Economic Impact Assesment

Podgorica, November 30, 2020 - The pandemic continues to affect the Montenegrin economy. The UNDP report “Assessment of the Impact of COVID-19 on the Business Sector and the Growth Prospects of the Montenegrin Economy” depicts impact the pandemic has had on Montenegrin enterprises in May and compares it with the situation of the business sector in September 2020. This comparison allows to gauge direction and scale of the impact, as well as its evolving nature and challenges faced by Montenegro’s business sector.

The Assessment also highlights opportunities and develops recommendations - placing green transition and digital transformation at the core of the post-COVID-19 economic recovery.

UNDP Resident Representative, Daniela Gasparikova said that ‘’The Assessment can be used to inform Montenegro’s roadmap towards achieving a successful recovery and twin transition to green & digital economy in Montenegro. Well-managed and inclusive transition to a low carbon future needs to build on strong MSMEs and ambitious reform programs for creating an economic environment based on smart specialization and innovation. This way, we will make the country more resilient to future crises and ensure the protection of the most vulnerable populations’’, Gasparikova concluded.

The MSMEs concentrated in the tourism-related industries, such as transportation, restaurants and accommodation, the sectors hardest hit by the COVID-19 pandemic, are struggling with significant drops in revenue, caused by decreased demand.

Almost 80% of small businesses experienced a strong negative impact from the pandemic, with 29% of companies stating in May that they either cannot meet any of their liabilities or can settle no more than 25% of such liabilities, as compared to 22% in September. As shown in the survey carried out in May, more than half of companies have over 75% lower sales compared to the same period a year ago, while four out of 10 companies have had a 100% reduction in sales. Losses of over 75% are mostly reported in service-oriented businesses. The survey conducted in September showed a persistently high share of companies recording a drop in sales by 25% for 18% of companies and a 50% decline in sales for 41% of them. In May, 31% of companies estimated that they cannot sustain their operations for another four weeks, and 38% stated a period from one month to three months.

Slightly better expectations were recorded in September when 9% of companies stated that they could maintain their business for another 4 weeks, while almost 1/3 of companies have confirmed that they can operate for up to three months.

Dr Igor Lukšić, Lead Author of the Assessment said that ‘’The consequences of the crisis on the MSMEs sector are very deep, so we focused our efforts to try to identify the corridors of long-term recovery and development in the wake of decarbonization and green transition. The recommendations are diverse and compatible with the Green Agenda for the Western Balkans recently endorsed in Sofia - although they have been developed entirely independently’’, Lukšić concluded.

Reduced demand caused by the lockdown and the collection of receivables were the biggest and the most significant challenges that Montenegrin companies have been facing during the COVID-19 pandemic. While in May over two-thirds of the companies expected that in the next three months their revenues would decrease compared to the same period in 2019, that share in September was close to 80%. Also, in May, 34% believed that investments will reduce and 7% of companies expected full-time employees to lose that status, while in September as many as 50% of companies expect a reduction in investments, and 16% expect a reduction in the number of full-time employees.

The COVID-19 pandemic has made investing in digital technology more urgent since more than half (65%) of companies are missing out on digital marketing opportunities and do not use digital platforms to increase sales. The Assessment shows that 89% of companies in Montenegro do not invest in new technology or digital solutions, with only 2/5 of companies using the internet and social media platforms for business, and another 1/3 of them using social networking for marketing.

Working women are experiencing the worst effects of the pandemic in Montenegro and are more likely to be grappling with financial difficulties. Two out of five women are having difficulty covering basic expenses such as rent and utility bills, and 38% of them are faced with the reduced financial capacity to cover basic living costs like food or hygiene supplies. Nearly 20% of women asked friends and family for financial support to get by. Loss of work and increased care responsibilities at home threaten women’s economic security, while slightly under 25% of them had salary cuts.

Companies facing hardship as a result of the COVID-19 outbreak expect additional measures from the Government to prop up economy – the research in September shows that 53% expect interest-free loans with favourable grace periods, 45% hope for a VAT rate reduction, 43% of companies would like to see a reduction of payroll taxes, while 38% hope for wage subsidies. It should be emphasized that during the first wave of the pandemic, companies' expectations were somewhat different, so most of them expected wage subsidies (47%), fiscal exemptions or restrictions (27%) and access to new credit (26%).

The Assessment provides a set of recommendations to be considered for future action – where investments in green initiatives and digital transformation should form the backbone of the recovery. Innovation investments should be prioritized and directed at helping to rebuild for long-term resilience not choose between economic recovery and the environment. Practical measures should be considered to involve women, young people and vulnerable groups to design inclusive and fair recovery and ensure employment programmes with the focus on environmental sustainability. Additional administrative barriers should be removed to reduce the extent of the informal economy and streamline new innovative approaches to green and inclusive growth. 

Investing in green and inclusive recovery is a win-win strategy that will step up the transition to a low-emissions economy, and leverage funding to go into digital investments.

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