Standard Cost Model (SCM) legal framework drafting and capacity building for ministries and state agencies of Montenegro

Full EU integration and the transition to a business-friendly, open market economy have been established as the main strategic goals for the new government, established as of December 2010. Montenegro has achieved macro-economic stability based on its monetary policy and prudent fiscal management, with a strong upward trend in real GDP growth. This growth is driven by FDI in real estate and tourism, mainly through privatization. However, there are signs of economic overheating and the sustainability of the FDI levels is questionable. Moreover, the government has limited capacity to bring the legal and regulatory framework of its business environment to EU requirements. Key investment climate issues that increase the cost and risk of doing business in Montenegro include: (i) An onerous administrative and regulatory framework for businesses; (ii) Issues with property rights, titling, cadastre, and land-use planning all pose significant problems and risks for investors – particularly in the tourism sector; and (iii) Limited technical and administrative capacity at both the national and sub-national levels of government for implementing the existing regulatory requirements and the ongoing decentralization program.

The client has explicitly requested assistance in running a Guillotine review of the stock of business regulations and implementation of a mechanism to systematically review new regulations, with Regulatory Impact Analysis (RIA) application. One of RIA tools is the Standard Cost Model, which needs capacity building within the regulators of the Montenegro Government. In the Balkans, this approach is particularly important as the stock of subordinate regulations and business formalities (administrative procedures, licenses, permits, etc.) is generally composed of layers of regulations, some pre-dating the Yugoslav Republic. These regulations and administrative requirements are applied unevenly and published official gazettes are in many cases the only public record.

The goal of the Montenegro Business Environment Enabling National Reform Project is to assist in improving the investment climate by reducing the cost of doing business in the country in order to help stimulate increased investment, employment generation, and poverty reduction. The project activities are focused on national level reforms designed to complement and support the bottom-up the work on the municipal level under the Sub-National Competitiveness Project. These activities are designed to achieve the objectives of systematically streamlining and simplifying business regulations including permits, licenses and inspections; increasing the transparency of the implementation of business regulations; and measuring the impact of these reforms.

The main objective of undertaking a ‘Standard Cost Model (SCM) legal framework drafting and capacity building’ assignment was to assist the central authorities, especially the Ministry of Finance of Montenegro in designing and drafting the legal act (hereinafter referred as Instruction) to apply the SCM, and develop training materials that focused on an on-going training process of public servants and stakeholders, ensuring that they understood the principles and approach of the SCM as a tool to be applied, inter alia, within the RIA process, in designing and drafting low cost and low risk regulations. This assignment is an important contributor to the institutionalization of RIA in Montenegro and SCM as a tool of it.