Economic performance in Montenegro has been very uneven in the past few years. After a sharp contraction of almost 6% in GDP growth in 2009, the economy grew by an average of 3% in 2010 and 2011, only to relapse into recession in 2012, with a growth rate of -2.5%. In 2013, the economy started showing positive trends with the average growth in the first three quarters reaching 3.1% compared to the previous year.
Montenegro owes most of its economic problems to the ongoing restructuring of the country’s metal and mining complex. The aluminium processing plant in Podgorica (Kombinat Aluminijuma Podgorica, KAP), which has been accumulating losses since its sale to the Cyprus-based Central European Aluminium Company (CEAC) in 2005, was declared bankrupt in September 2013 following the collapse of its largest customer, the Nikšić bauxite mines (Rudnici Boksita Nikšić, RBN) which also entered bankruptcy proceedings in late 2013. Even in their ailing state, the two still accounted for more than 35% of Montenegrin exports in 2012, and their crisis is bound to have long-lasting repercussions, not least on the state of public finances. For KAP alone, the government’s liability amounts to some €230 million in loan guarantees –equivalent to 7% of the country’s GDP – not considering other expenses, such as the €45 million owed to the state electricity distributor, arrears in wages and social security contributions, and severance payments for the workforce. On the upside, tourism continues to expand, as does electricity production, which constituted the main driver of growth in the second half of 2013. Unfortunately this sector is also highly volatile, due to Montenegro’s reliance on hydropower, which is sensitive to changes in the weather.
Given the precarious state of the budget, the government’s efforts to handle the crisis largely took the form of austerity measures to prevent further increases in debt and deficit. In 2012, the government signed an agreement with trade unions which ties the wage growth in the public sector to changes in GDP and the public deficit until 2015. Pensions in 2013 and 2014 remained frozen at 2012 levels, despite cumulative inflation of about 7% in this period. Additionally, a host of smaller consumption taxes was introduced to shore up the budget, including a tax on SIM cards, electricity meters and cable TV, as well as increases in excise taxes on tobacco, alcohol, coffee and soft drinks. In 2013, the government also raised VAT from 17% to 19% and introduced a temporary tax surcharge on incomes exceeding €720 a month, raising the tax burden from 9% to 15%. Partly as a consequence of this, despite economic recovery real wages declined again for the third consecutive year, by an average of 3.8%.
After dropping to under 46% in 2011, the employment rate rebounded somewhat to 47% in 2012 and 49.2% in the third quarter of 2013, but it remains far below the European average. The unemployment rate reached 20% in 2010, and averaged a similarly high 19.6% throughout most of 2013, although with a slight downward tendency. In addition to the difficult economic situation, regional disparities and skills mismatches have created deep pockets of structural unemployment. Long-term unemployment is pervasive, accounting for about 79% of all unemployment.
Youth unemployment is also growing, and reached 43% in 2012. To help the transition into the labour market of the highly skilled, the Law on vocational training of university graduates was passed in 2012, which provides publicly funded internship placements to young graduates without work experience. The government allocated €10 million for this project in 2013, funding a total of 4,112 traineeships.
The number of employees on atypical contracts has continued to grow. In the course of 2012, only 8.5% of jobs advertised through the National Employment Service offered indefinite contracts: 59.6% were for fixed-term contracts, and the remainder included paid and unpaid traineeships, short-term and seasonal work, and service contracts. By the third quarter of 2013, the share of fixed-term contracts in total employment had reached 28%. This trend is likely to be reversed in the future, however, as new provisions of the Labour Code came into force on 22 December 2013, stipulating that all temporary contracts that had reached a cumulative duration of two years by that date must be converted into permanent contracts. Employers warned that the costs of the new regulation would be prohibitive in the current economic situation, and that unless the implementation of the law is postponed the result would be a surge in redundancies or a shift to the grey economy. At the moment, it is too early to say whether these warnings were justified.
Legal and administrative context
In late 2011, the Labour Code was amended to improve its alignment with the EU acquis. The most significant change concerned the introduction of limits on the cumulative duration of fixed-term contracts, which are now capped at 24 months. At the same time, the law created a new option for temporary employment via temporary work agencies (staff leasing) which was not previously regulated. The provisions for firing of permanent staff were also slightly relaxed, adding failure to fulfil work tasks adequately over a period of 30 days to the list of legitimate reasons for firing. Another addition to the law is the concept of workplace harassment (mobbing), which is further regulated by a separate Law on Workplace Harassment which was passed in 2012.
After protracted disputes with the trade unions in 2011, the parliament finally passed amendments to the Law on Pensions and Social Insurance, raising the limit for the old-age pension from 65 to 67 years for men and from 60 to 67 years for women. However, due to the principle of gradual implementation the law will not fully come into force before 2025 for men and 2041 for women. In 2013, the Law on Pensions and Social Insurance was further amended to facilitate early retirement of workers from the ailing aluminium industry.
Further amendments to the Labour Code, as well as amendments to the Law on Strikes and the Law on Social Council, are currently being prepared.
In July 2012, Montenegro unified all inspection services under a single authority of Directorate for Inspection Affairs. According to the European Commission 2013 progress report for Montenegro, the training of labour inspectors is progressing well, but the labour inspection unit remains severely understaffed. The Commission’s 2014 progress report found that the capacity of the Directorate for Inspection Affairs, including the labour inspectorate, remains weak, and that the Department for Labour Inspection is not sufficiently mobile.
Industrial relations context
In 2011, the two representative national trade unions and the government signed the Agreement on wage policy in the public sector, which covers the period 2012–2015 and applies to about 45,000 public servants and employees. The agreement stipulates that the share of public sector wages in GDP should be reduced to 11% by 2015 (from around 12% in 2011), partly through wage moderation and partly through reduction in employment. In this period, wages can only be increased if GDP growth exceeds 3.5% in a given year, or if inflation is above 2% and the budget is in balance. By contrast, negative GDP growth or a budget deficit in excess of 2% will lead to wage reductions. The unions also agreed to refrain from strikes and industrial action over this period.
Early 2012 was marked by major protests, the largest in Montenegro’s recent history. The protests began in January 2012 under the leadership of the Union of Free Trade Unions of Montenegro (USSCG), and were triggered by sharp increases in the price of electricity and fuel (about 7% each). The former was considered especially galling, as electricity prices in Montenegro are set by a regulatory authority and not by the market, and the price hike was associated with concessions offered to the Italian company A2A which had recently taken over parts of the Montenegrin electricity company EPCG. The union’s protests thus quickly garnered the support of Montenegro’s chief corruption watchdog, MANS, and were also joined by the Student Union which brought its own grievances concerning the availability of student housing, lack of financial support and the state of higher education generally in Montenegro. As the range of demands broadened, the protests soon took on a more political tone, culminating in demands for the resignation of the prime minister. Despite the pressure, however, the government stood its ground, offering only minimum concessions such as subsidies for electricity bills to the poorest consumers, and the promise to build two new student dorms. After seven rounds of demonstrations, which brought thousands of protesters to the streets of Montenegro’s capital, Podgorica, the bout of discontent eventually died down and the last protest was held in June 2012. The second round of electricity price increases, in August 2012, prompted no comparable reaction. Early elections, which were organised on the government’s own initiative in October 2012, returned the same coalition to power.
In recent years there have also been protracted negotiations over the new national-level General Collective Agreement (GCA). The previous GCA was signed in late 2010 for a period of one year, but USSCG withdrew its signature, protesting that most of the text had been agreed without its participation, before its representativeness was formally confirmed by the Social Council. Nevertheless, USSCG agreed to sign the extension of the agreement in December 2011 for another six months, to give the social partners time to negotiate a new GCA which would be harmonised with the recent amendments to the Labour Code. The negotiations proved difficult, however, mostly because of disagreements concerning the structure of pay coefficients for seniority (years of work experience). The 2010 GCA was extended once more for a period of three months and finally expired in October 2012. In early 2013, the social partners reached a compromise on a new GCA, but the text was rejected by the assembly of the Confederation of Trade Unions of Montenegro (SSCG).
The conflict arose over the distribution of employers’ contributions for sport, recreation and the prevention of occupational diseases, which until now have been paid into SSCG’s Fund for recreation and prevention of occupational diseases, and distributed via its associated social enterprise, Rekra. The new agreement stipulated that these contributions should instead be paid into the fund of the company or branch union to which the employees belong, and transferred at their discretion to the confederation level. SSCG opposed this solution, claiming that in this way the funds will be too dispersed and subject to mismanagement, while USSCG accused SSCG of trying to keep control over money for its own purposes (at 0.2% of the gross wage bill, the fund amounts to a sizeable €1.3 million per year). Following a change in the leadership of SSCG, the unions finally reached an agreement in February 2014, allowing both confederations a share of the funds. The Montenegrin Employers’ Federation (UPCG) agreed to accept this finalised version of the document, and it was signed on 20 March 2014. However, UPCG agreed only on condition that the duration of the GCA should be limited to 24 months and that the social partners should immediately begin negotiations on further changes to the labour law.