The Montenegro miracle

In this pleasantly backwards Balkan nation, Yugoslav submarines have been replaced by luxury super-yachts

The Montenegro miracle

Alexey Galyzin/Getty Images

On a mild June morning, the medieval city of Kotor in Montenegro seems a place lost in time. A maze of worn cobbled corridors swirl inward from the walled town’s three stone archways, opening onto a string of courtyards. The main square is filled not with shoppers and Starbucks latte guzzlers but old men drinking muddy Balkan coffee, playing chess and throwing back fiery doses of rakia, a regional fruit liquor. Female merchants lean in the doorways of their shops, sucking on hand-rolled cigarettes and gossiping in Serbo-Croat across the narrow cobbled laneways. If it weren’t for the smattering of tourists, mostly German and Russian judging by the gutteral noises in the air, it could be a regular morning in 17th-century Europe.

Until you notice the cruise ships, that is. This week there are two enormous, floating hotels docked in this secluded nook in the Bay of Kotor on the country’s northern coast. With the deepest fjord in the Mediterranean, the bay is one of the few still-rustic locales that can accommodate both full-size cruise ships and the international elite’s expanding fleet of super-yachts, many of which require $200,000 for fuel tank fill-ups (marina fuel in Montenegro is sold duty-free). In addition to tax breaks, the country offers heartbreaking scenery: steep, scrub-dotted mountains plunge dramatically into the pristine Adriatic Sea. The incongruity of these monolithic floating energy-guzzlers transposed on such unspoiled natural beauty provides a visual metaphor of the extraordinary transition gripping one of the world’s youngest and smallest democracies.

As established EU countries like Greece, Spain and Ireland continue to struggle through the sovereign debt crisis, this tiny Balkan nation (population 660,000, and landmass only 14,000 sq. km), is enjoying an awakening. According to data released earlier this year from the World Travel & Tourism Council (WTTC) and Oxford Economics, Montenegro is expected to be the most rapidly expanding travel and tourism economy in the world over the next decade, with regard to that sector’s contribution to employment and GDP. At present, tourism is worth 16 per cent of its economy, a figure that’s expected to rise to 36 per cent by 2021, when it will have a projected value of $2.5 billion. For a country with a population smaller than New Brunswick’s, that’s a significant cash infusion.

It’s welcome news to the historically embattled state, formerly ruled by Josip Tito as part of Yugoslavia, and subsequently a partner in an uneasy federation with Serbia. Like most of the Balkans, it’s seen centuries of turmoil—Kotor, for example, has been won and lost by Italy, Russia, Austria and France. After the end of Communism gave way to the bloody Balkan wars of the 1990s, Montenegro stagnated both economically and culturally. But in 2006, the country voted for independence with a majority of 55.5 per cent, and a new era was born.

Fittingly for such a nubile democracy, Montenegro’s current prime minister, Igor Luksic, is also the youngest head of government in the world. At just 35, he was appointed to the top job last December when Milo Dukanovic, a seasoned politician who brought the nation to independence, resigned. An economist by training, Luksic’s single defining ambition is to raise Montenegro’s international profile and quality of life, first by throwing its doors open for business, and subsequently by bringing the country into the EU and NATO.

Montenegro has one of the lowest corporate and personal income tax rates in Europe, at just nine per cent. With increased development, jobs are being created (Montenegro has a lower unemployment rate—currently 11.6 per cent—than both Spain and Greece), while labour remains relatively cheap and appealing to investors. In 2002, it opted to unilaterally adopt the euro as its official currency, and, in 2007, the country became a member of the World Bank and the IMF. Late last year Montenegro was granted official EU candidate status. But as Luksic told me in a phone interview, there is still much work to be done. His government has been cracking down on the kind of corruption, organized crime and money-laundering that has run rampant in other parts of post-Communist Eastern Europe. But on the flip side, he says, he is keen to attract as much legitimate outside investment as possible. “We are determined to improve the economic environment by getting foreign investors in and by cutting red tape,” he explained. “As for joining the EU, we hope to open up session talks at some point next year. But at this point we are really not so obsessed with dates.”

Maybe not, but things seems to be changing quite rapidly for the small Balkan nation. Montenegro is in some ways deliciously backwards (highway gas stations have full-service cocktail bars and organic food is plentiful, due to a lack of factory farming rather than bourgeois demand), and in other ways amazingly progressive (the Bay of Kotor region is a UNESCO world heritage site with strict environmental controls on development—only those catering to the high-end luxury market need apply).

Recent developments include refurbishing Sveti Stefan, a former fisherman’s village that in its 1960s heyday played host to the likes of Elizabeth Taylor and Kirk Douglas, a $2-billion Swiss resort development on the Lustica peninsula that has a 670-hectare golf course, as well as a major luxury sand beach resort funded by a Qatari developer.

But the project that Prime Minister Luksic is most excited about was in fact spearheaded by a Canadian. Back in 2004, Barrick Gold founder Peter Munk decided he wanted to build a luxury port for the super-yacht set in the Bay of Kotor. He persuaded some high-placed friends to invest, among them Nathaniel and Jacob Rothschild, Russian billionaire Oleg Deripaska, and Bernard Arnault, the French CEO of the luxury goods conglomerate LVMH. Since then, a once-rusting naval shipyard in the village of Tivat has been transformed into Porto Montenegro, a full-service luxury marina, with everything from on-site customs, refuelling services, shopping and fitness facilities, to a bar and restaurant, as well as palm trees shipped in from Uruguay.

On this particular evening at dusk, the main pier at Porto Montenegro looks as glamorous—although distinctly less crowded—as any of the more famous French and Italian destination ports of Western Europe. The imported palms are lit up by dramatic spotlights, and uniformed deckhands hose down their gleaming charges as the Mediterranean sun sinks low in the sky. The Porto Montenegro staff has set up a barbecue at the end of the pier and are passing out burgers for the annual crew party. It’s hard to believe that Yugoslav submarines used to lurk below the harbour’s surface. For Prime Minister Luksic, the port is a first step toward a new world order.

“It’s definitely the development that has changed the way Montenegro is seen in the eyes of the world,” he said. “It goes over in a positive way with private investors, because on the one hand Porto Monenegro is shape-shifting—it replaced a naval shipyard with a new marina, but it’s also mind-shifting, opening up an array of other small business opportunities. And this shape-shifting and mind-shifting, it is exactly what we’re trying to do in Montenegro.”

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