Montenegro is a new and rapidly growing economy that has shaped itself to be open to foreign investment. This article looks at what has changed, and what opportunities lie ahead for Montenegro. VMB Law Office, winners of the Business Worldwide Legal Awards 2016 for Best Corporate and Commercial Firm, reflect on these changes, and how their practice has played a major role in that transformation.
Economic change in Montenegro
Montenegro declared independence in 2006. Formerly part of Yugoslavia from 1918, and initially allied with Serbia in the civil wars of 1991-2001, it gradually distanced itself from 1996, formed its own economic policy and eventually adopted the Euro as its currency. It is a small nation with investment potential due to its near universal privatisation programme, initiated in 1999. Its core industries are the service sector – estimated to be 70.5% in 2013– with agriculture and industry accounting for the remainder (CIA World Factbook 2015).
Over the past fifteen years, Montenegro has experienced an investment boom that has made it one of the fastest growing economies in Europe, according to Kenneth Rapoza in Forbes Magazine in November 2015. In 2013, foreign direct investment reached $1.1 billion.
Montenegro joined the World Bank and IMF in 2007 and the World Trade Organization in 2011. In 2012, it began negotiations to join the EU, having satisfied stipulations to fight corruption and organized crime. Montenegro plans to join NATO, reputedly making Russia – one of its core investors – uneasy, though Montenegro proclaims Russian investments safe. Its West-facing stance is not least because 95% of its exports go there. While exports to Russia are down to $4 million in 2014, Europe accounted for $317 million.
Favourable legal environment
Rapid social and economic change requires a stable legal structure, and foreign companies want to be welcomed. The CIA World Factbook 2015 argues that the government has been active in removing impediments to investment.
However, the European Bank for Reconstruction and Development (EBRD) Judicial Decisions Assessment 2012 found a variable picture of court procedure in commercial law. While judgments were found to be relatively consistent, the pace was viewed as slow, with courts having a large backlog. A need to improve transparency and accountability was noted.
VMB at the forefront of legal change
VMB Law Office specializes in Commercial and Corporate Law, Intellectual Property Rights and Arbitration. Vesko Božović, founder and owner of VMB, was central to the first privatization on Montenegro, Trebjesa brewery, for whom he had worked for twenty-four years.
VMB see maintaining international networks and relationships as central to their work as pioneers of legal change and consolidation in Montenegro. They have gained considerable insight into economic and social change and this means that they can offer strategic advice, particularly as companies grow and globalize.
Common to many emergent economies, the need to facilitate speedy resolution of financial disputes has seen countries turn to arbitration, in order to balance justice with time and cost concerns. VMB has taken on a leadership role in the development of Alternative Dispute Resolution (ADR), working with arbitration centres from the region such as the German Institute of Arbitration (DIS) and UNCITRAL in Vienna. They played a leading role on the drafting of arbitration law in Montenegro, based on Model Law UNCITRAL Rules, using their significant practice-based experience in creating arbitration rules before the formation of the Montenegro Arbitration Court (MAC).
Vesko Božović, legal pioneer and strategist
The visionary role of VMB is in large part due to the specialisms and experience of its founder, Mr Vesko Božović, Attorney-at-law, in the field of corporate law. Božović is President of MAC before the Montenegro Chamber of Commerce. He is a member of the London Court of International Arbitration (LCIA) and the International Council for Commercial Arbitration (ICCA). He is also on the list of the arbitration institutions of other countries. His expertise doesn’t just stop at arbitration strategy. VMB specializes in the field of representing and drafting of commercial contracts, such as licensing agreements and franchise agreements. In this capacity, it participated the International Franchise Expo in New York.
We asked Mr Božović about the development of corporate law in Montenegro as the country undergoes rapid change, and the role of VMB in that change.
What do you see as the main challenges for business operating in the international environment, from a legal perspective?
Montenegro is in the process of joining the EU, and in accordance with it, has opened a large number of negotiating chapters. Among these are two very important chapters, which are on the economy and intellectual property. Admittedly, it reflects great progress in our country that corporate-commercial law has become well-established in Montenegro, making it an open country for foreign investors. There are various benefits, such as tax exemptions of 9% for investors, the speedy issuing of building permits, registration of companies within 1-7 days, and establishing Limited Liability Companies with an initial stake of 1€. ‘Economic’ citizenship is being considered, too.
How can the law help facilitate economic investment in a country like Montenegro?
As the current and future investors want to have a good investment climate, the existing legislation has a 9% tax on corporate income, exemption from payment of utilities for a building of a 4 or 5-star hotels, as well as other benefits. Moreover, the investors will be offered a good legal framework for the efficient resolution of any dispute. Legal reform has helped deliver changes that are essential to the economy, as well as providing expertise to investors to help them in the process of investment and economic development.
What is unique about VMB Law Office’s approach to commercial law, intellectual property law and arbitration?
Cherishing the tradition of being pioneers in dealing with new legal issues in our country makes us unique. We were the first in privatization business, intellectual property and arbitration while cooperating with offices from London, Paris, Belgrade, Zagreb and other cities. The difference between our offices and the competition is reflected in the fact that in comparison to the competition, we attend all events and follow current trends.
We always seek to embrace innovation in everything that we do, alongside recognizing our primary interest is our clients. Through mutual trust and our extensive experience and expertise, we achieve the most effective results. We respond with practical legal solutions to the practical business challenges. Striving for excellence, openness, timeliness and accessibility have always been prerequisites in all phases of our operations, which is why success is the inevitable outcome.
Towards the future
Montenegro has major investments plans in the pipeline, including infrastructure, electricity, electrical transmission and tourism. Construction of the first section of the €800 million highway Bar-Boljari has already started, agreements have been concluded on the thermal power plant Pljevlja. “TERMA” (Italy) is planning to build a submarine electric transmission cable between Montenegro and Italy and other energy contracts are also forthcoming. There are a number of tourist centers under way, by Azmont Investments, Orascom, and Qatari Diar. With all their domestic and international knowledge and expertise, VMB will be very busy in the years to come.