Montenegro’s Development Bank is expanding its role in financing business investment, with programmes covering production, technology, working capital, agriculture, food processing and other areas of private-sector activity. The institution is becoming increasingly relevant to efforts to broaden investment beyond real estate and tourism, sectors that have historically attracted a significant share of Montenegro’s capital and economic activity.
Development financing provides an additional source of funding for projects where conventional commercial-bank lending may be less suitable. This is particularly relevant for manufacturing and processing investments that require longer periods to recover their initial costs. Businesses operating in less-developed municipalities and northern Montenegro can receive additional incentives under relevant programmes. These include interest-rate reductions of around 0.5 percentage points. The financing measures therefore also have a regional-development component. Economic activity is considerably less concentrated in northern Montenegro than along the coast and in Podgorica.
Lower financing costs can affect the feasibility of investments in agriculture, wood processing, food production, small-scale manufacturing, tourism and energy-related activities in those areas.
Development finance can also be combined with the country’s infrastructure investment cycle. New and improved motorway and railway connections can alter the economics of locations that previously faced logistical constraints, while financing support can facilitate private investment associated with those infrastructure improvements. Agriculture and food processing represent another area covered by the development-finance approach. Montenegro imports a large share of the goods consumed domestically, creating scope for domestic production where companies can meet requirements for scale, quality and pricing.
Development-bank financing can support investments in refrigeration, processing, packaging, logistics and production technologies, allowing businesses to undertake activities that increase the value retained within the domestic economy. Investment finance also applies to energy efficiency. Companies dealing with higher electricity and operating costs can direct financing toward improvements to buildings, production equipment and onsite generation.
The economic role of development finance depends on its additionality. Its greatest value comes when funding makes commercially sustainable projects possible despite difficulties in securing financing through conventional channels, rather than replacing credit that commercial banks would otherwise provide. The allocation of credit is consequently relevant to Montenegro’s next stage of growth. Greater financing of productive capacity, alongside lending for consumption and property, is part of that process. The expanding range of programmes offered by the Development Bank provides the Government with a direct mechanism for influencing how investment financing is allocated across sectors and regions.
