Rebooting Montenegro’s IT Industry

IDC Adriatics recently published a press release, Montenegro’s IT Market Contracts in 2010, Foreign Direct Investment and EU Funds Remain Key Drivers, According to IDC. The press release points out that the IT (Information Technology) industry in Montenegro shrank 10.6% last year.

Atila Madai, IDC’s country manager in Serbia, stated “Montenegro’s modest economic recovery from the financial crisis was not robust enough to put the IT market back on a positive path. In the next two years, until the local economy fully recovers, Montenegro’s IT market will have to rely on EU funding and FDI.”

Mr. Madai may be understating the case.  The Gartner Group expects global IT spending to rise 5.6% this year, due to tablet sales.  Items like tablets are not good sellers in Montenegro because they are mostly used as luxury goods.  Personal and family spending on IT should be expected to stay low, not for two years, but for as long as disposable income levels stay relatively low in Montenegro.  This is not a cyclical economic phenomena, improvement will only occur if the Montenegrin government makes progress towards allowing the economy to improve.

The EU cannot be seen as a sustainable source of funding.  The European Union will slow and eventually stop economic aid to Montenegro as we continue to progress along the path to full membership in the community.  Portugal, Italy, Greece, and Spain have drained the more advanced EU nations of both funds and patience.

FDI (Foreign Direct Investment) is going to have to provide the necessary capital (remember the capital in capitalism?) for economic growth in Montenegro.  This growth will build new firms, which will need new IT systems.  It will expand existing firms, forcing them to upgrade and expand their IT systems.  It will also increase employment and wages, which will increase disposal income for individuals and families.

Like economic recovery, FDI doesn’t just happen.  Businesses and investors choose where to invest based upon where they believe they can receive the highest rate of return at the lowest risk.  Montenegro performs well by that metric, but small improvements could yield large results in attracting FDI.

The World Bank’s Doing Business rankings provide an excellent set of metrics for judging how attractive a nation is to foreign investors.  The World Bank ranks each of the world’s 183 nations by nine criteria:

  • Starting a Business: 51
  • Dealing with Construction Permits: 161
  • Registering Property: 116
  • Getting Credit: 32
  • Protecting Investors: 28
  • Paying Taxes: 139
  • Trading Across Borders: 34
  • Enforcing Contracts: 135
  • Closing a Business: 47

When all of these are added up, Montenegro ranks as the 66th best place to do business in the world.  Ranking 66 out of 183 will get you through school, but doesn’t even put you in the top third of your class.  We must do better.

The easiest way to do better is to reduce government bureaucracy.  Reducing the number of steps required to pay taxes, receive a construction permit, or register property will make Montenegrin business far more efficient.  This drives costs down and profits up — making Montenegro far more attractive to investors.  These improvements will yield greater results with less cost than, for example, the judicial investments and reforms which are necessary to improve our score of 135 for “Enforcing Contracts.”

If we make Montenegro an attractive destination for FDI, we will receive more FDI.  This FDI will power Montenegrin businesses, and the business from which they buy goods and services — including IT.  It will increase employment, which will increase competition for human resources, which will increase wages.  It will also decrease the cost of government, because fewer bureaucratic approvals require fewer bureaucratic staff.  The American Phoenix Center  released a report recently which showed that, ”On average, eliminating the job of a single regulator grows the American economy by $6.2 million and 98 private sector jobs annually.”  Montenegro would do well to learn a lesson with which even the United States is struggling.

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