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Diversification of the Montenegrin economy as the EBRD's key priority

21/01/2022

In the post-Covid-19 recovery period, the aim of EBRD is to join efforts with the Chamber of Economy of Montenegro to support underserved segments via the promotion of skills-enhancing solutions, greater financial inclusion, equal access to opportunities and digital transformation in Montenegro.

Diversification of Montenegro’s economy is a key priority for the European Bank for Reconstruction and Development, as it would boost economic resilience and help spreading the benefits of economic development across more sectors and actors in a more stable and sustainable way, says in the interview for Glasnik, Mr. Remon Zakaria, the head of the EBRD Office for Montenegro.

The interview also tackled, among other things, an issue of the EBRD Strategy for the period 2021-2026, its support to improve competitiveness, green transition and the development of regional cooperation.

Glasnik: Mr. Zakaria, what is the importance of the EBRD Strategy for Montenegro for the period 2021-2026? What are its priorities and what are they based on?

The EBRD strategy for Montenegro is an important strategic document that governs the Bank’s operations in the country. It is based on detailed country-specific diagnostics and consultation with all relevant stakeholders, and it also looks at all economic sectors.

The document identifies three key strategic priorities and sets out the framework for the Bank’s work in the country for the period 2021-26.

  1. Strengthen private sector competitiveness, helping diversify the country’s economy to reduce reliance on seasonal tourism and to improve the business environment. The Bank will support companies, especially small and medium-sized enterprises (SMEs), with measures that promote strengthened capacity, commercialisation and improved governance. The Bank will also continue to support: public-private dialogue aimed at improving investment climate in the country, enhancing capacities of economic governance institutions including regulatory framework relevant for businesses, suppressing irregularities by enhancing inspections control, accelerating digitalisation of public services relevant for businesses including establishing business enabling digital portals.

These measures include direct finance, short-term liquidity, tailored advice and policy engagement. The Bank is also leading the effort to support underserved segments via the promotion of skills-enhancing solutions, greater financial inclusion and equal access to opportunities.

  1. Support Montenegro’s green economy transition to help accelerate the country’s green economy transition to meet its 2030 energy and climate targets. Based on the EBRD’s Green Economy Transition approach and building on its strong track record, the Bank will combine investments in renewables with policy engagement to increase renewable energy capacity and decarbonising the energy sector. The Bank’s priority is also to support investments in energy efficiency and circular economy; this includes investing in low carbon and climate resilient municipal infrastructure and related services, including water and wastewater, waste management and district heating,
  1. Foster connectivity and integration. Working closely with multilateral partners such as the Western Balkans Investment Framework (WBIF), the EBRD is uniquely placed to enhance Montenegro’s integration with regional markets through the development of cross-border transport and energy networks, and also through soft connectivity digital tools aimed at regional economic integration such as the Regional Business Registry Portal. The EBRD also continues to support initiatives to enhance countrywide access to information and communication technologies, including to under-served populations, by exploring options to develop broadband infrastructure that reaches more remote rural areas.

Glasnik: Why has the EBRD set the assistance in diversifying the Montenegrin economy as a key priority? What is the value of this support and how do you plan to implement it?

R. Zakaria: Montenegro is in the top-20 countries in the world most dependent on tourism. This renders the economy particularly vulnerable to external shocks, as we saw last year when the pandemic led to a strong contraction in the economic growth.

Diversification of Montenegro’s economy is a key priority for the Bank, as it would boost economic resilience and would help spread the benefits of economic development across more sectors and actors in in a more stable and sustainable way.

The economic diversification for Montenegro can come in several shapes.

One possibility is to widen the touristic offer beyond summer coastal tourism and include nature-oriented, rural, culinary, health and sports-related tourism. This alternative tourism offer could attract interest to the central and northern parts of the country that are rich in cultural and nature-based heritage sites, and enhance the country’s attractiveness during the typically off-peak seasons. This, in turn, would also help mitigate environmental and social risks caused by the high concentration of tourists in a short window of time in one area of the country.

The diversification may also entail closer linkages between tourism and other sectors such as agriculture, which would promote sustainable agribusiness value chains. At the same time, an important precondition for diversifying the tourism offer is to improve access to touristic destinations and develop further appropriate infrastructure and human resources, which we aim to support in the coming years.

Glasnik: The European Bank for Reconstruction and Development wants to help the transition to a green and fair economy. Could you share with us more information about that and present the EBRD’s priorities in this area?

R. Zakaria: The green economy transition is our core priority to enhance the competitiveness and resilience of the region. That’s why, as part of its five-year green strategy, the EBRD has committed to allocate at least 50% of its financing to Green projects and to reduce carbon dioxide emissions by at least 25 million tonnes by 2025. In addition, the EBRD has committed to align all its activities with the goals of the Paris Agreement by the end of 2022, aiming to accelerate decarbonisation across its regions, supporting them to reach net-zero emissions by mid-century.

In Montenegro, the EBRD has been already active in the green economy space and has invested over a third of its total investments in green projects since 2006. The Bank has been also active in supporting enabling policy reforms through its Regional Energy Efficiency Programme, helping the development of 13 policy products, transposing the EU Energy Efficiency Directive (EED) and Energy Performance of Buildings directive (EPBD) in the Montenegrin regulatory framework.

In the energy sector, we focus on accelerating the de-carbonization of the region by financing renewables coupled with advisory to support implementation of best market practices and environmental and social standards. For example, the EBRD has offered support to the Government to design site-specific competitive auctions, as done in Serbia and Albania.

 

The EBRD is promoting the deployment of modern green technologies to reduce carbon emissions in all economic sectors. The Bank has launched this year a credit line in Montenegro dedicated to energy efficiency in the residential sector and complemented with technical assistance and investment incentives - the Green Economy Financing Facility (GEFF) - we’re looking forward to offer it to several local financial institutions and introduce additional financing schemes to support the municipal and residential sectors.

Finally, together with the authorities we want to support improved performance, service delivery and sustainability of municipal infrastructure, such as improvements of water supply, wastewater collection and treatment.

Glasnik: The Government expects the realization of numerous investments and projects in the area of green economy during 2022, on which they would appreciate the support of the EBRD. How do you comment on that?

R. Zakaria: The EBRD is committed to support the implementation of more green investments in Montenegro in the public as well as in the private sector.

We will work with the Government to support activities that will help accelerating the pace of investments required to decarbonise the economy by leveraging private sector and other co-financiers, in particular for the development of renewable energy projects and relevant critical electrical infrastructure.

We are discussing concrete projects and technical assistance support with all stakeholders involved to help scaling up renewable energy investments and foster the transmission network.

In addition to greening the energy supply it is key for the EBRD to support investments in sustainable, low carbon and climate resilient municipal infrastructure and related services, including water and wastewater, waste management and sustainable district heating. 

Glasnik: An important part of the Strategy refers to the desire of the EBRD to improve the integration of Montenegro with regional markets. Would you please share more information about this EBRD priority?

R. Zakaria: The EBRD has long-standing support to regional integration in the Western Balkans. Expanding cross-border infrastructure projects as well as advancing the regional “soft connectivity” agenda is key here.

In this regard, we aim to further develop key transport and energy infrastructure, employing commercial and, where possible, private sector solutions, working closely with other multilateral donors and taking into account the sovereign space. Our financing will come together with technical assistance to improve institutional capacity and policy engagement. 

We will also continue to support initiatives to enhance countrywide access to information and communication technologies, including to under-served populations, support e-governance solutions as well as introduction of smart cities solutions to enhance efficiency and reliability of urban infrastructure through engagement in the Green Cities Framework.

A relevant ongoing initiative in this regards is the establishing of the Regional Business Registry Portal (BIFIDEX), under which EBRD supports business registers from Western Balkans join the regional Portal that contains detailed information of businesses from the Region. Montenegrin Central Registry for Business Entities is part of this initiative.

Glasnik: Considering that the Strategy refers to the period 2021-2026, what is the time frame of the activities aimed at its implementation? Are the goals set by years?

R. Zakaria: The time frame for activities and goals is the next five years. Internally, we monitor implementation of the strategy annually.

Glasnik: To what extent could the Chamber of Economy of Montenegro help implementation of this Strategy? What are the joint activities which can contribute to achieving the EBRD's goals for this period?

R. Zakaria: Through EBRD Advice for Small Businesses programme, we have excellent cooperation with the Chamber of Economy of Montenegro, as well as other business associations, in order to reach out and provide advisory support and access to know-how to the SME sector in Montenegro.

The Chamber of Economy of Montenegro is also recognized as a key partner to the Secretariat of the Competitiveness Council, supported by the EBRD, whose mission is to contribute to the improvement of public-private dialogue, strengthening competitiveness and enhancing investment climate and business environment in Montenegro.

In the post-Covid-19 recovery period, our aim is to join efforts with the Chamber to support underserved segments via the promotion of skills-enhancing solutions, greater financial inclusion, equal access to opportunities and digital transformation in Montenegro.

Glasnik: In early October, you launched the first regional circular economy program, which refers to Turkey and the Western Balkans. Would you please tell us more about this program, especially in the part related to Montenegro?

R. Zakaria: To address barriers to the transition to a circular economy, the EBRD launched a new programme, called the “Circular Economy Regional Initiative”, in Turkey and the Western Balkans.

The Circular Economy Regional Initiative, supported by GEF, will provide both technical assistance and investment incentives to support the private sector, particularly small and medium-sized enterprises (SMEs), to implement innovative and resource-efficient technologies and adopt circular business models. This model will help off-set accelerating pressures from population increase, economic growth and unsustainable resource use in countries like Montenegro.

The new programme aims to improve chemical and waste management and the security of the supply of raw materials, as well as to increase competitiveness, promote innovation and boost economic growth.

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