FDI in Montenegro

Abstract

Like its Western Balkan neighbors following the destructive events of the 1990s, Montenegro has engaged in political, economic, and social rehabilitation. With the outset of the new millennium, worldwide expansionary monetary conditions fueled international liquidity, boosting asset markets and directing capital flows toward emerging markets, including those in the Balkans. Within this new favorable external environment, Montenegro opened up its economy, deepened its EU orientation, underwent large-scale privatization, and began creating a more attractive environment for foreign direct investment (FDI). The ensuing significant increase of capital inflows had positive effects on Montenegro’s economic and political environment. Driven by privatization, investments were mainly oriented toward the service sectors (banking, telecommunication, and real state) rather than primary and manufacturing sectors. The first effects of direct capital inflow have been positive, leading to high growth rates, low inflation, increased employment rates, and stability in Montenegro’s fiscal balance. In the wake of the financial crisis, inflows of FDI to Montenegro became significantly lower. Since its recovery, the country has experienced a new wave of investments from origin countries different than before. These have been characterized by various industrial structures and directed toward a previously underutilized set of locations.