Investment opportunities in Montenegro

Montenegro, often referred to as the Pearl of the Mediterranean, is a hotspot for investment. The country’s breathtaking natural beauty, including old fortified towns, a UNESCO-protected national park, the deepest canyon in Europe and a stunning fjord, captivates all who visit.

Investing in Montenegro can be a strategic decision due to its growing economy, favorable business environment and potential for development in various sectors.

Montenegro's main advantages in terms of attracting foreign direct investment include:

• one of the most competitive tax systems in Europe;
• skilled and inexpensive labor force;
• tourism potential (sea, mountains, climate);
• hydropower potential;
• negotiations on accession to the European Union;
• high quality of education and health care systems.

Government measures to stimulate or restrict foreign direct investment

In Montenegro, private property is protected by the Constitution and includes equal treatment of foreigners.

The country has a favorable tax regime with the lowest the corporate tax rate in the region is 9%.

Foreign investors can participate in local privatization processes and can own land in Montenegro, generally under the same conditions as local residents.

Property may only be expropriated for “pressing public purposes”, and compensation must be paid at fair market value. There have been no known expropriations of foreign investments in Montenegro. International arbitration is permitted in commercial disputes involving foreign investors.

Registration procedures have been simplified to the point that all registration processes can be completed online. There are no mandatory performance requirements.

The Ministry of Economic Development, in cooperation with the World Bank Group and government agencies, has completed the update of the Inventory of Investment Incentives for 2024. The list is a comprehensive overview of available financial and non-financial support measures from the Government of Montenegro and public institutions intended for domestic and foreign investors.

The objective of creating the Inventory of Investment Incentives was recognized by the Action Plan of the Regional Investment Reform Program (RIRA), which is implemented within the framework of the multi-annual Action Plan for the Western Balkans Regional Economic Area (MAP REA). The objective of the Regional Investment Reform Program is to increase the attractiveness of the Western Balkans region for foreign investors, as well as for regional investors, which will increase the inflow of investments and achieve a higher level of entrepreneurial activity, trade, and job creation. Since 2021, this activity has been included as a basis for the Common Regional Market CRM (2021-2024).

The Ministry of Economic Development has completed the update of the List of Investment Incentives for 2024, which includes 61 incentive measures. These investment incentives are aimed at various segments of the economy and areas of economic activity. This primarily concerns financial and non-financial support, as well as tax and other fiscal incentives. Incentives are created for the purchase of equipment, machinery, for agriculture, science, tourism, incentives for innovation and innovative activities, sustainable economic development, as well as incentives for renewable and hybrid energy.

In order to ensure long-term benefits from the use of data available in the register, the Ministry of Economic Development of Montenegro will fully plan and, in coordination with relevant ministries, government agencies, national funds and the World Bank Group, conduct regular annual updates of the inventory so that potential investors, stakeholders and the public have accurate and complete information on the inventory in real time, which will further stimulate investment activity in Montenegro. The inventory of investment incentives will be updated in case of any changes in the content and at the request of the holder of incentive measures.

Free Economic Zones

In 2004, Montenegro adopted the Law on Free Economic Zones, which provides enterprises with benefits and exemptions from customs duties, taxes and other charges in certain free economic zones. Currently, the Port of Bar is the only free economic zone in the country. All users of free economic zones have many benefits provided by the law and other regulations (import without customs duties, customs fees and VAT; storage of goods in duty-free regime for an unlimited period of time; low corporate tax, simplified procedures) in addition to the use of infrastructure, port cargo handling services and telecommunications services. All regulations regarding free economic zones comply with EU legal standards. Full equality is guaranteed to foreign investors in terms of property rights, organization of economic activity in the zone, complete freedom of transfer of profits and deposits, as well as investment security.

Sectors for investment

Energy

Montenegro's energy sector is small, with only about 396,000 customers and a total demand of about 3,000 (GWh) per year. Electricity production in Montenegro in 2022 was 2,731 GWh, down 13.6% from 2021. Most of Montenegro's electricity is produced at the coal-fired Pljevlja Thermal Power Plant, as well as the Perucica and Piva hydroelectric power plants.

The main activities of the state-owned Electrical Power Company of Montenegro (EPCG) are the generation, transmission, distribution and supply of electricity. In July 2017, the Montenegrin government’s former strategic partner, the Italian company A2A, initiated an exit procedure by exercising a put option upon the expiration of its contract. Under the agreement, the government could have bought back A2A’s 41.7% stake in EPCG for $264 million over seven years. Instead, the government decided to quickly buy back A2A’s shares, increasing its majority stake in EPCG. Accordingly, the government increased its ownership to a total of 85.4% of the shares.

Montenegro signed the Southeast European Electricity Community Agreement on 1 January 2015, which opened up its energy market to competitors.

The country has the potential to develop additional hydroelectric power plants, given its abundance of rivers and streams, as well as solar and wind power plants. Montenegro only uses about 20% of its hydroelectric potential. New hydro projects have faced resistance from local communities and environmental groups. If Montenegro is to continue to develop this sector, it will need to modernize its transmission and distribution network.

The most important development project in the transmission system was the construction of a submarine power cable to transport electricity to and from Italy. The total investment was $844 million, including the development of a 433-kilometer-long tunnel about 1,200 meters below the surface of the Adriatic Sea. The Montenegrin government began operating the submarine power cable in December 2019.

Opportunities

The Komarnica hydroelectric power plant, which will use two 170 MW generators with a total annual output of 210 GWh, requires an investment of about $264 million. Extensive geotechnical and hydrological studies have already been carried out on site, and the government has adopted a spatial plan for the development of a multi-purpose reservoir on the Komarnica River.

Thanks to its favorable geographical position, Montenegro is rich in solar energy. The areas with the highest solar activity are located in the south of the country (especially around the cities of Bar and Ulcinj) and around the capital Podgorica. There is also growing interest in leasing state-owned land for the construction of ground-mounted solar power plants. Some foreign companies have already invested in the construction of solar power plants. In these cases, when an investor is interested in building a photovoltaic plant in a certain area, a public tender for a 30-year lease of state-owned land can be held.

The city of Podgorica has published plans to build a ground-mounted solar power plant in Velje Brdo with an installed capacity of at least 50 MW. In October 2018, a consortium including Fortum, state-owned energy company EPCG and Sterling & Wilson International Solar FZCO won the public tender for the construction of a solar power plant in Ulcinj. The consortium proposed to build 250 MW of solar power in Ulcinj.

Currently, Montenegro has two wind farms operating - Krnovo with a capacity of 72 MWh and Mozura with a capacity of 46 MWh. In June 2021, EPCG shareholders approved the construction of the 55 MW Gvozd wind farm jointly with the Austrian company Ivicom Holding. The estimated cost of the project is 61 million US dollars. In August 2020, the Montenegrin government signed a contract for the construction of a 70 MW wind farm in Braici with the German company WPD Windmanger. The cost of the project is 107 million US dollars.

Oil and Gas

In late 2013, Montenegro invited international oil and gas companies to bid for licenses to explore offshore blocks based on seismic data that showed favorable conditions for hydrocarbon deposits off the deepwater coast of Montenegro. The country's government has signed concession agreements with two consortiums: the Italian-Russian consortium Eni/Novatek for four blocks and the Greek-British consortium Energean oil/Mediterranean oil & gas for one block. The Montenegrin government has also signed concession agreements for exploratory drilling of offshore oil and gas wells, which began in March 2021, although preliminary results indicate that the drilling site is not suitable for exploitation.

Montenegro's 2014 Energy Development Strategy estimates that up to 7 billion barrels of oil and 425 billion cubic meters of natural gas could be discovered along the coast by 2030. Further exploration of these resources is needed to confirm capacity levels. Oil and gas exploration, along with the production cycle, consists of several stages: exploration, appraisal, development, production and closure. Montenegro does not have the necessary technology or experience for oil or gas production. In addition, successful exploration of energy resources must also take into account the environmental impact of operations, as coastal tourism accounts for a significant share of national income.

Currently, Montenegro does not have a gas distribution network or the necessary technology to extract oil or gas, which could represent an investment opportunity. In March 2020, the Minister of Economy announced the government's intention to begin importing liquefied natural gas (LNG) through the Port of Bar. The port has signed two memorandums of understanding with interested companies, and the companies are currently working on feasibility studies. One of the project options also includes an onshore LNG thermal power plant to provide baseload power and complement the Pljevlja coal-fired power plant, the only currently reliable source of baseload power in Montenegro.

Tourism

Montenegro's 300-kilometer coastline and its spectacular mountainous north drive a tourism sector that accounts for almost 30% of GDP. Government sales of formerly state-owned land have spurred a wave of foreign investment in major tourism and hotel hubs.

The market is focused on hotels and resorts along Montenegro's coastline. The country is working to develop a broader tourism industry based on its abundance of scenic beauty (rural tourism, cultural tourism and ecotourism) and geographical diversity, including mountains, coastlines and lakes.

Montenegrin tourism officials hope to shift much of the tourism trade from low-income package tours to more luxurious and upscale projects. Montenegro also plans to become a hub for business and conferences. Foreign companies specializing in hotel management, theme park development, amusement games and attractions, golf course development, fast food establishments, sports and entertainment facilities, casino management and environmental management have excellent opportunities to invest in and develop individual tourist facilities or improve existing ones.

The best market prospects are in tourism equipment, hotel furniture and IT equipment. Water sports, bird watching, horse riding and fishing are ripe for development, as are yacht ports, beaches and marinas. There are also business opportunities for foreign construction companies, engineering firms and architects as modernization projects and/or new hotel construction are initiated.

Information and Communication Technology (ICT) Sector

Montenegro’s ICT sector is recognized as one of the most important areas of economic development. The sector has a huge impact on the national economy and global competitiveness, as it supports all other economic sectors. Montenegro ranks 57th in the latest Global Competitiveness Report of the World Economic Forum 2019 when it comes to ICT adoption. Electronic communications are well developed and competitive, and the main suppliers are members of renowned international and regional telecommunications companies.

Montenegro’s ICT legislation is in line with EU legislation. The e-Government Law was adopted in January 2020 and aims to improve the environment in which public administration provides services to citizens and businesses. Key documents in the sector include the Montenegro Digital Transformation Strategy 2022-2026, the Montenegro Cyber Security Strategy 2022-2026 and the Montenegro Digital Nomads Attraction Program until 2025.

The country’s telecom sector is 100% privately owned, with an annual turnover of around $369 million. Investments over the past 3 years have reached $264 million. Broadband penetration is approaching 80% at the household level, while 4G coverage is 98% of settlements. There are currently around 800 companies operating in the ICT sector in Montenegro, and this number is growing rapidly as IT companies displaced by the war in Ukraine move across the region. As of July 2021, there are 34 registered electronic communications operators in Montenegro, of which three are mobile telephony operators: Crnologici Telekom (T-Com), One (formerly Telenor) and M-tel.

Many global ICT players are present in the Montenegrin market, such as Microsoft, Crnologici Telekom (a subsidiary of Hrvatski Telekom and a member of Deutsche Telekom Group), Ericsson, Huawei, S&T, New Frontier Group (Saga), as well as major regional operators such as Telekom Serbia, ComTrade and United Group.

Opportunities

Investments in the ICT sector, including cybersecurity and data protection, are expected to increase. The country’s Innovation Act, designed to encourage investment in new business ventures with unique tax incentives, allows companies to invest up to €100,000 of the capital gains tax they are required to pay in a startup of their choice in exchange for equity. Foreign technology and solutions companies are well positioned for the Montenegrin market, with capabilities in software, hardware, digitalization and e-services, and ICT education. In December 2021, the government adopted the “Roadmap for the Implementation of 5G Mobile Networks,” with an auction for the allocation of radio frequencies for the 5G network (including 700 MHz, 3.5 GHz, and 26 GHz). The frequencies were allocated at the end of 2022, and the auction winners are required to activate 5G networks in every municipality by the end of 2024, cover half of the country's population by the end of 2026, and cover all settlements by 2023. Expanding 5G coverage will provide significant growth opportunities for the ICT sector in Montenegro.

Medical Equipment

Montenegro's healthcare sector relies on imports due to limited domestic production. Exports to Montenegro mainly come from Germany, Italy, Austria, Switzerland, and the United States. The market has grown significantly over the past ten years, and further growth is expected in the coming years, as the vast majority of equipment in public hospitals is outdated and requires high maintenance costs.

The Ministry of Health is the main player in Montenegro's medical equipment market. The Ministry develops health policy, proposes the health budget and investment program for the sector, and supervises the work of public health institutions, while equipment procurement is carried out at the institutional level, such as the Clinical Center of Montenegro.

The best sales prospects for foreign medical equipment are: diagnostic equipment for the cardiovascular system, non-invasive surgical devices, anesthesia and intensive care devices, diagnostic imaging (CT, MRI), radiotherapy units, as well as ultrasound, urology equipment, laboratory and testing equipment, equipment for tissue and blood banks, for hospital care and hospital information systems.

Opportunities

There are opportunities in the Montenegrin market for foreign manufacturers of sophisticated diagnostic equipment such as electrocardiographs, endoscopes and scanners. Several private clinics have also opened in the country, which will lead to more opportunities for foreign investors.

Construction

Relatively stable economic conditions and new investments in construction have contributed to the expansion of the building materials market in Montenegro. In particular, the housing market in the country is experiencing rapid growth. Building materials are one of the fastest growing sectors of the country's economy.

Traditionally, Montenegrin buildings were constructed of unreinforced brick covered with concrete plaster or, more recently, of steel-reinforced concrete with brick infill. Montenegrin buildings are energy inefficient, heavy and take a long time to build. Wood and steel frame buildings are rare, although Montenegrin builders are beginning to look at American platforms and timber frame construction and prefabricated housing. Most building materials such as glass, cement, paint and varnish are imported. Montenegro has no applicable standards or tests in the construction sector.

Materials from reputable manufacturers with country of origin certificates are accepted on the market based on technical characteristics.

The current situation in the housing and urban construction market in Montenegro offers opportunities for the promotion of high-tech foreign building materials based on advanced technology. Potential exports in this sector may include: wood and vinyl windows, doors, flooring, kitchen cabinets, suspended ceilings, insulation, adhesives, cements, roofing tiles, heating and ventilation equipment, air conditioning systems, refrigeration and cooling systems, steel buildings and structures. Other potential products may include framing lumber, plywood, moldings, solar panels, and fiberboard. In addition, Montenegro’s remodeling market may grow significantly in the long term, offering foreign companies opportunities to invest in this subsector.

Opportunities

Construction is one of Montenegro’s key economic growth sectors. It offers opportunities for foreign investors in luxury real estate, vacation properties, office buildings, and retail outlets. The tourism sector is also fueling growth in construction in the country.