Thursday 7 October 2010

The interview with Mr. Petar Ivanovic, Chief Economic Advisor to the Montenegrin Prime Minister and CEO of Montenegrin Investment Promotion Agency

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Petar Ivanovic, CEO of MIPA, Chief Economic Advisor to the Montenegrin Prime Minister

PODGORICA (Montenegro), October 7 (SeeNews) - The interview with Mr. Petar Ivanovic, Chief Economic Advisor to the Montenegrin Prime Minister and CEO of Montenegrin Investment Promotion Agency, is part of the 2010 edition of see TOP 100. For the full content, please visit www.top100.seenews.com.
Q: Montenegro recorded a significant rise in FDI [foreign direct investment] during the past years. Do you expect this trend to continue in 2010?
A: The inflow of foreign direct investment to Montenegro in 2009 was record high – over 1.0 billion euro. However, this should not cloud our judgment but serve as a constant reminder. If we want to sustain the upward trend in foreign investment recorded in the past five years, we should make less mistakes and compromises, be faster and cut red-tape. The inflow of foreign investment in 2010 will depend on the readiness to implement big projects, because without a single major project, we will hardly reach the 2009 level of investment. The energy sector has come into focus and, in my opinion, this momentum should be maintained. The competitive advantages of the Montenegrin economic system compared to other countries will be crucial for a further, even bigger foreign investment influx. Although they are of major significance, tax rates are not the only thing investors are interested in. The rule of law, free trade, a smaller role for the government in the economy are important as well.
Q: Don’t you think it is too early for the opening up of the energy sector in Montenegro?
A: No, just the opposite. I think we are already late. Just to remind you, the privatisation of Montenegro’s telecommunications sector drew a lot of criticism. However, today we have three very prominent mobile operators, 12-13 internet providers, many new products, a downward trend in service charges, solid regulation and, what is most important, a telecommunications system that provides a basis for fast Business development. We need to have all this in the energy field as well. Without competition in the energy sector we won’t be able to meet the expectations of consumers, regardless of whether they are companies or households, and what they expect is a quality product and lower prices. We have already signed the [country’s] first contracts for the construction of wind power stations with Spain’s Fersa and Japan’s Mitsubishi, a tender for the construction of four hydro power plants on the Moraca river is in progress, while a tender has been opened for a solar power development strategy and for the implementation of the first project on this rapidly changing segment. Together with other already identified projects, the energy sector could attract investments of over 4.0 billion euro. investments of this type should not be choked off by bureaucratic and technocratic ways of understanding the economy. Do you remember the story about Professor Erhard? Many link the boom of the German economy after World War II with Ludwig Erhard – a virtually unknown professor of economics from Furth. He based the reconstruction of the German economy not on planning but on competition. When U.S. general Lucius Clay called him and asked how he came up with the idea of changing the regulations, which is beyond his responsibilities, he answered: “Pardon me, but I did not change the regulations. I cancelled them.”
Q: Is the economic crisis having an impact on the investment in Montenegro?
A: It depends. The crisis has not ended yet. Those companies that have made use of the crisis to restructure, cut costs, improve competitiveness and win new markets will have a huge advantage. The firms which have failed to do so, and there are plenty of them in Montenegro, will have to pay a price for waiting around, reacting slowly and delaying tackling their problems. This will be a year of great collapses. Some well known firms will start to disappear. At the same time, completely new and unknown ones will emerge, some of them will become leaders in the next 10-20 years or more. The challenge facing the Montenegrin Investment Promotion Agency is to identify precisely such firms.
In addition, never in the history has so much money been pumped into the system as has during the last crisis. If there is someone who reckons this will solve the problems with bad debt, failed real estate deals, expensive and inefficient Business operations, etc, they are under a big illusion. Economic problems have never been successfully solved by printing money. If it were possible, perhaps there would be no need to have an economic system.
Q: What do you think Montenegro should do to exit the crisis as soon as possible?
A: First, we should put in more work. I am constantly saying that value is created in the private sector, which is not as strong as many in Montenegro think. Next, we need to return to the philosophy of entrepreneurship and the strengthening of economic freedom. It seems to me that we have been neglecting this philosophy and investors have started to take note. Montenegro will miss out on its development opportunities if we systematically blend into the European Union. We have our own economic identity and should develop it further. In my opinion, yielding blindly to every request that comes from a European address will not strengthen but, on the contrary, will weaken our economy. To avoid any misunderstanding, I am not referring to the European economic values related to competition, free trade, free enterprise or the rule of law, but to those related to the quiet and less visible harmonization which bureaucratically and slowly wipes out Montenegro’s competitive advantages. And thirdly, we need to rely more on knowledge and less on political compromise.
Q: Not long ago, the Montenegrin government adopted a decision to allow Business people to receive a Montenegrin passport by investing in the country. How would you comment on this decision?
A: As a logical step in the further democratisation of the society! If we talk about the concept itself, it’s not news. The opportunity to get a Montenegrin passport already existed although this fact is hardly mentioned in any of the recent comments. However, with the new [citizenship programme] guidelines, this sphere becomes regulated in a more transparent way. There are more criteria. One of them is an investment of at least a million euro in the core capital of a new Business, employment of 20 Montenegrin citizens, implementation of new technologies and an increase in exports. Do you see anything that is bad for Montenegro, its citizens or for our economy in such criteria? If [Portuguese football manager Jose] Mourinho agrees to become a trainer of some football club in Montenegro and is successful, everyone will support the idea that he receive Montenegrin citizenship. But if we succeed in bringing a Mourinho into the economy and he manages to provide work for our citizens who are now jobless and increases exports, then the matter becomes controversial straight away.
Q: But is there potential for abuse that would, for example, lead to the laundering in Montenegro of the money of rich people or people that do not operate within the confines of law?
A: Firstly, the [citizenship programme] guidelines set out the criteria for assessing whether there is economic interest for Montenegro in someone receiving a citizenship. This means you will not automatically receive citizenship if you have invested a million euro and met the remaining criteria I have already mentioned.
Secondly, as far as money-laundering is concerned, all indicators point to the use of cash in Montenegro decreasing from year to year. All kinds of cross-border transactions are made through A-list banks which have well-developed procedures to trace the origin of the money. Banks do not deal with perception problems, respectively with the problem whether we think someone is laundering money, but they deal with the practical problem whether the origin of the money meets the legal requirements of this country or not. This further means that, if an investor arrives who wants to invest his money in Montenegro, he should transfer this money from his parent bank through a foreign bank that is on the A list to a bank that is active in Montenegro and only then set out to do Business. It means such an investor should first scam the bank in his home country, then one of the correspondent banks and, eventually, one of the local banks before beginning his operations in Montenegro.
Thirdly, there will always be good and bad people, good and bad investors, those who respect the laws and those who violate them. Nevertheless, the decision making instruments are in the hands of the Montenegrin institutions and not in those of potential investors who would try to abuse this mechanism.
Q: Are there any other criteria to obtain Montenegrin citizenship?
A: Yes, there are criteria applied to individuals who buy real estate on Montenegrin territory worth at least 1.5 million euro, on which they pay a value added tax, as well as criteria that apply to combined requirements for the purchase of real estate and securities and for making a deposit, on the one hand, or a donation to the Montenegrin budget, on the other, all with a total value of 500,000 euro. The verification process and procedures are the same as the ones for the investors, although here the target group is different and comprises top experts and Business people with irrefutable international reputation.
Q: What have been the first reactions of foreign businessmen and investors to the [citizenship programme] guidelines the Montenegrin government has adopted?
A: The first reactions have been positive and dominated by optimism that Montenegro, as a young country, could attract the attention of prominent Business people in this way, which would further boost our image and raise Business standards. Business is like oil, it does not mix with anything else than Business! I hope that the standards of behaviour will also change fast, especially on the political arena. It would be great when the mindset in Montenegro also changes a little bit, but this will happen. It all takes time!
Q: During your contacts with investors, have you ever experienced a desire by some of them to obtain Montenegrin citizenship?
A: Yes, I have, but not as much as people here might think. Generally, people in Montenegro pay very little attention to the efforts to understand the meaning of the term competition and the effects that competition produces. Nowadays, the competition among the countries vying to attract people who have money to invest is bigger than ever! The largest number of such people has no need to obtain another citizenship unless they see some benefit in getting it. This benefit should be provided by the system we are building. For example: lower taxes, better education, better health services, greater ease of doing Business, better connections with the world, etc. If these benefits do not exist, then there will be no need to seek citizenship. During a Formula 1 race in Monte Carlo [racing team owner] Gianni Agnelli once told a curious journalist: “They have a faster car. We have a faster driver. We could improve the car. They cannot improve the driver.” Foreign direct investment in Montenegro is the driver and we have to adjust the further development of the system to him.
FOREIGN INVESTORS - SUMMARY
In the past five years, Montenegro has not only recorded a continuous rise in foreign direct investment but has also been constantly increasing the number of active foreign companies (in the 2005-2009 period this number rose from 1,145 to 5,070). At the same time, the number of the countries the foreign investors are coming from has also increased to 86, which indicates the very high level of openness our economy has.

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