Progress in Investment Reform for Montenegro INVESTMENT REFORM INDEX

1
Preliminary Results
Progress in Investment Reform for
MontenegroINVESTMENT REFORM INDEX
31 March 2006 Investment Compact Country Mission
to Montenegro
2
Agenda

• Context and Objectives
• Approach, Process, Organisation and
  Differentiating Factors
• Results of Measurement for Montenegro
• Dimension specific results
• Next steps and Key Events

3
Context and Objectives
4
Context
The Investment Reform Index and the Investment
Compact
Focus of Investment Compact Program
A. Enterprise and SME Development
B. Policy and Promotion Specific to FDI
Investment Reform Index Enterprise Policy
Performance Assessment (EPPA) Peer Review
1. Monitoring and Evaluation
Country Investment Policy Analysis and
Implementation
Investor Forum Sector Specific Regional
Investment Promotion
Enterprise Forum
2. Implemen-tation Support
4 Areas
Structured Public/Private Debate
Regional Foreign Investors Council, White Book
and Reality Checks
Enterprise Policy Performance Assessment
3. Private Sector Support
Annual Ministerial for SEE Region Programme for
Parliamentary Support
4. Political Support
5
Objectives
The IRI is guided by four key objectives
Regional Collab-oration and Peer Review
Targeted Support in Imple-mentation
Public and Private Sector Involvement
Structured Evaluation
?
?
?
?
6
Approach, Organisation and Process
7
Approach
The IRI measures implementation of reform in 10
key dimensions
Main focus of evaluation in 2006
Part of a separate process conducted in
cooperation with the EC in the framework of the
European Charter for Small Enterprises
8
Approach
Each dimension is broken down into main
sub-dimensions Example Tax Policy
9
Approach
Each sub-dimension is broken down into core
indicators Example Tax Policy ? Tax
Administration
10
Approach
Each indicator is broken down into levels of
reform Example Tax Policy ? Tax Administration
Note This table has been simplified for
presentation purposes each level of reform is
fully detailed in the actual IRI.
11
Process
Gathering information for scores will follow a
specific process Example Anti-Corruption
CET
Investment Compact
Private Sector
12
Organisation
The Investment Reform Index is organised to
involve all levels in the evaluation and input
process

• IC Core Team collects data and interviews OECD
  Experts to establish a preliminary level of
  progress for each country in each policy
  dimension
• Local consultants build from the first
  measurement by collecting primary data in the
  countries and conducting interviews with local
  experts. The results analysed by the IC Core Team
  and incorporated into the level of progress
• The Private Sector and the Country Economic Team
  evaluate the latest measure. This provides an
  opportunity to step back and analyse the
  measurements in a broader context. After
  consultation mechanisms are complete, all parties
  confirm a final measurement, which is published

Local Consultants Country Economic Team
IC Core Team
Private Sector
OECD Experts Local Experts
13
Differentiating Factors
How the IRI is different from other indices
The OECD Investment Compact IRI relative to other
indices from international organisations

• Main Differentiating factors of the IRI
• Focus on a very specific region where history,
  culture and geography allow for more relevant
  benchmarking between countries.
• Tripartite participatory approach to evaluation
  and measurement including government, private
  sector, and the OECD.
• Comprehensive evaluation of the investment
  environment structured along ten key dimensions
  in line with OECD standards.
• Does not only measure but also provides guidance
  on how to improve through good practices.
• Meta Index which incorporates existing work
  already conducted by other organisations (e.g.,
  World Banks Doing Business report).

Process
14
Preliminary IRI Results for Montenegro
15
Preliminary IRI Results for Montenegro
Preliminary IRI results for Montenegro

• Dimensions where policy reform is more advanced
  are
• Regulatory reform
• Tax policy
• Human Capital
• Investment Policy
• Dimensions where reforms have been slower are
• Investment promotion
• Trade policy
• Anti-corruption
• Competition policy

16
Preliminary Findings
Dimension Specific Results
17
1. Investment Policy and Investment Promotion
Dimension specific results
Preliminary Findings

• Investment policy
• National Treatment principle is guaranteed for
  foreign investors in Montenegro and investor
  state-dispute settlement appears to be fair.
• Guarantees against expropriation of property are
  well respected.
• Foreign investors can acquire real estate
  property and land in Montenegro.
• Intellectual Property Rights are protected by law
  but there are still cases of transgression of the
  law.
• Although limited liability company registration
  at the Republic level is relatively efficient,
  the number of licenses required to operate a
  business can be high depending on the sector.
• Investment promotion
• While Montenegro has set up an investment
  promotion agency in 2005, it still needs to adopt
  an investment strategy that reflects government
  and private sector consensus on the investment
  promotion priorities.
• MIPA will need to quickly focus not only on
  marketing tools but also in providing concrete on
  the ground support to potential and existing
  investors.
• MIPA will also need to develop specific programs
  to link foreign investment with SMEs.
• Finally as the execution arm of the investment
  promotion strategy, MIPA needs to be reinforced
  (human and financial resources).

18
Investment Policy
Dimension specific results
Preliminary Findings
Preliminary IRI evaluation
No law or institution
Solid law or institution passed but little or
no evidence of effective implementation
Law or institution in line with good practices
and significant evidence of implementation
19
Investment Promotion
Dimension specific results
Preliminary Findings
20
2. Tax Policy
Dimension specific results
Preliminary Findings

• Montenegro has the most competitive corporate tax
  rate in the SEE region (9).
• Although the corporate tax rate is competitive,
  indirect taxes from municipalities increase the
  effective tax rate for investors.
• Montenegro has adopted a fiscal/tax strategy with
  clear goals, including introducing a competitive
  tax structure and encouraging private sector
  development.
• The corporate tax regime is officially in line
  with international standards, but there is still
  limited evidence of application (limited
  resources).
• While the Ministry of Finance conducts fiscal
  impact assessments of new legislation, the
  results are not publicly available and
  cost-benefit analyses are not conducted on tax
  incentives.
• Furthermore, effective tax rates are not
  calculated, and sunset clauses are not included
  with any tax incentive legislation.

21
Tax Policy
Dimension specific results
Preliminary Findings
22
Anti-Corruption Policy
Dimension specific results
Preliminary Findings

• Like most SEE countries, Montenegro has signed
  and ratified key international conventions
  related to corruption and has adopted laws which
  criminalise corrupt acts such as active and
  passive bribery, money laundering, and trading in
  influence.
• An anti-corruption Action Plan has been drafted
  and is awaiting adoption.
• Montenegro has begun laying the legislative and
  regulatory foundations in key areas of promotion
  of good governance and reliable public
  administration, such as Conflict of Interest
  Policy, Public Procurement and Professionalism of
  the Civil Service.
• However, there is still limited evidence of
  implementation of these laws and other areas such
  as customs reform and training programmes require
  more attention.
• Finally, as is the case in most SEE countries,
  many areas of policy Transparency have developed
  relatively slowly, such as public/private
  consultation and the establishment of effective
  oversight bodies (state audit and ombudsman).

23
Anti-Corruption Policy
Dimension specific results
Preliminary Findings
24
Competition Policy
Dimension specific results
Preliminary Findings

• Montenegros newly adopted competition law is
  generally in line with international standards
  and lays the regulatory foundations in the
  competition field.
• However there is no competition strategy and
  action plan with clear time bound targets.
• In order to create a level playing field for
  investors (in line with the EU accession
  requirements) Montenegro needs to further develop
  the legal framework with a set of bylaws for
  implementation.
• The Department for Competition Protection was
  established in March 2006, however it is not an
  independent authority and still has limited
  record of implementation (only one merger case).
• .

25
Competition Policy
Dimension specific results
Preliminary Findings
26
Trade Policy
Dimension specific results
Preliminary Findings

• Montenegro has signed FTAs with all SEE countries
  and has started negotiations with the EC on
  Stabilisation and Association Agreement. It still
  enforces some quotas in FTAs with 5 neighboring
  countries however.
• Montenegro trade openness is hindered by
  important non tariff barriers
• Technical standards not in line with EU /
  international standards
• Restrictive sanitary and phytosanitary standards
• Certification of products and services is work in
  progress with many certification organisations
  not yet meeting international requirements.
• Trade related to capital goods, on the other
  hand, seems to be without important restrictions
  (e.g. low customs duty and rapid VAT
  reimbursement).
• Finally, customs procedures appear to be
  relatively efficient but corruption with customs
  officials continues to be an issue according to
  feedback from the private sector.

27
Trade Policy
Dimension specific results
Preliminary Findings
28
Regulatory Reform
Dimension specific results
Preliminary Findings

• Montenegro has a functioning Regulatory
  Oversight Body, although it is not systematically
  involved in rule-making.
• The Government adopts a Regulatory Plan to
  increase regulatory transparency on a yearly
  basis. However, a systematic implementation of
  the Regulatory Plan is still to be ensured.
• In order to improve draft legislation, a
  Regulatory Impact Analysis programme remains to
  be formalised and systematically implemented.
• Although the Governments Economic Reform Agenda
  includes regulatory reform, a regulatory reform
  policy has not been adopted yet.

29
Regulatory Reform
Dimension specific results
Preliminary Findings
30
Human Capital
Dimension specific results
Preliminary Findings

• As is the case in most SEE countries, literacy
  and enrolment rates in Montenegro are generally
  high, but improvements are needed with respect to
  quality of education.
• Montenegro has developed a comprehensive
  education reform strategy in line with country
  growth priorities such as tourism and
  construction industries.
• There is good evidence of implementation through
  the three different councils (general, vocational
  and adult). For example solid progress had been
  achieved in the area of adult training (50
  programs adopted by National Council for
  Education of Adults and 3 national training
  centres).
• Important rigidities in the labor market still
  need to be addressed to help increase employment
  (e.g. high cost of social contributions).

31
Human Capital
Dimension specific results
Preliminary Findings
32
Next Steps and Key Events
33
2005-2006 Key Events for the Investment Reform
Index
Key Events
34
Preliminary Results

• All of the results are preliminary.
• Montenegro results will be finalised in June/July
  2006.
• For any comments or questions please contact
  Georgiana Pop at georgiana.pop_at_oecd.org