World Bank suggests new growth strategy

EU aspirant Montenegro

As an aspiring member of the European Union (EU), Montenegro has been cautioned by the World Bank that without adopting a new economic growth strategy focused on enhancing productivity and human capital, the country’s income levels will not align with the EU average over the next four decades.

EU frameworks

Although Montenegro commenced EU accession negotiations in 2012 and has aligned its legal frameworks with the EU, its current growth strategy heavily relies on attracting a limited number of large investment projects in transportation, energy, and tourism. This approach has rendered the economy vulnerable to external shocks and has made it challenging to maintain an average growth rate of 3%, as highlighted in the World Bank’s report.

The report identifies stagnant productivity growth resulting from market inefficiencies in Montenegro’s service sector, which constitutes over 70% of its GDP. To address this, the World Bank emphasizes the need for regulatory barriers to be removed, enabling firms to enter markets and foster growth.

Furthermore, the majority of companies in Montenegro lack innovation and invest insufficiently in green technology, hindering sustainable tourism growth and the development of the country’s comparative advantage in clean energy.

So far, only 8% of firms have implemented energy efficiency measures, significantly lower than the 25% observed in comparable countries.

Leverage trades

Additionally, the World Bank emphasizes the necessity of leveraging trade more effectively, considering that travel and tourism services account for 80% of total exports. However, the low productivity of Montenegrin firms limits export diversification and reduces their competitiveness in foreign markets. Addressing income inequality is also crucial, as it diminishes the pool of potential skilled workers and entrepreneurs, thereby limiting labor productivity growth potential.

Christopher Sheldon, World Bank Country Manager for Bosnia and Montenegro, stresses that implementing these recommended reforms can lead to a thriving private sector, significant job opportunities, and improved wages and benefits for all citizens of Montenegro.

It is evident that a strategic shift in Montenegro’s economic growth approach is vital to accelerate its integration into the EU and achieve sustainable economic convergence.

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