in Montenegro, yet it also offers strong potential for growth, and could help to address some of the seasonality problems affecting the Montenegrin Travel & Tourism economy. MARKETING AND PROMOTION Experience has shown that demand for any tourism destination grows sharply if marketing and promotions are well funded and effective. A competitive, sustained promotional campaign is critical for Montenegro so as to clarify and enhance the country s image in traditional and emerging source markets. At the same time, it would also raise awareness of the importance of Travel & Tourism to the national and local economies, as well as the spin-off to all the different stakeholders. Isolation from the outside world, as a result of more than a decade of war in neighbouring states, means that Montenegro is little known as a destination in its own right. Considerable investment needs to be made to develop a brand image that is unique to the country, highlighting its rich variety of attractions. HUMAN RESOURCES In 24, according to this new TSA, Travel & Tourism in Montenegro will account for some 22,7 jobs around 12,4 jobs directly with the industry and a further 1,3 jobs in sectors linked to Travel & Tourism, such as real estate, construction and retail. Employment in Travel & Tourism is projected to grow at 4.3 per cent a year over the next ten years, rising to a 21.3 per cent share of total employment by

11 However, given the forecast growth in demand, this will clearly not be enough to meet the industry s needs and ensure sustainable development. More significantly, there is a severe shortage of skilled labour in Montenegro s Travel & Tourism industry, and existing facilities for education and training are inadequate, especially at higher levels. In addition, Travel & Tourism is a poorly paid sector certainly not the first choice of bright young graduates entering the workforce. Efforts by government to improve training seem to have been largely focused on using Travel & Tourism as a means of soaking up some of the country s unemployment. This will not help Montenegro enhance the competitiveness of its human resources, nor raise the profile of the industry as an employer, attracting young people looking for careers in Travel & Tourism. Added to these problems is the major issue of the grey market which, in terms of human resources, further undermines the quality of Montenegro s Travel & Tourism workforce. ENVIRONMENTAL POLICY Montenegro has a major advantage over many of its direct competitors its natural and cultural environment is relatively unspoilt and offers huge potential for sustainable tourism development. Six of the country s beaches were awarded the Blue Flag in 23 and a further 12 are candidates for consideration this year. Conveying environmentally and culturally friendly policies, promoting voluntary accreditation schemes for the industry, and outlining best practice in tourism development, are all important steps that need to be taken to protect the country s main resources from over-development and exploitation. At the same time, the Montenegrin Government and the private sector can influence the development of new tourism infrastructure and products to protect and promote the character of the local environment, developing authentic tourism products that are unique to the country and its culture. We, Members of the Parliament of the Republic of Montenegro, are aware that, in view of the threat to nature, protection of the identity of the land in which we live and work has become our most immediate and pressing task....we are devoting ourselves to its protection for the sake of our survival and our future prosperity... from a Declaration on the Ecological State of Montenegro, 2 September 1991.

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13 REALIZING THE POTENTIAL IN ORDER TO ACHIEVE OR EVEN BETTER SURPASS THE BASELINE FORECASTS, AND TO ENSURE THAT FUTURE GROWTH IS SUSTAINABLE, CERTAIN KEY FACTORS NEED TO BE ASSURED. These include a favourable government fiscal policy, a climate that is conducive to business offering attractive incentives for investment and sustained and effective marketing and promotion, as well as environmentally friendly policies. Most importantly, clearly defined, long-term development plans must be drawn up to help guide national and local public and private sector activities.these plans should be developed in consultation with all stakeholders, feeding from and back into a National Tourism Policy, and they should be disseminated as widely as possible. Against this background WTTC has made certain policy recommendations to the Montenegrin Government, detailed in the report under the section entitled The Policy Framework. These recommendations are summarized below: PLAN FOR THE FUTURE. Increase the responsibility of the Ministry of Tourism, giving it direct access to the highest levels of government, and factoring the industry s needs into mainstream policies for employment, trade, investment, education and environmental protection. Expedite the development of a National Tourism Policy, which would provide an ongoing update to the Tourism Masterplan, in line with the new Urban Plan currently being drawn up, ensuring consultation with all stakeholders notably local authorities and the private sector. Establish a dedicated research unit to monitor, anticipate and adapt to changing trends in Travel & Tourism demand. Encourage greater market and product diversification in order to reduce seasonality and to avoid over-dependence on tour operator-led sun and beach markets, as well as to increase yield. Establish a National Convention Bureau (NCB), either linked to or within the National Tourism Organization, involving the NCB in the management of all MICE business for Montenegro. Upgrade marketing and promotions to match prevailing competitive approaches, and ensure that the restructured National Tourism Organization is effective as a public-private sector partnership, as well as in co-ordinating national and local efforts and ensuring the buy-in of all stakeholders. Anticipate future investment needs by introducing further incentive schemes for investment from the private sector whether local or foreign. HIGHLIGHT THE STRATEGIC IMPORTANCE OF TRAVEL & TOURISM. Recognize Travel & Tourism s impact and its potential future impact across the wider economy, as well as its strategic importance as a catalyst for other industries and entrepreneurial activity. Reflect Travel & Tourism in mainstream policies for employment, trade, investment and education, ensuring that the underlying policy framework is conducive to sustainable growth. Measure the economic impact of Travel & Tourism by updating this Tourism Satellite Account (TSA) annually and communicating results to all levels of government, industry and local communities. Convene an annual National Tourism Congress, bringing together all Travel & Tourism stakeholders, to discuss challenges and opportunities for the industry. 11

14 DEVELOP THE HUMAN CAPITAL REQUIRED FOR GROWTH. Promote a positive image of the Travel & Tourism industry among members of government, in schools and with the public as a provider of career opportunities for all Montenegrins instead of just jobs. Place education and training at the forefront of Recognize Travel & Tourism s potential to provide jobs for young people, first-time job seekers, minority groups and retired people or working mothers looking for part-time employment. Recognize that Travel & Tourism employment is Travel & Tourism development, expanding facilities concentrated in small businesses and local for tertiary education in the sector and introducing Travel & Tourism into the secondary school curricula. Ensure that formal education and vocational training systems are adapted to the rapidly changing communities throughout the country. Bridge the gap between the education authorities and the industry, and establish public-private sector liaison groups to plan ahead for the future human resource development needs of the industry. human resource needs of the industry, covering a variety of skills and customer service. ENCOURAGE OPEN MARKETS AND SKIES AND REMOVE BARRIERS TO GROWTH. Progressively liberalize trade, transport and communications through the World Trade Organization s General Agreement on Trade in Services and regional trading regimes. Open up air transport markets and expand liberal aviation accords to attract new scheduled services, and introduce new incentive schemes to encourage year-round operators. Continue to privatize state-owned tourism enterprises, extending privatization from hotels to other sectors of the industry, including transport. Increase clarity in the privatization process and ensure that future efforts are undertaken in close cooperation with the Ministry of Tourism, keeping decisions and procedures within the overall vision and long-term objectives for Travel & Tourism development. Resolve land ownership issues between the state, private landowners and the industry. Reduce red tape and establish a stable legal framework, providing protection of investments for potential investors. Develop fiscal regimes that encourage tourism growth, exports, investment, infrastructure, business innovation and job creation. Set up a tourism investment facilitation agency, linked to the Ministry of Tourism, to act as a onestop shop for potential investors. Build safety and security provisions into national, regional and local strategies and place special emphasis on Travel & Tourism in overall policing strategies. MATCH PUBLIC AND PRIVATE INFRASTRUCTURE TO CUSTOMER DEMAND. Expand infrastructure, including airports, to anticipate projected demand and improve road networks, expanding links between the main centres, as well as opening up new areas for tourism development. Invest in the upgrading of Bar to improve ferry terminal services and to provide international standard cruise facilities and marinas. Introduce new, expanded incentives for the rapid modernization of Montenegro s hotel accommodation infrastructure. Develop new conference/congress facilities to meet the growing demand for this high-yield sector. Improve land-use planning and protection, guarding against illegal, uncontrolled real-estate development that poses a threat to the image and quality of Montenegro as a destination and discourages foreign investment. Introduce different incentive schemes to attract sustained capital investment from both domestic and foreign sources. Ensure that hospitality taxes collected on behalf of the industry are reinvested in infrastructure improvements and promotion. 12

15 FAVOUR TECHNOLOGICAL ADVANCEMENT. Make Travel & Tourism a priority in helping to introduce and apply IT systems and telecommunications at a competitive pace across the country. Take the lead in promoting the use of technology and developing e-marketing skills in Travel & Tourism to achieve greater efficiencies and effectiveness, as well as to ensure the industry responds better to the needs of the changing marketplace. Business models are changing almost daily and the industry needs support to stay abreast of these changes, as well as to respond to the demand for online self-tailored programmes and dynamic packaging. Develop a national tourism database together with partners from the private sector, so as to improve the distribution of Montenegro s products both through the travel trade and direct to consumers and enhance Montenegro s image in key markets. PROMOTE RESPONSIBILITY IN NATURAL, SOCIAL AND CULTURAL ENVIRONMENTS. Establish clear policies and guidelines for planned and sustainable tourism expansion across the country. Address urgently the existing problems of water supply, waste disposal and electrification, and anticipate and plan ahead regarding the development of consumption, waste and resource utilization, in order to meet the projected growth in Travel & Tourism demand while protecting natural resources. Introduce pilot projects to evaluate and demonstrate local sustainability. Ensure that the socio-economic, cultural and environmental benefits of Travel & Tourism are spread equitably across the population in all parts of the country, and recognize the need for local community engagement and empowerment. Develop and promote a national heritage designation with clearly defined criteria to support quality. Accompany this with increased government funding for the development and promotion of identified areas of particular heritage value, focusing on national and international designations. 13

16 ECONOMIC IMPACT IN 24, MONTENEGRO S TRAVEL & TOURISM IS EXPECTED TO GENERATE MN (US$374.2 MN) OF ECONOMIC ACTIVITY (TOTAL DEMAND). THE INDUSTRY S DIRECT IMPACT INCLUDES: 12,396 jobs representing 8.1% of total EMPLOYMENT mn (US$135.9 mn) of GROSS DOMESTIC PRODUCT (GDP) equivalent to 8.1% of total GDP. HOWEVER, SINCE TRAVEL & TOURISM TOUCHES ALL SECTORS OF THE ECONOMY, ITS REAL IMPACT IS EVEN GREATER. MONTENEGRO S TRAVEL & TOURISM ECONOMY DIRECTLY AND INDIRECTLY ACCOUNTS FOR: 22,67 jobs representing 14.9% of total EMPLOYMENT mn (US$248.5 mn) of GROSS DOMESTIC PRODUCT equivalent to 14.8% of total GDP mn (US$231.2 mn) of EXPORTS, SERVICES & MERCHANDISE or 33.2% of total Exports mn (US$49.6 mn) of CAPITAL INVESTMENT or 14.8% of total Investment. 13.8mn (US$16. mn) of GOVERNMENT EXPENDITURES or an 2.7% share. 14

17 GROWTH IN 24 TRAVEL & TOURISM IN MONTENEGRO IS FORECAST TO SEE REAL GROWTH OF 8.2% IN TOTAL TRAVEL & TOURISM DEMAND TO MN (US$374.2 MN) AND 7.5% in TRAVEL & TOURISM INDUSTRY GDP to mn (US$135.9 mn) for the industry directly and 5.9% to mn (US$248.5 mn) for the Travel & Tourism Economy overall (direct and indirect expenditures). 4.2% in TRAVEL & TOURISM INDUSTRY EMPLOYMENT (direct impact only), to 12,396 jobs, and 2.7% to 22,67 jobs in the Travel & Tourism Economy overall (direct and indirect). OVER THE NEXT TEN YEARS, MONTENEGRO S TRAVEL & TOURISM IS EXPECTED TO ACHIEVE ANNUALIZED REAL GROWTH OF: 1.3% in total TRAVEL & TOURISM DEMAND, to 1,189.1 mn (US$1,248.5 mn) in % in total TRAVEL & TOURISM GDP, to mn (US$42.6 mn) in 214 for the industry directly, and by 7.8% to mn (US$657.9 mn) for the Travel & Tourism Economy overall. 5.7% in TRAVEL & TOURISM EMPLOYMENT, to 21,63 jobs directly in the industry, and 4.5% to 35,349 jobs in the Travel & Tourism Economy overall in % in VISITOR EXPORTS, rising to 75.1 mn (US$787.6 mn) by % in terms of CAPITAL INVESTMENT, increasing to mn (US$127.3 mn) in % in terms of GOVERNMENT EXPENDITURES to 29.1 mn (US$3.5 mn) in

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19 MONTENEGRO S TRAVEL & TOURISM OVERVIEW OF RECENT TRENDS AND DEVELOPMENTS. Herzegovina brovnik Sarajevo Croatia Boka Kotorska Tara River Durmitor Nikšić Podgorica Cetinje Kotor Lake Bar Skadar Ulcinj Adriatic Sea RE-EMERGING ON THE WORLD S TOURISM STAGE In the 198s, before the former Yugoslavia was wracked by war, the Republic of Montenegro was fast earning a reputation as the jewel in the Balkan crown or the brightest hope for the future of Yugoslavia s tourism, to quote the head of Europe s leading tour operator TUI at the time. Its attractions had long before been extolled by the likes of Lord Byron and George Bernard Shaw, as well as in more recent times by a number of Hollywood stars.they were primarily drawn to Sveti Stefan, a tiny former fishing village which, since the 196s, had been one of the most exclusive and private retreats for the rich and famous anywhere in Europe. The devastation of war Serbia MONTENEGRO Shkodër Albania Kosovo But then came the war.and, given that Montenegro was barely touched by the violence of the Miloseviç years, it came off particularly badly, suffering many of the adverse consequences, such a decade of sanctions, other deprivations and an influx of refugees. Montenegro also disappeared from the world s tourism stage, from which it has been slowly re-emerging since the end of the 199s. Now part of the Union of Serbia and Montenegro, the small, semi- autonomous republic has a population of less than 7,, and is roughly equal in circumference to the island of Cyprus. Its surface area (13,812 square kilometres) is nonetheless quite a bit larger thanks to its pine-clad mountainous topography, which gives Montenegro its name Black Mountain or Crna Gora, as it is known locally. Although foreign arrivals and overnights have more or less doubled in the last three years, they are both still well down on their peak of 1989, when close to half-a-million tourists from abroad generated more than four million bednights in Montenegro. Meanwhile, direct tourism revenues totalled around 15 million in 23, of which only 41 per cent came from foreign tourism and this included visitors from neighbouring Bosnia-Herzegovina. This was far short of 199 s 25 million and of the potential identified in WTTC s and Oxford Economic Forecasting s Tourism Satellite Account research. Moreover, foreign revenues actually declined in 23, albeit by a modest.4 per cent. Breakdown of direct tourism revenues, 23 ( ) Foreign 61,753 Domestic 15,13 Serbia 74,293 Enormous untapped potential Source: Montenegro s Central Bank Few doubt Montenegro s potential to re-establish itself as an upmarket tourism destination for the discerning leisure traveller in search of more than just sun and beach.yet war and perceived political instability have had a devastating impact not only on Travel & Tourism demand, but also on the destination s tourism infrastructure, facilities and level of service. As a result of sanctions, there is also a severe shortage of available funds for upgrading, modernization and new development.the country is therefore still a long way from realizing its tourism potential, and rebuilding Montenegro s tourism industry remains a major challenge. 17

20 A DESTINATION OF WILD BEAUTY Nevertheless, for such a small country, Montenegro boasts an unparalleled richness and diversity of heritage and natural attractions. This augurs well for its future success as a sustainable tourism destination since, with careful planning, it should be able to meet the increasingly demanding aspirations of new tourists looking for different experiences and more active holidays. A rich cultural hotpot Influenced by so many different cultures through its history, Montenegro includes traces of Venetian, Austro-Hungarian, Byzantine and Islamic heritages that provide a colourful and romantic architectural and cultural mix, as well as adding exciting flavour to the local cuisine. But it is also a country of astonishing geographical contrasts. Its riviera-style coast is complemented by hidden coves, glacial lakes, piercing mountains, lush forests and picturesque villages.the country s 293 kilometres of coastline include 73 kilometres of beaches of which Velika Plaza, in the south near Ulcinj, is a 13-kilometre stretch of broad, unbroken, white-sand beach that is almost totally undeveloped. The narrow coastal plain is defined by spectacular beaches and inlets, including the Mediterranean s only fjord, the stunning Boka Kotorska (literally translated, Kotor inlet). A paradise for active holidaymakers Nature is undoubtedly Montenegro s most valuable and attractive resource aptly summed up by the destination s tourism slogan, wild beauty. More than 5 per cent of its territory is covered with forests and 8 per cent by forests or national parks, of which there are four. Its Biogradska Gora National Park, founded in 1878 by King Nikola, is the last virgin forest in Europe. Some 86 different types of trees can be found in the country, not to mention 2,833 different plant species 25 per cent of the entire European flora. Montenegro s highest mountain is Mount Durmitor (2,522 metres) a UNESCO-protected national park that is also one of the most popular ski regions in the republic and its longest river, the Tara (15 kilometres in length) has the second deepest canyon in the world after the Grand Canyon. Lake Skadar, another national park shared with Albania in the south of the country, is 391 square kilometres in area and has the largest bird preserve in Europe. Potential for year-round tourism With such a variety of attractions, not to mention the destination s mild Mediterranean climate which stretches the length of the potential summer tourist season to over eight months of the year the opportunities for activities to suit all tastes are endless. From swimming and bird watching for the moderately active to hiking, sailing, or whitewater rafting for the more adventurous these are just a few of the many possibilities open to tourists. And this does not take into account all the winter, mountain-based activities available, reinforcing Montenegro s year-round appeal. TRAVEL & TOURISM TRENDS Preliminary results point to a 13 per cent growth in domestic arrivals in Montenegro in 23, to 458,, and a 1 per cent increase in overnight volume, to 3.1 million. The growth in tourism from abroad was much less impressive just 4 per cent in terms of arrivals, to 142,, and less than.5 per cent in overnight volume, to 916,. Growth trends in foreign tourist arrivals and overnights, 2-3 1,, 8, 6, 4, 2, Arrivals Nights Growth trends in domestic tourist arrivals and overnights, 2-3 3,6, 3,2, 2,8, 2,4, 2,, 1,6, 1,2, 8, 4, Arrivals Nights Source: Ministry of Tourism A disappointing 23, in terms of foreign tourism While demand for tourism in Montenegro has achieved well above the average annual growth recorded by international tourism worldwide since the late 199s, the growth has of course been from a low base. Last year s disappointing results came after two strong double-digit growth years and can largely be attributed to two key factors. First, the introduction of value added tax (VAT) on hotel rates in May 23 was very poorly received by foreign tour operators, in particular, most of whom had little possibility of passing on the resulting increase in rates on to their customers. Second, the growth in demand for tourism domestic and international combined over the last few 18

21 years has put additional strains on Montenegro s tourism infrastructure, and notably on the supply of facilities such as water and electricity. More frequent shortages of both in coastal resorts last year caused a lot of dissatisfaction among guests. There were also other contributing factors, such as inadequate waste disposal services and excessive noise levels in resort towns. All these problems are well recognized by the Montenegrin Government and local/municipal authorities and as discussed elsewhere in this report progress is being made to address and resolve the problems. But this will take time. Major international markets The neighbouring Balkan state of Bosnia-Herzegovina has maintained its position as international market leader over the past four years, although it has lost share to other markets notably Germany and the Czech Republic and its 23 arrivals and overnights were down on its 21 peak. In addition, tourists to Montenegro from Bosnia- Herzegovina spend less time in the country than other leading markets an average of 5.9 nights per trip in 23 as against the overall average of 6.5 nights. Arrivals from Montenegro s top ten international source markets, 2-3 ALOS a Market nights Bosnia-Herzegovina 29,943 32,43 25,887 29, Czech Republic 2,365 5,973 19,763 16, Germany 2,228 2,517 11,789 14, Russia 6,218 1,54 11,742 1, Slovakia 3,56 5,973 12,73 9,8 8.2 Slovenia 2,979 6,189 6,491 6, Macedonia 2,557 4,26 5,266 5, Croatia 3,683 4,42 4,352 3, Italy 3,35 2,479 3,633 3, Poland 38 1,339 3,977 1, Total (incl others) 73,559 18,88 136,16 141, a ALOS = average length of stay Source: Ministry of Tourism In terms of arrivals, the Czech Republic is the second most important source ahead of Germany and Russia, with both markets generating a higher than average length of stay.thanks to a 31 per cent increase in 23, Germany has overtaken the Czech Republic in overnight volume. Despite a decline last year, Russia has recorded above average growth in the past few years to become Montenegro s fourth largest market, and a growing source of business as well as leisure visitors. Among the remaining top ten sources whether for arrivals or nights the only Western markets are Italy (ninth in arrivals) and Norway (ninth in overnight volume). Italians spend only about three nights in Montenegro per visit, which accounts for their lesser importance in terms of nights, while Norwegians who favour the health resorts in Igalo and the Herceg Novi region are among the longest-stay markets for the republic. Seasonality of international demand As is the case with neighbouring Croatia, Montenegro s tourism is characterized by high seasonality of demand by foreign tourists. The four months of June through September account for as much as 87 per cent of total overnight volume and 78.5 per cent of arrivals.the peak summer season just the two months of July and August generate more than 56 per cent of all overnights and 49 per cent of arrivals. Overnights by Montenegro s top ten international source markets, 2-3 Market Bosnia & Herzegovina 195, , ,79 174,273 Germany 1,821 1,597 13, ,178 Czech Republic 2,715 75,5 152, ,23 Russia 51,329 87,21 15,146 9,529 Slovakia 24,148 43,289 12,96 74,78 Macedonia 16,19 26,17 34,495 34,547 Slovenia 14,576 34,798 32,193 33,312 Norway 1,241 14,611 28,295 29,88 Croatia 27,367 35,416 28,237 15,775 Poland 1,765 9,858 35,647 13,428 Total (incl others) 434, , ,99 915,738 The winter months of October through March, in contrast, account for a very modest 5 per cent of nights and 1 per cent of arrivals. Average length of stay during these months falls to a low of some 1-2 nights as against the 6.5-night average stay overall. And it is clearly much longer in the peak summer months. International tourist arrivals and overnights in Montenegro by month, 23 NIGHTS 24, 2, 16, 12, 8, 4, Jan Feb Mar Apr May Jun Nights Arrivals Source: Ministry of Tourism Jul Aug Sep Oct Nov Dec Organization of travel to Montenegro 4, 35, 3, 25, 2, 15, 1, 5, Very few details are available on tourists organization of their travel to Montenegro. Most domestic travel and travel from neighbouring states those formerly part of Yugoslavia is organized independently, but an increasing share of trips from West European markets are either fully or ARRIVALS Source: Ministry of Tourism 19

22 partly packaged holidays, booked through tour operators and/or travel agencies. This share is below that of tour operator packages reached in the 198s, before the outbreak of the war. Nevertheless, the increased availability of attractively priced packages especially in the German market has boosted demand.the risk is that the type of packages most widely available could attract too many of the wrong type of holidaymaker to Montenegro, ie those looking for bargain prices and interested solely in sun and beach. The Internet s share of total bookings is clearly very low, if not non-existent, although it can be expected to rise fairly sharply in the medium term with tour operator websites generating most interest in the foreseeable future.this may also contribute to boosting the income of Montenegro s 12 or so inbound operators and agents, who currently rely on general sales agency contracts with foreign tour operators to make a living at least those not involved in unregistered holiday property rentals. Domestic demand and the grey market The domestic market from Montenegro, but also the different regions of Serbia accounts for more than three-quarters of the total arrivals and overnight counts, with average length of stay roughly the same as for international tourists. Of course, if the grey market were included in the overall count, the domestic share would be much higher. Domestic arrivals in Montenegro, 2-3 ALOS a Market nights Montenegro 123, ,2 11,244 85, Serbia 251, ,32 34, , Central Serbia 26,83 254, , , Vojvodina 38,161 43,391 35,18 43, Kosovo & Metohija 7,177 34,369 16,733 49, Total 374, ,232 45, , a ALOS = average length of stay Source: : Ministry of Tourism A significant number of Serbs own properties on the Montenegrin coast and many thousands of others rent apartments during the peak summer months.although their prolonged presence does bring benefits to the apartment owners and to restaurant and café operators, the apartment rentals are not registered, and generate no bednight taxes or VAT. Of even greater concern is the fact that the short-term attraction of the grey market often encourages the local authorities to turn a blind eye to illegal construction along the coast. FAVOURITE DESTINATIONS The statistics speak for themselves. Among the leading destination regions visited by both domestic and international tourists, the coastal resorts dominate.the most developed, in terms of tourism the Budva Riviera and Herceg Novi at the mouth of the Boka Kotorska generate the highest shares of both domestic and foreign overnights, or 35 per cent and 27 per cent respectively of the total bednight counts. Tourist overnights in Montenegro by major destinations, 23 Municipality Domestic Foreign Total Budva 1,, ,947 1,384,45 Herceg Novi 839, ,969 1,69,95 Bar 46, ,934 62,68 Ulcinj 397,582 54, ,6 Kotor 133,43 34,25 167,455 Tivat 94,537 39,61 134,138 Podgorica 24,43 17,25 41,68 Žabljak 27,55 3,672 3,727 Kolašin 21,12 2,178 23,28 Total (incl others) 3,6, ,738 3,976,266 Source: : Ministry of Tourism Bar, in third position, is Montenegro s primary port, linking the destination by ferry with Bari and Ancona in Italy, as well as being the rail terminus for trains from Podgorica, the Montenegrin capital, and points beyond. Except for transit visitors, most people travelling to Bar seem to be on business. Although almost totally undeveloped for tourism, and therefore not yet suited to the international market, the ancient seaport of Ulcinj in fourth position in the favourites ranking is very popular with domestic tourists because of the nearby 13-kilometre long, 5-metre wide sandy beach,velika Plaza. Only two inland destinations žabljak in the Durmitor National Park and Kolašin in the Bjelasica region, close to the Biogradska Gora National Park feature among the leading destinations visited by tourists. Winter tourism has suffered since the government decided to cancel the traditional one-month school holiday from 15 January to 15 February, when a number of Montenegrin families did spend time in the mountain resorts for skiing and other sporting activities. However, it should be noted that, given the small overall size of Montenegro, many tourist sites, including ski stations, are visited on same-day excursions.the ancient capital of Cetinje, for example, is only 29 kilometres from Budva and 31 kilometres from Podgorica. The statistics speak for themselves. Among the leading destination regions visited by both domestic and international tourists, the coastal resorts dominate. 2

23 TRANSPORT Poor, or excessively costly, access except perhaps during the peak summer months is one of Montenegro s weaknesses as a tourism destination. In addition, Montenegro s two international airports, at Podgorica and Tivat, are well below international standards in terms of facilities and services. However, as detailed in the Policy Recommendations of this report, a recently developed upgrading and modernization plan is due to be implemented shortly, with 23 million in funding available for Phase I. Statistics on airline passenger traffic are far from comprehensive. Although data collection is improving, it is currently difficult to identify clear transport trends, especially regarding airline traffic. The two main airports recorded a passenger throughput of around 9, last year, according to official figures a total that does not appear to have changed much since 2.The traffic is split almost evenly between the two airports, with Tivat attracting primarily charter airlines. A new direct charter service is due to operate in summer 24 from London to Tivat from mid-june to mid-september which is expected to generate around 25, nights in the country. Serbia-based JAT Airways is also planning direct flights on the route several times weekly during the summer months. The republic s flag carrier, Montenegro Airlines, operates yearround scheduled services to/from Belgrade, Budapest, Frankfurt, Ljubljana, Rome and Zurich, as well as between Tivat and Belgrade, accounting for over one-third of total airline passenger throughput at Montenegro s airports, but a modest 15 per cent of tourists arriving by air from abroad. Its services are supplemented by flights from nearly 2 foreign scheduled and charter airlines, bringing tourists directly to Montenegro from more than ten markets. Austrian Airlines (ex-vienna), Malev (ex-budapest) and Air Berlin (ex-berlin) are among the scheduled airlines that have recently launched, or are due to launch, regular service to Montenegro. And more than 15 charter carriers serve the destination. ACCOMMODATION Hotel capacity Montenegro currently has around 26, hotel beds, although the share of beds meeting international standards is relatively low probably little more than 5 per cent of the total. By May 24, some 14 hotels had nonetheless been classified by the Ministry of Tourism and, with the exception of those categorized as one- to two-star properties (around two-thirds of the official hotel bed count), the remainder are certainly adequate to accommodate most tourists from abroad. Montenegro s Masterplan calls for almost a doubling of bed capacity by 21 (and a further doubling from 21 to 22). Some new builds are expected but the majority will be renovations and upgrades of existing properties.the plan is to reduce the one- to twostar share from 64 per cent to 25 per cent and to increase three-star hotel beds from 33 per cent to 4 per cent. But most efforts will be focused on converting existing run-down hotels into four- and even five-star properties through privatization. Hotel accommodation in Montenegro by star category, 23 and 21 (Bed capacity) a 21: Projected and operating performance Hotel performance has not been very impressive in the last couple of years in some cases, through no fault of the hotel operators and/or owners.the introduction of VAT last year just before the peak summer season was a major blow, for example, and hotels have also suffered unduly from having to compensate foreign tour operators and their clients when water shortages and similar problems are experienced. Also of concern is the shrinking of the tourist season.today, as already indicated, tourism demand is crammed into a maximum of four months while, before the Balkan war, hotel business could be expected in the coastal resorts for at least seven months of the year. Alternative accommodation If company-owned hotels and other establishments are included in the overall accommodation capacity, not to mention independently owned apartments for personal use or rented out to the grey market, Montenegro probably has around 15, beds for tourists of which 5 per cent are in private homes. Privatization a ,5 2 15, 3 8, ,5 3 2, 4 15, 5 2,5 Source: Montenegro s Tourism Masterplan Progress Report To date, the Montenegrin Government has sold off 17 hotels for more than 3 million, as well as 14 cafés, restaurants and other tourist facilities ( 4.9 million). A further five hotels are currently under tender and several more properties are expected to be sold off in 24 to foreign and domestic investors. After a disappointing start to the privatization process, when it became clear that a number of companies that had acquired properties did not have the money to invest in upgrading them, the government introduced a new requirement. Buyers have since had to commit to further investment to bring the hotels they purchase up to the required 21

24 Montenegrin hotels either privatized or in the process of privatization, May 24 Further Purchase investment price committed Hotel Buyer ( ) ( ) Maestral a HIT, Slovenia 4,857 7,29 Montenegro A a Unis Tours, B&H c 1,12 3,556 Rivijera a Perni Bau, Germany 8 1,922 Bellevue a Imobilia Budva 2,2 7,779 Mediteran a Maestraltours, Budva 1,2 2,639 Montenegro a Hotel Apartmans, 1,2 1,73 Brunsweek, Budva As a Sibinergo Resurs, Russia 2,556 11,248 Mimoza IRVA, Belgrade 4 2,5 4 July a Moskovskaja Trastovaja 2,6 3,4 Group, Russia Avala a Beppler & Jacobson, UK 3,2 9,32 Ski centre Bjelasica Beppler & Jacobson 1,585 4,15 Splendid a Montenegro Stars, Kotor 2,425 4,784 Rivijera b JT Investment Ltd, Israel 1,2 2, Topla b Hunguest Hotels, Madjarska 8 3,358 Centar b Hunguest Hotels, Madjarska 1, 1,66 Crna Gora Buric Žarko, Podgorica 84 3,413 Panorama Springer & Söhne,Austria 2,455 5,56 a Acquired from the state-owned group HTP Budvanska Rivijera b Acquired from the state-owned group HTP Boka c Bosnia Herzegovina Source:Agency of Montenegro for Economic Restructuring & Foreign Investments standard outlined in the Masterplan. As a result, new owners invested approximately 5 million in 23 in upgrading, and this level of investment is expected to continue in 24. Probably the most successful individual hotel privatization to date in Montenegro has been that of the Hotel Maestral in Milocer, just outside Budva, which was bought at the end of 21 by HIT Slovenia, the biggest tourism company in Slovenia, specialized in casino operations. Although HIT committed 7 million to upgrading the hotel after its purchase, it will in fact have invested a total of some 35 million by the start of the 24 summer season.and this is only the end of phase I. HIT does not expect a return on its investment for 15 years. Although the hotel stayed open during summer 22 and 23, it has effectively been totally rebuilt, converted to a 18-room, four-star property with casino, conference and wellness centres, and full food & beverage facilities. Until now, foreigners have accounted for just 7 per cent of roomnights, but this share is expected to increase sharply from summer 24, with Russians, Germans and British guests generating the biggest demand. Room occupancy, meanwhile, should average 5 per cent this year, increasing to 75 per cent by 26. HTP Budvanska Rivijera has been the most successful of the different state-owned hotel groups in terms of privatization of assets to date, with most of its eleven properties already sold off.the remainder should be sold this year, although its prime property, the Sveti Stefan hotel, is more likely to be leased out to an international hotel group. FUTURE PROSPECTS International standard accommodation in Montenegro is forecast to reach 1,-12, beds by the start of the 25 summer season, thereby meeting about half the projected demand for quality hotel accommodation in the three- to five-star categories. Longer term, the Velika Plaza development plan should create up to 25, new beds in the three- to five-star categories an investment of more than 1 billion over several years. And there are plans for developing other new tourist destinations, such as Prevlaka, the area comprising the two peninsulas one in Croatia and the other in Montenegro surrounding the Boka Kotorska. In addition to hotels, the government is in the process of issuing tenders for the development of a large number of infrastructure projects and attractions, including tourist villages, marinas, golf courses and restaurant complexes. Investments are also being made by government to upgrade beaches and improve the quality of public areas in resorts. Credit lines have been opened to help small and medium-sized enterprises modernize and renovate their own properties. And international development aid will contribute to improving water supply and other utilities, as well as contributing to modernizing and expanding tourist facilities in the north of the country and other inland areas. The major challenge in the medium term is that of ensuring qualified human resources. The key question now is whether Montenegro s Travel & Tourism industry is willing and able to wait patiently until these quality improvements are implemented or, at least, partially implemented so it can justify targeting the higher-yield tourist.the danger is that greed will take precedence and hotels and other suppliers will succumb to foreign tour operators pressure to cut rates in order to guarantee business in the immediate term. The recent appreciation of the euro now the official currency of Montenegro makes it harder for the local industry to compete on price in the international marketplace. But if rates are cut and Montenegro becomes known as a low-cost destination, it will be much harder to shake off the image and try to target higher-yield business in the future. It would also be a pity if would-be tourists not to mention investors underestimated the destination s potential in terms of quality products. Unlike some of its competitors whether Croatia, Turkey, Bulgaria, or even Spain Montenegro is too small a country to be able to afford those kinds of mistakes. The country has all the necessary natural resources on which to build the new tourism products required by the new, quality-conscious and increasingly sophisticated consumer. Even though there will always be a need to provide low-cost tourism for those who cannot afford anything else, diversification will ensure the sustainable growth of the industry for the benefit of all stakeholders. As the international market becomes increasingly aware of the environmental friendliness of Montenegro, as well as the unique attractions of destinations such as Biogradska Gora and Skadar Lake, this should encourage further tourism growth. It should also help Montenegro to clarify its tourism image generally. 22

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26 TRAVEL & TOURISM SATELLITE ACCOUNT TOURISM SATELLITE ACCOUNTING THIS REPORT FOLLOWS THE CONCEPT OF SATELLITE ACCOUNTING DEFINED IN THE TOURISM SATELLITE ACCOUNT: RECOMMENDED METHODOLOGICAL FRAMEWORK (TSA:RMF), AND DEVELOPED UNDER THE AUSPICES OF THE WORLD TOURISM ORGANIZATION. Over the last three decades, countries have estimated the economic impact of Travel & Tourism through a range of measures using a variety of definitions and methodologies. Such approaches have prevented meaningful comparisons among nations. Even for the same nation over different periods of time, they have frustrated business and government attempts to draw valid conclusions about the nature and course of Travel & Tourism demand in national economies.this regime has obscured the substantial, positive role the industry plays in national economies and has thwarted business and government attempts to optimize economic programmes and policies. The World Travel & Tourism Council (WTTC) recognized the dearth of crucial Travel & Tourism intelligence from the time of its establishment in 199 and it published the first detailed estimates of world tourism s economic impact that same year. Since then WTTC has worked to improve its methodologies and to encourage individual countries to enhance their measurement and understanding of tourism s impact on their national economies. Furthermore, in the spirit of joining forces to enhance world comprehension of the role of Travel & Tourism in national economies,wttc has strongly supported the programmes of the World Tourism Organization (WTO) to improve tourism statistics worldwide. WTTC S RESEARCH WTTC and its economic/research partners Oxford Economic Forecasting, (OEF), since 1999, and Global Insight (previously known as DRI WEFA), from have developed and published research on the economic contribution of Travel & Tourism to the world, regional and national economies. Starting in 199,WTTC s research team has been working to develop practical, real-world models to illustrate Travel & Tourism s economic contribution based on the needs of private sector leaders, public sector policy-makers and industry researchers, and on the interpretation of the system of national accounts. The research is now firmly anchored in the international standard for tourism satellite accounting that was developed by WTO, OECD and Eurostat, and approved by the United Nations Statistical Commission in 2. It was launched at the TSA Conference held in Vancouver in May 21 and published as the Tourism Satellite Account: Recommended Methodological Framework (TSA:RMF) in 21. Since 1999, WTTC s research has assumed the conceptual framework of the UN-approved standard with a number of discretionary extensions, and it combines the most sophisticated economic modelling and forecasts available with the most up-to-date, publicly available data to generate a comprehensive implementation of Travel & Tourism satellite accounting. This special simulated TSA for Montegro is the product of work commissioned by the Montenegrin Ministry of Tourism working in co-operation with the Montenegrin National Statistics Office. In carrying out the work, OEF has drawn extensively on the methodology developed over the years by WTTC to develop TSAs as operational tools, and has worked closely with the Montenegrin Ministry of Tourism and its project steering committee to review the assumptions, models and results produced by this excercise. 24

27 WTTC S APPROACH TO TOURISM SATELLITE ACCOUNTING WTTC has endeavoured to implement and produce the most comprehensive TSA provided for within the TSA:RMF by developing the narrow concept of the Travel & Tourism Industry in addition to the broader concept of the Travel & Tourism Economy. WTTC advocates full implementation of the TSA as defined in the TSA:RMF in order to achieve the highest level of benefits for industry and governments.these include: A wealth of customer and consumer information on tourism-related purchases (before, during and after trips whether domestic or international, imported or exported as well as services, durables and nondurables) that has never been identified until now; Comprehensive documentation and analysis of the full tourism-product service chain and government s ability to deliver quality and timely service to visitors; Linkages between Travel & Tourism and other sectors of the economy such as agriculture and manufacturing to illustrate the flow-through of spending; Complete outlook for public works that benefit visitors and Travel & Tourism companies in order to leverage public sector plans and priorities for growth; Focused opportunities for domestic production, as well as incentives from the public sector, to aid in the growth of businesses that help alleviate trade balance issues; Demand- and supply-side information on employment that allows for human resource planning and development. WTTC has worked towards developing a comprehensive TSA not because it is eager to exaggerate the size of Travel & Tourism s impact, but because the information that can be garnered from the exercise by governments and industry is crucial for making intelligent and informed policy and business decisions. WTTC believes that history will document its pioneering implementation of the simulated TSA as one of the most important turning points for Travel & Tourism s long overdue economic recognition. In the WTTC research, no country receives special treatment or favours. WTTC uses internationally available data sources and the same scope of tourism satellite accounting for all countries, as well as the same basic assumptions through the same system of models. WTTC s TSA research utilizes a universal and internally consistent modelling framework and generates harmonized results and forecasts for 175 countries around the world. Details of the methodology used by WTTC/OEF in its TSA research are available on WTTC s website ( MONTENEGRO Travel & Tourism Employment ( Jobs) Travel & Tourism Gross Domestic Product (199 Constant US$ mn) 25 Economy Industry 35 Economy Industry T&T ECONOMY Direct and indirect impact of visitor activities, capital investment, exports and government services T&T INDUSTRY Direct impact of visitor activity (transportation, accommodation, food and beverage, recreation, entertainment and travel services)

28 TSA CONCEPTS & STRUCTURE 24 (US$ mn, Jobs) Personal Travel & Tourism Business Travel Government Expenditures (Individual) Visitor Exports Government Expenditures (Collective) Capital Investment Exports (Non-Visitor) Travel & Tourism Consumption Travel & Tourism Demand Travel & Tourism Industry Supply Travel & Tourism Economy Supply (Residual) Travel & Tourism Industry GDP (Direct Only) Imports T&T Industry GDP (Indirect) Travel & Tourism Economy Supply Comp. Indirect Taxes Operating Surplus - Subsidies Depreciation Travel & Tourism Economy GDP (Direct and Indirect) Imports T&T Industry Employment T&T Economy Employment Property Taxes Property Taxes Personal Income Taxes Indirect Taxes Other Taxes 56.3 Travel & Tourism Taxes 26

29 Travel & Tourism Satellite Accounting research for Montenegro reflects a comprehensive simulation of the new international standard adopted by the United Nations following the Enzo Paci World Conference on the Economic Impact of Tourism (Nice, France, June 1999), ten years of model development and TSA experience by WTTC and Oxford Economic Forecasting (OEF), and application of OEF s latest macro-economic forecasts. TSA Economic Concepts The Travel & Tourism Satellite Account is based on a demand-side concept of economic activity, because the industry does not produce or supply a homogeneous product or service like traditional industries (agriculture, electronics, steel, etc). Instead, Travel & Tourism is an industrial activity defined by the diverse collection of products (durables and non-durables) and services (transportation, accommodations, food and beverage, entertainment, government services, etc) that are delivered to visitors.there are two basic aggregates of demand in the TSA: I Travel & Tourism Consumption represents the value of products and services that have been consumed by visitors. It is the basic demand-side aggregate used to construct an explicitly defined production-side industry equivalent for comparison with all other industries.travel & Tourism Consumption includes: Personal Travel & Tourism, more formally known as consumer expenditures, which captures spending by Montenegro s residents on traditional Travel & Tourism services (lodging, transportation, entertainment, meals, financial services, etc) and goods (durable and nondurable) used for Travel & Tourism activities. Business Travel by government and industry, which mirrors Personal Travel & Tourism s spending on goods and services (transportation, accommodation, meals, entertainment, etc), but represents intermediate inputs used in the course of business or government work. Government Expenditures (Individual) by agencies and departments which provide visitor services such as cultural (art museums), recreational (national park) or clearance (immigration/ customs) to individual visitors. Visitor Exports, which include spending by international visitors on goods and services. II Travel & Tourism Demand builds on Travel & Tourism consumption to include Travel & Tourism products and services associated with residual components of final demand. It is used to construct a broader economy-wide impact of Travel & Tourism. The residual elements of Travel & Tourism demand are: Government Expenditures (Collective) made by agencies and departments associated with Travel & Tourism, but generally made on behalf of the community at large, such as tourism promotion, aviation administration, security services and resort area sanitation services. Capital Investment by Travel & Tourism providers (the private sector) and government agencies (the public sector) to provide facilities, equipment and infrastructure to visitors. Exports (Non-Visitor) which include consumer goods sent abroad for ultimate sale to visitors (such as clothing, electronics or petrol) or capital goods sent abroad for use by industry service providers (such as aircraft or cruise ships). By employing input/output modelling separately to these two aggregates (Travel & Tourism Consumption and Travel & Tourism Demand), the Satellite Account is able to produce two different and complementary aggregates of Travel & Tourism Supply: the Travel & Tourism Industry and the Travel & Tourism Economy.The former captures the explicitly defined production-side industry equivalent, direct impact only, for comparison with all other industries, while the latter captures the broader economy-wide impact, direct and indirect, of Travel & Tourism.Through this process, the Satellite Account is also able to determine that portion of supply, which it Imports from abroad. Next, the satellite account breaks down both aggregates of supply (Industry and Economy) into the direct and indirect impacts of Gross Domestic Product (GDP), the main descriptor of economic production, as well as the various components of GDP (Wages & Salaries, Indirect/Transaction Taxes, Operating Surplus, Depreciation and Subsidies). Beyond the regular TSA accounts, a separate analysis is also provided of Personal Income Taxes paid by Travel & Tourism generated employment and Corporate and Property Taxes paid by Travel & Tourism companies. Finally, one of the most important elements of the Travel & Tourism Satellite Account are the Employment results, which can now be quantified for the basic Travel & Tourism Industry and the broader Travel & Tourism Economy. T&T Industry Employment generally includes those jobs with face-to-face contact with visitors (airlines, hotels, car rental, restaurant, retail, entertainment, etc). T&T Economy Employment includes T&T Industry Employment plus those faceless jobs associated with: Industry suppliers (airline caterers, laundry services, food suppliers, wholesalers, accounting firms, etc). Government agencies, manufacturing and construction of capital goods and exported goods used in Travel & Tourism. Supplied commodities (steel producers, lumber, oil production, etc). 27

30 TRAVEL & TOURISM S ECONOMIC IMPACT TRAVEL & TOURISM ENCOMPASSING TRANSPORT,ACCOMMODATION, CATERING, RECREATION AND SERVICES FOR VISITORS IS ONE OF MONTENEGRO S HIGHEST PRIORITY INDUSTRIES AND EMPLOYERS. Worldwide in 24, it is expected to post US$5.5 trillion of economic activity (Total Demand) and this is forecast to grow to US$9.6 trillion by 214. Travel & Tourism Total Demand in the European Union is expected to reach US$2. trillion in 24, growing to US$2.8 trillion in 214. In Montenegro, in 24, Travel & Tourism is expected to post million (US$374.2 million) of economic activity (Total Demand), growing to 1.2 billion (US$1.2 billion) by 214. In 24, the Travel & Tourism Industry should contribute 3.8 per cent to worldwide GDP. The broader Travel & Tourism Economy should contribute 1.4 per cent to world GDP in 24. In the EU, the Travel & Tourism Industry is expected to post a GDP contribution of 4.3 per cent in 24, while the Travel & Tourism Economy contribution will be 11.5 per cent. In Montenegro, the Travel & Tourism Industry is expected to contribute 8.1 per cent to GDP in 24 ( million, or US$135.9 million), rising to million, or US$42.6 million (12.9 per cent of total), by 214. The Travel & Tourism Economy contribution should grow from 14.8 per cent ( million, or US$248.5 million) to 21.1 per cent ( million, or US$657.9 million) over the same period. Travel & Tourism is a high-growth activity, which is forecast to increase its total economic activity by 4.5 per cent per annum worldwide in real terms over the next ten years. In the EU,Travel & Tourism is expected to post average annualized gains of 3.8 per cent between 24 and 214. For Montenegro, Travel & Tourism economic activity is expected to grow by 1.3 per cent per annum in real terms between 24 and 214. Travel & Tourism is human resource intensive, creating quality jobs across the full employment spectrum. In 24, one in 12.3 jobs will be generated by the Travel & Tourism Economy. The Travel & Tourism Industry accounts for 2.8 per cent of global employment.today there are 73.7 million Travel & Tourism Industry jobs and million jobs in the Travel & Tourism Economy, and these will rise to 87.5 million Travel & Tourism Industry jobs and million Travel & Tourism Economy jobs by 214. The EU s Travel & Travel Industry is expected to generate 8.1 million jobs in 24 (4.3 per cent of total employment), while the broader Travel & Tourism Economy will account for 21.5 million jobs (12.9 per cent of total employment). In Montenegro, in 24, Travel & Tourism Economy employment is estimated at 12,4 jobs, or 8.1 per cent of total employment. By 214, the number of jobs should grow to 21,6 13. per cent of total employment. The 22,7 Travel & Tourism Industry jobs will account for 14.9 per cent of total employment in 24 and are forecast to rise to 35,3 jobs, or 21.3 per cent of the total, by 214. Travel & Tourism is a major exporter, with inbound visitors injecting foreign exchange directly into the economy.travel & Tourism exports in the EU are expected to represent 13.1 per cent of total exports in 24. In Montenegro, exports make up a very important share of Travel & Tourism s contribution to GDP. Of total Montenegrin exports, services and merchandise,travel & Tourism is expected to generate 33.2 per cent ( million, or US$231.2 million) in 24, increasing to million, or US$833. million (46. per cent of total exports), in 214. Travel & Tourism is a catalyst for construction and manufacturing. In 24, the public and private sectors combined are expected to spend US$82.3 billion in new Travel & Tourism capital investment worldwide 9.4 per cent of total investment rising to US$1.4 trillion, or 9.9 per cent of the total, in 214. The EU s Travel & Tourism Capital Investment is expected to total US$222.2 billion in 24, or 9.5 per cent of total regional capital investment. Year 24 capital investment in the Montenegro Travel & Tourism Economy is estimated at 42.8 million (US$49.6 million) or 14.8 per cent of total investment. By 214, this should reach million (US$127.3 million) or 2.4 per cent of the total. Travel & Tourism is both a generator and receiver of government funds. Globally, in 24, Travel & Tourism is expected to garner US$265.3 billion of government expenditures, or 3.9 per cent of total expenditures. By 214, government spending on Travel & Tourism should increase to US$398.5 billion 4.1 per cent of total government expenditure. Government Travel & Tourism operating expenditures in Montenegro in 24 are expected to total 13.8 million (US$16. million) or 2.7 per cent of total government spending. In 214, this spending is forecast to rise to 29.1 million (US$3.5 million), or 2.8 per cent of total government spending. Montenegro taxes associated with Travel & Tourism are expected to total 65.9 million (US$76.4 million) or 9.6 per cent of total indirect tax collections in 24. By 212, this tax revenue is expected to increase to million (US$22.2 million), or 15.3 per cent of total indirect tax revenue collected in Montenegro. 28

31 MONTENEGRO ESTIMATES AND FORECASTS mn % of Total Growth 1 mn % of Total Growth 2 Personal Travel & Tourism Business Travel Government Expenditures Capital Investment Visitor Exports Other Exports Travel & Tourism Demand , T&T Industry GDP T&T Economy GDP T&T Industry Employment T&T Economy Employment Real Growth Adjusted for Inflation (%); Annualized Real Growth Adjusted for Inflation (%); of Jobs EUROPEAN UNION ESTIMATES AND FORECASTS US$ mn % of Total Growth 1 US$ mn % of Total Growth 2 Personal Travel & Tourism 871, ,118, Business Travel 232, , Government Expenditures 83, , Capital Investment 222, , Visitor Exports 323, , Other Exports 248, , Travel & Tourism Demand 1,981, ,796, T&T Industry GDP 531, , T&T Economy GDP 1,422, ,83, T&T Industry Employment 8, , T&T Economy Employment 21, , Real Growth Adjusted for Inflation (%); Annualized Real Growth Adjusted for Inflation (%); of Jobs WORLD ESTIMATES AND FORECASTS US$ mn % of Total Growth 1 US$ mn % of Total Growth 2 Personal Travel & Tourism 2,537, ,26, Business Travel 595, , Government Expenditures 265, , Capital Investment 82, ,41, Visitor Exports 727, ,49, Other Exports 561, ,246, Travel & Tourism Demand 5,49, ,557, T&T Industry GDP 1,542, ,425, T&T Economy GDP 4,217, ,927, T&T Industry Employment 73, , T&T Economy Employment 214, , Real Growth Adjusted for Inflation (%); Annualized Real Growth Adjusted for Inflation (%); of Jobs 29

32 TOTAL DEMAND TRAVEL & TOURISM IN MONTENEGRO IS EXPECTED TO TOTAL MILLION (US$374.2 MILLION) OF TOTAL DEMAND IN 24, INCLUDING: MONTENEGRO Travel & Tourism Total Demand (23 Est. bn) Business Travel (6.8) Personal Travel & Tourism (59.9) Other Exports (26.) Visitor Exports (173.3) Capital Investment (42.8) Government Expenditures (13.8) MONTENEGRO Travel & Tourism Total Demand (199 Constant US$ mn) MONTENEGRO Travel & Tourism Total Demand (Cumulative Real Growth, %) 1,45 1,4 1,35 1,3 1,25 1, EUROPEAN UNION Travel & Tourism Total Demand (24 Est. bn) Personal Travel & Tourism (678.3) Other Exports (193.2) Visitor Exports (251.7) Business Travel (18.5) Government Expenditures (64.9) Capital Investment (172.9) EUROPEAN UNION Travel & Tourism Total Demand (199 Constant US$ bn) EUROPEAN UNION Travel & Tourism Total Demand (Cumulative Real Growth, %) 59.9 million (US$69.4 million) of Personal Travel & Tourism consumption by residents of Montenegro (5.6 per cent of total personal consumption); 6.8 million (US$7.9 million) of Business and Government Travel by resident companies and government employees; 13.8 million (US$16. million) of Government Expenditures, 2.7 per cent of total government spending in Montenegro, to provide individual and collective services to the Montenegro Travel & Tourism Industry and its visitors; 42.8 million (US$49.6 million) of Capital Investment, 14.8 per cent of total capital investment in Montenegro, in personal, commercial and public Travel & Tourism facilities, equipment and infrastructure by residents,travel & Tourism companies and government agencies; million (US$21.1 million) of Visitor Exports, or 28.9 per cent of total exports in Montenegro, generated from international visitor markets; and 26. million (US$3.2 million) of Merchandise Trade Exports, 4.3 per cent of total exports in Montenegro. This breakdown of Montenegro Travel & Tourism Demand clearly illustrates the fact that international visitor spending accounts for nearly 54 per cent of Montenegro s Travel & Tourism Economy. In view of how important Travel & Tourism already is, the sector must be accorded the highest priority by government so as to ensure that sustainable growth continues to be ensured in the future.. Over the past ten years ( ), Montenegro s Travel & Tourism activity has regained its late 198s level of Travel & Tourism Demand. This compares with a more normalized 38.9 per cent cumulative growth over the same period for the European Union and with 44.6 per cent growth for the world overall.although there have been minor bumps in the road since the mid-199s, Montenegro appears to have returned to a slow steady rise in Travel & Tourism demand. The long-term outlook for growth in Montenegro s Travel & Tourism Demand is expected to be consistently positive at 1.3 per cent per annum. WTTC/OEF expect strong growth in visitor exports (12.1 per cent per annum) for the foreseeable future, providing necessary support for personal Travel & Tourism, business travel, capital investment and government expenditures which are expected to post similarly consistent if not slightly slower growth. Overall, Montenegro s Travel & Tourism is expected to grow by 8.2 per cent in 24. Over the next ten years, growth in Montenegro s Travel & Tourism Demand is expected to average 1.3 per cent per annum. This would comfortably exceed expected worldwide growth of 4.5 per cent per annum, and the 3.8 per cent annual average growth projected for the European Union

33 EMPLOYMENT THE TRAVEL & TOURISM INDUSTRY IN MONTENEGRO IS EXPECTED TO GENERATE DIRECTLY 12,4 JOBS IN 24. A total of 22,7 jobs (direct and indirect) are expected to be generated across the broader spectrum of the Travel & Tourism Economy, encompassing: travel company employment, government agency employment, and supplier company employment. The first category represents Travel & Tourism Industry jobs, while all three categories together represent Travel & Tourism Economy jobs. Travel & Tourism Industry jobs in Montenegro totalling 12,4 in 24 represent 8.1 per cent of the country s workforce. By 214, Travel & Tourism Industry employment is expected to increase by 9,2 jobs to 13. per cent of total employment in Montenegro. The 22,7 Travel & Tourism Economy jobs in Montenegro in 24 represent 14.9 per cent of the total workforce. By 214, Travel & Tourism Economy employment is expected to increase by 12,7 jobs in Montenegro to 21.3 per cent of total employment. Over the past ten years,travel & Tourism in Montenegro has increased its employment results by only 4 jobs. In 24, due to continued strong growth in visitor exports, the employment outlook for Travel & Tourism is significantly positive with employment gains expected to approach nearly 6 jobs. Assuming a continuation of positive economic growth and visitor exports over the next few years, there is strong potential over the next decade to create 1,5 new jobs every year. The total number of jobs in Travel & Tourism is expected to increase by just over 4.5 per cent per annum between 24 and 214. The charts to the right highlight a few points of interest. First, Montenegro s Travel & Tourism employment growth was positive but weak following the ending of hostilities in the early- 199s. Second, if Travel & Tourism employment as a percentage of total employment in Montenegro is compared with the respective shares of neighbouring and competing destinations, Montenegro ranks in the middle of the listing. More importantly, though, it ranks favourably in 17th position among the list of 174 countries whose future performances are estimated by WTTC/OEF. Finally, the growth rate projected for Montenegro s Travel & Tourism employment over the next ten years ranks high up the competitor/neighbour listing but, in 86th position, is only midway up the list of 161 countries. Furthermore, a comparison of this ranking (86th) and the ranking of GDP growth (16th) on the following page suggests that the structure and maturity of its economy and expectations for future productivity gains are preventing job creation from matching the rate of GDP growth. 25 Economy Industry MONTENEGRO Travel & Tourism Employment ( Jobs) MONTENEGRO Travel & Tourism Economy Employment (Cumulative Real Growth, %) WTTC LEAGUE TABLE EXTRACT Travel & Tourism Economy Employment (24, % of Total Employment) 15 Cyprus Malta Croatia Slovenia Greece Montenegro Bulgaria Italy Slovakia Albania Turkey Bosnia and Herzegovina , Economy Industry 2, 15, 1, 5, EUROPEAN UNION Travel & Tourism Employment ( Jobs) EUROPEAN UNION Travel & Tourism Economy Employment (Cumulative Real Growth, %) WTTC LEAGUE TABLE EXTRACT Travel & Tourism Economy Employment (1-Year Real Growth,Annualized, %) 17 Montenegro Croatia Greece Turkey Slovakia Malta Slovenia Italy Cyprus Bosnia and Herzegovina Albania Bulgaria

34 GROSS DOMESTIC PRODUCT THE TRAVEL & TOURISM INDUSTRY IN MONTENEGRO IS EXPECTED TO PRODUCE DIRECTLY MILLION (US$135.9 MILLION) OR 8.1 PER CENT OF TOTAL GROSS DOMESTIC PRODUCT (GDP) IN Economy Industry MONTENEGRO Travel & Tourism GDP (199 Constant US$ mn) MONTENEGRO Travel & Tourism Economy GDP (Cumulative Real Growth, %) WTTC LEAGUE TABLE EXTRACT Travel & Tourism Economy GDP (24, % of Total GDP) 19 Malta Cyprus Croatia Bulgaria Montenegro Greece Slovenia Albania Slovakia Italy Turkey Bosnia and Herzegovina ,2 Economy Industry 1, EUROPEAN UNION Travel & Tourism GDP (199 Constant US$ bn) EUROPEAN UNION Travel & Tourism Economy GDP (Cumulative Real Growth, %) WTTC LEAGUE TABLE EXTRACT Travel & Tourism Economy GDP (1-Year Real Growth,Annualized, %) 3 Montenegro Croatia Slovenia Slovakia Malta Bosnia and Herzegovina Cyprus Albania Greece Bulgaria Turkey Italy The broader Travel & Tourism Economy (direct and indirect) is expected to produce million (US$248.5 million), or 14.8 per cent of total GDP. The long-term expectations for Travel & Tourism GDP growth are positive exceeding 7.8 per cent annualized real growth. By 214,Travel & Tourism Economy GDP is forecast to have gained 6.3 percentage points to total 21.1 per cent or million (US$657.9 million). The Travel & Tourism Economy results and forecasts illustrate the significant and sometimes massive economic stimulus of Travel & Tourism.The first set of charts (stacked bar) shows how the tourism industry acts as a leading economic catalyst as its contribution permeates through Montenegro s Travel & Tourism Economy.These charts also illustrate how positive and negative changes in the Travel & Tourism Industry, especially visible in the EU chart in 21 and 22, result in a much larger impact on the broader Travel & Tourism Economy. In the second set of charts (Cumulative Real Growth), Montenegro s Travel & Tourism Economy shows significant growth post-1993 with only a brief interruption in Also evident is the strongly positive outlook for growth over the next ten years.this level of growth is even stronger than for the overall Montenegro economy, which continues to post positive, but more modest gains. Because Montenegro s Travel & Tourism economy is relatively young by European Union standards, the cumulative growth charts illustrate the vast gains in recent years and continuing positive long-term outlook. The third set of charts (bottom left) compares WTTC estimates for Montenegro and its neighbouring and competing destinations, showing respective Travel & Tourism Economy GDP as a percentage of total GDP. Ranked in 46th place among 174 countries above Greece at number 5 and below Bulgaria at 38 Montenegro is clearly among the second-tier, tourism-intensive countries. In addition, the second league table extract illustrates how Montenegro s prospects for GDP growth are also better than for all its neighbours and competitors within the world ranking in third position. 32

35 CAPITAL INVESTMENT IN 24,TRAVEL & TOURISM CAPITAL INVESTMENT IN MONTENEGRO IS EXPECTED TO TOTAL 42.8 MILLION (US$49.6 MILLION), OR 14.8 PER CENT OF TOTAL INVESTMENT. The largest component of capital investment originates from the private sector in new plant and equipment, while the public sector invests in new Travel & Tourism infrastructure. This represents a return to a more normalized capital investment growth following two years (1996 and 2) of sharp increases. Over the next ten years (24-214), the contribution of Travel & Tourism to Montenegro s capital investment account is expected to increase at an average rate of 7.4 per cent per annum in real terms. Examination of Travel & Tourism Capital Investment results and forecasts lends greater insight into the market forces at work in a given economy and the expectations by the public and private sectors to meet the challenges and opportunities in the years ahead. For the most part, Travel & Tourism Capital Investment tends to be cyclical, with strong links to major public policy initiatives, the business/market cycle, major events (such as natural disasters) and significant socio-political changes. Worldwide,Travel & Tourism Capital Investment is expected to total 9.4 per cent of total investment in 24.The expectation for global growth from is 4.2 per cent per year (in constant US dollars). In the European Union, the respective figures are 9.5 per cent of total capital investment in 24 and 3.2 per cent real growth over the coming decade. The charts on the right illustrate several interesting points. First, Montenegro s Travel & Tourism Capital Investment is expected to show a more regular pattern following its recent jumps. Second, when compared with neighbouring and competing countries, Montenegro s ranking is very favourable as it is in the broader listing of 174 countries in investment percentage terms for 24. With Travel & Tourism estimated at 14.8 per cent of total investment, Montenegro is placed in 58th position, between Cyprus in 33rd position and Bulgaria in 65th. However, similarly to its ranking in terms of GDP growth, Montenegro s Travel & Tourism Capital Investment growth (prospects for ) places it within the top tier of the WTTC league tables in first and eighth positions respectively in the comparative and the world listings. These high rankings send a strong message to Travel & Tourism operators at home and abroad that Montenegro is set to attract new ventures MONTENEGRO Travel & Tourism Capital Investment (199 Constant US$ mn) MONTENEGRO Travel & Tourism Capital Investment (Cumulative Real Growth, %) WTTC LEAGUE TABLE EXTRACT Travel & Tourism Capital Investment (24, % of Total) 21 Malta Cyprus Montenegro Bulgaria Greece Bosnia and Herzegovina Slovakia Croatia Slovenia Italy Albania Turkey EUROPEAN UNION Travel & Tourism Capital Investment (199 Constant US$ bn) EUROPEAN UNION Travel & Tourism Capital Investment (Cumulative Real Growth, %) WTTC LEAGUE TABLE EXTRACT Travel & Tourism Capital Investment (1-Year Real Growth,Annualized, %) 8 Montenegro Slovenia Turkey Croatia Albania Bosnia and Herzegovina Slovakia Malta Bulgaria Greece Italy Cyprus

36 PERSONAL & BUSINESS. IN 24, MONTENEGRO IS EXPECTED TO GENERATE 59.9 MILLION (US$69.4 MILLION) OF PERSONAL TRAVEL & TOURISM CONSUMPTION BY RESIDENTS, OR 5.6 PER CENT OF TOTAL PERSONAL CONSUMPTION. 12 Business Personal MONTENEGRO Personal & Business Travel & Tourism (199 Constant US$ mn) MONTENEGRO Personal Travel & Tourism (Cumulative Real Growth, %) WTTC LEAGUE TABLE EXTRACT Personal Travel & Tourism (24, % of Total Personal Consumption) 31 Croatia Italy Slovenia Albania Bulgaria Cyprus Greece Turkey Malta Slovakia Montenegro Bosnia and Herzegovina , Business Personal EUROPEAN UNION Personal & Business Travel & Tourism (199 Constant US$ bn) EUROPEAN UNION Personal Travel & Tourism (Cumulative Real Growth,%) WTTC LEAGUE TABLE EXTRACT Personal Travel & Tourism (1-Year Real Growth,Annualized, %) 2 Montenegro Croatia Malta Cyprus Bulgaria Slovakia Slovenia Bosnia and Herzegovina Greece Albania Turkey Italy In Montenegro, business travel in 24 is expected to total 6.8 million or US$7.9 million (49 per cent corporate, 51 per cent government). Unlike visitor exports, which depend on international markets for consumers, the business generated in these two categories depends on the Montenegro economy itself. As the Montenegro economy grows, Montenegro consumer and business travel tend to follow suit. In 1994, Montenegro s Personal Travel & Tourism shot up by 272 per cent immediately following the conclusion of hostilities. Over the next decade (24-214), Personal Travel & Tourism in Montenegro is expected to grow at an annual rate of 1.7 per cent, while Business/Government Travel is expected to grow at an annual rate of 6.3 per cent. Although most of this Travel & Tourism occurs within Montenegro, a portion takes place abroad. When the spending does take place abroad, the satellite account generates a corresponding import credit, providing for an accurate assessment of Travel & Tourism produced in Montenegro and Travel & Tourism produced by the rest of the world. Analysis of Montenegro s results highlights a few interesting points. First, Montenegro residents have recently spent only about 5.6 per cent of their personal expenditures on Travel & Tourism.This percentage is well below the world average of 1.2 per cent and much lower than the European Union average of 12.2 per cent. Generally, the level of personal Travel & Tourism spending is directly linked to the development of the resident economy. As per capita income increases, so does Travel & Tourism spending. Montenegro s overall macroeconomic situation since the cessation of hostilities in the mid-199s has been reflected by the mixed positive and negative Montenegro resident spending on Travel & Tourism, as illustrated by the stacked bar and cumulative growth charts on the left. Nevertheless, even discounting the 1994 surge, the cumulative growth charts for Montenegro and the European Union illustrate the strong future growth outlook for Montenegro well above that for EU Travel & Tourism spending. If, as expected, the economy continues to show positive growth, Montenegro residents spending on personal and business Travel & Tourism is also likely to accelerate. Finally, the league table extracts reinforce this message of cautious positive spending. Montenegro ranks in the lower-mid tier of countries (113th position) in terms of current Travel & Tourism spending vis-à-vis total personal consumption, and yet it is projected to rise to the top tier in terms of future growth in Travel & Tourism spending. 34

37 EXPORTS TRAVEL & TOURISM EXPORTS PLAY AN ABSOLUTE AND VITAL ROLE IN MONTENEGRO S TRAVEL & TOURISM BUSINESS. In 24, Travel & Tourism services and merchandise exports for Montenegro are expected to total million, or US$231.2 million (87 per cent by visitors, 13 per cent by exported consumer and capital goods), representing some 54 per cent of total Travel & Tourism Demand. Without question, as this category grows and contracts, the health and vitality of Montenegro s Travel & Tourism sector will follow the same trend. Over the past ten years, with the exception of 1999, the gains for Travel & Tourism Visitor Exports have been impressive by any measure. In constant terms, gains for 2 visitor exports totalled 66.5 per cent, while gains in 21 totalled 5.5 per cent, even after considering that the latter part of 21 was significantly impacted by the events of 11 September. If considered over a longer period, ( ), Montenegro s Visitor Exports have grown by nearly 13 per cent in real terms. Over the next ten years, Montenegro s Visitor Exports are expected to grow by 12.1 per cent per annum, while Travel & Tourism Merchandise Exports (non-visitor exports) are expected to show minimal growth at 1.8 per cent per annum. Globally and for the European Union, visitor exports are expected to grow at 5.8 and 5.5 per cent per annum respectively over the next ten years (24-214). Clearly, based on these forecasts, Montenegro s Travel & Tourism Visitor Exports growth is excellent and well ahead of its regional and global peers. Although long-term expectations for Montenegro s Travel & Tourism export growth (24-214) are positive these forecasts, like any others, depend on future events and are therefore not guaranteed. The SARS outbreak in Asia in 23, for example, which had a major negative impact on tourism in the region, is a perfect example of uncertainty inherent in forecasting. Examination of the WTTC league tables reveals that Montenegro is well placed on the basis of its current visitor exports as a percentage of total exports. In the second league table, Montenegro s visitor exports growth illustrates the positive outlook ahead, since it ranks in third position. This ranking implies there is a need for the public and private sectors to pay significant attention to maintaining international visitor growth at these high levels. 35 Other Visitor MONTENEGRO Travel & Tourism Capital Investment (199 Constant US$ mn) MONTENEGRO Travel & Tourism Exports (Cumulative Real Growth, %) WTTC LEAGUE TABLE EXTRACT Travel & Tourism Visitor Exports (24, % of Total Exports) 8 Cyprus Croatia Albania Greece Montenegro Bulgaria Malta Turkey Slovenia Italy Slovakia Bosnia and Herzegovina Other Visitor EUROPEAN UNION Travel & Tourism Exports (199 Constant US$ bn) EUROPEAN UNION Travel & Tourism Exports (Cumulative Real Growth, %) WTTC LEAGUE TABLE EXTRACT Travel & Tourism Exports (1-Year Real Growth,Annualized, %) 3 Montenegro Slovakia Croatia Turkey Slovenia Bosnia and Herzegovina Italy Malta Greece Cyprus Bulgaria Albania

38 GOVERNMENT IN 24, NATIONAL AND LOCAL GOVERNMENT AGENCIES IN MONTENEGRO ARE EXPECTED TO SPEND 13.8 MILLION (US$16. MILLION) OF CURRENT OPERATING FUNDS FOR TRAVEL & TOURISM MONTENEGRO Travel & Tourism Gov t Expenditures (199 Constant US$ mn) MONTENEGRO Travel & Tourism Gov t Expenditures (Cumulative Real Growth, %) WTTC LEAGUE TABLE EXTRACT Travel & Tourism Gov t Expenditures (24, % of Total Gov t Expenditures) 25 Malta Cyprus Slovenia Greece Italy Albania Bulgaria Montenegro Slovakia Croatia Bosnia and Herzegovina Turkey EUROPEAN UNION Travel & Tourism Gov t Expenditures (199 Constant US$ bn) EUROPEAN UNION Travel & Tourism Gov t Expenditures (Cumulative Real Growth, %) WTTC LEAGUE TABLE EXTRACT Travel & Tourism Gov t Expenditures (1-Year Real Growth,Annualized, %) 19 Albania Bulgaria Montenegro Bosnia and Herzegovina Slovenia Slovakia Croatia Cyprus Malta Italy Turkey Greece...2 This represents 2.7 per cent of total government expenditures and they are allocated to providing individual and collective government Travel & Tourism services to visitors, travel companies and the community at large. Over the next ten years (24-214), Travel & Tourism Government Expenditures in Montenegro are expected to increase by an average of 4.3 per cent per year in real terms. Globally, governments are expected to allocate an average of 3.9 per cent of their expenditures to Travel & Tourism-related functions, and to increase this spending by 2.8 per cent per annum over the next ten years.the corresponding figures for the European Union are 3.2 per cent of total government spending and 1.9 per cent real growth for the coming decade. Based on these results, Montenegro s 24 government contribution of 2.7 per cent is currently just shy of its regional and global competition in terms of Travel & Tourism support and services. In this WTTC report, 24 government expenditures include individual expenditures of.9 million (US$1. million) that can be linked to individual visitors, such as museum subsidies or immigration services. But they also include collective expenditures of 12.9 million (US$15. million) that are undertaken for the community at large such as airport administration and tourism promotion but which have a logical service connection to Travel & Tourism. One would naturally assume there should be a direct link between the impact of an industry/sector like Travel & Tourism on the economy (in terms of GDP) and the amount of funding allocated by governments towards that industry/sector. In Montenegro, the 24 ratio of Travel & Tourism GDP (percentage of total GDP) to government expenditures is 5.4:1.. Worldwide and in the European Union, this ratio is 2.7:1. and 3.6:1. respectively. This would suggest that the Montenegro government authorities are returning significantly less to Travel & Tourism than governments generally. The league tables on the left reinforce this particular point. First, Montenegro s government expenditures for Travel & Tourism are currently low on a relative scale at 112th out of 174 countries. More encouraging is the outlook for growth third among its regional neighbours and 53rd among the global research list of 174 countries. Although the Montenegro government clearly has significant spending priorities and requirements that may be affecting these results, Travel & Tourism spending is suffering a significant competitive disadvantage in the world marketplace. 36

39 THE POLICY FRAMEWORK POLICY RECOMMENDATIONS THE REPUBLIC OF MONTENEGRO RECENTLY RE-EMERGED ONTO THE WORLD S TOURISM STAGE AFTER MORE THAN A DECADE OF ISOLATION AS A RESULT OF THE BALKAN WAR.THE EXTENDED PERIOD OF ECONOMIC SANCTIONS AND THE RESULTING NEGLECT OF THE COUNTRY S INFRASTRUCTURE AND INDUSTRY DURING THE WAR IN NEIGHBOURING STATES HAD A SEVERE IMPACT ON ITS ECONOMY, WHICH IS NOW LITTLE MORE THAN HALF THE SIZE IT WAS IN 199. Unemployment is extremely high (32 per cent) if one overlooks the thriving grey market and some 3 per cent of Montenegrins live below the poverty line. Although the implementation of a number of economic and fiscal reforms is already having a positive impact, auguring well for improved political and macro-economic stability, key former sectors of the economy that were vital sources of foreign exchange earnings notably shipbuilding are still in the doldrums. Travel & Tourism is the one really bright spot on the horizon, and it is very bright thanks in no small part to the country s wealth of natural geographic attractions and resources. Most importantly, the Montenegrin Government clearly recognizes Travel & Tourism s potential as a contributor to economic growth and social development throughout the country. This is reflected in its adoption of the Tourism Masterplan in November 21 and its declaration of tourism as a major priority for development. Nevertheless, while government accepts that Travel & Tourism has a significant role to play in achieving robust economic reforms, it appears to underestimate the full scope of the industry as a catalyst for the development of other areas of economic activity, such as agriculture, manufacturing and financial services. Neither is there wide appreciation of Travel & Tourism s potential to reduce disparities between urban and rural areas which, in turn, could bring major improvements to Montenegrins quality of life and well-being. Forecasts by the World Travel & Tourism Council (WTTC) and its research partner, Oxford Economic Forecasting (OEF), are extremely bullish, pointing to an average annual growth in Travel & Tourism Demand of 1.3 per cent over the next ten years the fastest growth projected for any country in the world. If this growth is realized, the wider Travel & Tourism Economy will contribute 21.1 per cent to Montenegro s GDP by 214. Moreover, the potential impact could be even greater if the underlying policy framework is conducive to growth ie if the Montenegrin Government creates the underlying conditions for market confidence, dynamism and sustainability. However, several challenges lie ahead, and these must be addressed to ensure the long-term sustainable development of Montenegro s Travel & Tourism, generating maximum benefits for all stakeholders and at all levels of the economy. While the private sector can and must play an increasingly important role to develop quality products and competitive services geared towards rapidly changing demand, the government needs to show leadership by stimulating and facilitating investment, streamlining and clarifying regulations, and developing much needed infrastructure and human capital. Against this background WTTC recommends that the Montenegrin Government: PLAN FOR THE FUTURE Long-term Tourism Planning Long-term planning at the national level is a prerequisite for the successful development of Travel & Tourism in Montenegro. Not only is the industry fragile and likely to be adversely affected by short-term political considerations, but Montenegro is a small country and can less afford to make mistakes than most of its competitors. Two key goals of the Montenegrin Government, as voiced by the Deputy Prime Minister, are economic development and the optimization of the country s natural resources resources that can best be fully exploited through tourism and agriculture. In order to facilitate attainment of these goals, the responsibility of the Ministry of Tourism should be increased, giving it direct access to the highest levels of government, and factoring the industry s needs into mainstream policies for employment, trade, investment, education and environmental protection. The country is in many ways fortunate in that there appears to be no shortage of international aid agencies, nor non-governmental organizations (NGOs), willing and eager to provide technical advice and support for the country s Travel & Tourism industry, as well as for economic and social development generally.these include organizations like the World Bank, the International Monetary Fund (IMF), the European Bank for Reconstruction & Development (EBRD) and the European Investment Bank (EIB), which have financed and will 37

40 continue to finance critical infrastructure projects, all of which have an indirect, if not direct, impact on tourism. In addition, however, considerable funding has been made available through other organizations such as the US Agency for International Development (USAID), the United Nations Development and Environment Programmes (UNDP and UNEP), the German Investment & Development Company (DEG), and the Austrian Government s Office of Technical Cooperation for Regional Development (ÖAR). Much of the work carried out by these different bodies has been extremely valuable. Examples include UNDP's Strategic Framework for Sustainable Tourism Development in Northern and Central Montenegro and the sustainable tourism project instigated by ÖAR in the Bjelasica region. Both of these projects are valuable as they include action plans and focus on practical measures that will help ensure sustainable growth environmental, but also social and economic. The downside of some forms of technical support, however, is that it can be limited to so-called development plans, few of which are converted into action programmes with realistic targets and measurable benefits to encourage the buy-in of all stakeholders. The Montenegrin Government should intervene to ensure better co-ordination between these different agencies and NGOs so as to avoid duplication and to optimize the practical benefits of their efforts. The Tourism Masterplan, for example, which was developed jointly with DEG, should be incorporated into a formal National Tourism Policy, closely linked to the new Urban Plan for the Republic.This Policy must start from a vision of what kind of Travel & Tourism Montenegrins wish to develop in physical and marketing terms. The Policy must include certain basic elements: Clearly defined goals, objectives and responsibilities; Indications of best practice in tourism development; Measures to support existing industry, as well as for the promotion of new developments; An articulated strategy for product diversification; A long-term strategy for tourism marketing and promotion in line with the Policy s long-term goals and objectives; and Clear branding that reinforces the basic vision for Montenegro s Travel & Tourism development. In order to ensure greater support and commitment from all stakeholders, the government should also initiate a more cohesive and cooperative approach to longer-term tourism planning and development, involving all levels of government, the private sector and local communities. The recent move by government to strengthen its partnership with the private sector and local authorities through the National Tourism Organization is an important step in this direction, as is the decision to establish a Travel & Tourism Government Affairs Council. Now that the government has earmarked the Regional Development Plan for Ulcinj/Velika Plaza as its top priority in the further development of Montenegro s tourism, great care should be taken to ensure that the Plan is implemented quickly and smoothly.this will help guide the development of other future regional plans and instil confidence in the investor community as to the country s tourism development potential.the Plan also needs to be promoted widely and potential investors should be given sufficient 38

41 guarantees that land ownership issues and illegal construction along this area of the coast will not prove to be hurdles to development. Meanwhile, the government should also commit to using money generated from the privatization of hotels and other tourism assets for reinvestment into rural areas of Montenegro. This will not only be an important step towards spreading the benefits of tourism more equitably across the country, but will also help diversify the destination s tourism appeal, attracting a broader range of tourists from potentially higher-yield segments, and reducing the current dependence on sun and beach tourism. Monitor Trends in Travel & Tourism Demand In order to plan ahead better and anticipate necessary changes to tourism supply, it is essential to monitor trends in past and current Travel & Tourism demand. This will help identify threats to growth, as well as new opportunities. Examples include the water and electricity shortages suffered in coastal resorts during the peak summer months last year, as well as problems relating to noise levels, waste collection and disposal. These problems resulted in the cancellation of business by some foreign tour operators and the requirement for compensation payments by hotels and other local firms. If such problems are not resolved quickly they, in turn, can irreparably damage the destination s image, and could even influence the country s ability to target desired markets and investors in the medium to longer term. Monitoring demand trends on a regular basis implies the provision of good quality statistical data on Montenegro s Travel & Tourism, including data on international visitor arrivals and departures, domestic tourism, hotel operating performance, expenditure patterns, attitudes and preferences, as well as on the overall economic contribution of Travel & Tourism. A national Tourism Forecasting Council (TFC) established along the same lines as Australia s successful TFC, in which all stakeholders are well represented could be a useful tool for ensuring the credibility of historical results and future demand forecasts. It could also help to anticipate future capital investment and infrastructure needs in the future, mitigating serious supply shortages or oversupply.the early introduction of incentive schemes for private sector capital investment and small business development will ensure timely access to capital resources and funding. Encourage Greater Market and Product Diversification Montenegro faces serious competition from a growing number of destinations around the Mediterranean from well-established tourism favourites such as Spain, Italy, Turkey, Greece, Cyprus and Malta, to emerging, or re-emerging, destinations like neighbouring Croatia, Slovenia and Bulgaria. Rate cutting for package tours and hotel accommodation is rife and has already had a negative impact on prices and yields in some of these destinations and the competition is likely to get tougher. For Montenegro, the pressure to reduce rates is even greater given the recent appreciation of the euro, its adopted currency. However, this should be avoided if possible. Following its ten-year absence from the world tourism stage, Montenegro s tourism product is very fragile. Admittedly, it cannot be as choosy as government or the industry would like to be in terms of the 39

42 quality of tourists it attracts while its infrastructure and facilities are below acceptable international standards. But, thanks to recent privatizations and new incentive schemes for small and medium-sized businesses, there is now a lot of activity in terms of renovations and upgrading of hotels. If the Montenegrin Travel & Tourism industry bends to the pressure on prices, there is a serious risk of undermining the future potential of the country s tourism attractions. For this reason the Montenegrin Government and the local Travel & Tourism industry should invest heavily in product and market diversification. Some steps in this direction have already been taken as a result of foreign aid and a new government programme to stimulate tourism development. But further diversification will help avoid unhealthy competition in the sun and beach sector, minimize the risk of over-dependence on a few key markets, and reduce seasonality, spreading tourism demand more equitably throughout the year. It could also help avoid excessive strains on the coastal environment and on valuable natural resources in the medium to longer term. International markets offer the greater potential for tourism growth whether in absolute volume or percentage terms.they are also especially attractive to Montenegro as they generate higher yields. However, the domestic market should not be overlooked as it is a valuable source of revenues at a time when much of the country s tourism infrastructure and facilities remains below internationally accepted standards. The key market segments which Montenegro should develop and promote include: Sun and beach/coastal tourism Already the most popular form of Travel & Tourism in the country, probably accounting for more than 9 per cent of total tourist overnights, sun and beach tourism is likely to dominate the market for some time to come. However, it is important for operators to recognize that such tourists today demand much more than just sun, sand and sea. They are actively seeking resorts that can provide good quality sporting facilities and non-stop entertainment, as well as other facilities such as spas for health and wellness. Igalo, close to Herceg Novi and the Croatian border, is already well-known in this sector of the market.the Spanish Government is currently providing technical assistance to help Montenegro develop wellness tourism....tourists today demand much more than just sun, sand and sea. The Montenegrin Government has already issued a number of tenders for the development of marinas in key locations along the coast, such as Tivat and Kotor Bay (Boka Kotorska), and there are plans to try to tap cruise market potential for the future. A warm climate and pristine waters make Montenegro an ideal destination for sailing and water-based holidays. For its longer-term development as a quality sun and beach destination, substantial investment will be required, so as to attract international hotel and resort brands. While government policy should help stimulate investment in this area, it should also help Montenegro avoid the risk of over-developing resorts in specific coastal areas. There are a number of lessons to be learned from short-sighted developments in other countries such as Spain. These have resulted in excessive construction and an over-concentration of development that have destroyed kilometres of coastline. Nature-based tourism Given the wealth of natural resources in the country, the most promising growth market in the longer term is nature-based tourism, for which Montenegro has unique selling appeal. It is also particularly important for the future well-being of Montenegrins as it has the potential of ensuring economic development and employment in rural areas that would have difficulty attracting manufacturing industries. The government should show leadership by stimulating the development of new nature-based tourism products, providing incentives and matching funding to the private sector in rural and mountain regions, and encouraging buy-in by the local authorities and communities. Other leisure segments Market segments in which the industry should invest, and which the government should promote, are skiing, trekking, hiking, hunting, fishing and bird watching in fact, all forms of hard and soft adventure tourism. A prime ski resort has recently been sold and is expected to attract new business from next winter, following considerable renovations. Agricultural tourism including the promotion of local produce should also be facilitated through incentive measures to encourage families with farms to adapt them for tourism purposes as a supplementary activity. And many of Montenegro s coastal and inland towns offer excellent opportunities for cultural tourism thanks to the country s rich and varied history and heritage. The MICE market Montenegro is a newcomer to the world of meetings, incentives, conference and exhibition (MICE) travel. MICE business currently accounts for a negligible share of tourist arrivals and nights and international standard conference and congress facilities are currently almost non-existent. However, it is an important market for Montenegro to develop since it generates high yields and strong visibility, as well as being a year-round business. The development of MICE facilities will nevertheless require big investment and international know-how, ensuring that facilities meet international standards and can remain competitive throughout their business cycles. A comprehensive approach to development should be adopted, ensuring that hotel capacity and other support facilities, such as transport links, are developed according to the needs of new congress halls and conference centres. In line with efforts to tap the potential of this sector, a National Convention Bureau (NCB) should be established either linked to, or set up within, the National Tourism Organization. An NCB would play a valuable part in raising the level of the MICE business in Montenegro 4

43 to that of an important economic contributor and would embrace the following tasks: Ensure complete co-ordination and synergy for the promotion of Montenegro s MICE business; Position Montenegro in the international marketplace as a new MICE destination; Serve as an initial/focal point of contact, distributing leads and allocating business transparently; Provide conference industry leadership and co-ordination, ensuring professionalism in the sector; Serve as a clearing-house of convention industry information; and Exert influence and link industry and government. Invest More in Effective Marketing and Promotion The Montenegrin Government should be commended, both for setting up a National Tourism Organization (NTO) in 1995, and for taking steps at the beginning of 24 to turn it into a public-private partnership. The reorganized NTO is a partnership between all stakeholders in Montenegro s Travel & Tourism, including the state, local authorities through their newly established (or about to be established) local tourism organizations and the tourism industry. The not-for-profit, local tourism organizations are to be financed through municipal budgets, residence fees (bednight taxes on tourist overnights in registered tourist accommodation), the membership fees of tourism services providers (that are still to be determined), and possible donors and/or sponsors. Of the total bednight taxes collected based on a rate of.1 per bednight in the low season to.8 in the high season in the more developed municipalities 8 per cent will go to the local tourism organizations and 2 per cent to the NTO to supplement government funding. This will increase the NTO s modest budget, which currently stands at less than 3 million, with little more than 6, for marketing and promotion. No details are available as to how the additional funds will be spent, but much of it will likely go to increased efforts in key foreign markets. The NTO has public relations representation in three markets Germany, Italy and Switzerland and is represented in some other countries through its embassies. In Montenegro it has information centres in ten towns in addition to its headquarters in Podgorica. Marketing spend covers advertising and promotional material, as well as participation in selected travel fairs. Investment in effective marketing and promotion of Montenegro as a tourism destination is critical to ensuring sustained demand from existing markets and to generating new demand. The NTO should continue to focus on Montenegro s rich variety of attractions, which cater to a wide range of tourism tastes and budgets. Efforts should also focus on reducing seasonality, as well as on spreading the benefits of tourism to all parts of the country. In addition, particular attention needs to be paid to overcoming the image of Montenegro as a low quality destination. As already recommended, a National Convention Bureau (NCB) 41

44 should be set up either within or linked to the NTO, to tap the potential of the MICE market. Both the NTO and NCB should be responsible for producing and disseminating timely market intelligence to different local stakeholders, as well as to potential investors in Montenegro s Travel & Tourism industry.the NTO should work in close partnership with both the public and private sectors to facilitate the monitoring of trends and to stretch research dollars. HIGHLIGHT THE STRATEGIC IMPORTANCE OF TOURISM Recognize Travel & Tourism s Economic Importance Travel & Tourism is forecast to become Montenegro s leading export sector, generating the highest share of foreign exchange revenues. It has the potential to diversify Montenegro s economy, stimulate entrepreneurship particularly among small and medium-sized enterprises catalyze investment, create large numbers of sustainable jobs and help social development in local communities. The government should undertake an image campaign to ensure that all public and private stakeholders recognize Travel & Tourism s full impact across the national economy not just on eating and drinking places and retail business, but also on construction, real estate and other sectors of the economy. Even more importantly, stakeholders should be made aware of its untapped potential and of the spin-off benefits of tourism that filter down through all levels of the community. Travel & Tourism should be factored into mainstream policies for employment, trade, investment, education and environmental protection. The strategic importance of Travel & Tourism should be communicated to all levels of government, industry and local communities. All government departments affected by, or impacting on, Travel & Tourism development should be closely involved in drawing up the National Tourism Policy and in planning and co-ordinating individual programmes. The government should also consider convening a National Tourism Congress, which would bring domestic and foreign stakeholders together to discuss Travel & Tourism challenges and opportunities. This would be an effective way of promoting the importance of the industry to public and private decision-makers. Travel & Tourism is forecast to become Montenegro s leading export sector, generating the highest share of foreign exchange revenues. Implement Satellite Accounting on an Annual Basis Travel & Tourism needs to be effectively measured in order to understand its full impact throughout the economy. As a new industry, Travel & Tourism is not discretely identified in charts of national or state accounts its component parts are scattered throughout the accounts. Public sector analysis and related policies tend to overlook, or understate, the impact of the industry, or deal with its smaller individual components. The technique of satellite accounting is designed to measure the new service sectors, and this Tourism Satellite Account (TSA) developed by WTTC and OEF for Montenegro should prove to be a significant tool for planning and policy development. WTTC urges the Montenegrin Government to update this TSA on an annual basis to ensure that adequate data is available to factor Travel & Tourism into economic and employment strategies. DEVELOP THE HUMAN CAPITAL REQUIRED FOR GROWTH Harness Travel & Tourism to Alleviate Unemployment and Reduce Grey Market Activity A recent UNDP report, entitled Employment, the Labour Market and Standards of Living in Montenegro, highlights the fact that, even when all types of employment (formal, informal and multiple) are taken into account, the unemployment rate in Montenegro stands at 14 per cent. This is an uncomfortably high rate for a country with low unemployment benefits and a high level of poverty. Moreover, the unemployed in Montenegro are predominantly in their late 2s, and around 8 per cent have secondary education. This potential tourism labour pool should be harnessed by the government and provided with adequate training to meet the growing need for a skilled workforce in Travel & Tourism as tourism demand grows over the next decade. The National Employment Agency is already taking steps to train the unemployed for jobs in Travel & Tourism. But, until now, the main focus has been on low-skilled and unskilled jobs such as for barmen and chambermaids rather than harnessing the potential for skills across a wide employment spectrum. Although estimates vary, about 3 per cent of Montenegrins of working age are either full- or part-time employed in the informal economy or the grey market.the existence of the grey market, which is not included in the WTTC/OEF TSA data, is easy to understand, given the country s recent history. However, since it largely involves family-run facilities, with the host families having little or no training in Travel & Tourism, it risks endangering the country s efforts to overcome its image as a low quality tourism destination. The Montenegrin Government needs to address this issue urgently through the introduction of incentive schemes to attract people into the mainstream economy. Promote a Positive Image of the Travel & Tourism Industry as a Provider of Careers as well as Jobs In 24,Travel & Tourism in Montenegro will account for some 22,7 jobs around 12,4 jobs directly with the industry and a further 1,3 jobs in sectors linked to Travel & Tourism, such as real estate, construction and retail. Employment in Travel & Tourism is projected to 42

45 grow by 4.3 per cent a year over the next ten years, rising to a 21.3 per cent share of total employment by 214. Given the forecast growth in demand of 1.3 per cent per annum this will clearly not be sufficient to meet the industry s needs and ensure sustainable development. More significantly, there is a severe shortage of skilled labour in Montenegro s Travel & Tourism industry, and existing facilities for education and training are inadequate, especially at higher levels.worse, the few young people who have graduated from the Kotor Hotel & Tourism College have had difficulty finding jobs in the industry since there seems to be a reluctance among companies under transition to invest in human resources. Despite this, the Montenegrin Government should help to promote a positive image of the industry as a key future employer to young people finishing high school, or university graduates. Career opportunities in Travel & Tourism can be extremely varied with upstream suppliers such as hotel designers or airport engineers, or with downstream service companies like retail shops, gas stations, clothing manufacturers and food suppliers.the former depend on travel company purchases, the latter are driven by visitors expenditures. There are also jobs in the public sector catering to visitors such as border inspectors, air traffic controllers and museum attendants. Contrary to conventional wisdom, jobs created by Travel & Tourism both directly in and outside the industry also range across the entire employment spectrum and, in many cases, have characteristics which fit model employment patterns: As the local industry becomes more sophisticated and more international brands enter the market, there will be a growing number of high-level jobs in different sectors. They will provide an impetus for regeneration and social cohesion by counter-balancing the flow of people to the cities from disadvantaged rural areas. They will provide significant opportunities for women and they will be ideal for young or first-time employees. Most importantly, they should offer widespread opportunities for long-term careers instead of just jobs. Place a High Priority on Education & Training Given the projected growth in Travel & Tourism demand in Montenegro, it is important to plan ahead to ensure that there will be sufficient numbers of employees with the appropriate credentials.while there is a need for broad-based training, which helps develop a variety of skills and customer service skills, there is also a need for higher academic skills and increased technological know-how. Although there are a number of high schools offering tourism courses and co-operation with foreign universities and tourism schools is increasing, current education facilities in Montenegro which has just one higher education faculty for the sector, the Kotor Hotel & Tourism College are simply inadequate. The government must ensure that further education in Travel & Tourism is available at no cost to a much larger number of young Montenegrins. Otherwise, the industry risks losing a valuable potential workforce. It is important to plan ahead to ensure that there will be sufficient numbers of employees with the appropriate credentials. The majority of Travel & Tourism businesses in Montenegro are small to medium-sized enterprises employing fewer than ten people. These businesses lack international know-how and the funds required for developing human resources.this makes it even more important to attract leading multinational Travel & Tourism businesses to Montenegro, which will help the country gain access to globally competitive private sector training schemes, supporting student placements and research on industry/education advisory committees. The presence of foreign operators will also, hopefully, provide the stimulus currently lacking to set up a National Hotel Association that can address key issues of interest and concern to the sector. 43

46 ENCOURAGE OPEN MARKETS AND SKIES AND REMOVE BARRIERS TO GROWTH Open Markets and Pursue Aggressive Reforms Travel & Tourism can only flourish and realize its full socio-economic potential within open and competitive markets. There is no room for protectionism in an industry that depends on the free movement of people and capital. On the contrary, there is a need to create rapid and transparent systems of interchange to deal with international trade and mobility. The Montenegrin Government clearly understands these needs and has, in fact, made good progress towards harmonizing its policies and laws with those of its trading partners an important step on the road to planned membership of the World Trade Organization (WTO/OMC) and possible future integration into the European Union. The government should pursue aggressive reform policies that are conducive to the sustainable growth of Travel & Tourism and that will, in turn, accelerate Montenegro s attainment of economic targets. Broadly speaking, these policies should include: Reducing the level of direct state intervention; Balancing budgets, and implementing healthcare and pension reforms; Maintaining price stability; Accelerating privatization; Streamlining regulation and reducing red tape; and Attracting foreign direct investment. Two areas in which reforms are perhaps lagging behind are the legal/judicial and banking sectors. There have been a number of reforms in the banking sector there are now ten, mostly private banks in Montenegro, but they still do not have the freedom to operate independently of the Central Bank. As an example, they are not allowed to finance what are seen as risky projects. Although the number of cash distributors in Montenegro is growing and payments by credit/charge cards are beginning to be accepted, the country still does not have a credit/charge card-processing centre, which is clearly irritating to tourists and possibly even a deterrent to tourism growth. Increase Private Participation in Tourism Development After the Balkan war, Montenegro s Travel & Tourism industry was hit for the second time in ten years, in 1999, by the Kosovo crisis the war between the Albanians in Kosovo and Serbian President, Slobodan Miloseviç,which resulted in some 1, Kosovans settling as refugees in Montenegro.The fighting and perceived civil unrest was another blow for tourism, putting most privately owned hotel and inbound tour operations out of business or into high levels of debt.the Montenegrin Government is making efforts to support SMEs in the tourism sector through the introduction of incentives to the tune of some 4 million for modernization and improvement of existing hotels. However, much more needs to be done to stimulate private sector participation in tourism development. Although privatization of hotel assets seems to be of greatest interest to foreign companies, some Montenegrin businesses have expressed interest in investing in the sector. Many of these are former tourism 44

47 entrepreneurs, who were involved in the industry before the war. They need every help that the government can provide to ensure that the entrepreneurial spirit of the local industry remains strong. The creation of the Montenegro Business Alliance (MBA) in September 21 will go a long way to supporting this goal.the MBA s objective is to create a healthy environment for private business owners seen as the main pillar of the Montenegrin economy and to encourage greater participation by them in the government s decisionmaking process in Montenegro, such as in the development of the new legal and fiscal framework and new reform laws. Meanwhile, evidence suggests that too rapid a disengagement of the state from state-owned enterprises could also be damaging to the destination s competitiveness if it is not done so effectively, with longterm interests at heart. Decisions need to be monitored closely by the Ministry of Tourism to ensure that they are complementary to the vision and long-term objectives for Travel & Tourism development established in the Tourism Masterplan and the proposed National Tourism Policy. Stimulate Foreign Investment In terms of real estate, property and development projects, challenges still remain that continue to hamper the attractiveness of Montenegro for both domestic and foreign investors. Investment in Travel & Tourism averages a healthy 14.8 per cent of total capital investment.yet foreign investment, in particular, has been handicapped by a number of key issues notably the inadequacy of clear government policies and guidelines on issues such as land ownership, and the lack of effective government controls on illegal construction along the coast. Without these constraints, the share would be much higher. Recognizing the power of international brands to attract highyield markets and, thereby, to stimulate wealth and job creation, the Montenegrin Government should make strong efforts to address these problems, so as to reassure potential high-profile investors. Care should also be taken to ensure clarity in the privatization process. This means resolving land ownership issues rapidly, removing red tape and ensuring that fiscal policies such as taxation are not harmful to investment. To date, 17 hotels have been sold and five are under tender, and it is expected that ten more resort properties will be privatized in 24 (see Travel & Tourism Overview). The new owners invested approximately 5 million in 23 to upgrade hotels acquired a level of investment that is expected to continue. Privatization is forecast to increase the number of hotels of international standard (in the three- to five-star categories) to between 1, and 12, beds by the start of the 25 summer season about half the capacity needed to meet the projected demand for quality hotel accommodation longer term. To stimulate and speed up privatization in the future, the government should consider setting up a tourism investment facilitation agency. Linked to the Ministry of Tourism, but also working in close cooperation with the government s Agency for Economic Restructuring & Foreign Investments, this would act as a one-stop shop for private investors. Tax Intelligently Transaction (indirect) taxes are relatively high in Montenegro estimated by WTTC/OEF at 56.3 million in 24 and certainly not conducive to increased foreign investment, or tourism growth generally. As an example, the 17 per cent value added tax (VAT) introduced on hotel rates in May 23 is well above the rates applied by governments in competitive countries, where the Travel & Tourism industry generally benefits from favourable rates.there is no doubt that it had a negative impact on performance last year not to mention on Montenegro s image with foreign tour operators. Care must be taken to ensure that the level of VAT is not perceived as excessive, as this could have a long-term, negative impact on demand. While Travel & Tourism should pay its fair share of taxes, the growth and prosperity of the industry including the investment necessary to generate these future revenue flows will depend in no small part on the competitiveness of Montenegro s Travel & Tourism. This will also depend on whether it receives equitable treatment relative to other industries and to competing destinations. There is an increasing tendency worldwide for governments to target Travel & Tourism as a revenue generator to meet short-term budget objectives, with little thought to the longer-term consequences on demand and job creation. WTTC urges the Montenegrin Government to ensure fiscal regimes that encourage tourism growth, exports, investment, infrastructure, business innovation and job creation. The User Pays User Benefits principle should be given priority, with funding collected earmarked for Travel & Tourism infrastructure and promotion. Improve Access, Pursue Air Transport Liberalization and Open Skies At present, tourists arriving by air in Montenegro through the capital Podgorica can reach the Adriatic coast or the leading mountain resorts in under two hours whether by train, car or bus. Roads to the north of Podgorica have undergone/are undergoing major improvements and the planned construction of the Sozina tunnel from Podgorica to Bar will also benefit Travel & Tourism and stimulate growth as it will help reduce the road journey to less than one hour.at the same time, it will benefit visitors arriving and leaving by car ferry in Bar. Meanwhile, following the completion of an Air Transport/Airport Masterplan in 23, there are also concrete plans for improvements at Montenegro s two international airports, Podgorica and Tivat, with funding of around 23 million being provided by the EBRD and EIB 8 per cent for Podgorica and 2 per cent for Tivat. Improvements at Tivat, which is very much a seasonal airport, will be more cosmetic than structural, while Podgorica, which is expected to attract around one million passengers in 24, will get a new passenger terminal. However, work will primarily focus on enhancing safety and security at both airports, including runway improvements, new approach lights, etc. No investment has been made at either airport since Montenegro s two main airports are publicly owned, having been acquired from JAT Yugoslav Airlines in April 23 by the Montenegrin Government.There are no plans to privatize them in the short term, as 45

48 the government believes it is in the public s interest for them to remain in state hands, but privatization is likely in a few years time. Efforts have been made successfully to attract new airline service to Montenegro, especially outside the peak summer season. In early 24 the government launched a package of incentives to subsidize airline fares on routes to Tivat from Belgrade and Ljubljana for the two months of April and May. However, the government is still very protective of its national carrier, Montenegro Airlines, which has a relatively small international fleet and is clearly struggling to compete in the international marketplace. WTTC maintains that any form of protectionism is not in the longer-term tourism interests of the country, and that the government should open its air transport market. As tourism demand grows, an expansion of liberal aviation accords will attract an increased number of scheduled flights and charter activity from Montenegro s main markets, while low-cost carriers can help generate new markets from within Europe. Enhance Safety & Security WTTC commends the safety and security improvements being implemented at Podgorica and Tivat airports. Public safety and security generally do not appear to pose major problems in Montenegro at the present time. However, isolated incidents resulting from actions prompted by ethnic tensions have occurred.these incidents should therefore be factored into central and local policing strategies, with contingency plans drawn up to protect tourists. MATCH PUBLIC AND PRIVATE INFRASTRUCTURE WITH CUSTOMER DEMAND Expand Infrastructure Infrastructure remains a critical component in Travel & Tourism development if the full potential of employment generation, export earnings and regional development effects are to be achieved. Public infrastructure that supports Travel & Tourism expansion will also serve other urban and regional development purposes. Quality infrastructure is also essential to diversify the product base, remove bottlenecks, ensure good service and distribute the benefits of tourism flows around the economy. It is not only a question of coping with increasing numbers of visitors, but also of making sure that the patterns of flow do not affect the natural or built heritage, nor run counter to local interests. A number of critical infrastructure improvement projects are underway, or in planning. As already indicated, these include road and airport improvements, water and electricity supply, pollution-free wastewater collection and solid waste treatment facilities. But much more remains to be done. There are still a number of black spots on the country s roads and the rail network is badly in need of renovation. Most of the work has only been possible thanks to financing from donors such as the World Bank and EBRD, although it is difficult to get funding for rehabilitation and modernization projects. But the government needs to demonstrate that, with or without the support of donors, adequate investment is being made in areas of most concern. This is essential to instil confidence in potential foreign investors. 46

49 The expansion and renovation of Montenegro s tourism infrastructure and hotel supply is probably one of the greatest challenges facing the country s tourism industry today not to mention a critical competitive factor that could determine the growth of demand over the coming years. Although improving, the current hotel supply particularly in the three- to five-star categories is well below the level needed to meet current, let alone, future demand. The expansion and renovation of Montenegro s tourism infrastructure and hotel supply is probably one of the greatest challenges facing the country s tourism industry today Urgent investment is needed in this area to increase hotel bed capacity to the level required to meet the projected growth in tourism demand over the next ten years. There are two main regions expected to be developed over the next few years. These are Velika Plaza near Ulcinj, close to the Albanian border, which has the only remaining large, pristine sandy beach in the Adriatic, and the historic Boka Kotorska, the Mediterranean s only fjord region, where there are plans for small-scale accommodation and marinas. The Velika Plaza Regional Development Plan, adopted by Montenegro s Prime Minister as a major priority for development, represents a total investment of 1 billion that will create 25, new beds in the three- to five-star categories. It is expected to create 12,5 direct and 12,5 supporting jobs, as well as 1 million in foreign exchange revenues.wttc recommends that the Velika Plaza project be implemented without delay and that potential investors be given guarantees regarding issues of concern, such as land ownership and the effective control of illegal construction. Other areas where infrastructure and superstructure investments will be needed in the medium to longer term are for the MICE and cruise markets. New conference facilities have to be built before Montenegro can hope to enter this lucrative sector of the tourism market. As for the cruise business, although some cruise ships do call at Bar and Kotor, facilities and safety standards are not considered adequate by cruise companies. Rehabilitation of the port of Bar as a ferry terminal is on the drawing board, and it could also be developed as a cruise port, allowing passengers to disembark and visit the country's main sites. Incentive programmes to attract private investment could generate good opportunities to grow this potentially interesting source of revenues. Improve Land-use Planning and Protection Montenegro has a major advantage over many of its direct competitors its natural and cultural environment is relatively unspoilt and offers huge potential for sustainable tourism development. Conveying environmentally and culturally friendly policies, promoting voluntary accreditation schemes for the industry, and outlining best practice in tourism development, are all important steps that need to be taken to protect the country s main resources from over-development and exploitation. And there is no better time to start with this than the present. At the same time, the Montenegrin Government and the private sector can influence the development of new tourism infrastructure and products to protect and promote the character of the local environment, developing authentic tourism products that are unique to the country and its culture. Land-use planning should remain the responsibility of the Montenegrin Government so as to avoid the risk of local authorities turning a blind eye to illegal construction. Uncontrolled real-estate development may affect the positioning of Travel & Tourism in Montenegro and the value offered to international visitors. Incentive programmes for private sector capital investment and small business development can help avoid such problems by ensuring timely access to capital resources and funding. Admittedly, central government cannot enforce all types of legislation, but it can show leadership and encourage buy-in for legislation by local authorities. Special incentives, such as the 4 million credit line for SMEs announced in early 24, should be permanently available to ensure the rapid modernization and upgrading of Montenegro s rural areas in order to spread the benefits of Travel & Tourism across the country. One example is Skadar Lake, where a number of development priorities have been identified, including recreational facilities for fishing, hunting and sporting activities. Land-use planning should remain the responsibility of the Montenegrin Government so as to avoid the risk of local authorities turning a blind eye to illegal construction. A number of different plans have been, or are being, drawn up for the sustainable development of the central and northern regions of Montenegro. These include the UNDP Strategic Framework or Roadmap for Development of Wild Beauty as already mentioned, as well as a strategy for the Bjelasica region being developed by the Austrian ÖAR, and a similar project being funded by the Slovenian International Institute for Tourism. The initial findings of the UNDP Roadmap, developed in association with the US Rockefeller Brothers, highlight the fact that, since inland forested areas have suffered from very little visual or other pollution related to tourism infrastructure, this gives Montenegro the opportunity to develop the region in a sustainable manner. This is of long-term strategic importance as strategies/choices made now impact the ability of Montenegro to manoeuvre in the future. In the absence of any formal Masterplan or Strategy, pressure will mount to develop the tourism industry without reference to the environment and sustainability, UNDP warns. 47

50 FAVOUR TECHNOLOGICAL ADVANCEMENT Telecommunications Not surprisingly, Montenegro has not yet been able to embrace the full potential of technology. But it is important for government to recognize that, as a technology intensive industry, Travel & Tourism can help Montenegro obtain and apply information technology systems and telecommunications at a competitive pace. One example is telecommunications. An increasing share of Travel & Tourism operations and virtually all distribution and sales transactions flow through telecommunications circuits. Where telecommunications are monopoly controlled, there are often restrictions on access, high costs and unreasonable operating conditions. This in turn limits the potential of market-oriented expansion of Travel & Tourism, with negative impacts domestically and internationally in terms of cost, operational efficiency and customer service. WTTC recommends that the Montenegrin Government continue pursuing its policy of open telecommunications markets, which will help to lower costs and enhance services for travellers and tourism companies. E-marketing and Distribution In today s increasingly competitive global marketplace, there is a real need for a strong national leadership branding which optimizes resources, focuses the myriad of interests public and private sector, national, regional and local and attracts the attention of travellers. This will require particular emphasis on a co-ordinated approach to Internet marketing and distribution to optimize Montenegro s visibility. The National Tourism Organization (NTO) has already taken the lead in developing a user-friendly website for potential travellers to Montenegro. The government should now take the lead in promoting the use of technology and developing e-marketing skills in Travel & Tourism to achieve greater efficiencies and effectiveness, as well as to ensure the industry responds better to the needs of the changing marketplace. Business models are changing almost daily and the industry needs support to stay abreast of these changes, as well as to respond to the demand for online self-tailored programmes and dynamic packaging. In addition, the Ministry of Tourism and NTO should develop a national tourism database, together with partners from the private sector, so as to improve the distribution of Montenegro s products both through the travel trade and direct to consumers and enhance Montenegro s image in key markets. However, experience in other countries around the world has shown that, while public sector support for national destination databases is critical, the operation and marketing of these databases are best left to the private sector. 48

51 PROMOTE RESPONSIBILITY IN NATURAL, SOCIAL AND CULTURAL ENVIRONMENTS Establish Clear Procedures and Guidelines Even before the Rio Earth Summit in 1992, the Montenegrin Parliament adopted a declaration on Montenegro as an ecological state. This commitment was even enshrined in Montenegro s Constitution in 1992.The commitment to sustainable development was reconfirmed in 21, when the Government adopted a strategy document entitled The Developmental Directions of Montenegro as an Ecological State, and more firmly in 22 when Montenegro relaunched the concept of Montenegro as an ecological state at the World Summit for Sustainable Development in Johannesburg. That was followed by the establishment of The National Council for Sustainable Development (NCSD), a body which is expected to lead the process of developing a sustainable development strategy and action plan. There is a considerable degree of consensus across the political spectrum and throughout civil society that Montenegro s future lies in realizing this vision of being an ecological state. It is therefore imperative that the government develop clear guidelines for planned and sustainable tourism expansion. Procedures and guidelines should be communicated to all stakeholders and implemented as widely and as quickly as possible. Implementation of these procedures and their impact should also be closely monitored. Education and awareness are two of the best tools for the development of responsible tourism at the social, economic and environmental levels. The Montenegrin Government should accelerate its efforts to build these concepts into the education system, promoting the economic, social and environmental benefits of sustainable Travel & Tourism development. Sustainability will need a balance of private initiative, economic instruments and regulation. Global principles should be reflected in local action, and market-based delivery mechanisms should be encouraged. Micro-loans for local community-based sustainable tourism enterprises should be provided as incentives, and pilot projects used to evaluate and demonstrate local sustainability. Increase Branding through International and/or National Designations Montenegro boasts several examples of world-class natural and cultural resources, two of which have been awarded UNESCO World Heritage Site designation the old City of Kotor and the Durmitor National Park. But a number of other sites are also worthy of world heritage designation. These include the old town of Budva, which is over 2,5 years old and has attracted settlers throughout its history, from ancient Greeks and Romans to Byzantines/Avars, Arabs (Saracenes), Serbs and Venetians. Biogradska Gora is also unique in that there are parts of this National Park, which was put under special protection in 1952, where no tree has ever been cut. The Montenegrin Government should consider developing and promoting a national heritage designation, with clearly defined criteria to support quality. Such a designation should be accompanied by increased government funding for the development and promotion of identified areas of particular heritage value. At the same time, the focus on national and international designations will assist Montenegro s development of its increasingly well-known brand, Wild Beauty. 49

52 SATELLITE ACCOUNT E 24E 214P Montenegro Travel & Tourism - mn Personal Travel & Tourism Business Travel & Tourism Corporate Government Gov t Expenditures - Individual Visitor Exports Travel & Tourism Consumption Gov t Expenditures - Collective Capital Investment Exports (Non-Visitor) Travel & Tourism Demand ,66.73 Travel & Tourism Industry Aggregates (Direct Impact Only) Employment ( ) Gross Domestic Product Travel & Tourism Economy Aggregates (Direct and Indirect Impacts) Employment ( ) Gross Domestic Product T&T Accounts as % of National Accounts Personal Travel & Tourism Gov t Expenditures Capital Investment Exports T&T Imports Travel & Tourism Industry Aggregates (Direct Impact Only) Employment Gross Domestic Product Travel & Tourism Economy Aggregates (Direct and Indirect Impacts) Employment Gross Domestic Product Travel & Tourism Real Growth (% per annum, except 213 = 1-year annualized) Personal Travel & Tourism Business Travel & Tourism Gov t Expenditures Capital Investment Visitor Exports Other Exports Travel & Tourism Consumption Travel & Tourism Demand

53 TABLES E 24E 214P Travel & Tourism Industry Aggregates (Direct Impact Only) Gross Domestic Product Employment Travel & Tourism Economy Aggregates (Direct and Indirect Impacts) Gross Domestic Product Employment Montenegro Travel & Tourism - US$ mn Personal Travel & Tourism Business Travel & Tourism Corporate Government Gov t Expenditures - Individual Visitor Exports Travel & Tourism Consumption Gov t Expenditures - Collective Capital Investment Exports (Non-Visitor) Travel & Tourism Demand ,12.7 Travel & Tourism Industry Aggregates (Direct Impact Only) Employment ( ) Gross Domestic Product Travel & Tourism Economy Aggregates (Direct and Indirect Impacts) Employment ( ) Gross Domestic Product Travel & Tourism Constant US$ mn Personal Travel & Tourism Business Travel & Tourism Gov t Expenditures - Individual Visitor Exports Travel & Tourism Consumption Gov t Expenditures - Collective Capital Investment Exports (Non-Visitor) Travel & Tourism Demand Gross Domestic Product Travel & Tourism Industry Travel & Tourism Economy

54 52