Economy of Montenegro

Montenegro's economy was developed significantly after World War II, as the country was integrated into the Socialist Federal Republic of Yugoslavia and experienced a period of rapid urbanization and industrialization. Its industrial sector included the generation of electricity, steel and aluminum production, coal mining, forestry and wood processing, textiles, and tobacco manufacturing, while international trade, shipping, and tourism became increasingly important by the late 1980s.

Following the dissolution of Yugoslavia in the early 1990s, Montenegro's entire industrial production system effectively collapsed, leading to shortages of many goods and skyrocketing prices for them. Due to its political alliance with Serbia and favourable geographic location, with access to the Adriatic Sea and a shipping-link to Albania across Lake Skadar, Montenegro became a hub for smuggling activity during the 1990s. The smuggling of petrol and cigarettes, in particular, became a de facto legalised practice within the country.

In 1997, Milo Đukanović took control of Montenegro's ruling party, the Democratic Party of Socialists of Montenegro, and began severing political ties with Serbia. He blamed the policies of Serbian President Slobodan Milošević for the overall decline of the Montenegrin economy. Resurgent inflation led the Montenegrin government to "dollarize" the economy, adopting the German mark as its dominant currency.[21] These economic policies also led to a revision of the relationship between the two countries from a federal republic to a much looser political union of Serbia and Montenegro, in which the Montenegrin government assumed responsibility for its own economic policies.

Montenegro subsequently opened up many of its economic sectors to privatization and introduced a value-added tax (VAT) to raise funds for public projects. It would later replace the German mark with the Euro as its legal tender, despite objections from Brussels. However, the implementation of these economic "reforms" did not significantly improve the living standard of Montenegrins during this period.

The Montenegrin government blamed its problems on Serbia, which suffered from a higher level of foreign debt and unemployment, as well as an investigation by the Hague war crime tribunal and controversy over the independence of its province of Kosovo. These factors hampered Montenegro's attractiveness to investors and delayed its progress toward full membership in the European Union and NATO.

On May 21, 2006, the people of Montenegro voted by referendum to declare independence from Serbia.

Following the independence referendum, Montenegro's economy has evolved to highlight its service sector, with a goal of becoming an elite tourist destination, and is navigating the process of joining the European Union. Attempts to attract foreign investors for large infrastructure projects are ongoing, as these projects are integral to its development as a tourist destination.

Montenegro experienced a real estate boom in 2006 and 2007, with wealthy Russians, Britons and others buying property on the Montenegrin coast. As of 2008, Montenegro received more foreign investment per capita than any other nation in Europe. However, the Great Recession did slow economic growth, as several infrastructure projects, such as the development of Velika Plaža, Ada Bojana, Buljarica, Jaz Beach, and the construction of the Bar-Boljare motorway and new power plants had to be postponed. The recession was also very difficult for the Podgorica Aluminium Plant, which was initially built in 1969 and was the biggest single contributor to the Montenegrin gross domestic product. The plant, first privatized in 2005, declared bankruptcy in 2013 and was sold to private investors in 2014.

In the first half of 2012, Montenegro exported goods, mostly metals, worth €182.3 million, which was 14.6% less than in the same period of the preceding year. Its major export partners include Croatia, Serbia, Bosnia and Herzegovina, and Hungary. Montenegro's imports in the first half of 2012, mostly food, oil, and electrical energy, were worth €864.9 million, which was 2.6% more than the same period in 2011. Its major import partners include Serbia, Greece, and Bosnia and Herzegovina.[22]

The banking sector of Montenegro is highly concentrated with a significant share of foreign capital. Banks in Montenegro provide both retail and corporate banking products under one roof, and most offer non-resident accounts, usually to both natural persons and legal entities.[23]