No business is an isolated entity. It operates in a certain environment. The correlation between business and its environment, both micro and macro, is crucial in determining its success on the market.
Therefore, the business environment in short represents a sum of internal and external factors that influence a business. This complex and dynamic nature certainly has a very significant impact on the business perspective. The internal business environment comprises factors within the organization itself. On the other hand, the external environment consists of a variety of factors which are out of the company’s control.
Clearly, one of the most critical external business factors is competition. But, other complex factors which should not be disregarded include socio-economic, legal or ethical, political and technological factors.
Business Environment’s Influence on the Foreign Direct Investment
Being a foreign investor means starting a company in a totally new business environment. This environment has its legal, tax, judicial system, labor law, revenue administration etc. We are aware that Montenegro is a country whose economy is very much affected by the percent of Foreign Direct Investment (FDI). Business and regulatory environment is of the utmost importance for investors, when considering their decision to invest in Montenegro. Since a stable business environment is a prerequisite for businesses to grow and prosper, it is the Government’s assignment to remove all the business barriers and to make Montenegro as attractive as possible for sustainable foreign investments.
To this end, key factors for investors, but also for local businesses for realizing their activities and achieving their goals, can be summarized into:
- Predictability
- Transparency
Predictability is the basis on which businesses make their long-term plans and strategies. It is not to be expected that sudden and rapid regulatory and policy changes will leave no consequences for businesses. Transparency, on the other hand, means that all stakeholders affected by the regulatory decisions must be familiar with the planned regulatory changes. A step forward would be to include these stakeholders in the process of decision-making.
The key point is: investors need a system which they can trust.
Laws must be harmonized with international standards and their implementation should be non-partisan. The changes and amendments to the laws should be strategically planed and transparent in their execution.
In Montenegro, a lot has been done in the term of improving business environment from 2006. A more detailed picture about the business climate in Montenegro can be seen through the standard business operation risks which encompass:
- The risk of general conditions of business operations measured by the Index of Economic Freedom – Economic freedom has reached its peak in Montenegro in the 2015 Index. Noticeable improvements have been registered in seven of the ten economic freedoms, especially the investment freedom and the control of government spending.
- The country financial risk – Standard & Poor’s credit rating for Montenegro stands at B+ which means stable. Moody’s rating for Montenegro sovereign debt is Ba3 – negative.
- The risk of transparency of procedures and corruption measured by the Index of Transparency – Montenegro is ranked as 76st out of total 175 countries by the Corruption Perception Index for 2014.
- The risk of intellectual property protection measured by the Global Competitiveness Index – The issue of intellectual property protection is becoming a very important factor in decision-making for foreign investors. According to this Index, Montenegro is ranked as 73rd country in the world, with a total score of 3,7 out of 7 points.
These improvements obviously correlate with an increased number of foreign investments in Montenegro in the recent period. But still, there is more work to be done.
In that sense, AmCham Montenegro has identified the most important business challenges in its latest Business Climate Report for 2014, which will be a matter of discussion with the Prime Minister of Montenegro in the nearest future. This Report represent a survey conducted every two year amongst AmCham members, in order to determine what are the biggest challenges investors and local companies face in doing business in Montenegro. Moreover, this reports monitors progress and improvements in the overall business climate in Montenegro, from the AmCham members’ point of view. Therefore, the document represents a valuable source of information to all potential investors in Montenegro.
Likewise, the aforementioned discussion with the Prime Minister about the business challenges in Montenegro will represent a great example of what AmCham advocates for: improving the business environment in Montenegro through an open dialogue between the business community and the Government. AmCham believes that only by collaborating with the Government and other stakeholders we can achieve our common goal: to strengthen the Montenegrin economy in the years to come.
