Montenegro: The European Union’s Investment in the Balkans
Key Takeaways:
Montenegro is actively preparing to join the European Union within the next two years, positioning itself at the forefront of the accession process ahead of neighbouring countries.
The country has secured EU development funding to bolster investments in energy efficiency, enabling homeowners to implement various green technologies like insulation, windows, heat pumps, and solar panels.
Foreign investors, entrepreneurs, and European travellers have been flooding Montenegro for its picturesque scenery, thriving tourism industry, and attractive business environment.
Montenegro has not only proven itself to be a highly desirable candidate for EU membership but also serves as a leader in the EU's efforts to integrate the Balkan region into its broader European initiatives.
Montenegro presents itself as an emerging market in the Balkan region, with notable opportunities for investors to explore various sectors, particularly green energy. With a high likelihood of joining the European Union by 2026 and ongoing developments in its tourism and service industries, Montenegro attracts interest from foreign investors intrigued by its scenic landscapes and potential for growth. To capitalise on this potential, the Montenegrin government has established the Montenegrin Investment Agency (MIA) in 2019 to facilitate investment and support economic development initiatives.
The country has recently attracted the attention of European lawmakers for its energy efficiency, towards which the European Bank for Reconstruction and Development (EBRD) has already loaned the government EUR 2 million. With support from the EU and bilateral donations from Austria, the EBRD provides third-party lines of credit to residential homeowners to equip their homes with energy-saving equipment such as insulation, windows, heat pumps, and solar panels which aim to reduce greenhouse gas emissions, reduce energy costs, and improve Montenegrins’ quality of life. This surge in green energy investment precedes the EU's emergence as the principal institutional investor in the nation, having already funded 86 projects in Montenegro with a total of EUR 800 million since the country gained independence in 2006. Given this, the potential accession to the EU in the next two years holds the potential to enhance existing ventures in the country.
Background
Montenegro is a relatively young country, having been part of the former Yugoslavia until its dissolution in 1992 and becoming independent following a referendum in 2006 when it split from Serbia. Montenegro has since built a fully functional political and economic system, rapidly gaining the recognition of all United Nations Security Council members and joining the UN. Within a year of becoming independent, the EU granted Montenegro candidate status in 2007 alongside Albania, Bosnia and Herzegovina, North Macedonia, and Serbia. To date, Montenegro is the most advanced candidate in the negotiation process and is likely to join the EU very soon.
Modern Montenegro has an ethnically diverse and flourishing society governed by secular principles and maintaining strong cohesion among the various religious groups and nationalities present within its borders. The country was quick to become a NATO member in 2017, which is often a precursor to EU membership. Montenegro is an especially attractive case as it has never had its own currency, having used the Yugoslav Dinar between 1992 and 2006 while it was part of the Federal Republic of Yugoslavia. It unilaterally adopted the Euro in 2002, without objection from the European Central Bank (ECB), 4 years prior to becoming independent. The people of Montenegro, as a result, fare better economically than most of their neighbouring countries, boasting one of the largest GDP per capita among former Yugoslav nations, which stands at EUR 9,524. This figure is just shy of Bulgaria at EUR 13,305, which has the lowest GDP per capita in the EU.
The EU frequently remarks on Montenegro’s advanced economy and political stability as having strong potential for membership, which is why in 2009 it was added to the list of visa-exempt nationals allowing Montenegrins to enter the Schengen Area and other EU countries without a visa. The country maintains strong relationships with EU member states and has opened all negotiation chapters necessary for accession, putting it ahead of its neighbours in the race to join the EU. This suggests that the nation is poised for accelerated growth upon accessing benefits like freedom of movement and the single market, amplifying access to foreign markets and capital.
Opportunities
Montenegro stands out as one of Europe's most enticing destinations, offering everything an investor or entrepreneur could desire for their portfolio: favourable tax rates, a welcoming business atmosphere, strategic positioning, and notably, impending EU membership. Behind the popular tourist destinations lies a Mediterranean climate, thanks to its positioning along the Adriatic coast. With dry summers and cool winters, picturesque mountain ranges and sandy beaches, the tourism industry has replaced farming as the most significant industry in Montenegro and continues to offer attractive returns on investment. This sector has garnered notable investor interest over the years, primarily due to Montenegro's stunning Adriatic coastline and historic cities. It constitutes a significant portion of the country's GDP, accounting for 25%, with an impressive ratio of 3 tourists per Montenegrin citizen visiting annually, generating close to EUR 1 billion in revenue. The entire tourism industry, covering hotels, resorts, restaurants, and real estate, remains steadfast and prosperous. It is poised for even greater success upon Montenegro's EU accession, welcoming an influx of European travellers and labour through freedom of movement.
The energy transition that the government embarked on in 2016 offers a huge development opportunity for the entire country, exemplified by the country’s integrated electricity company, EPCG. Montenegro is fully committed to decarbonisation, and it has already received over EUR 700 million in publicly funded investment to transition its coal industry. The country has been using the Euro as its sole currency since 2002, and the World Bank has highlighted Montenegro as one of the fastest growing economies in the Balkan region. Its EU candidate status has already attracted foreign investors to its energy sector and the well-established tourism industry. This, paired with the country’s efforts to enhance its renewable energy transition, has promised significant returns on investment, particularly in wind, solar, and hydropower energy projects. For example, in June 2023 the EBRD completed its EUR 82 million financing for a 55 MW wind farm in Montenegro, having previously assisted the government in developing its first renewable energy legal and regulatory reforms. The global focus on sustainable energy production has attracted considerable interest from investors, particularly in the hydroelectric sphere which already generates 15.8% of the country’s energy mix. Given the country continues to rely heavily on fossil fuels, investment in Montenegro’s green energy sector is both welcome and necessary. A notable success story from this ambition is Montenegro’s recorded export of EUR 200 million worth of electricity in 2023, making it one of the country’s top export products.
Montenegro also presents a particularly thriving housing market in which residential property prices continue to rise owing to the recovering domestic and foreign demand. This is supported by the improvement of the construction industry in recent years and the persistence of Montenegro’s robust economy causing new residential prices to increase by 1.5% year-on-year in Q2 of 2023. Unlike its neighbours from the former Yugoslavia, Montenegro’s economy is rapidly evolving despite being such a young country. It has fully transitioned to a market economy, leaving behind centrally controlled enterprises in favour of a diversified economy with abundant opportunities for investment .
The Balkans and the EU
Montenegro aligns with the broader scope of European integration, participating in a collective initiative crafted by the EU to systematically incorporate Western Balkan nations into the Union. The EU has so far been promoting peace, stability and economic development to further align the Balkan region with its neighbours to the north and west. Over the past 3 decades the EU has proposed numerous initiatives to broaden this relationship, creating a stability pact and ‘European perspective’ framework to ensure Balkan countries meet the conditions for joining the EU in the future. All prospective member states have to fulfil the Copenhagen political criteria, a set of legal and economic prerequisites designed to ensure democratic governance, adherence to human rights, a functioning market economy, and acceptance of the obligations and intentions of the EU. The Union has continually invested in regional cooperation in pursuit of its strategic goals of asserting influence over the Balkan region and establishing viable trade partnerships. Montenegro's proximity to membership serves as a testament to the effectiveness of these development policies.
Most Balkan citizens today can travel in the EU without a visa, and Montenegro was granted this access in 2009, followed by further liberalisation of restrictions in 2010 and 2012. Kosovo is the latest to join the visa-free travel list for the Schengen area in January 2024, enabling the entirety of the former Yugoslavia to travel within Schengen unrestricted. This advantage, however, has not been without its challenges, as most Balkan states have had to meet specific requirements outlined in the Copenhagen criteria. Currently, Montenegro leads with an average criteria rating of 3.1 out of 5, surpassing all other applicant countries. North Macedonia and Serbia follow closely, tied for second place with a score of 3 out of 5, while Turkey and Albania trail with scores of 2.9 and 2.7, respectively. In contrast, Moldova has shown remarkable progress in readiness, achieving an average score of 1.9 out of 5 since its application in March 2022. Nonetheless, considering the current circumstances of each candidate country, it appears inevitable that Montenegro will be the next to join the EU, provided unforeseen circumstances do not accelerate the process for other candidates.