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Economic Development of Montenegro

As a relatively small principality and kingdom, Montenegro made its first steps towards an industrial economy only at the end of the XIX and at the beginning of the XX century. The causes for this relative delay lie in the small population, lack of raw materials, underdeveloped transport, reduced investments, and probably mostly due to the national effort to insure independence and the historical survival of the state. However, this delay had its positive effects. Montenegro survived as a specific ecological oasis. 

The first factories were built in Montenegro in the first decade of the XX century, followed by wood mills, an oil refinery, a brewery, and the electric power-plants. This brief evolution of industrial economy was interrupted by new wars- Balkan War (1912-1913), followed by The First World War and The Second World War. Between the two world wars, agriculture kept its dominant position in the national economy, while industrial plants were limited to wood mills, tobacco factories, breweries, and salt works. 

The economy made major progress only after World War II. Once more destroyed and plundered, Montenegro made greater strides in its economic policy and development, thus laying the foundations for modern and prosperous economy - a promising economy. 

During the era of communism Montenegro experienced a rapid period of urbanization and industrialization. An industrial sector based on electricity generation , steel, aluminum, coal mining, forestry and wood processing, textiles and tobacco manufacture was built up, with trade, overseas shipping, and particularly tourism, increasingly important by the late 1980s.  

The loss of previously guaranteed markets and suppliers after the break up of Yugoslavia left the Montenegrin industrial sector reeling as production was suspended and the privatization program, begun in 1989, was interrupted. The disintegration of the Yugoslav market, and the imposition of the UN sanctions in May 1992 were the causes of the greatest economic and financial crisis since WW II. During 1993, two thirds of the Montenegrin population lived below the poverty line, while frequent interruptions in relief supplies caused the health and environmental protection to drop bellow the minimum of international standards. The financial losses under the adverse effects of the UN sanctions on the overall economy of Montenegro are estimated to be approximately $6.39 billion. This period was coloured in gray by the second highest hyperinflation in the history of humankind (3 million percent in January 1994). The economic stabilization and recovery of Yugoslavia, which were initiated at the beginning of 1994, prevented a financial and economic collapse of the country. Inflation was reduced to few percents, relative stability of new dinar obtained, and the growth of unemployment stopped. 

Thus, it is obvious that the Montenegro's transition to market economy has been accompanied with enormous difficulties. However, even prior to the imposition of sanctions, in its attempts to exploit uniqueness of Montenegro, the Government of Montenegro has established several attractive global economic projects which have drawn interest (but not significant amount of capital yet), of foreign and domestic investors alike. Among these projects, the most attractive, at least as a approach to sustainable development, are the projects: 

  • Ecological State of Montenegro and 
  • Montenegro Free Economic Zone. 
These projects are expected to achieve rapid economic development, as well as accelerating the transition of Montenegrin economy by attracting foreign investment, after the outer wall of UN sanctions is lifted, and Montenegro and Yugoslavia (or one of them) are reintegrated in the international financial community.  

In addition, as Wall Street Journal comments "Montenegrins no longer want part of the Balkans' black sheep. It's a tall order, but Montenegro hopes marketing, if nothing else, will get the country headed in the right direction. Since September (1996), it has opened a trade mission in Washington, unveiled a national airline, declared itself a low-tax (offshore) "profit-making paradise" a la Cyprus, and tapped supermodel Claudia Schiffer to sing its praises world-wide". However, the political developments in Serbia in late 1996 and early 1997, are not likely to help Montenegro's efforts. Recently, the Government of Montenegro led by Prime Minister Milo Djukanovic stepped its effort to distance itself from the policies and regime of ex Serbian and current Yugoslav President Slobodan Milosevic. PM Djukanovic seems to be keen to exploit constitutional rights of Montenegro to conduct international affairs on its own. In addition to various international activities he is seeking a membership for Montenegro in international financial institutions, primarily IMF and the World Bank. Nevertheless, as Mr. Milosevic grip to power is still solid, PM Djukanovic found his own position undermined by his ex friend and party colleague, Montenegrin President Momir Bulatovic. In this feud, Mr. Bulatovic is being supported by the Serbian state media as "natural" ally of Mr. Milosevic, while PM Djukanovic consolidated his position within the party (DPS) by ousting Mr. Bulatovic from the position of the party charman, and seems to have ensured the Montenegrin media backing. The bitter power struggle between Mr. Djukanovic and Mr. Bulatovic is poised to harm already fragile Montenegrin economy and may not end with the presidential election called for 05.10.97 in which both incumbents are candidates.     

Overall, political and economic reforms in Montenegro are judged to be far more progressive than ones in Serbia. Moreover, the slackness and lack of political will in Serbia to wholeheartedly embark on the transition of the society are hampering Montenegrin efforts. 

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Montenet 1997 
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Last updated  August 1997