Conclusions and Recommendations from the Conference: "Montenegro’s Legal Framework, Foreign Investment and the Country’s Strategic Goals"

CONCLUSIONS AND RECOMMENDATIONS

Balancing Investment and National Interest

• Montenegro requires foreign direct investment (FDI); however, even in the case of large-scale projects, the state must first and foremost safeguard its vital interests and long-term strategic objectives.

Investment Outcomes Since Independence

• Since regaining independence in 2006, Montenegro has attracted approximately 15 billion euros in FDI. Despite the scale of these inflows, they have not significantly contributed to economic diversification or the creation of added value. This is largely because the majority of investments have been concentrated in the real estate sector rather than in industry, agriculture, innovation, or knowledge-based activities.

Need for Development-Oriented Investments

• Montenegro needs development-oriented investments that foster sustainable economic growth. Long-term development depends primarily on investments in technology and knowledge, areas that have so far received insufficient attention. Investment in real estate, particularly in residential construction, tends to yield substantial profits for investors but contributes little to generating new value or advancing the country’s broader development goals.

Limited EU Investment and Structural Challenges

• Most FDI inflows have originated from countries outside the European Union (EU), which do not share Montenegro’s strategic foreign policy priorities. One possible explanation for the relatively low level of investment from EU member states is the perceived uncertainty of the business environment, characterized by frequent regulatory changes, corruption, and persistent weaknesses in the rule of law.

Risks from Offshore and Non-Transparent Capital

• A notable share of FDI has also come from offshore jurisdictions and tax havens, raising concerns that some companies registered in those territories may have been used for money laundering purposes, including the laundering of capital originating from domestic business, political, or criminal networks.

Focus on Investment Quality Over Origin

• The origin of investment is ultimately less important than its destination, specifically, the sectors in which funds are deployed. It is also less important whether the process is transparent and aligned with the country’s key national priorities.

Bilateral Treaties and Investment Soundness

• Bilateral investment treaties (BITs) that Montenegro has concluded with various countries do not necessarily ensure the influx of sound or productive investments. Such agreements and foreign investments must not compromise the fundamental principles of fair competition and equal opportunity, which are essential to a healthy economy and sustainable development.

• In many cases, bilateral investment treaties afford greater protection to foreign investors than to the host state, granting investors the right to initiate arbitration proceedings against the government.

Risks from the UAE and Most-Favoured-Nation Clauses

• The agreements signed with the United Arab Emirates (UAE) could have potentially adverse consequences, not only because of the preferential treatment granted to investors from that country, but also due to the implications of the “most-favoured-nation” clauses contained in treaties Montenegro has concluded with other countries, such as the Netherlands and Serbia. These provisions could allow investors from those states to demand the same privileges as those extended to UAE investors. Should such claims be denied, they could pursue arbitration, exposing Montenegro to potentially significant financial liabilities.

Expert Oversight of Treaty Negotiations

• To effectively protect Montenegro’s national interests in bilateral investment treaties, greater attention must be devoted to their preparation, negotiation, and content, with the active involvement of qualified experts.

Modern Clauses for State Protection

• All bilateral agreements signed by Montenegro should reflect contemporary international practice and include a regulatory power clause, which affirms the state’s sovereign right to adopt measures and enact regulations in the public interest, such as for the protection of public health, the environment, or cultural heritage, without incurring liability for potential losses investors may claim as a result. Additionally, agreements should incorporate a denial of benefits clause to prevent abuses such as treaty shopping by companies seeking to exploit loopholes in investment treaties.

Introducing an Investment Public Interest Filter

• An “investment public interest filter” should also be introduced. For every project exceeding a defined investment threshold, a standardized cost-benefit analysis should be conducted to assess its overall impact on GDP, exports, productivity, technological advancement, engagement of local suppliers, creation of quality jobs, public revenues, and crucially, its environmental and spatial effects.

Mandatory Independent Legal Review

• To prevent potential abuses, Montenegro should establish a system of mandatory and independent legal review before signing any contract related to state assets, land, construction rights, concessions, or other long-term obligations. A robust system of legal oversight not only protects public administration but also safeguards the interests of citizens.

Full Transparency of Investment Agreements

• When concluding bilateral agreements or contracts with foreign investors, full transparency must be guaranteed. A comprehensive public register should be established containing all contracts, annexes, subcontracts, forms of state aid, and fiscal incentives, which should be readily accessible to the public.

Institutional Balance and Oversight

• An institutional balance must also be maintained throughout the investment process. Regardless of whether a ministry, agency, or commission leads the process, there must be a clearly mandated oversight body with well-defined powers that includes independent experts.

Transparency as a Safeguard, Not an Obstacle

• Transparency does not hinder investments; on the contrary, it protects them from reputational risks and ensures a level playing field for all investors.

Projects Must Be Subject to the Highest Standards of Environmental and Social  Impact Assessment

• Projects that may affect the environment or cultural heritage must be subject to the highest standards of environmental and social impact assessment, including genuine public consultations with realistic timelines, expert evaluation bodies, and a clear obligation to either accommodate or transparently justify the rejection of public comments.

Local Content and Knowledge Transfer Requirements

• Strategic investment projects should also contain a strong local content component, including minimum participation requirements for domestic suppliers and the local workforce, as well as plans for training, knowledge transfer, and incentives for the reinvestment of profits within Montenegro.

Promoting Regional Investment Balance

• Equally important is the need to ensure regional balance in attracting FDI. This can be achieved through targeted incentives for investments in the northern and other less developed regions, as well as preferential treatment for investors who utilize domestic raw materials, invest in research and innovation, develop processing capacities, create stable employment, and preserve natural resources.

Strengthening Domestic Institutions

• Montenegro must also strengthen its domestic institutions, particularly the Agency for Foreign Investments, to ensure that foreign direct investments generate the greatest possible benefit for the country and its citizens.

Alignment with EU Standards and Practices

• Finally, all FDI should be fully aligned with EU standards and principles. If Montenegro’s strategic goal remains accession to the European Union, then the rules on state aid, competition, public procurement, and the EU’s green taxonomy must be integral components of every major investment project. This alignment would send a clear signal to reputable international investors that Montenegro operates under the same standards and principles as EU member states, ensuring predictability, fairness, and long-term sustainability.