Montenegro: Risk Assessment

Country Rating1

Rating: C

Business Climate Rating1

Rating: C

Risk Assessment2

Activity sustained by investment and tourism

Growth, while remaining moderate, is expected to accelerate slightly in 2015. Investment will be sustained by the start of the construction of the Smokovac-Matesevo high speed section of the Bar-Boljare motorway to Belgrade. The extension of waste water treatment and household waste management capacities will continue, in order to reduce capacity shortages especially during the summer when there is a large influx of foreign tourists. The installations at the port of Bar, Serbia's only maritime outlet are going to be expanded. The laying of electricity cabling linking the country with Italy will continue, which will serve to export future power surpluses. Construction is set to start of mini hydroelectric power stations and the extension of the thermal power plant in Pljevlja. The renovation of the country's only steel plant located in Niksic by its Turkish owner is due for completion, while a foundry and machine building factory could be added. Finally, construction of tourist facilities will continue. However, household consumption will still be stifled by high unemployment (19%) and highly restricted lending by a banking system dominated by foreign interests and weakened by non-performing loans (22%). The tourism business, which provides a quarter of GDP, is expected to hold up well despite the economic difficulties in Russia and Serbia from where half of the summer visitors come. Aluminum production, which fell following the insolvencies of Kombinat Aluminijuma Podgorica (KAP) and the Niksic bauxite mines, will remain weak. The sale of the foundry's assets has been suspended following a decision by a Nicosia Court on an action brought by a former shareholder. Agriculture, which contributes 10% to GDP, will remain hampered by its archaic methods. It is in this sector and the north of the country that half of all poor households are concentrated.

Public and external accounts in disarray

The government deficit is still above 3% and debt ratio (57% of GDP) is not falling despite the adoption of an organic budget responsibility law. Tax collection remains problematic, while current expenditure, especially staff costs, is not under control and spending on investments will remain firm, despite the use of private/public partnerships and concessions. Moreover, the suspension of the sale of the KAP assets, after a case brought by the CEAC, owned by a Russian oligarch, constitutes an additional risk due to the guarantees provided by the State, as main shareholder, regarding the payment of the conglomerate's debt which amounted to 10% of GDP.

Despite revenue from tourism and remittances from Montenegrin emigrants, the deep imbalance in world trade associated with the country's weak productive base leads to a massive current account deficit. It is covered by foreign investments, of which 28% are Russian, in tourism and energy, as well as by undeclared capital inflows. 40% of real estate belongs to Russians. The country is not in control of its exchange rate as it unilaterally adopted the euro in 2002 and has weak foreign exchange reserves. External debt represents 115% of GDP, of which two thirds are held by the private sector.

Political landscape historically dominated by the Democratic Party of Socialists (DPS)

The dominance of the DPS was confirmed by the legislative elections of 2012 and the presidential elections of 2013. Milo Djukanovic, in power almost continuously since 1991, leads a coalition government formed by the DPS, the Social Democratic Party (SDP) and the Bosnian Muslim and Croat minorities. The opposition is led by Miodrag Lekic of the Democratic Front (DF) supported by the Socialist People's Party (SNP). Corporate life is complicated by corruption, the politicization of justice, organized crime, an unreliable land register and red tape. EU accession negotiations, which started in 2012, should reduce these obstacles. The country has also applied to join NATO, something which has not prevented Russia from exempting the country from counter sanctions, which would have only been symbolic given the low volume of trade between the two countries. The considerable Russian financial presence and property ownership is not without its bearing.


  • Tourism potential (sea, mountains, climate)
  • Hydroelectric potential
  • Use of the euro
  • Negotiations on EU accession


  • External accounts in severe disarray
  • Excessive private foreign debt
  • Precarious improvement in the public accounts
  • Limited tourism capacity
  • Weak banking sector
  • Rigid labor market
  • Mediocre business climate

1Country and Business Climate Ratings courtesy of Coface (11/2015)
2Risk Assessment and methodology courtesy of Coface (11/2015).