Montenegro is burdened by bureaucracy and corruption. Slobodan Franeta outlines the challenges and a solution.

It has been only 10 years since Montenegro, a small country with approximately 650 000 citizens on the Adriatic Sea, restored its independence. Still, it is facing big problems with crony capitalism and the biggest governmental administration ever seen. A few months ago, on October 2016, Montenegrin citizens voted in parliamentary elections for a new country leadership. Once again the Democratic Party of Socialists has won a wobbly majority after being unbeatable for almost three decades. Today Montenegro is facing another social and economic crisis that could shake everything and could push the country into populism.

Back in 2006 the idea was to promote an economy based on privatization and free trade. This was meant to stimulate the business climate after a long period of communism and socialism. It was the perfect way for Montenegro to join negotiations for European Union and NATO but also to improve position on global competitiveness list. For the first few years Montenegro’s economy had impressive growth but it was followed by a series of problems caused by crony capitalism and non-transparent privatizations.

Questionable practices

Many employees of prevoiusly publicly owned companies were dissatisfied and had questions about suspicious privatizations and the involvement of government in them. Instead of using mechanisms of a free market and healthy competition, Montenegro’s government took on the role of managing and creating conditions of its own market — expecting to fix everything and to create order.

Montenegro’s government issued financial guarantees for many of the state companies when they were privatized. Today these guarantees are a problematic component of public debt. Investors who were often closely associated with government officials used this opportunity to raise their own capital and to create strong bonds with politicians. The negative impacts of this cooperation are more and more visible in the economy. Especially on local levels where towns like Budva (a small coastline town and popular tourist destination) on the brink of bankruptcy and the local economy is devastated by high levels of corruption.

To secure social peace and to justify bad privatization, the demand for employees in public sector grew year over year. This pushed Montenegro into old habits again. According to the budget plan for 2017, around 1.8 billion euros will be spent on public administration which is around 60% of entire Montenegro’s GDP and the trend is growing.

Government careers

Public administration is becoming an increasingly popular path for young Montenegrins and many of them see it as ideal career direction. Because of suspicious privatizations, young people often identify entrepreneurs as criminals and slaveholders. Therefore they prefer to join political parties and seek opportunies in public sector, knowing that they will be secure on the payroll — no matter what results they deliver. In a country where more than 55% of all employees are in public administration and other state channels, this is a recipe for a problematic future full of fraud and corruption.

In the Global Competitiveness Report for 2016/2017 Montenegro was placed on the 82nd place — 12 positions down compared to the last year. The report states that the most problematic factors for doing business in Montenegro are related to “inefficient government bureaucracy”, “corruption”, “tax rates” and “poor work ethic” in the national labor force.

It is evident that Montenegro is languishing in the race with regional countries as it is placed behind Croatia, Macedonia, Albania and who knows what else next year could bring for Montenegro as populists and leftist are louder each day.

A way out

Even though Montenegro is classified as an efficiency-driven economy together with 30 other developing countries, it is far away from the innovation-driven group of the most powerful global economies. For Montenegro to succeed it will be necessary to face many problems and to find the best possible solutions which have so often been found in the free market, healthy competition, entrepreneurial capitalism and minimal state. All those ideas are relatively young in Montenegro and not well accepted by the elder population but they are slowly gaining a foothold among the young.

Economic and social changes are long and difficult but not impossible. It is up to younger generations to face modern challenges of the global market and to learn from those mistakes. There is a hope they will be those who will overthrow Leviathan and not allow him to rise again.

Slobodan Franeta studies at the Faculty of International Economics, Finance and Business and founded Montenegrin Students for Liberty.