MONTENEGRO: ECONOMIC DEVELOPMENTS: JUNE 2006

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SIPDIS

SIPDIS

DEPARTMENT PASS TO OPIC, EXIM, TDA AND USAID
USDOC FOR 4232/ITA/MAC/OEERIS/SSAVICH

E.O. 12958: N/A
TAGS: ECON EFIN KPAO ETRD EINV EAID PGOV MW
SUBJECT: MONTENEGRO: ECONOMIC DEVELOPMENTS: JUNE 2006


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Index:

MACROECONOMICS:
-- Central European Free Trade Agreement
-- Draft Law on Optical Disks Sent to Parliament
-- Trade Deficit Declines

BUSINESS and TOURISM:
-- National Treatment for Investors Promised
-- Foreign Currency Flow with Serbia Improves
-- KAP: Negotiations Continue on Redundancy
-- Steelworks Back on the Block
-- Ada Bojana Tender Fails
-- More Foreign Tourists Expected
-- RyanAir Lands in 2007
-- Coastal Real Estate Prices Rise
-- Privatization Income Euros 17 Million
-- Greenfield Investment Euros 120 Million
-- Serb Company Announces 67 Million Investment
-- Customs Corruption Perceived As Lower

PUBLIC ECONOMY:
-- Unemployment Down
-- Real Wages Rise

T-BILLS
STOCKS

MACROECONOMICS:

Central European Free Trade Agreement
--------------


1. Romania, Bulgaria and Croatia, the current members of
the Central European Free Trade Agreement (CEFTA),
announced that they expect that Montenegro, together with
Albania, Bosnia and Herzegovina, Moldova, Macedonia, and
Serbia, will join CEFTA by the end of the year.

Draft Law on Optical Disks Sent to Parliament
--------------


2. The Government has adopted and sent to Parliament the
WTO TRIPS-compliant draft Law on Optical Disks.

Trade Deficit Declines
--------------


3. The independent Institute for Strategic Studies and
Prognoses (ISSP) reports Montenegro's trade deficit
declined 7.2 percent in the first quarter, to Euros 100.4
million. Imports were steady, while exports rose 4.4
percent.

BUSINESS and TOURISM:

National Treatment for Investors Promised
--------------


4. The GoM has promised national treatment for foreign
investors. Minister for Foreign Economic Relations Gordana
Djurovic said the GoM, through 2009, was looking to attract
greenfield investments, particularly in the areas of
services and tourism.

Foreign Currency Flow with Serbia Improves
--------------


5. Post-independence, payment clearance procedures for
transaction between Serbia and Montenegro have come under
international rules. Consequently, money flows can be
conducted in Euros or any other currency; previously, Serb
end-users receiving money from Montenegro could only
collect dinars. The transactions are also more rapid, and
now take three to five days. The new rules are also
expected to cut down on informal currency flows between
Montenegro and Serbia.

KAP: Negotiations Continue on Redundancy
--------------


6. Negotiations between the new Russian owners of the
Kombinat Aluminum Podgorica (KAP) and workers continue,
with production affected slightly by a rotating strike. At
stake is the amount of redundancy payments to be made as
KAP attempts to trim an admittedly bloated workforce.


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Steelworks Back on the Block
--------------


7. The Niksic Steelworks will again be offered for sale
through tender, with offers due on September 4. Russia-
based Midland Resources had bought the works in 2004, but
abandoned their purchase late last year.

Ada Bojana Tender Fails
--------------


8. There were no interested bidders on the long-term lease
of the resort area Ada Bojana, near the border with
Albania. A new model for privatization will be announced,
and the area re-tendered, probably in September.

More Foreign Tourists Expected
--------------


9. Four hundred thousand foreign tourists are expected this
year, up from 270,000 in 2005. The Tax Administration has
confirmed that foreigners can receive a VAT refund on
purchases of Euros 100 or more, when the goods are taken
out of the country. Note: Tourists from Serbia are still
counted as domestic. End note.

RyanAir Lands in 2007
--------------


10. The Government of Montenegro expects to complete
negotiations with low-cost carrier Ryan Air by the end of
this year, with flights beginning in 2007. Other low-coast
carriers have reportedly also expressed interest.

Coastal Real Estate Prices Rise
--------------


11. Foreign investors are driving demand for properties in
the coastal area of Budva. In 2005, the price for an
apartment in Budva, per square meter, was Euros 800 to 900;
this year, the same apartment runs about Euros 1,500.
Similar increases are reported for pricier Kotor.
Reportedly, English buyers are interested in villages,
while Russians are buying ocean views.

Privatization Income Euros 17 Million
--------------


12. Montenegro has realized Euros 16.8 million in
privatization income through the first half of the year.
The government Privatization Council expects privatizations
to realize Euros 120 million throughout 2006. Last year,
privatization income was Euros 261 million.

Greenfield Investment Euros 120 Million
--------------


13. Outstripping foreign direct investment (FDI) through
privatization is greenfield investment. In the first five
months, Montenegro attracted Euros 120 million in
greenfield FDI, according to the Montenegro Investment
Promotion Agency (MIPA).

Serb Company Announces 67 Million Investment
--------------


14. The Serbian company Delta Holding announced that it
will invest Euros 67 million in Montenegro, by building
supermarkets and trade centers. Delta expects to employ
more than 2000 workers in Montenegro, which would make it
one of the single largest employers.

Customs Corruption Perceived As Lower
--------------


15. A World Bank poll of Montenegrin companies, conducted
by the local Center for Entrepreneurship and Economic
Development (CEED) showed customs corruption as
significantly lower than in 2002. Progress was made in all
areas -- transparency, equality, standardization of
procedures, ability to complain, and frequency of petty
payments. On a scale of 1 to 5, corruption was rated at
2.26, with relatively low frequency. The World Bank noted
more progress was however still needed. Note: CEED is a
graduate from USAID assistance. End note.

PUBLIC ECONOMY:

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Unemployment Down
--------------


16. The GoM said unemployment declined 1.3 percent to 16.14
percent. Unemployment this time last year was 20.3 percent.

Real Wages Rise
--------------


17. The average net monthly wage in June was Euros 252,
up 2.4 percent from April, with real wages rising 1.5
percent. Retail prices rose 0.9 percent, and the consumer
basket for a family of four in May rose 0.9 percent to
Euros 270. (MonStat data)

T-BILLS


18. One auction of Treasury bills, with a total face value
of EUR 1.7 million, was held in May (note: data lags by one
month). The average weighted annualized interest rate for
the auction held in May amounted to 2.96 percent. The
lowest accepted interest rate at the auctions held in May
was 0.90 percent while the highest accepted interest rate
was 5.50 percent. Participants at the auctions included
local banks.

STOCKS


19. The NEX20 index of the Nex Montenegro Stock Exchange
ended the month of June up 11.9 percent, at 13,786.02. The
Moste index of Montenegroberza rose 20.4 percent to 685.684
in June. The continued sharp rise reflected support from
local investors for independence, which they expect will
expand economic opportunities and attract further
investment. Major components of the NEX20 include the
privatized Telekom CG and Jugopetrol; major components of
the Moste include aluminum smelter KAP and vineyard
Plantaze. Note: The Montenegrin exchanges are still
nascent, and the level of capitalization represented is
small although rising (NEX capitalization at the end of
2004 was Euros 495 million; at the end of November 2005 it
was Euros 1,410 million).

MOORE