Podgorica – The economic situation in the last year can be characterized as challenging, announced the president of the Chamber of Commerce (PKCG), Nina Drakić, and added that the key problems burdening the economy are illiquidity, the shadow economy and the deficit of personnel with appropriate knowledge.
“The economic situation in the year behind us can be characterized as challenging both in the world and in our country. External shocks had a strong impact on the Montenegrin economy, whose unfavorable structure was further highlighted by the crises caused by the covid-19 pandemic and war conflicts in Ukraine,” said Drakić in an interview with the Mina-business agency.
She stated that the corona crisis pointed out the negative aspects of the dominant economic growth based on services, primarily tourism, since this sector depends on international demand, that is, guests from abroad, who were absent in 2020.
“The conflicts in Ukraine caused a disruption in the global market, with an emphasis on energy products, which caused an increase in their prices and thus all goods. This had a strong impact on our import-oriented economy, which resulted in high inflation. All in all, both crises have once again confronted us with the poor structure of the domestic economy,” said Drakić.
According to her, despite the recognized potential for the development and improvement of the agricultural production sector, we remained a large importer of food both from neighboring countries and beyond.
“The unpredictability of the business environment has faced numerous challenges for domestic businessmen. Therefore, respect should be shown to all those who, under the burden of the crisis, achieve enviable business results and continue to develop their businesses”, said Drakić.
She reminded that, despite the fact that the economy operates in a difficult and challenging environment, the Montenegrin economy this year recorded growth of 7.1 percent in the first quarter, 12.7 percent in the second, and 3.2 percent in the third.
“Final consumption grew by 18.1 percent, fueled by a high increase in household personal consumption (22.3 percent), which is the result of growth in real disposable income, increased lending to the population and the recovery of tourism. The decline was achieved in the industry sector, that is, electricity supply and construction, due to the historic maximum of input prices in the first half of last year,” specified Drakić.
Speaking about the Europe Now program, she said that the implementation of tax reforms began at the beginning of last year, which had a significant impact on business this year.
“Let us recall that this meant an increase in the minimum wage to EUR 450, the abolition of health insurance contributions, the introduction of a non-taxable portion of EUR 700, but also progressive taxation of personal income and profits. In addition, the reform included excise policy, games of chance, as well as undeclared income,” said Drakić.
According to her, certain segments of the reform had a different impact on business operations of economic entities depending on the activity they perform, their size, level of earnings, profit, and it is difficult to give a single assessment. However, what can be said with certainty is that the tax reform brought a reduction in labor costs to most economic entities due to the abolition of health insurance contributions and the introduction of a non-taxable part of earnings.
“Wage growth had a direct impact on the increase in purchasing power, that is, household personal consumption. Certainly, the sudden growth of demand affects the price of the product, which is how inflation occurred. Although the growth of inflation was influenced by disturbances in the global market, the fact that these rates in Montenegro last year were higher than those in the EU and the eurozone (if the prices in pre-crisis 2019 are taken as a base), which was not the case in previous years , can bring this program into direct connection with the stated outcome”, added Drakić.
When asked if the macroeconomic forecasts for this year are realistic, she answered that according to the forecasts of international institutions, Montenegro is expected to grow from 2.5 percent (IMF) to 4 percent (EBRD) this year.
“The situation in an economy like ours depends dominantly on international trends. It is noticeable that economic activity is slowing down in developed economies, especially in the Eurozone, which is a key source of demand for goods and services from the Western Balkans, as well as a source of investments and remittances, and an important emission market for the region’s tourism,” said Drakić.
In this regard, geopolitical instability and further disruptions in global markets may affect the eventual non-realization of macroeconomic projections for this year.
“In addition, rising inflation poses an additional risk to the realization of the projections for the year ahead. Namely, only in November last year, inflation reached 17.5 percent, and in 11 months it was 12.7 percent. In order to stop the general increase in prices, there may be an increase in interest rates, which is also a risk factor, because higher borrowing costs will result in a drop in investment and consumption,” said Drakić.
Speaking about the key problems faced by businessmen in their business, she said that illiquidity is a challenge that the economy has been facing for a long time.
“Namely, the total debt based on the blockade of executive debtors has a growing trend and amounts to almost a fifth of GDP. Therefore, it is very important for the economy to solve the problem of illiquidity, which requires the synergy of all interested parties (state, economy – banking sector, judiciary), and the improvement of the legislative and institutional framework”, explained Drakić.
Also, the gray economy is another structural challenge that significantly affects the operations of economic entities.
“Decreasing the volume of the gray economy should be a priority activity in removing restrictions on the growth of the private sector.” In addition to an expansive fiscal policy, including parafiscal levies, with benefits for new employees, which are incentive measures for moving from the gray zone to legal flows, it is extremely important to establish a competitive, stable and predictable environment, which will contribute to the professionalization of public administration,” said Drakić.
The deficit of personnel with appropriate knowledge and skills is present in, as she stated, almost all sectors of the economy, and it is most pronounced in tourism, construction, ICT, agriculture, transport, and certain areas of the processing industry.
“The mismatch between the education system and the labor market manifests itself through the mismatch between the supply of labor and the demand for labor, and can best be remedied by greater involvement of employers and the economy in the education system,” Drakić believes.
In addition, it is necessary to improve the dual system of education, develop and promote the concept of lifelong learning, develop new educational programs for priority sectors, develop training programs, requalification of unemployed persons.
“In addition to the reform of public administration, the education system and the comprehensive systemic focus on suppressing the gray economy and improving the liquidity of the economy, digital transformation is one of the prerequisites for accelerated recovery, i.e. growth in competitiveness and economic development in the coming period. In addition to all this, it is important that the economy is directed towards a green transformation, since this sets an important prerequisite for participation in supply chains”, said Drakić.
PKCG strives to contribute to all processes that can influence the improvement of business conditions and support the economy in terms of accepting new trends.
“In this business, as a representative of the voice of the business community, we are a reliable partner for policy makers,” concluded Drakić for local media.