Strengthening Democracy and Developing the Private Sector

Center for International Private Enterprise
ECONOMICREFORM
Feature Service
Strengthening Democracy and
Developing the Private Sector:
Seven Years of Reform in Montenegro
Interview with Petar Ivanovic, Ph.D.
Vice President, Montenegro Business Alliance (MBA)
and Ralph Marlatt, CAE
Project Manager, CIPE Montenegro
®
February 28, 2006
Following the fall of the Milosevic regime, the government of Montenegro was presented with
the opportunity to become an example of stability and growth in the Balkans. While restricted
by short-term political uncertainty as it redefined its relationship with Serbia, Montenegro
began moving ahead with crucial elements of its reform program targeted at stabilizing its
economy and preparing for regional and international trade and competition.
Beginning in the late 1990s, two private sector organizations emerged in Montenegro as an
important part of this process of developing a private sector-based economy and strengthening
democratic participatory mechanisms. The Center for Entrepreneurship and Economic
Development (CEED) was established to build awareness of the benefits of economic freedom
and free entrepreneurship in an open and democratic society. Working with CIPE and the
local business community, CEED also helped establish the Montenegro Business Alliance
(MBA), which became Montenegro’s most powerful independent voice for business. CEED
was recently recognized by Atlas Research Economic Foundation for its hard work and
accomplishments through a 2005 Templeton Freedom Award Grant for Institute Excellence
and was awarded second place in the Free Market Solutions to Poverty category for its
“Removing the Barriers to Doing Business in Montenegro” program
On February 15, 2006, CIPE officially closed its Montenegro office and ended its current
programs with MBA and CEED. After the closing ceremony, CIPE interviewed Project
Manager Ralph Marlatt and Vice President of MBA Dr. Petar Ivanovic to highlight the
program successes achieved over the past seven years.
published by the
Center for International Private Enterprise
an affiliate of the U.S. Chamber of Commerce
1155 Fifteenth Street NW • Suite 700 • Washington, DC 20005 • USA
ph: (202) 721-9200 • web: www.cipe.org • e-mail: cipe@cipe.org

Center for International Private Enterprise
Strengthening Democracy and Developing the Private Sector
Introduction
During the 1990s, the Republic of Montenegro
struggled to establish itself as an outpost of economic
reform and democratic development in the Federal
Republic of Yugoslavia. Faced with economic and
political opposition from the Belgrade regime of
Slobodan Milosevic, the tiny republic has been
struggling to develop its own institutions in an
attempt to insulate itself from the disastrous effects
of Milosevic’s isolationist and self-serving rule. A key
element of Montenegrin President Milo Djukanovic’s
government’s strategy to strengthen Montenegro’s
economy and survive the difficult relationship with
Serbia was to develop robust economic institutions and
effect hard-hitting reforms to strengthen the private
sector. The importance of private sector ownership and
control of the economy, as well as the need to create
sound independent financial institutions around which
such an economy could flourish, were the priorities
upon which the government developed its program of
reforms.
Following the fall of the Milosevic regime, the
government of Montenegro faced a new era of stability
and growth. While restricted by short-term political
uncertainty as it redefined its relationship with Serbia,
Montenegro began moving ahead with crucial elements
of its reform program targeted at stabilizing its economy
and preparing for regional and international trade and
competition.
Beginning in the late 1990s, two private sector
organizations emerged as an important part of
this process of developing a private sector-based
economy and strengthening democratic participatory
mechanisms. The Center for Entrepreneurship and
Economic Development (CEED) was established by two
Economics professors of the University of Podgorica to
help entrepreneurs in Montenegro achieve a standard of
excellence in every aspect of business. CEED developed
programs, projects, and activities that promoted and
practically implemented the ideas of a free market,
entrepreneurship, and private ownership in an open
and democratic society based on the rule of law. CEED
was established to educate individuals about the tools of
a market economy and private sector and to place these
individuals within private sector institutions where
they could put those tools to work (such as business
associations) and build solid organizations capable of
responding to the market needs of Montenegro.
Working with CIPE and the local business
community, CEED also helped establish the
Montenegro Business Alliance (MBA), which became
Montenegro’s most powerful independent voice for
business, advocating for market reforms and private
sector growth. On February 15, 2006, CIPE officially
closed its Montenegro office and ended its current
programs with MBA and CEED. After the closing
ceremony, CIPE interviewed Project Manager Ralph
Marlatt and Vice President of MBA Dr. Petar Ivanovic
to highlight the program successes achieved over the
past seven years.
Interview with Dr. Ivanovic and Mr. Marlatt
CIPE: How would you describe the state of affairs in
Montenegro when CIPE first opened an office there in
1999 What were the major challenges faced by the
business community
Dr. Ivanovic and Mr. Marlatt: Back in 1999, more
than 60% of the Montenegrin economy operated
in the informal sector. The Chamber of Economy
of Montenegro was the single voice of business,
and it represented mainly the large state-owned
companies. What Montenegro really lacked was
business associations that would represent small- and
medium-sized companies. Further, freedom of the
press was lacking. The media outlets were all stateowned,
and it was hard to get reporters to concentrate
on business issues and cover economic problems of the
country on a consistent basis. Moreover, even if they
wanted to cover business and economic issues, many
journalists did not have adequate training to do so. The
government tended towards a centralized model, and
while privatization process was in full swing, there was
no effort to privatize large state-owned companies.
On the ground, it was difficult to operate a legitimate
business, because there was no legal framework in
place. The enforcement of laws was weak, and one of
the biggest problems faced by the private sector was the
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Strengthening Democracy and Developing the Private Sector
Center for International Private Enterprise
selective application of tax legislation. Some taxes were
severely prohibitive; for example, there was a 100%
wage tax in place. There was little trust in the banking
system, which was in disarray at the time.
Most importantly, there was no working partnership
between the business community on one hand and the
government of Montenegro on the other. This lack of
cooperation between the two sides resulted in inefficient
legislation and poor implementation of new laws. The
outlook for the future was not very bright.
CIPE: What would you say about the economic
environment and the state of democratic development
today, seven years later What are the major
improvements
Dr. Ivanovic and Mr. Marlatt: Starting in 1999, the
government of Montenegro introduced a comprehensive
program of economic reforms. The program has
had its ups and downs, running into difficulties due
to inconsistent political commitment to reforms.
Nevertheless, the economic environment has improved
today, mainly because major privatization activities are
now completed. A legal framework is in place, which
includes the Securities Law, the Enterprise Law, and
the Accounting Law; tax reform has been successfully
carried out. Businesspeople have more confidence
in the banking and securities system now that major
banking reform has taken place.
There has been a reduction in the size of the informal
sector and procedures for business registration and
operation are now transparent and known in advance.
Thanks to the ECO Press Club founded by the Center
for Entrepreneurship and Economic Development
(CEED), more economic reporters are now able to
give a balanced view of economic news and business
matters. As a direct result of the ECO Press Club, the
major newspapers in Montenegro now have at least one
page or even a regular weekly appendix dedicated to
business and financial news.
Since the MBA was established in September 2001,
there has been visible growth in business participation
in policymaking and, more importantly, we are seeing
positive results of that participation for both the
government and the private sector. For example, new
laws that were drafted in cooperation with the private
sector are now implemented with greater ease. Though
modest, tax reduction is taking place, and it is building
trust between the government and the business
community. Taxes on labor have been reduced by 10%
and the corporate tax was reduced to 9%, which is the
lowest rate in Europe. In general, the most important
improvement is related to the increased overall trust
in the business environment in Montenegro, which
is becoming more stable and more predictable. As a
result, over 1,300 foreign firms are doing business in
Montenegro today.
CIPE: The “National Business Agenda” produced by
the Montenegro Business Alliance (MBA) has become
quite a success. Can you describe the major aspects of
the business agenda How has it helped the business
community
Dr. Ivanovic and Mr. Marlatt: The National Business
Agenda (NBA) produced by the MBA has been a
major force for change in the business community.
The business agenda is a grassroots document that
was developed with the input of the members of the
Alliance. The process is as follows: first, a questionnaire
is distributed at the Annual Assembly Meeting in
September. The responses are tabulated and given to
CEED for further analysis. Once major issues facing
the business community are identified, polls are taken
to broaden the agenda, and follow-up questions are
distributed to explore issues of concern in more detail.
CEED reports its findings to the MBA through the
Education and Research Committee. The committee
reviews the findings and submits final recommendations
to the MBA Board of Directors. The board members
debate the issues and make suggestions regarding
modifications in the policy issues that have surfaced.
After receiving the board’s approval, the National
Business Agenda is submitted to the MBA members
for comment. The board votes on a final version of
the Agenda, and it is submitted to the members at the
winter board meeting the following year.
The National Business Agenda consists of 7 broad
challenges that are submitted to MBA commissions
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Center for International Private Enterprise
Strengthening Democracy and Developing the Private Sector
and special interest groups to develop specific action
that will be taken by the MBA to implement the NBA.
Agendas have been produced by the MBA in 2003,
2004, and 2005, and one is currently being prepared
for 2006.
This whole process is very important because it
involves as many members as possible and effectively
shapes the main challenges facing the private sector.
Actually, this is the best way to avoid any disagreements
or potential conflicts between the members about the
importance of different issues or problems that need to
be resolved.
The National Business Agenda has been a major
help to the business community. The first NBA was
published in 2003, and the government of Montenegro
made sections of the Agenda a part of its economic
reform package. The NBA has addressed the company
registration and licensing laws, wage tax and corporate
tax reform, and the privatization of the energy sector to
allow small business owners to provide electric power in
rural areas. The issues dealing with the gray economy
have been addressed, as well as the reduction of red
tape. The Agenda promotes improving the conditions
for doing business in the tourism and wood-processing
sectors. The Agenda has also supported improvement
in the area of customs laws with the intention of
increase competition.
If one were to take a look at the business environment
in Montenegro today, it would be impossible to fail to
see the many significant improvements. For example,
today Montenegro is recognized as a champion in the
region for business registration. You can register your
firm in Montenegro within four working days by
submitting no more than three documents (all available
on the government the web site) and with a founding
capital of one euro. The next challenge, which we have
already begun to address, is implementing a mechanism
for on-line business registration.
CIPE: What impact has the business agenda process
had on democratic institutions in the country, mainly
on the relationship between the business community
and the government of Montenegro
Dr. Ivanovic and Mr. Marlatt: As a direct result of
the National Business Agenda a Memorandum of
Understanding (MoU) was signed by the Parliament
and the MBA, allowing MBA staff and members to
testify on issues of concern to the business community
before MPs. As a follow-up, the Organization for
Security and Co-operation in Europe (OSCE) recently
signed an MoU with the MBA under which the MBA
will have one staff member present on a daily basis in
the Parliament, explaining to MPs the importance and
purpose of the laws submitted for adoption.
Several public-private partnerships have been
formed whereby the MBA and the business community
work together with government to initiate legislation.
Examples of these partnerships include the Council
on Economic Freedom and the agreement between
the MBA and the Ministry of Finance to meet on a
regular basis to discuss the business community’s issues
of concern. Because of the NBA, the MBA now works
directly with the Tax Ministry to resolve problems with
the tax police. A Labor-Government Task Force was
also formed.
CIPE: How has MBA improved during its nearly five
years of existence What have been the major internal
(organizational) improvements What kind of impact
did it have on membership
Dr. Ivanovic and Mr. Marlatt: The MBA was organized
by 10 founding members in September 2001. The
north and south of Montenegro were represented, and
members of all major religions – including Orthodox,
Muslim, Catholic, and Jews – were present on the
original board of directors. With a dedicated and welltrained
staff, the MBA began to grow. It took a crossborder
business-to-business trip to Kosovo in April
2002 to bring the membership together and begin
to trust one another. On that six-hour bus ride, the
businesspeople began to talk with one another, and
they realized that they had similar problems. As a result
of that trip to Kosovo, more than one million euros in
deals were signed, and those in attendance told others
about its success.
Over the years, MBA staff began organizing special
interest groups and initiatives on specific business-related
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Strengthening Democracy and Developing the Private Sector
Center for International Private Enterprise
Box 1. Policy Accomplishments of the MBA
The MBA and CEED are leaders in promoting advocacy and in advocating issues crucial to Montenegro’s
economic development. Their method of work was most often to explain the economic logic underlying the
new laws and find creative means to bring about less expensive and shorter, more user-friendly means of doing
business. The following are a set of laws central to Montenegro’s economic development on which CEED and
the MBA worked extensively throughout this 7-year period:
• Securities Papers Law (passed in November 2000): Based on this law, there are now two stock exchanges
and six brokerage houses in Montenegro.
• Corporate Profit Tax Law (passed in December 2001, and amendments to the law passed in 2004): The
final result is that now in Montenegro there is a flat 9% corporate tax - the lowest in Europe.
• The Enterprise Law (passed in January 2002): Under this law, it now takes four days and one euro to
register a firm, while previously it took up to 5,000 euros and more than 45 working days. The new law
treats entrepreneurs as legal subjects; as a result today over 15,000 entrepreneurs and 13,000 other legal
subjects have registered. The MBA and CEED helped over 4,000 companies register free of charge.
• Accounting Law (passed in January 2002): This new law adopted international accounting standards
(IAS). MBA also received a seat on the Institute of Accounting and Auditing board of directors.
• Bankruptcy Law (passed in January 2002): The impact of this law is that it simplified the procedure for
declaring bankruptcy and reduced the costs to all concerned.
• Private Sector Participation in Delivering Public Services (passed in May 2002): Under this law, the
private sector was allowed to deliver services and participate in works that had previously been the sole
prerogative of the state government and municipalities (such as public transportation, for example).
• Customs Law (passed in December 2002): The CEED/MBA draft law was turned down because they
proposed a reduction in the customs rate.
• Energy Law (passed in May 2003): The main CEED and MBA contribution to this very technical law
was to include the possibility for private sector investment in small hydro plants - an option that was not
possible under the old energy law. As a result, because of the new law two companies have invested their
capital in this field.
• Accounting Law (passed in December 2005): After a strong advocacy campaign, amendments to
the Accounting Law were passed. In addition to bringing the law into compliance with international
accounting standards, it provided for no exemptions from test requirements to become an auditor.
• Licensing Law (passed in December of 2005): The purpose of this draft law is to simplify the registration
procedure at the local level. The MBA will continue to work on strengthening this law throughout 2006.
• Labor Law: MBA will continue to seek labor law reform in 2006.
• Concession Law; Property Rights Law; Communal Tax Law: MBA is a member of the Council on
Economic Freedom. This group meets regularly to discuss a strategy to ensure that these laws are adopted.
This public/private partnership of business and government representatives will pursue passage of these
laws in 2006.
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Center for International Private Enterprise
Strengthening Democracy and Developing the Private Sector
issues and, as a result, more members became active in
the Alliance’s programs. The MBA offices that were
opened in Kotor, Ulcinj, Bar, Herceg Novi, and Niksic
mobilized the business community in those parts of
Montenegro. The staff became more sophisticated with
direct advocacy and began to contact the Parliament,
Ministries, and senior government officials on a regular
basis. The staff engaged the electronic and print media
at every opportunity, and membership grew because of
the publicity that the MBA was receiving. The MBA
has become known as an action-oriented organization
that knows how to get things done. All major foreign
companies operating in Montenegro are now members
of the MBA, along with the major Montenegrin firms.
At the present time, the MBA has over 450 dues-paying
members.
The MBA’s “Business Directory” (membership
directory) is fully supported by ads placed in the
publication. Another MBA publication, “ContactInfo,”
lists all the MPs and ministers as well as other associations
and the media that could be of interest to people doing
business in the region. These publications are widely
used by MBA members, as well as the newsletter MBA
Business Insider, and the annual report.
The board meets on a regular basis and the general
assembly meets twice a year. Election of the board is
open and transparent; after a nominating process, the
list of candidates is submitted to the members, and a
secret ballot is taken at the September assembly meeting.
Once the board is elected, it meets to elect a president
and vice president, and votes to select an executive
director. This strong organization and transparency
continues to attract new members and retain current
ones.
CIPE: What are the next steps for the MBA
Dr. Ivanovic and Mr. Marlatt: The MBA will continue
to play a major role in uniting the business community
at both the national and local levels. Through specific
initiatives, MBA commissions and special interest
groups will mobilize more active members. The MBA
will work on issues at the local level through satellite
offices and sister associations. The two main goals
of the MBA are to have members representing 1,000
respected private companies by 2010 and to change the
law to allow the formation of business associations and
private chambers of commerce to be organized.
The MBA will work more closely with surrounding
countries to develop cross-border trade through
business-to-business conferences. The MBA will
work with similar organizations in the Balkan region
to initiate a free-trade zone in the Balkans, and change
the tax and tariff laws in Montenegro and surrounding
countries, which will lead to a Balkan trading block.
CIPE: Can you talk about the model of business
consulting services of CEED How did you get it
started What were the main challenges What kind of
services do you provide
Dr. Ivanovic and Mr. Marlatt: The rationale for
establishing CEED was to fill the gap in knowledge
required by pioneering entrepreneurs who emerged
after the break-up of the former Yugoslavia. It quickly
became evident that most of these entrepreneurs required
practical and tailor-made training to facilitate their
business start-up and expansion. CEED has rapidly
established itself as the core center for entrepreneurship
training in Montenegro. The first seminars offered
solutions to the following issues: how to start a business;
how to prepare business plan; how to acquire financing
for SMEs; how to follow proper accounting procedures
in an SME; and how to use the Internet effectively in
business. Today, after more than 10 years, CEED is
offering a wide range of services and is cooperating
with a large number of international institutions within
its program activities. With more then 200 clients
in Montenegro and relationships with international
organizations, the Center for Entrepreneurship and
Economic Development has developed a reputation as
a reliable partner.
The main challenge was to build a trusting
relationship with clients and persuade them that
outside consultancy can be helpful for the development
of their business’ growth and direction. CEED did
this by sharing the risks with its clients: minimal fixed
costs and a “success fee” charged once when the job was
completed were rather attractive. Also, CEED proved
to have a team of young and dedicated bright people
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Strengthening Democracy and Developing the Private Sector
Center for International Private Enterprise
Box 2. Approaches to Reform in
Montenegro: Lessons Learned
Step 1: Develop human capital (raise the next
generation of reform leaders)
Step 2: Create a National Business Agenda and
institutionalize advocacy as means of
an open reform process and building a
better environment for doing business
Step 3: CEED as business services provider to
firms
Step 4: Become a “go to” group in Montenegro
~ John D. Sullivan, CIPE Executive Director,
remarks at the February 15th event in Montenegro
responsive to their client’s immediate needs. Also,
cultivating strategic partnerships rather than taking on
one-time-jobs is CEED’s main recommendation for
success.
Gradually, CEED became a qualified organization
capable of performing different tasks, such as:
development of business plans and feasibility studies,
company presentations, investors prospectus,
financial restructuring, organizational restructuring,
marketing plans, market research surveys, due diligence
performance, strategic plans, investment plans,
bankruptcy reorganization plans, and general plans for
presentation to financial institutions.
CIPE: What about research on and analysis of businessrelated
issues What have been CEED’s major products
in that area What is the impact
Dr. Ivanovic and Mr. Marlatt: CEED divided its
activities into two parts: (i) consulting with the aim to
insure sustainability of the organization and (ii) research
and advocacy with the aim to have an influence on the
reform and improvement of the business environment.
In 2000, CEED started to produce its report titled
Barriers to Doing Business in Montenegro; it was
immediately recognized as powerful tool not only for
identifying the problems, but for offering alternatives
in the search for solutions. Over time this study
became both a monitoring tool (meaning to register ex
post what was changed) and a very atypical guide for ex
ante activities in order to remove some of the barriers.
As a result, many barriers (such as high customs,
complicated procedures, costly business registration,
etc.) were removed. Also, by promoting the most
successful firms in Montenegro through the rating lists,
CEED managed to have an influence on the adoption
of higher business standards.
In general, through its research and advocacy
activities, CEED helped to build awareness of the
benefits of economic freedom and free entrepreneurship
in Montenegro. After all, CEED’s overall success in
contributing to the public’s understanding of how
to build a free society was recently recognized by
Atlas Research Economic Foundation: CEED won a
2005 Templeton Freedom Award Grant for Institute
Excellence and second place in the Free Market
Solutions to Poverty for its “Removing the Barriers to
Doing Business in Montenegro” program.
CIPE: What can other countries take away from the
MBA’s and CEED’s experience in strengthening
participatory (democratic) mechanisms and promoting
economic reform in Montenegro
Dr. Ivanovic and Mr. Marlatt: Other countries can learn
that it is necessary to take “baby steps” at first. They
can learn that in a democracy, citizens have the right
to criticize the government, but it is more constructive
to offer an alternative solution along with the critique.
Business organizations should partner with think tanks
in order to develop substantive goals and strategic plans
to improve the business environment. This type of
active participation will get business people involved in
the decision-making process. They should engaged in
cross-border business-to-business trade forums. One
of the most important lessons businesspeople and
policymakers can learn from Montenegro is to set an
achievable business policy agenda with a strategy for
implementation to effect change.
Businesspeople can only accomplish these things
if they have a firm belief that it is possible to achieve
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Center for International Private Enterprise
Strengthening Democracy and Developing the Private Sector
reform. It is necessary for businessmen and women
to have an optimistic outlook. If they believe things
will improve, they will improve. They can learn
from Montenegro that it is important to understand
globalization – no country today can operate in a
vacuum.
The Montenegro Business Alliance has become
known as the private chamber of commerce in
Montenegro and was the first umbrella association
organized there. Other business associations have also
been established at the national and local levels. There is
a greater trust among businesspeople and a willingness
to work with the government.
Being specific, focused, proactive, and at the same
time being well connected to the major think tanks,
capable intellectuals, and those that are creating future
leaders - that is the secret of MBA success.
__________________________________________
Dr. Petar Ivanovic is the Director of the Montenegrin
Investment Promotion Agency (MIPA), the Vice President
of the Montenegro Business Alliance (MBA), and a professor
at the School of Economics in Podgorica. He is one of the
founders of the MBA, which is the first private chamber
of commerce in Montenegro. He has managed over 10
international projects, including projects in Afghanistan
and Kosovo, and he has managed over 50 different projects
and surveys in Montenegro.
In 1994, together with Professor Veselin Vukotic, Dr.
Ivanovic founded the Center for Entrepreneurship and
Economic Development – CEED. He also cooperated
with Dr. Vukotic to found the Institute for Strategic Studies
and Prognoses (ISSP) in 1998 and the Center for Applied
Research and Analysis (CARA). He has over 21 years of
experience in the private sector, including work as CEO
of Economic Reform Network, which consists of three
abovementioned organizations.
In addition, Dr. Ivanovic was one of the founders of
the Group 17, which was established to support student
protests in Serbia against the Milosevic regime. He has
published two books, one textbook, and over 75 articles in
Yugoslavia and abroad.
Ralph Marlatt, CAE served as the Project Manager of
CIPE’s Montenegro office from 1999-2006. During his
tenure, the Montenegro Office worked with the Center for
Entrepreneurship and Economic Development (CEED)
and the Montenegro Business Alliance (MBA) to build the
capacity of the private sector.
Mr. Marlatt is currently President of RJM Consultants,
an international management and marketing company.
With a combined background in the public, private, and
non-profit sectors, he founded RJM Consultants, to provide
leadership training, strategic planning, Board development,
and niche marketing of high quality financial and
specialty products. His company provides international
management consulting and marketing services designed to
grow associations and businesses globally.
He is a frequent speaker on association management
and leadership issues as well as an instructor at the Center
for International Private Enterprise (CIPE), and the
Institute for Organization Management. He has also served
as Executive Vice President of Olson Management Group,
Inc. and President and CEO of the Insurance Federation
of Minnesota.
The views expressed by the author are his own and do not
necessarily represent the views of the Center for International
Private Enterprise. The Center for International Private
Enterprise grants permission to reprint, translate, and/or
publish original articles from its Economic Reform Feature
Service provided that (1) proper attribution is given to
the original author and to CIPE and (2) CIPE is notified
where the article is placed and a copy is provided to CIPE’s
Washington office via mail, e-mail, or fax.
The Center for International Private Enterprise is a
non-profit affiliate of the U.S. Chamber of Commerce and
one of the four core institutes of the National Endowment
for Democracy. CIPE has supported more than 800 local
initiatives in over 90 developing countries, involving the
private sector in policy advocacy and institutional reform,
improving governance, and building understanding of
market-based democratic systems. CIPE programs are
also supported through the United States Agency for
International Development.
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