The Russian-Ukrainian conflict will have significant economic consequences for Montenegro as well, in the form of a new increase in the prices of fuel, basic foodstuffs, a decrease in foreign investments and a drop in tourist visits.
The price of oil on the international stock exchanges yesterday reached a price of 103 dollars per barrel, the highest level since September 2014, which is why fuel in Montenegro could rise again by five to seven cents per liter from Monday.
Another spike in food prices?
Ukraine is also the largest European producer and exporter of cereals and oilseeds. Regional traders of these goods told "Vijesti" that if there is an interruption or reduction in exports from Ukraine, there will be a new significant increase in the prices of grains, flour, cooking oil and animal feed on the European market. Montenegro imports most of these products from Serbia, but they are stock exchange goods and prices depend on international trends. At the global level, there is already a shortage of these products, which is why the prices were already higher by 60 to 120 percent compared to the period two years ago.
Russia is the largest investor in Montenegro
Last year, according to data from the Central Bank, Russia was the largest foreign investor in Montenegro. Companies and citizens from this country invested 164 million euros, or 18,3 percent of the total foreign direct investments of 898 million. After Russia, the biggest investors are Italy with 89 million, Switzerland with 78 and Serbia with 76 million. Investments from Ukraine were worth 11,8 million euros or 1,3 percent of the total.
Loss of 20 percent of tourists
Last year, tourists from these two countries made up about 20 percent of the tourist traffic in Montenegro. As tourism makes up about 25 percent of the total economy - gross domestic product (GDP), a drop in tourist visits for this amount would be worth four to five percent of GDP. Montenegro was visited last year by 136 guests from Ukraine, which accounted for 8,8 percent of the total number of tourists, while 108 tourists from Russia accounted for seven percent of the total number. Tourists from Russia had 1,14 million overnight stays or 12,1 percent of the total number of overnight stays, and guests from Ukraine had 871 thousand overnight stays or 9,2 percent. So guests from these two now warring countries accounted for over two million overnight stays in Montenegro last year, which is 21,3 percent of the total number. Only guests from Serbia (32,6 percent) and Bosnia and Herzegovina (12,9 percent) had more overnight stays.
The government is renewing state commodity reserves
The Government of Montenegro, by yesterday's adoption of the information on the possible formation of state commodity reserves and the proposal to amend the law on excise taxes, which enables the reduction of this fuel duty, is trying to prevent a new rise in the prices of basic foodstuffs and energy sources. In addition, the Government has provided additional supplies of food and fuel due to current events in the world, namely the Russian invasion of Ukraine. This is about supplies of food for three months, and fuel for two.
The government tasked the Ministry of Economic Development to prepare a project task for the preparation of a study on the justification of the formation of commodity reserves in Montenegro, to provide expert assistance in the preparation of the study, as well as to form a commission for the selection of consultants who, based on the project task, will conduct the study and propose a model for the formation commodity reserves.
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New commodity reserves would be formed for the first time after the abolition of the State Commodity Reserves in 2003, based on the existing Law on Intervention Procurements, which was replaced by the Law on Commodity Reserves that year. So that new commodity reserves can be formed by the Government adopting a decision and intervention procurement plan. However, in order to reduce fuel prices, it is necessary for the Assembly to vote on the proposed changes to the law on excise taxes. According to this proposal, fuel prices could be lower by 11 to 13 cents per liter.
As announced yesterday by the Government, the intervention procurement plan will contain directives, measures, types, quantity and value of goods, as well as supply carriers by municipality, and a decision declaring the existence of serious disturbances on the market will be made beforehand. Money for the formation of commodity reserves would be provided by the Ministry of Finance from budget reserves.
No more government warehouses
As stated, in the process of eventual re-formation of commodity reserves at the state level, two solutions are possible, as well as a third, which would be a combination of the two.
The first solution would refer to the formation of commodity reserves abroad, i.e. Montenegro would keep part of the basic foodstuffs for its market in appropriate foreign warehouses with manufacturers, suppliers or other partners, and the second would be for the foodstuffs to be delivered to Montenegro and kept in a domestic warehouse, which would mean the formation of a special institution and the hiring of qualified personnel.
The problem is that there are no former state warehouses for commodity reserves anymore, because they disappeared during privatization or were destroyed.
"It would be necessary to provide the entire infrastructure for such a concept, which would mean the construction of new or remodeling of already existing storage capacities on the territory of the state. Good solutions in this regard could probably be found through the lease of unused storage space of active business entities, as well as business entities that no longer exist, that is, they are in bankruptcy proceedings", the information stated.
Blečić: Some form of state commodity reserves must exist
The long-time director of the former State Commodity Reserves abolished in 2003, prof. dr Miro Blečić told "Vijeci" yesterday that such extreme situations and disturbances on the market are additional proof that every country must have some form of commodity reserves and that not everything can be left to the freedom of the market as advocated 20 years ago.
"State commodity reserves adapted to the national economy are necessary for the system to function, for there to be security in the supply of citizens and the economy, and to protect against large price jumps. Now, depending on the birth year, Montenegro produces eight to 12 percent of its food needs, we import everything else. The daily import of food amounts to one and a half million to two million. If we were to produce 70 percent of our food needs, commodity reserves would not be necessary, and they are necessary like this," said Blečić.
He stated that there were large warehouses of state commodity reserves in almost all parts of Montenegro, from large ones in Bar and other cities, as well as regional ones such as warehouses in Goranski near Plužine.
"The warehouses were deliberately decentralized so that, even in the event of some natural disasters, any part of Montenegro could be supplied with basic foodstuffs in a short period of time. According to the regulations of the time, we had to have basic foodstuffs in the warehouse in the amount of three months' consumption. Exactly prescribed quantities of wheat, flour, oil, salt, sugar, stew, dried meat and other necessary products were kept. There were also 7.000 live sheep in the commodity reserves, which were kept on state farms in Bjelasica and Durmitor. We had warehouses for petroleum products in Bar, Lipci and Bijelo Polje. All quantities had to be renewed regularly", said Blečić.
He says that the system of state commodity reserves must exist and that it should be adapted to new needs. He sees the problem in the fact that most of the former state warehouses and infrastructure have been privatized or have collapsed due to negligence, and that hiring private storage capacities would be expensive and the question is how functional it would be.
They sold monuments to Russia, bombs to Ukraine
Montenegro's trade exchange with Russia and Ukraine has not been so significant in recent years.
Last year, Montenegro imported goods worth 10 million euros from Russia, and six million from Ukraine. Montenegro's exports to Russia were worth 2,3 million, and to Ukraine 1,2 million.
According to Monstan data, the majority of exports to Russia refer to the item "processed stone for monuments and buildings" worth 1,55 million. The second export product was "postal and tax stamps" worth 67 thousand euros, followed by cuttings and grafts for 40 thousand euros.
The largest part of exports to Ukraine refers to "bombs, shells, torpedoes and mines" in the value of 634 thousand euros, followed by parts for airplanes in the amount of 170 thousand. This can refer either to the sale of surplus military weapons or to the products of the dedicated factory "Tara" from Mojkovac.
The most imported cigarettes came from Russia for 3,3 million euros, and petroleum oils and gas for 1,8 million, and from Ukraine meat for one and a half million and dried fruit for 1,3 million.
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