Weekly Briefing, Vol. 33, No. 4 (ME), October 2020
An Economic and Investment Plan for the Western Balkans – what is the significance for Montenegro?
An Economic and Investment Plan for the Western Balkans, adopted in October 2020, involves investments of EUR 9 billion. Planned investments, related to various areas, such as transport, energy and environment, digital infrastructure, etc. will be a significant driver of economic development in Montenegro, but also affect the strengthening of cooperation and relations between countries, which may indirectly lead to the opening of space for more intensive economic and foreign trade cooperation within the region.
What is Economic and Investment Plan for the Western Balkans?
In early October, the European Commission has adopted an Economic and Investment Plan for the Western Balkans[1], but also projects that regional countries have nominated as a priority for EU financial support. What this Plan implies and encompasses?
This Economic and Investment Plan is actually an instrument of assistance to the Western Balkan countries in pandemic period when the economies of the entire region were hit hard by the crisis, which will in final affect the convergence of this group of countries, including Montenegro, to the EU and its market. This plan was adopted, among other things, to encourage the long-term recovery of the region, which will result in sustainable economic growth, the implementation of reforms to improve the EU integration process and the economic convergence Western Balkan countries to the EU.
The Pan implies a green and digital transition. The first one is related to the European Green Deal which aims to make the EU’s economy sustainable. This growth strategy defines the activity in relation to climate change, pollution, environment degradation etc. In this case, an important document that represents the framework for sustainable development is the 2030 Agenda for Sustainable Development and its Sustainable Development Goals and which Montenegro has set as one of the strategic and umbrella documents whose goals are achieved and operationalized through national strategies, programs and policies. By meeting the goals related to EU integration, Montenegro is also working to meet the goals of the 2030 Agenda, since that these two processes are closely linked and given that most of the goals coincide (primarily in the areas of environment, human rights, rule of law and social policy). On the other side, the digital transformation is based on the EU Digital Agenda for the Western Balkans. Investments in this field will enhance the digitalization of businesses, government’ and other institutions. In general, the Plan implies investments in transport, clean energy, environment and climate, digital future, boosting the private sector, human capital and regional economic integration and integration with the EU.
The Economic Investment Plan for the Western Balkans covers the period from 2021 to 2027. The Commission proposes to mobilize up to EUR 9 billion from IPA III funds which will be used for investment and support for competitiveness and inclusive growth and green and digital transition. In addition to the EU’s grant funding to the Western Balkan region, the EU can provide additional support through the proposed Western Balkans Guarantee Facility which should further enhance the investment opportunities of the whole region and mobilize approximately EUR 20 billion of investments in the next decade[2].
Certainly, for the realization of this Plan, but also of all future activities, an important factor is cooperation and stronger connections between the Western Balkan countries. On the one side, that would contribute to the creation of a single investment zone, which could contribute to attracting foreign investments and the growth of the economies of all countries. Stronger connections within the region will further lead to stronger relations with the EU. The adoption of this document also confirms the EU’s focus on Western Balkan countries.
Why it is important for Montenegro?
The implementation of the Economic and Investment Plan will begin with infrastructure projects, which should later contribute to the realization and implementation of projects in other areas. Therefore, ten investment flagships have been defined in the transport, energy, environment, digital areas, as well as support to the private sector and youth issues.
Investments in Montenegro has been recognized in almost all flagships, which is of great importance for connecting Montenegro not only with the other regional countries, but also the whole of Europe. Specifically, investments and implementation of projects specifically related to Montenegro include projects for the construction of transport infrastructure, energy capacities, environment, as well as other projects that will contribute to improve living standard of Montenegrin citizens. The realization of these projects and investments in this area will represent a significant contribution to the economic growth of Montenegro, increase the competitiveness of the Montenegrin economy and in general increase the inflow of investments in the entire region and thus in Montenegro. Also, the contribution of investments and projects could be seen through the impact on higher utilization of resources and capacity, which means higher employment of production factors and therefore higher economic growth.
Plan defines several projects in the transport area. Namely, under the flagship 2: connecting North to South it is planned rehabilitation of the railway from Belgrade to Podgorica and port Bar, which will be a significant infrastructure project that will contribute to better connectivity in the region. In addition to connecting the North and the South, improved connections in the coastal region (flagship 3) are planned. First of all, this project involves a rail route that will connect Podgorica and Tirana, and then further with the Albanian port of Durres. In this domain, Montenegro will be connected to the “Blue Highway” along the coast from Croatia down to Greece.
Implementation of projects in the field of transport and improvement of transport infrastructure is of great importance for Montenegro. Montenegro represents a significant transit zone due to its favourable geographical position, access to the sea and ports, which can contribute to its inclusion in international trade routes. Higher quality transport infrastructure will indirectly affect faster foreign exchange at lower costs, but will also make Montenegro a more accessible tourist destination.
In the area of energy, the construction of the Komarnica Hydro Power Plant is planned, which will represent a significant contribution to the expansion of the capacity of the existing energy system in Montenegro. The construction of the Hydro Power Plant is defined by the Concession Plan for the use of watercourses for the construction of Hydro Power Plants for 2020. Also, energy savings can be achieved by renovating buildings in order to meet energy performance standards, so expending “EU Renovation Wave” to the Western Balkan countries is planned.
As stated, an important segment covered by this Economic and Investment Plan is digital infrastructure and transition. The COVID-19 virus pandemic has shown importance of this segment and has accelerated the discussion related to the issue of digital transformation. In this domain, the development of national broadband infrastructure in all Western Balkan countries by 2024 is planned, as well as setting up data centres and cloud infrastructure. These improvements will contribute to the digitalization of the company’s business, whose level is not at a high level in Montenegro. According to the research among companies which was conducted by University of Donja Gorica, 13% of companies have moved on to digitalization of their business model, while 50% have already started with that process. However, 21% of companies are not considering the digital transformation yet[3]. Since that one of the focuses in the field of digital infrastructure is improvement of connection of rural areas, it will be of great importance for the Montenegrin population given that slightly less than 30% of households from rural areas do not have internet access, while this percentage is 15% for urban areas[4].
The importance of the Plan for Montenegro is also reflected in investments aimed to increase competitiveness of the private sector. As SMEs are the bearers of economic development in Montenegro (98.9% of the total number of companies are small and 0.9% medium-sized companies (MONSTAT, 2019)), investing in improving the competitiveness of these companies would affect the development of the Montenegrin economy.
Also, the implementation of the proposed Youth Guarantee would improve the status of young people in the labour market. The youth unemployment rate (15-29) in Montenegro is very high, amounting to 27.9% in the second quarter of 2020[5], which indicates the need for interventions to ensure employment, inclusion of young people in apprenticeship programs, education, etc.
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In any case, the Plan represents an excellent opportunity that can contribute to the accelerated development of the Western Balkans region and make it more advanced and developed, contributing to stronger internal connectivity and connectivity with the rest of Europe. The realization of the investments covered by this Plan will contribute to the economic progress of the region, its competitiveness and represent significant incentives to overcome the difficulties caused by the COVID-19 virus pandemic. Improving transport, energy and digital infrastructure, as well as supporting the private sector, protecting the environment and employment opportunities of young people will undoubtedly bring significant benefits to Montenegrin society.
[1] https://www.wb6cif.eu/wp-content/uploads/2020/10/communication_on_wb_economic_and_investment_plan_october_2020_en.pdf
[2] https://www.wb6cif.eu/wp-content/uploads/2020/10/communication_on_wb_economic_and_investment_plan_october_2020_en.pdf
[3] Reserch results have been presented at Milocer Development Forum 2020, https://www.udg.edu.me/en/news/milocer-development-forum-2020-1625
[4] Source of data: MONSTAT, https://www.monstat.org/uploads/files/ICT/Upotreba%20IKT%20u%20domacinstvima%202020.pdf
[5] Labour Force Survey 2020, MONSTAT, 2020