Ready2Invest Guide to Property Investment in Montenegro

Montenegro overview

Breathtaking natural beau ty Huge investment in infras tructure

“At the moment of the creation of our planet, the most beautiful merging of land and sea occurred at the Montenegrin seaside... When the pearls of nature were sown, an abundance of them were strewn all over this area...” Lord Byron (1788–1824)

“With the beginnings of high-end tourism in Montenegro, the fledgling independent state is on the cusp of a new dawn. Now is the time to discover its magic.” Condé Nast Traveller magazine July 2007

“Having gained independence from Serbia little more than a year ago, Montenegro is confidently embracing the future, inviting the world in, asking it to come see what it has to offer. Right now, it seems churlish to refuse.” The Guardian 26th July 2007



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Montenegro Montenegro is breathtakingly beautiful. Preserved by its designation as the world’s first ‘ecological state’, it boasts a coastline 293 km long, with 117 sandy beaches and coves, the world’s second deepest canyon, acres of protected national parks, ski resorts, lakes, and an average 240 days of sunshine.

Bosnia and Herzegovina

Montenegro is in the early stages of its tourism development, but is already placed in the top three in the world by the World Tourism and Travel Council in terms of forecast growth in this sector over the next decade1. With a government keen to pursue the twin goals of stimulating tourism growth and increasing its attractiveness as an EU candidate, Montenegro is on the cusp of an exciting period.

Serbia Pljevlja

Bijelo Polje

Montenegro

Berane

Niksic Dubrovnik

PODGORICA

Herceg Novi

Croatia

Kotor

Cetinje

Budva

Lake Scutari Bar

Adriatic Sea

Albania

Ulcinj

How to get there Montenegro has international airports in Podgorica and Tivat but at present there are no direct flights to these airports from the UK. JAT Airlines provides flights via Belgrade. Another option is to fly to Dubrovnik Airport in Croatia as it is less than 60 kilometres from Kotor. Flights from the UK to Dubrovnik are provided by British Airways and Croatia Airlines. Looking to the future, the government is committed to improving its airport infrastructure, attracting funding from the European Investment Bank of around €23 million to modernise the country’s two airports2.

Montenegro at a glance Population: Capital city: Climate: Average temp. July: Average temp. January: Official currency: Coastline: Area: Language: Time zone: Average days sunshine: Airports: Flight time from Gatwick:

620,000 Podgorica Mediterranean 25°C 5°C Euro 293 km 13,812 km2 Montenegrin GMT + 1 240 per year Tivat, Podgorica; Dubrovnik (16 km from Montenegro border) 2 hours 40 mins to Dubrovnik

1. http://www.wttc.travel/bin/pdf/original_pdf_file/montenegroii.pdf 2. http://www.eib.org/projects/press/2005/2005-041-eib-loan-for-air-traffic-control-in-serbia-and-montenegro.htm



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Why invest in Montenegro?

Tourism leader in Europe Montenegro’s tourism success continues to flourish. For the fourth year running, Montenegro has featured amongst the top three destinations in the world, in terms of predicted growth in the sector over the next ten years. It is bettered only by China, and is one of just two European nations in the top ten. Over the last few years, €350 million has been invested in the upgrading and modernisation of hotels and facilities. Total demand in the tourism sector is forecast to rise by 8.6% per year, as compared to the 3.3% average in the EU overall3. Stunning beauty – and a landscape that restricts supply With a coastline that is just 293 km long, and mountains that rise up almost directly from the sea, Montenegro has a shortage of land that can be built upon. There is limited coastal land to develop, which means that supply of property is restricted, but its beauty creates strong demand. In addition to its stunning coast, it is a country of mountains, canyons and lakes, making it extremely attractive to explore. It offers a plethora of activities – walking, mountaineering, skiing, biking, caving, canyon-trekking, fishing, and horse-riding. It has many places to visit – nature reserves, historic buildings and walled towns, ancient remains, two UNESCO World Heritage Sites (Kotor region and Durmitor National Park) and several islands in the gorgeous setting of the Kotor Fjord. An independent nation, striving to become EU member Montenegro voted to become independent from Serbia in June 2006, and since then it has made great strides towards becoming a member of many international communities and organisations. Montenegro became a member of the UN in June 2006. It joined the EBRD (European Bank of Reconstruction and Development) in September 2006, and the IMF and World Bank in January 2007. The new state already has a relatively



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The touristic island of Sveti Stefan in the Adriatic sea

open trade regime and talks on WTO (World Trade Organisation) membership are progressing well4. In October 2007 it signed the Stabilisation and Association Agreement which is a vital step to becoming a candidate for EU membership5. Becoming signatories of all these organisations indicates that Montenegro has undertaken the required conditions in terms of fiscal and legal processes, and also allows access to funding and loans for vital infrastructure improvements and projects. EU membership benefits are well documented, and while its accession may be several years away, the process is in itself beneficial to the country. Infrastructure improvements Montenegro has been the recipient of millions of euros of investment into its infrastructure. Their government has acknowledged the importance of developing its transport network to encourage further business investment and to cope with the volume of tourist visitors to its shores. Just a few examples of the projects under way or completed are the building of the Sozina tunnel to link the landlocked capital city Podrogica to the Adriatic funded by the European Investment Bank6; upgrading the country’s two airports; a €14 million loan from the World Bank to

Karuch, the old fishing settlement located on shore of Skadar lake

improve the country’s sewage system and improve its energy network7; a project to improve the country’s rail links both internally and to join it to the larger European network, aiding passenger transport and cargo8. Finally, improvements on the Montenegrin section of the Adriatic Highway are under construction which will link the country with Greece in the south and Italy to the north and join with the major European arterial route E65 which stretches across Europe as far as Sweden. Economic growth While Montenegro is in the early stages of its economic development as a distinct entity from Serbia, the signs are good. In the last two years there has been strong GDP growth (more than 6% in 2006), coupled with low inflation and a strong inflow of foreign direct investment (more than US$ 1 billion over the last two years combined)9. The country’s adoption of the euro in 2002 has helped to stabilise the economy, and has made trading with EU countries simpler. It has also made it easier for foreigners to invest in property and other ventures, by removing foreign exchange risks. Furthermore, a representative of the IMF stated in June 2007: “The Montenegrin economy is doing well, benefiting from

The fjord of Kotor, a UNESCO world heritage site

strong interest of foreign investors. The main challenge is to manage the resulting boom and enhance the growth prospects of private businesses, thereby improving the sustainability of the current upswing.”10 Everybody’s talking Holiday features on Montenegro have been increasingly appearing in the press, and over the summer of 2007 favourable articles were published in The Telegraph, Condé Nast Traveller, Financial Times, The Observer, The Times and The Independent. Condé Nast Traveller visited Kotor and commented: “Often described as a fjord, it is an extraordinarily romantic place, with a ring of rocky peaks rising steeply up from the fathomless depths.”11 The Guardian reporter said: “I much preferred Kotor, further along the coast, which wouldn’t look out of place in Tuscany or Umbria.”12 Increasingly, press attention has the effect of raising a destination’s profile, making it a desirable place to visit. In turn this increases demand for holiday accommodation. Reports that Catherine Zeta Jones and Michael Douglas and Ralph Schumacher are all house-hunting there, and that Roman Abramovich is rumoured to be buying a large plot of land for development, do no harm either as they enhance Montenegro’s status as a glamorous destination.



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Why invest in Montenegro?

Attracting 5-star resorts The WTTC states that Montenegro has been successful in attracting high-end holiday companies, which is excellent news for the country’s profile and reputation as a prestigious place to visit. Luxury resort company Aman Group is currently restoring the picturesque island resort of Sveti Stefan and hopes to recreate its reputation of its 1960s heyday, as the kind of place royalty and Hollywood stars visit. Canadian entrepreneur Peter Munk has bought land in Tivat with a view to building a luxury marina and resort there13. The WTTC points out: “These will help ensure increased holiday product quality, which will enhance the Montenegrin tourism brand and result in higher yields.”14 One of the idyllic coastlines of Montenegro

Government wary of over-development While it would be tempting indeed for the authorities to go on a building spree to profit from rising interest in Montenegro, the WTTC commends them for implementing its recommendations and not plunging into disastrous over-development. As the first UN-designated ‘ecological state’, Montenegro seems to be taking its responsibilities seriously. The country is planning to expand the areas protected by national park status15, and is attempting to encourage sustainable development, in keeping with the surroundings and with good eco-credentials.

Favourable tax conditions The government has been praised for its policy of “intelligent taxation” to attract both businesses and individuals to invest in the country. For example, its corporation tax is just 9% and is the lowest in the region. Personal taxation is at a flat rate of 15% with plans to reduce this to 12% from 2009, and 9% from 201216. It has introduced a lower VAT for tourism (7% as compared to the standard 17% rate), in recognition of the importance of this sector17.

3. For the full report go to: http://www.wttc.travel/bin/pdf/original_pdf_file/montenegroii.pdf 4. http://www.ebrd.com/about/strategy/country/monte/index.htm 5. http://news.bbc.co.uk/1/hi/world/europe/7045814.stm 6. http://www.eib.org/projects/press/2004/2004-048-further-eur-144-mio-for-the-transport-sector-in-serbia-and-montenegro-.htm 7. http://seenews.com/news/latestnews/montenegrogets_19mlnworldbankloanforinfrastructure-174359/ 8. http://www.ebrd.com/country/country/monte/press.htm 9. http://www.ebrd.com/about/strategy/country/monte/index.htm 10. http://www.imf.org/external/np/sec/pr/2007/pr07132.htm 11. Condé Nast Traveller magazine, July 2007. 12. http://www.guardian.co.uk/travel/2007/jul/26/montenegro.walkingholidays 13. http://observer.guardian.co.uk/world/story/0,,2126623,00.html 14. http://www.wttc.travel/bin/pdf/original_pdf_file/montenegroii.pdf 15. http://www.wttc.travel/bin/pdf/original_pdf_file/montenegroii.pdf 16. http://www.wttc.travel/bin/pdf/original_pdf_file/montenegroii.pdf 17. http://www.eubusiness.com/Montenegro/montenegro-country-profile



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Political and economic overview

Montenegro is a democratic republic, with a population of just over 620,000. It is an increasingly modern society that has embraced the euro, is busy reforming its fiscal system, adopting transparent regulations in cooperation with foreign organisations, while developing new business opportunities through privatisation and the diversification of its economy18.

Montenegro has made enormous progress in terms of its economy, political standing and integration into modern Europe.

During the 1990s, Montenegro’s political situation was never far from the headlines. As part of the Federal Republic of Yugoslavia (FRY), its association with Serbia and Kosovo left its image tarnished and its economy in tatters. Despite the damage both financially and to its foreign relations as a result, Montenegro has made enormous progress in terms of its economy, political standing and integration into modern Europe. In May 2006 the country took a historic referendum on whether it should formally separate from Serbia and declare its independence. The vote was carried with a majority of 55% and independence was declared and internationally recognised in June of the same year. Its assimilation in its own right into many international organisations has increased access to funding and loans to develop and upgrade its infrastructure, as well as opening up its economy to foreign business and investment. There appears to be no shortage of political institutions, international aid agencies or non-governmental organisations willing and eager to provide technical advice and support to Montenegro. These include organisations like The European Bank for Reconstruction and Development (EBRD)19, World Bank20, the International Monetary Fund (IMF)21, the European Investment Bank (EIB)22, as well as private investment and development companies like Germany’s DEG and KfW Bankengruppe23, who continue to support critical infrastructure projects, all of which have an indirect, if not direct, impact on the economy.

President Filip Vujanovic, elected 22 May 2003

18. http://www.montenegro.yu/english/naslovna/index.htm and http://www.vlada.cg.yu/eng/index.php 19. http://www.ebrd.com 20. http://www.worldbank.org 21. http://www.imf.org 22. http://www.eib.eu 23. http://www.kfw.de



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