Recession’s over – Now what?

It’s official: Montenegro has defeated the recession. Third-quarter 2010 data shows that GDP has stopped contracting. We therefore have good reason for optimism, yet much work lies ahead. So let’s spend a minute on what Montenegro has been through last two years, and another on what comes next.

Since we economists love to condense long and complex stories into simple graphs, I put together the following illustration on real GDP for Balkan countries based on data from the latest IMF report (2006 = 100%).

This sketch illustrates the two-faced nature of growth: Montenegro soared high during its post-independence boom, then fell back to earth after the financial crisis crossed our borders.

What shapes this balance? The forces include competitiveness and a stable business environment, along with a constructive attitude toward financing individuals who have good ideas. Montenegro seems to understand this rule — see the World Economic Forum’s latest Global Competitiveness Report or the World Bank’s Doing Business 2011 survey. The World Bank and the IMF have raised their projections for Montenegro’s 2010 GDP growth, bringing them in line with the Finance Ministry’s own forecasts. Montenegro successfully debuted on the Eurobond market in September 2010, which was widely considered a positive development for the entire region.

Yet Montenegro needs to overcome obstacles that hamper further development. The EU’s mantra is that corruption and crime are the primary villains, but this contradicts what many business people say: Just 8.4% of experts surveyed in the WEF’s Global Competitiveness Report cited corruption as one of the top barriers to business; by contast, 18.4% pointed to poor infrastructure and some 12% identified excessive bureaucracy and lack of trained workforce as the chief culprits.

There are other hurdles. Credit rating agencies never miss a chance to point out the threat of a structural deficit. The World Bank’s Doing Business report stresses that our regulatory systems need to be streamlined. Furthermore, there is still a lot to be done in terms of roads, energy and anything that fits the broad term “investment.”

The good news is, these investments are under way with help from businesses from all over Europe that greatly expand Montenegro’s limited spending ability. This country that now relies on imported electricity will begin harvesting clean energy from the wind and the waters. We are connecting Montenegro to Europe’s motorway system. We are modernizing our utility companies with foreign cash.

We must focus on promoting the components that will drive growth once emerging-market investment fever subsides in the West. Montenegro will someday cease to be classified as a transition economy and will have to carry its own weight. When this time comes, we want to make sure investors view our country as a place where they can avail themselves of all the scientists, engineers and skilled workers they need for their new companies. What’s more, they will be able establish a firm in a single week – and they will not consider this to be out of the ordinary.

Let’s assume this was the conclusion for today, and just add some micro-support for the positive macro data: here, here and here.