SMEs are particularly exposed to rising economic and environmental pressures, including climate risks, shifting trade dynamics, and the wider transition to a green economy. This cluster evaluates policies that strengthen SME resilience and competitiveness in this context. It examines five broader areas, assessing frameworks for SME greening, disaster resilience mechanisms, access to financial support, non-financial support and the role of business networks, as well as innovation ecosystems in supporting the transition.
SME Policy Index for Western Balkans and Türkiye 2026 – Economy Profile for Montenegro
Abstract
It is increasingly evident that shifting to business models centred on decarbonisation and climate change adaptation requires far greater private investment and technical support. Climate change is no longer just an environmental concern; it is a driver of economic modernisation and structural change. Yet, Montenegrin small and medium-sized enterprises (SMEs) have been navigating a highly uncertain and complex environment, marked by global and regional disruptions.
Post-COVID-19 vulnerabilities were exposed, especially in tourism. A slowdown in exports, combined with the energy crisis since 2022, has also affected many businesses in recent years (European Commission, 2025[1]). At the same time, global megatrends continue to reshape market demands. Beyond the green transition, these megatrends include accelerated geopolitical realignments, evolving trade systems, shifting consumer preferences, and the rise of the digital economy (OECD, 2023[2]).
For Montenegro, these shifts underscore the urgency of shaping a business environment that enables strategic adaptability. This section examines the regulatory and market conditions that enable SMEs to adapt quickly, seize emerging opportunities and navigate the growing interplay between green transition requirements and trade dynamics.
3.1.1. Smoothing SME pathways to a green economy
Like other Western Balkan economies and Türkiye (WBT), Montenegro must equip its SMEs with the right incentives and tools to support national green transition goals. Although class-size-specific data are unavailable, Montenegro’s carbon intensity remains high at an estimated 0.45 kg of carbon dioxide (CO₂) per unit of gross domestic product (GDP) in 2023, more than double the EU average of 0.2 kg (World Bank, 2024[3]; 2025[4]; Global Carbon Budget, 2024[5]). Decarbonisation remains challenging given the economy’s reliance on fossil fuels. About 40% of electricity is still generated by one outdated thermal power plant (Spasić, 2023[6]),1 which also raises serious energy security concerns, as future energy price volatility could harshly affect businesses and lead to loss of export competitiveness.2 Between 2019 and 2024, electricity prices rose by only 5% in Montenegro, compared to 25% across WBT economies and 90% in the European Union (Eurostat, 2025[7]), thanks to extensive government subsidies. At the height of the energy crisis in 2022, these subsidies amounted to 10.7% of GDP (OECD, 2025[8]).
However, substantial investments in operating infrastructure that reliably provide essential business inputs, such as clean and affordable electricity, and longer-term support to truly enable green transformation across the business sector will be necessary to empower SMEs to take further action. Positively, it is estimated that around 82% of SMEs take at least one action to improve resource efficiency, focussing on energy savings and minimising waste, and that 27% of Montenegrin SMEs offer green products and services (European Commission, 2024[9]). Yet, their promotion and market penetration are limited, with only six SMEs currently using an ecolabel, according to the Ministry of Tourism. Generally, data on Montenegro's size and opportunities in the green market are limited (UNECE, 2025[10]).
Still, Montenegrin businesses show strong optimism about the opportunities a green transition might bring, albeit a considerable share remains uncertain (Figure 3.1). The vast majority of respondents (62%) in the Regional Cooperation Council (RCC) Business Barometer Survey 2024 answered that they believe the green transition will bring either positive or very positive impacts on their operations, while only 2% believe it may have negative impacts, and a bit more than one-third (36%) are unsure.
Percentage of surveyed businesses
Notes: n= 138, representing 0.25% of the total SME population in 2023.
Total counts exclude responses of “DK/refuse”.
The question was “Do you believe that the green transition will have an impact on your business?” Firms were selected to achieve balanced representation across sectors and business types in the sample, using data from the economy-specific Business Centers in each surveyed economy.
Source: RCC (2024[11]).
The data show that the Montenegrin private sector is poised to take actions that would both improve profitability and benefit the environment. However, these findings should be interpreted with caution, as self-reported intentions may partly reflect social desirability rather than actual strategic preparedness for green transformation.
Even so, the evidence points clearly to the need for targeted government support to help SMEs attain their sustainability goals. The same RCC study also reveals that around half of businesses require improved legislation regulating the green economy and environmental standards, while around one-quarter (26%) call for more fiscal incentives, and another 20% state the need for better education and awareness raising to motivate sustainable consumption. This would also be required for climate change adaptation, compared to mitigation, which has so far been the focus of businesses and the government in Montenegro (UNECE, 2025[10]).
Montenegro has adopted several key strategies to address SME priorities in the green economy (see Table 3.1). The overarching framework is the National Strategy for Sustainable Development 2030, which outlines a socially, environmentally and economically inclusive growth path. Further, operational strategies include the Strategy for the Development of Micro and SMEs 2023-2026, the Industrial Policy 2024-2028, and the Smart Specialisation Strategy (S3) 2019-2024, each setting out SME-focused measures to expand green transition opportunities across sectors such as processing, tourism, agri-food, and energy. Climate policy is guided by the Climate Change Strategy 2015-2030, the Adaptation Plan 2025-2030, and the National Climate and Energy Plan, adopted in December 2025, which promotes climate-compatible business growth and resilience. The Economic Reform Programme 2025-2027 further defines actions to align with EU Green Deal standards, while the National Circular Transition and Tourism Strategies provide sector-specific incentives. Lastly, Montenegro’s Reform Agenda constitutes a complementary policy document aligned with these strategies and is particularly important for securing investments that can bring the economy closer to integration with the EU Single Market and sustainability standards.
Note: Indirectly refers to the private sector being considered in the policy document, but no concrete SME-targeted measures are included.
Source: Information provided by the Montenegrin government during the assessment period in 2025.
There is no consolidated information on total budget allocations for SME greening activities across all policies. Under the Circular Transition Action Plan (2024), about 92% of total funds (approximately EUR 27.7 million) were allocated to Strategic Objective 5, which focusses on energy-efficiency programmes and sustainability investments for SMEs. Under the 2024 Industrial Policy implementation, several SMEs benefitted from government-led greening initiatives. These included 16 facilities obtaining eco-certification in sustainable tourism, energy-efficiency support for 15 hotels, and workshops on circular waste valorisation and education reaching over 250 participants.
Under the Micro, Small and Medium-sized Enterprise (MSME) Strategy Action Plan, funding for green measures totalled EUR 200 000 in 2023 under the Programme Line of the Circular Economy, benefitting four SMEs, and EUR 1.29 million in 2024 for seven SME projects approved in 2023 through the Programme for Encouraging Innovations in Energy Efficiency in Industry. While the 2024 call was launched with an increased budget of EUR 2.3 million targeting ten companies, the overall reach remains limited, underscoring the need to strengthen the strategy’s operational objectives to better support SMEs in transitioning to sustainable, green business models. It also underscores the importance of co-ordinated planning, implementation and monitoring across related SME greening strategies to ensure effective collaboration among the Ministry of Economic Development, the Ministry of Ecology, Sustainable Development and Development of the North, the Environmental Protection Agency, and the Montenegrin Chamber of Economy.
Regarding the SME Strategy, around half (~52%) of the envisioned activities under the greening-related operational objective were achieved over the first two years of implementation. Reasons for delays and incomplete actions were not elaborated, but they are often due to longer completion times for continuous activities. The implementing ministry regularly trains its staff on topics related to the Sustainable Development Agenda, but effectiveness is monitored ad hoc. Impact assessments of implemented strategies are not publicly available, but one will be conducted for the Circular Transition Strategy in 2026.
Efforts to reduce the administrative and regulatory burden on SMEs amid an increasingly complex landscape of green standards remain limited. Positively, in 2023, the government conducted a draft analysis of the legislative framework under the EU-funded Support to the Response to COVID-19 in Montenegro project to explore the broader application of circular-economy principles. However, the findings have yet to be published or translated into concrete SME-focused actions. New regulations often overlook SME capacities and constraints; for instance, the 2024 Law on Waste Management, which bans plastic bag use, introduced no measures to ease compliance costs for smaller firms in retail trade.
3.1.2. Boosting SME competitiveness in sustainable value chains
For Montenegrin businesses, the European Union remains the primary export destination, accounting for around 30% of total exports (WTO, 2024[12]). This underscores the urgency of aligning with EU sustainability standards and regulations to fully integrate Montenegrin firms into green value chains. At the same time, Montenegro’s high import dependence (MONSTAT, 2024[13]) and the competitive pressures faced by SMEs highlight that the green transition is not only a compliance challenge but also a strategic opportunity to strengthen domestic production and enhance SME competitiveness.
One of the key levers to help domestic SMEs enhance their competitiveness against larger firms and imports is green public procurement (GPP). The MSME Strategy explicitly highlights GPP as a tool to encourage the transition toward a circular economy, while the Public Procurement Strategy emphasises the inclusion of SMEs in both national and international procurement markets through capacity building, training for procurement officials, and guidance for businesses. Concrete evidence of implementation has not been provided. However, the electronic public procurement system now includes reporting on green and social criteria (since the end of 2025), enabling the collection of data on the implementation of green award criteria in contracts.
The MSME Strategy also acknowledges challenges and calls for strengthening cluster development, business linkages, and the potential for SME exports, enabling firms to integrate more effectively into domestic and international value chains. It proposes measures to build institutional capacity, including the establishment of an export credit agency, non-financial support for cluster development, and enhanced trade facilitation and promotion through networks such as the Enterprise Europe Network (EEN). The MSME Strategy also highlights the importance of raising awareness on compliance with international standards.
Training on EU Green Deal provisions for SMEs remains at an early stage, with initial awareness-raising activities supported mainly by international co-operation projects. However, dedicated national training and support programmes have yet to be developed. In 2023 and 2024, the government facilitated 45 events through the EEN, engaging over 1 000 participants. Matchmaking events were also organised to connect Montenegrin SMEs with foreign partners, marking initial progress toward greater internationalisation. In 2024, eight co-operation agreements were concluded through business meeting facilitation.
A key concern is that the government has not yet assessed the potential impacts of major international trade regulations, such as the EU Carbon Border Adjustment Mechanism (CBAM)3 and other Green Deal measures, to inform targeted policy responses. On a positive note, in 2025, the government established the Just Transition Council, chaired by the Minister of Energy and Mining. The council now acts as a central body co-ordinating Montenegro's transition process in line with low-carbon development goals and EU standards. In the coming period, it will work closely with relevant ministries, the private sector, the energy sector, and local communities to develop targeted transition measures, with a particular focus on regions most affected by the coal phaseout, such as Pljevlja. At the same time, the Montenegrin Employers’ Federation has partnered with the International Labour Organization (ILO) to establish a national dialogue on just transition that centres SME needs in the green transition.
Implementation of the Industrial Policy has also advanced through measures to modernise energy infrastructure, including the ecological refurbishment of the Pljevlja thermal power plant, reconstruction of hydropower facilities, and identification of suitable sites for solar and wind energy development. Ensuring access to clean and affordable energy will be essential as Montenegro transitions away from coal. However, economic and social vulnerabilities remain unmapped, particularly by sector and firm size, hindering the design of effective measures for economic diversification, social protection and SME reskilling (see Cluster 4). In this context, it will be crucial to assess and strengthen SME support mechanisms as Montenegro moves to integrate its electricity market with the European Union and further develop its carbon pricing system through the Emissions Trading System (ETS) (OECD, 2024[14]), since affordable energy is vital to maintaining SME competitiveness (IEA, 2022[15]).
As Montenegro prioritises SME integration across key sectors such as agriculture and food processing, tourism and hospitality, manufacturing and light industry, information and communication technology (ICT), renewable energy and green technologies, and creative industries, there are growing opportunities to align this shift with carbon-reduction goals. The renewable energy sector, in particular, offers strong potential to attract foreign direct investment and position Montenegro as a nearshoring destination for EU producers, integrating local SMEs into regional value chains. In this regard, the Law on Renewable Energy Use, enacted in 2024, introduced new market-based incentives to expand renewable energy capacity and promote prosumers. In 2025, Montenegro launched its first renewable energy auction with support from the European Bank for Reconstruction and Development (EBRD) (EBRD, 2025[16]), marking a significant step toward a more competitive and sustainable energy market. This momentum offers a strong opportunity for the government to scale up green investments and promote the sustainability-focussed integration of SMEs into global value chains. Currently, SMEs can access support through several initiatives, including the government-run Programme for Improving the Competitiveness of the Economy (see Box 3.1), the Investment Support Programme,4 and the SME Go Green Programme funded by the EBRD and the European Union (see Section 3.3.1).
Policy context
The Ministry of Economic Development launched the Programme for Improving Competitiveness of the Economy in 2022 to accelerate SME growth, reduce regional disparities, and strengthen the sector’s ability to compete domestically and internationally. The programme aims to upgrade processes, products, and services; boost productivity and profitability; increase export readiness; and stimulate new business creation, all with a view to building a more dynamic and competitive SME base.
It is strategically aligned with Montenegro’s broader policy agenda, including the National Strategy for Sustainable Development, the Industrial Policy, the S3, and the economy’s commitments under the Green Agenda, all of which emphasise a shift toward higher-value, green and sustainable economic activities.
Operational aspects
Across the financial programme lines implemented in 2023 and 2024, only a subset contributed to strengthening SMEs’ integration into sustainable value chains, either directly through green-focused measures or indirectly by improving general business capabilities that support long-term sustainability (namely excluding the Programme for Digitalisation and the Programme for Sustainable Health System Development).
The programme’s budget amounted to EUR 3 million in both 2023 and 2024, rising to EUR 3.5 million in 2025.
Policy impact
Between 2023 and 2025, 562 SMEs received financial support that, directly or indirectly, facilitated their integration into sustainable value chains at home or abroad. However, the incentive structure shifted significantly: the number of supported firms in 2023 was more than three times that in 2024 and three times that in 2025 (Table 3.2). This is a result of tailoring programme incentives to business needs, after carrying out an analysis of the 2023 programmes’ implementation. While support to each SME is now more substantial and targeted, the direct relevance to the green economy narrowed, with only one programme line explicitly targeting sustainable value chain development (i.e. “Improvement of production capacities”).
Notes: Programmes with direct relevance to greening explicitly apply environmental criteria when selecting applications. Programmes with indirect relevance do not prioritise environmental objectives in their selection process, but green projects may still benefit from them.
Source: Ministry of Economic Development (2025[17]).
The way forward
Improve the implementation rate of SME greening policies under relevant strategies. Montenegro should pay particular attention to improving the implementation of its MSME Strategy, as recent data show that only half of environmentally related activities have been completed within the planned timeframe. To address this, delays and implementation gaps should be systematically assessed, whether due to limited funding, unclear institutional co-ordination, low business uptake driven by weak awareness, complex procedures, or insufficiently tailored support. Montenegro can draw on best practices from the OECD on institutional arrangements and target-setting for net-zero policies, which it can also apply to the recently adopted National Energy and Climate Plan. Evidence shows that mission-oriented governance principles remain underutilised in many countries, despite their potential to accelerate the green transition (OECD, 2025[18]). Compared to traditional policy approaches, missions bring together multiple policy domains, regulation, outreach, financial incentives, research funding and targeted investment, under a clear objective, and then align governance structures, coalitions and policy tools to deliver on set goals.
Establish a framework for regular impact assessment to track progress and ensure government actions drive tangible green market growth. This should begin with a comprehensive market scoping exercise to establish baseline indicators and measure advancements in the SME green economy in the coming years. This will require stronger data governance to improve the collection, management and use of data for evidence-based decision making. In this context, Montenegro could draw on guidance from the OECD, including its Framework on Data-Driven Public Sector and the common framework on public sector data governance, which support economies in strengthening their capacity to measure and track progress across policy areas, including climate action (van Ooijen, Ubaldi and Welby, 2019[19]).
The Just Transition Council should urgently develop targeted policies to support SMEs, focusing on investment and advisory services to support energy security and affordability. This is critical given the potential impact of carbon pricing under the ETS and the CBAM, which could reduce the competitiveness of Montenegrin businesses. In close collaboration with the national dialogue established by the Employer’s Federation and the ILO, the government’s key priority should be to support SME low-carbon development that structurally lowers energy costs, notably by facilitating investment in energy efficiency and clean energy production. This will require improved data collection from firms, in co-operation with the Employers’ Federation, to identify specific technical assistance and advisory needs. To operationalise support, the government could establish an online helpdesk or an SME platform that provides access to guidance, tools and consulting services. Existing initiatives such as the UK Business Climate Hub, which offers free resources, including carbon calculators, reporting tools and practical guidelines for SMEs to become net-zero suppliers (UK Business Climate Hub, 2025[20]), could be leveraged through stronger co‑ordination with business associations, including the Employers’ Federation and the Chamber of Commerce, to adapt and deploy such tools for Montenegrin SMEs.
Ensure government support for SME value chain integration maximises the benefits of green investments for both domestic and exporting SMEs. Strengthen programmes, such as the Improving Competitiveness of the Economy programme, to provide consistent incentives for adopting greener practices. Additionally, implement two complementary actions: 1) accelerate the use of GPP by swiftly expanding the use of the electronic procurement system with green award criteria, enabling data collection and promoting SME participation in line with the Law and Strategy on Green Public Procurement; and 2) develop targeted export promotion programmes that leverage green economy opportunities in Montenegro’s key sectors, such as agri-food processing, to increase efficiency, foster higher-value production, and support SME competitiveness abroad. For GPP, Montenegro could look to successful practices from OECD Member countries that enhance pre-procurement market engagement. Ireland’s Guidance on Green Public Procurement offers clear steps for public buyers to promote bidding by certain supplier groups, which Montenegro could adapt and apply to promote SME participation (Environmental Protection Agency, 2024[21]; OECD, 2024[22]). Montenegro’s Investment Agency, for example, could draw on good practices such as France’s SME Guide: Climate Transition Plan (France Invest, 2025[23]) that proposes a step-by-step approach adapted to small businesses on how to deal with stricter regulatory and market requirements as well as heightened physical climate risks that could affect the resilience of their value chains.
Roughly 11% of SMEs in Montenegro already report damage to their physical assets from extreme weather. This share is considerably lower in Bosnia and Herzegovina at 4% and North Macedonia at 9% (World Bank, 2025[24]). This underscores how exposed small firms are to external shocks, especially given their limited diversification of economic activities, restricted access to finance, and generally weaker capacity to respond. Floods are a particularly costly hazard, and climate projections show that without stronger adaptation and disaster risk resilience, such events could reduce Montenegro’s GDP by nearly 8% by 2050 (World Bank, 2024[25]).5
But environmental shocks are not the only threat. Recent crises like the COVID-19 pandemic have revealed how disruptions transmitted through global value chains can quickly expose structural weaknesses in the SME sector, affecting firm survival and overall economic stability (Amin, Jolevski and Islam, 2023[26]).
In this context, this section assesses government-built mechanisms that help channel resources toward productive, resilient business activities, while also allowing nonviable firms to exit efficiently and enabling fair recovery options as disruptions evolve in nature and scale.
3.2.1. Enhancing crisis-resilient strategies to prevent SME bankruptcies
Although the COVID-19-related backlog of bankruptcy cases eased in 2023-2024 compared to the immediate aftermath of 2021-2022, the Commercial Court of Montenegro reports persistent challenges related to the complexity and slow pace of proceedings. The overall number of bankruptcy cases has remained relatively stable over recent years (see Figure 3.2), suggesting that systemic obstacles remain. This reflects continuing institutional weaknesses that could hinder an effective response to sudden rises in insolvency during economic or environmental shocks.
Despite strong economic growth in Montenegro between 2021 and 2023, with real GDP growth averaging 9%, growth moderated to 3.2% in 2024 (IMF, 2025[27]). Recent data also indicate a slowdown in business dynamics, as reflected in the decline in company entries and rise in exits. Between 2022 and 2024, the number of new business registrations fell by around 17.8%, while deregistrations increased by 65.8% over the same period (Đikanović, 2025[28]). These trends could point to emerging signs of economic slowdown and underline structural weaknesses in the business environment, including regulatory complexity, a large informal economy (Cluster 1), skills shortages (Cluster 4), and persistent financial distress (Calvino, Criscuolo and Verlhac, 2020[29]).
Although the MSME Strategy emphasises reducing business failure risks through preventive measures, such as advisory services and self-assessment tools for financially distressed SMEs, no concrete implementation has been reported in the 2023-2024 Action Plan reports, pointing to a gap in execution. In practice, early intervention support relies largely on donor-funded initiatives, such as the Mentoring Programme implemented with the Japan International Cooperation Agency, and general business support provided by the Innovation Fund.
Note: The statistics are not SME-specific but count all bankruptcy cases for each year.
Source: Information provided by the Montenegrin government during the assessment period.
A comprehensive early warning system (EWS) to systematically collect business data and enable targeted, data-driven support for firms at risk of distress is still missing, as are stronger incentives and mechanisms to facilitate swift, less costly reorganisation of viable SMEs in bankruptcy procedures (see Dimension 2). Thus far, there has been no impact assessment of preventive insolvency policies targeting SMEs, a gap that is becoming increasingly critical. Climate change poses growing risks, particularly for vulnerable sectors central to Montenegro’s economy, such as tourism, which could be severely affected if crisis preparation and preventive measures are not holistically addressed. Projections suggest that Montenegro’s GDP could decline by 7.9% by 2050 due to climate-related disasters (World Bank, 2024[30]). Already, floods and earthquakes represent a major threat to the economy, affecting around 10 000 people annually and causing approximately USD 90 million in damages each year (World Bank, 2024[30]).
Montenegro has made significant efforts to revise and strengthen its disaster risk reduction (DRR) policies, including an expert assessment conducted under the United Nations Office for Disaster Risk Reduction (UNDRR) methodology and the development of the Disaster Risk Reduction Strategy 2025-2030, along with its Action Plan 2025-2026. These steps provide a foundation for improving multi-hazard EWSs, which remain insufficient, particularly for businesses in the tourism sector. However, more targeted training for SMEs, e.g. through simulation exercises, and a better understanding of how climate and natural hazards affect businesses, including the development of sectoral contingency plans, will be essential to help them apply DRR tools and enhance resilience and operational continuity in the face of crises.
Another critical element in government efforts to improve crisis resilience is to fight persistently elevated levels of informality (see Cluster 1). Both low preparedness for disaster risks and informality increase vulnerability to crises and place an unfair competitive burden on formal businesses, undermining revenues and limiting their capacity to build buffers for crisis preparedness and investment.
At present, Montenegro lacks the capacity to conduct comprehensive climate risk and vulnerability assessments for SMEs or to provide targeted guidance to strengthen business continuity planning (Green Climate Fund, 2020[31]). On a positive note, local governments have begun taking action to raise general awareness and knowledge on climate resilience, with support from the UNDRR. In 2024, the municipalities of Podgorica, Ulcinj, and Žabljak received technical support and financial backing from the US Agency for International Development to pilot the Disaster Resilience Scorecard process during May and June 2024 (Nedeljkovic, 2024[32]). This set of assessments enables local governments to monitor progress and identify challenges in implementing the Sendai Framework for Disaster Risk Reduction 2015-2030, including recommendations for engaging the business sector in enhancing city-level resilience in the upcoming period.
At the national level, the United Nations Development Programme, with funding from the Green Climate Fund, implemented a four-year project (2020-2023) called Enhancing Montenegro’s Capacity to Integrate Climate Change Risks into Planning, with the Government of Montenegro, to support the development of the national adaptation planning process. The programme, among other goals, aimed to strengthen the capacities of private-sector actors involved in adaptation planning, improve informed decision making, and mobilise financial resources to increase investment in climate-resilient operations.
Given that a key barrier identified was the limited capacity to understand and respond to climate vulnerabilities and risks, the programme included a comprehensive review and consolidation of climate risks across four priority sectors, covering both public and private assets. It also developed a roadmap to increase private-sector engagement in adaptation, including identifying the costs of inaction, priority investment themes, incentive mechanisms, and business models that could turn climate risk prevention into viable economic opportunities.
3.2.2. Increasing SME recovery capacity and second-chance opportunities
Beyond prevention as a means to reduce the risk of SME bankruptcy and safeguard resources that would otherwise be lost through liquidation, the government also needs to invest in efficient mechanisms for orderly and timely business exits when recovery is not feasible. This is becoming increasingly important as climate change-related disaster risks intensify, business pressures grow, and private-sector assets and operations are threatened. At the same time, second-chance policies are needed to support honest entrepreneurs with viable prospects in the post-crisis context to facilitate swift reintegration into the economy.
Montenegro’s framework for enabling rapid business restart after financial distress, whether triggered by economic shocks or environmental disasters, offers scope for further optimisation. In terms of procedural efficiency, in-court liquidation proceedings in Montenegro average around 24 months, which is shorter than in other WBT economies, such as North Macedonia, Serbia, and Türkiye, where data are available (World Bank, 2024[25]; Government of Serbia, 2025[33]; Government of Türkiye, 2025[34]). However, resolution times remain almost twice as long as in Bosnia and Herzegovina, suggesting that further acceleration of case handling could significantly improve prospects for timely re-entry into economic activity, as existing evidence across OECD Member countries shows (Calvino, Criscuolo and Verlhac, 2020[29]).
Recent reforms have strengthened procedural effectiveness. Amendments to the Law on the Prevention of Illegal Business Operations (2023) prohibit owners or co-owners holding more than a 25% stake in bankrupt companies from establishing new businesses. This measure is likely to enhance creditor confidence and improve outcomes for honest debtors by limiting opportunistic behaviour. Nonetheless, key gaps persist. Montenegro’s insolvency framework does not provide legal protection for new financing during insolvency proceedings, despite its critical role in supporting SME restructuring. Moreover, dedicated second-chance programmes have not been institutionalised, even though their importance is formally recognised in the MSME Strategy.
Although the Ministry of Economic Development reports having sufficient capacity to implement a second-chance programme, there is a need for a comprehensive, system-wide approach to building an effective recovery and second-chance framework for SMEs, particularly in light of growing vulnerabilities linked to climate change. This issue is gaining prominence on Montenegro’s DRR agenda, as underscored by the Prime Minister’s (2024[35]) Call for Action on Earthquake Preparedness and Recovery at the 2024 Europe and Central Asia Regional Platform for Disaster Risk Reduction held in Budva. The statement highlighted the strategic importance of strengthening national resilience, including the retrofitting of critical national and cross-border trade infrastructure, as well as commercial buildings, to ensure the economy’s capacity for rapid and sustainable recovery.
However, the government currently does not provide financial incentives or dedicated funding to strengthen SME disaster recovery. Nor is there co-ordinated engagement with private banks or insurers to expand access to finance or develop tailored insurance products for SMEs. This gap is particularly concerning, as many SMEs remain unaware of insurance. While there are no data on the overall insurance coverage of disaster-related losses among SMEs, the Ministry of Agriculture, Forestry and Water Management subsidises up to 50% of insurance premiums for agricultural producers (FAO, 2024[36]), a practice common across other WBT economies. Yet, no comparable support exists for other SME groups, such as those in the tourism sector, which are likewise highly vulnerable to climate-induced disasters (UNICEF, 2022[37]).
Developing clear policy guidance and targeted incentives to promote investment in risk protection, liquidity reserves, and recovery planning will be critical to safeguarding private-sector resilience in the years ahead. In this regard, the Climate Change Adaptation Strategy Action Plan 2025-2027 places strong emphasis on developing targeted capacity-building programmes to strengthen both immediate emergency response and long-term recovery.
The way forward
Strengthen the integration of bankruptcy prevention and SME support measures in the Micro, Small and Medium-sized Enterprise (MSME) Strategy and Action Plans. Drawing on insights from the Mentoring Programme, which has provided hands-on guidance for SME financial health since 2022, the government could define key indicators to monitor the development of SME economic distress. Montenegro could draw on examples from OECD Core Indicators on Financing SMEs and Entrepreneurs, which include metrics on financial health, such as the share of non-performing loans among SMEs and payment delays in the business-to-business environment (OECD, 2024[38]). Monitoring these indicators would provide evidence for timely, targeted interventions to prevent business failure. In parallel, establishing a comprehensive EWS would enable authorities to proactively identify at-risk SMEs, enabling support measures before insolvency occurs. Together, these measures would not only safeguard SMEs and preserve jobs but also strengthen overall private-sector resilience.
To move from strategic intent to tangible results, clear and targeted legal options should be implemented to help SMEs avoid liquidation. The bankruptcy legal framework should be revised to introduce a fully extrajudicial procedure for SMEs, addressing inefficiencies caused by prolonged court proceedings and limited institutional capacity. Shortening case lengths would reduce barriers to business creation, growth and continuity, while also freeing courts’ resources to improve data collection on the use, effectiveness and efficiency of bankruptcy procedures, including by firm size.
Develop a comprehensive second-chance programme as envisioned in the MSME Strategy, providing structured support for entrepreneurs recovering from business failure. This should include targeted mentoring, training, and advisory services to strengthen financial management, resilience, and capacity to rebuild viable enterprises. Critically, the bankruptcy law would need to be revised to guarantee access to new financing for honest entrepreneurs with credible restructuring plans, enabling them to invest in viable business opportunities, maintain operations, and contribute to economic growth while reducing the stigma of past insolvency.
Strengthen SME climate resilience through risk assessment and a comprehensive support framework, including insurance and a financial safeguards system. Prioritise the most exposed industries across the industrial, service and primary sectors, and use the findings to design targeted interventions that strengthen SME disaster resilience and climate change adaptation. Subsequently, intervention activities should include guidance, capacity building and infrastructure support. Simultaneously, establish structured co-operation with banks and insurance providers to develop tailored risk insurance and post-disaster financing instruments, ensuring SMEs have access to timely capital and risk mitigation tools to maintain operations and recover quickly after climate-related events.
Sustainable finance will be a major engine of Montenegro’s green transition. However, for the transition to result in a truly resilient economy, SMEs must be at the centre of efforts to redirect financial flows toward activities that enable climate change mitigation and adaptation. Today’s investment gaps in renewable energy, sustainable tourism, and agriculture are closely linked to long-standing barriers SMEs face in accessing finance, and even more so for green investments, where tools are still emerging, and data on market uptake remain scarce.
Globally, market-driven initiatives have accelerated the development of sustainable finance systems, and Montenegro’s Green Agenda commitments are pushing the economy in the same direction. Still, significant bottlenecks remain. SMEs continue to struggle with knowledge gaps, complex reporting requirements, and the absence of a national green taxonomy, all of which limit their ability to access targeted and affordable green finance (OECD, 2022[39]).
This section examines how the government addresses these constraints through tailored policies, capacity building, and regulatory reforms to ensure that Montenegro’s financial ecosystem aligns with EU standards in a way that is both effective and inclusive for its SME sector.
3.3.1. Supporting SMEs in an evolving sustainable finance framework
Montenegro is actively developing a national green taxonomy to classify sustainable economic activities, as part of a broader effort to align with international standards and advance its green transition objectives. However, concrete regulatory adoption in this area is still lacking. Encouragingly, discussions are underway to introduce formal regulatory measures as the framework matures, and the economy progresses toward EU integration.
The Central Bank of Montenegro (CBCG) is driving the shift toward sustainable finance, encouraging financial institutions and businesses to factor environmental, social and governance (ESG) criteria into investment decisions. Since adopting its Policy on Climate Change Challenges in 2022 and joining the Sustainable Banking and Finance Network in 2024, the CBCG has reinforced its commitment to channelling capital into sustainable projects. In 2025, it published the Financial Sector Roadmap toward Sustainable Finance, developed through an inter-institutional working group, which lays out practical measures to manage climate and nature-related risks for both public and private financial institutions. Importantly for SMEs, the roadmap highlights inclusive financing for green projects, with implementation set to begin in the third quarter of 2026, creating new opportunities for sustainable business growth.
While these steps help progressively lay the groundwork for sustainable finance in Montenegro, there are already tangible projects and initiatives coordinated by key government stakeholders to mobilise finance for green SME projects. Businesses can participate in public calls launched by the Eco Fund of Montenegro, such as grants for purchasing and installing energy-efficient equipment (total budget of EUR 760 000 in 2025) or financing project documentation in areas such as environmental protection, climate change, and energy efficiency (EUR 500 000 total funding). However, plans included in the MSME Strategy to develop a Climate Financing Strategy with support from the French Development Agency and operationalising a EUR 50 million credit line for green investments were not realised. The Climate Financing Strategy has not yet been adopted, and the credit line was dropped from the renewed MSME Strategy Action Plan 2025-2026 due to high financing costs.
According to the government, there has been strong interministerial collaboration since 2023 between the Ministry of Economic Development, the Ministry of Education, Science and Innovation, and the Ministry of Energy. A key result of this co-ordination is a programme implemented by the Innovation Fund that provides financial support to SMEs investing in innovative and energy-efficient industrial practices (see Section 3.4). Still, there is no governmental sustainable finance platform or other co-ordination mechanism that strongly integrates SME concerns into the development of the economy’s national sustainable finance incentives. However, an existing single access platform for businesses (biznis.gov.me) includes targeted programmes and budget items for green and circular projects that SMEs can consult.
Regarding the inclusion of sustainable finance in adult financial education, the National Programme for the Development of Financial Education 2023-2027 does not specify measures to raise awareness among entrepreneurs and firms about sustainable investment tools for implementing green or resilience-focused projects. However, it highlights the Association of Banks of Montenegro's efforts to cover sustainable finance across the European Union, Southeast Europe, and Montenegro in its widely available journal, a publication with strong credibility in the economy.
As Figure 3.3 shows, even under favourable conditions, only 12% of surveyed SMEs say that access to green finance or incentives would influence their operations or strategic decisions. This weak interest signals potential gaps in attractiveness of sustainable finance products, lacking awareness of the business benefits of greener practices, or also limited understanding of how sustainable finance instruments work and which activities would qualify for such financing.
Notes: n = 106, representing 0.2% of the total SME population. Total counts exclude responses of “DK/refuse”. The question was: “How do you perceive the following factors will influence your business decisions in the next 12 months?” - Availability of green finances and incentives under favourable conditions (such as energy efficiency loans).
Source: RCC (2024[11]).
Finally, the Chamber of Commerce conducts hands-on activities that educate companies on ESG standards and their integration into business strategies through seminars. Reinforcing a strategic approach in this area will become increasingly important, as demand for green financial products depends on firms’ understanding of the market and their ability to develop bankable projects that attract institutional investors.
3.3.2. Increasing SME access to sustainable (bank and alternative) financing
Given the diversity of SMEs in terms of size, sector, technological maturity, and location, firms require different financial solutions depending on their business models and stage of development. Broadly, three groups can be distinguished by role in the green transition: early-stage green start-ups (“innovators”) developing new technologies or business models; more mature green firms (“enablers”) scaling up innovative solutions; and established SMEs seeking to adopt greener processes, products, or technologies (“adopters”) (OECD, 2025[40]).
Sustainable finance is essential for green SMEs, as, unlike traditional finance, it integrates environmental performance into project appraisal, better capturing long-term value and accounting for longer lead times and higher upfront costs that many green projects face. However, beyond embedding sustainability in financing tools, stronger government action is needed to address structural barriers to SME lending through policies that reduce borrowing costs for SMEs while lowering the risks and costs of lending to higher-risk, green projects.
Montenegro’s financial system remains highly bank-centric, with banks accounting for over 93% of total financial assets and dominating financial intermediation (Central Bank of Montenegro, 2024[41]). As recognised in the MSME Strategy, short-term working capital loans dominate SME financing. Yet, these are not well-suited to innovators and start-ups with unfinished products or that lack tangible and collateralisable assets. Even adopters and enablers face access constraints due to insufficient collateral and a lack of tailored financial products (see Cluster 1). In fact, in 2021 only 27% of surveyed Montenegrin companies utilised bank finance in the past six months, although 50% viewed it as relevant (Kwaak et al., 2021[42]), possibly indicating a financing gap that could be due to complex application processes, high collateral and interest rates (EBRD, 2022[43]).
In this context, multilateral development banks have played a leading role in expanding SME access to sustainable finance, as the national ESG framework is still evolving. The EBRD’s SME Go Green Programme has been particularly important, combining concessional loans with grants and technical assistance to support SME investments. Launched with EU support in June 2025, the programme provides grant incentives of 10% of loan value (15% for renewable energy and agribusiness) and channels funding through credit lines to partner banks, including EUR 3 million to New Ljubljana Bank (NLB) Banka AD Podgorica and EUR 7 million the Crnogorska Komercijalna Banka (CKB) for SME sustainable technologies and energy-efficiency investments.
Currently, green loans dominate the Montenegrin green finance market, primarily targeting renewable energy and energy efficiency. However, reliable data on the supply and demand of SME-specific sustainable finance products remain limited. The National Development Bank of Montenegro, for example, offers 12 programme lines accessible to SMEs, including its infrastructure programme, which provides loans to support infrastructure and environmental efficiency projects, financing up to 50% of total investment costs, although these are not exclusively for SMEs.
Commercial banks frequently report that businesses applying for loans struggle to present bankable projects that would qualify for investment (Investitor, 2025[44]). This stands in contrast to the generally strong liquidity of Montenegro’s financial market, pointing to the need for a comprehensive approach to risk sharing and capacity building, both within the financial sector and among SMEs, to better align investment readiness with available green financing.
Efforts to de-risk investment in sustainable SMEs are emerging and are expected to boost investments in the green transition by mitigating banks’ perceived risk through targeted guarantee schemes and enabling concessional finance through banks that then offer improved credit terms, such as longer maturities and lower borrowing costs for SMEs. For this purpose, the government has adopted a new law establishing the Credit Guarantee Fund of Montenegro in 2025, with initial funding of EUR 10.6 million to improve SME access to finance. However, disbursements of funds will only begin towards the end of 2026. Green or climate-resilient sector developments are yet to be explicitly prioritised.
Beyond bank credit, other debt instruments are not sufficiently developed to increase SME access to green finance. Green leasing products, for example, are not available for SME adopters seeking to acquire resource-efficient equipment, and there are no data on leasing tailored to green investments.
Market-based financing still plays a limited role, although it could help more established, medium-sized firms fund environmentally friendly solutions and processes. There is no dedicated SME market segment to facilitate smaller firms’ participation in debt markets, and ESG criteria are not yet integrated into investment fund decisions. While no policy action has been taken since 2022 to address this gap, the Capital Market Authority was involved in developing the Financial Sector Roadmap toward Sustainable Finance mentioned in Section 3.3.1, signalling a commitment to incorporating sustainability-oriented investment objectives into capital market policy design.
Regarding equity finance, which is particularly relevant for SME innovators, recent legislative changes (including the Law on Alternative Investment Funds, the Law on Open-Ended Investment Funds with Public Offering, and amendments to the Capital Markets Act) have strengthened oversight, transparency and capital adequacy (see Cluster 1). While a few private equity and venture capital funds operate in Montenegro, data on their SME outreach and green focus are scarce, and demand from early-stage green firms is unknown. The Innovation Fund continues to rely exclusively on grants and does not mobilise risk capital.
Finally, in microfinance, most loans are extended to individuals rather than businesses, and the share of green loans is unknown. A 2025 amendment introducing interest rate caps on consumer loans may further increase microfinance institutions’ operational pressures and narrow their risk appetite, potentially weakening their role in financing underserved and higher-risk entrepreneurs (European Microfinance Network, 2025[45]).
The way forward
Finalise and embed the national green taxonomy in line with the Central Bank of Montenegro Roadmap, ensuring that it becomes fully reflected in the broader regulatory framework governing sustainable finance. This will provide clear guidance on which activities qualify as environmentally sustainable in Montenegro and help align financial flows with the green transition. Montenegro is encouraged to consider the EU taxonomy as the reference framework and gradually transition to it as part of its accession process to enable compliance. In doing so, it can draw on a series of OECD studies that describe taxonomy options used and draw on Member country experiences (OECD, 2022[39]; 2020[46]). The OECD Guidance Note on Fostering Convergence in SME Sustainability Reporting also presents practical instruments to help financial institutions develop reporting frameworks tailored to SME reporting capacities and aligned with key international standards, such as the Voluntary Standard for SMEs developed under the European Commission’s 2023 SME Relief Package (Koreen, Kuzmanovic and Honegger, 2025[47]). Montenegro should also strengthen co-ordination among relevant authorities and private sector stakeholders, particularly through the Green Taxonomy Working Group to create a platform that also improves SMEs’ access to sustainable finance instruments. The existing single-access-point platform biznis.gov.me could serve as a foundation for more prominently showcasing ESG-aligned financial products for SMEs and for sharing related tools and resources.
Implement SME green-financing measures set out in the Central Bank of Montenegro Roadmap and strengthen the role of the National Development Bank in delivering blended-finance instruments. This requires expanding beyond the current programme lines, which are not specifically targeted at SMEs or green investments. Drawing on the experience of donors and multilateral development banks, such as the EBRD, which has effectively partnered with commercial banks in Montenegro, can help tailor financial products to SME needs. This would also allow the government to improve risk-sharing mechanisms and build public understanding of the benefits and conditions of sustainable finance instruments. A good practice that Montenegro could follow is presented in Box 3.2.
Mobilise risk capital for green and resilience-enhancing SME projects through the Innovation Fund. The Fund should diversify beyond grant-based support to include equity financing for high-growth SMEs and promising business models. This would enable Montenegrin start-ups and businesses to innovate, scale to higher-value, technology-driven production, and strengthen competitiveness both domestically and internationally, particularly in S3-identified priority sectors and sectors key to securing long-term opportunities in local economies.
Ensure microfinance legal frameworks continue to support climate-vulnerable sectors and businesses. High levels of informality (see also Cluster 1) add to the challenges SMEs and entrepreneurs face in accessing funding for climate mitigation and adaptation. Recent legal changes should ensure that microfinance institutions can continue supporting high-need SMEs, positioning microfinance not only as a tool for enhancing resilience and green transitions in the informal sector but also as an incentive for businesses to formalise.
About the facility
SlovSEFF III is a programme implemented by the EBRD in partnership with the Ministry of Environment of the Slovak Republic and the Ministry of Agriculture, Food and Environment of Spain. The programme provides up to EUR 100 million in credit lines to local banks, which on-lend these funds to SMEs investing in sustainable energy projects.
How it works
The programme incentivises greenhouse gas (GHG) emission reductions by linking a project’s verified emission reduction potential to performance-based incentive payments. These incentives are financed through carbon credit transactions between the Slovak and Spanish governments. Loans are combined with capital grants ranging from 5% to 20% of the loan amount. Participating SMEs also benefit from technical assistance, including support for energy audits and GHG emissions calculations.
Eligible investments fall into three categories: renewable energy, industrial energy efficiency, and residential energy efficiency.
Impact
The programme financed 76 industrial projects (EUR 40.5 million) and 15 renewable energy projects (EUR 17.9 million), resulting in more than 114 500 tonnes of CO₂ emissions reductions. Industrial projects accounted for 61% of annual emissions reductions under SlovSEFF I and 37% under SlovSEFF II.
In the Montenegrin context, adopting a similar mechanism, potentially in collaboration with the national development bank, could help address limited sustainable investment capacity in local banks and support industrial SMEs in overcoming transition challenges, thereby accelerating emissions reductions.
Source: Federal Ministry for the Environment, Climate Action, Nature Conservation and Nuclear Safety of Germany (2018[48]).
To navigate rising uncertainty, especially in relation to the green economy, and to respond to fast-evolving market dynamics, particularly those tied to internationalisation and access to sustainable finance, Montenegrin SMEs need co-ordinated non-financial support and strong partnerships. These partnerships should span public and private actors and deepen co-operation among businesses, research institutions and other market participants.
Montenegro’s policy framework increasingly recognises the importance of building business ecosystems that help SMEs access resources, innovate and scale. Yet, practical support for cluster and value chain development remains fragmented and limited in scope, with most existing initiatives operating below international standards.
This section analyses strategic government efforts to strengthen business networks and deliver targeted support services that build SME resilience, competitiveness and readiness for the green transition.
3.4.1. Scaling up public non-financial support for SMEs in a green and resilient economy
Montenegro’s MSME Strategy 2023-2026 and its accompanying Action Plans include programmes to support SMEs in greening and resilience building. However, no evidence confirms a needs assessment or systematic framework to monitor SME capacity building and training needs for the green transition. While a broader MSME training needs assessment and a monitoring methodology were developed in 2023 (see Cluster 1), the circular economy, despite being a priority for the Ministry of Economic Development, was not substantively covered in the questionnaire sent to firms. Some feedback gathered from tourism companies on digital and green transformation suggests that many SMEs still require a basic understanding of greening principles and benefits, though such insight is crucially lacking for industrial sectors (Government of Montenegro, 2025[49]).
Available survey data from Montenegrin businesses indicate that most firms seek clearer guidance on environmental legislation and standards, alongside easier access to fiscal incentives and targeted education on sustainable production and consumption (Figure 3.4). While on average only 31% of businesses seek improved legislation on the green economy and environmental standards across the Western Balkan Six (WB6) economies, this share is notably higher at 48% in Montenegro (RCC, 2024[11]). This demand underscores a critical gap in policy communication and capacity building, as only 8% of SMEs in Montenegro also have a carbon neutrality strategy, compared to 21% in the European Union and 11% in the WBT region (European Commission, 2024[9]). If left unaddressed, these gaps could slow SME adaptation to sustainability requirements and limit the uptake of green investment.
Some progress has been made in addressing these needs in recent years. In co-operation with the Chamber of Commerce of Montenegro, the government organised a series of educational and promotional events to raise awareness of sustainability topics among SMEs.6 In 2023, this included 11 seminars on circular-economy concepts, reaching over 300 participants, as well as a national conference attended by more than 150 stakeholders. However, activity declined in 2024, with only five events held, no attendance data, and three training sessions focussed on extended producer responsibility.
Despite these efforts, some gaps remain. Training that would build SME capacity to navigate environmental and green transition regulations, access fiscal incentives, or report voluntarily on sustainability performance has not yet been implemented, limiting the impact of current initiatives on business transformation.
Percentage of surveyed businesses
Notes: n= 106, representing 0.2% of the total SME population. Total counts exclude responses of “DK/refuse”. The question was: “How can the government incentivise greening the business sector?”
Source: RCC (2024[11]).
Currently, Montenegro lacks a standardised non-financial support programme specifically designed to help MSMEs advance their green transformation. Existing initiatives are primarily financial in nature, such as the 2024 Programme Line for the Improvement of Production Capacities, the Programme to Encourage Innovation for Energy Efficiency in Industry, and the Programme for Improving the Competitiveness of the Economy.
While these programmes include some capacity-building components, their core focus remains on grant-based financial support rather than structured advisory or technical assistance. As a result, MSMEs receive funding opportunities but limited strategic or operational guidance to ensure long-term sustainability and impact. Most existing training and support measures in Montenegro focus on broad sustainability themes such as the circular economy, renewable energy and energy efficiency. While the Chamber of Commerce has also organised seminars on sustainable finance,7 there is still a lack of targeted initiatives addressing broader ESG integration, climate adaptation and business resilience.
In particular, SMEs lack structured guidance on adopting sustainability standards, embedding risk management into operations, and ensuring business continuity amid rising climate risks. Furthermore, current programmes do not sufficiently differentiate support based on business lifecycle needs or by the roles of different SME types (e.g. enablers and adopters) (OECD, 2025[40]). Feedback from government focus groups in 2023 revealed that early-stage entrepreneurs struggle most, with low awareness of available programmes, complex application procedures, and lengthy approval times, underscoring the need for more accessible, tailored SME support mechanisms.
3.4.2. Exploiting the power of networks for the sustainable growth of SMEs
Experience from OECD Member countries shows that targeted policies can successfully integrate SMEs into business networks,8 enabling them to benefit from knowledge transfer, innovation, internationalisation and productivity gains (OECD, 2023[50]; 2019[51]; 2008[52]). In the context of the green economy, expanding and strengthening such networks is essential for SMEs to access key resources such as data, skills and technology, and to improve their adaptability and resilience (see Annex).
Montenegro’s MSME Strategy places strong emphasis on enhancing SME integration into clusters and strengthening their participation in domestic and international value chains through improved export support. While the previous Strategy for Sustainable Economic Growth, which introduced the cluster concept and expired in 2016, achieved limited success, there is now renewed impetus to provide more effective support for the development of cluster functions. This momentum could help clusters evolve from their initial stages into sustainable structures that enable business transformation, particularly within the green economy.
The government contracted an external consultant to assess existing clusters in 2023. The unpublished document finds that cluster policies have been inconsistent, government support has been insufficient, and the legal framework has been challenging. Still, the Report on the Implementation of the Regional Development Strategy for 2024 states that activities in the cluster segment will not be continued, and broad cluster support was dropped from the MSME Action Plan 2025-2026. Instead of comprehensive government support for this area, which has seen no successful functioning of past cluster support measures, the MSME Action Plan references niche support for two specific associations. These are the Digital Creators and the Agro-food Lab under the Union of Young Entrepreneurs, which represent more targeted, small-scale interventions.
While the Ministry of Economic Development planned to create a new database of exporting and potentially exporting SMEs to identify opportunities for integration into domestic and international supply chains, the prepared data were lost as a result of the cyberattacks in Montenegro and only an analysis on the options for establishing such a database with recommendations was created. However, this document is not publicly available.
Overall, Montenegro’s cluster landscape remains underdeveloped and fragmented. Currently, there are 26 clusters in Montenegro, yet only 2 are registered on the European Cluster Collaboration Platform. Most of the clusters operate at low levels with weak linkages. The previous MSME Strategy lacked programmatic support to build SME capacities for stronger inclusion in sustainable value chains. More recently, although an initiative to identify firms with cluster potential was planned for 2024, it was ultimately not implemented, delaying progress toward stronger, more resilient business ecosystems.
Yet, ensuring effective implementation of the MSME Strategy, particularly its focus on strengthening supplier, production and knowledge networks (see Section 3.5.2), would create strong synergies with the objectives of the S3. The S3 places particular emphasis on developing high-tech clusters that foster co‑operation between innovative SMEs, large enterprises, multinational companies, research institutions, and public bodies, helping to build a more connected and innovation-driven economy.
More concrete progress in this direction has been made through the Montenegro consortium of the EEN (MontEENegro), which has been implemented under the EU Single Market Programme since 2023 (see Box 3.3). This initiative actively supports SME internationalisation, innovation and integration into European value chains, providing a practical mechanism for translating policy objectives into measurable business impact.
Policy context
Under the EU Single Market Programme 2021-2027, which Montenegro joined in 2023, the EEN is being implemented to help local SMEs access EU funding for competitiveness, innovation and supply chain integration. The initiative aims to simplify regulatory compliance, facilitate cross-border trade and strengthen the position of Montenegrin businesses within European value chains.
The national consortium, MontEENegro, brings together four partners: the Ministry of Regional Development and Cooperation with NGOs (as co-ordinator); the University of Montenegro; the Chamber of Commerce; and the Business Center Bar. The network supports entrepreneurs in accessing key business information, fostering partnerships and understanding EU legislation and procedures.
Operational aspects
MontEENegro delivers a broad range of advisory and networking services that directly strengthen SMEs’ competitiveness and green transition capacity. It assists companies in:
developing sustainable business strategies, identifying green-financing opportunities and connecting with partners, suppliers and research institutions
accessing EU programmes in areas such as innovation, digitalisation, internationalisation and sustainable value chain integration
using the Business Cooperation Database, which connects over 5 500 SMEs across Europe to identify potential business and innovation partners
participating in regular business-to-business meetings, trainings and seminars to build collaborative, innovation-driven SME ecosystems.
Policy impact
Through the EEN, Montenegrin SMEs gain stronger links to European markets and green production networks, accelerating their access to sustainable technologies and investment. Between 2023 and 2024, MontEENegro facilitated 27 business-to-business events, held over 450 matchmaking meetings, and resulted in 13 formal co-operation agreements. These outcomes demonstrate its growing role in building cross-border partnerships and supporting SMEs’ transition toward greener, more resilient business model.
Source: EEN Montenegro (2024[53]).
Positively, as part of its operational objective to prepare SMEs for export and support their access to foreign markets, the government has undertaken several initiatives to expand SME networks and integrate them into value chains. The MSME Strategy Implementation Report highlights the significant potential for collaboration and joint projects with economies facing similar priorities and challenges, including other WB6 economies, as well as high-growth EU markets such as Croatia, the Czech Republic, Romania, the Slovak Republic, Slovenia and strategic regions such as Normandy in France. These initiatives strengthen SME internationalisation and open pathways for sustainable business growth.
Furthermore, the government facilitates SME participation in international business fairs. Between 2023 and 2024, 28 fairs were supported, involving over 300 companies. However, there are no available data on the number of co-operation agreements concluded or the extent to which sustainability and green sector priorities were incorporated. This highlights a disconnect between the MSME Strategy’s strategic objectives, the one focussed on SME network expansion and market access, and the goal of promoting growth in the green economy.
The way forward
Strengthen capacity building and technical assistance within SME financial programmes. Government support services aimed at facilitating SMEs’ green transition should be developed based on the priority needs of each key sector (including tourism, ICT, energy and agriculture). As existing data suggest, clearer guidance on environmental regulations and standards, and practical help in navigating fiscal and financial incentives, emerge as particularly important. This will require expanding mentoring and advisory services, improving awareness of green transition opportunities, and tailoring support to the specific needs of firms at different stages of growth, sizes and levels of export orientation.
Identify firms with strong cluster potential and align cluster development policies with the Smart Specialisation Strategy (S3) priority areas. A systematic mapping of SMEs and potential cluster focus areas, building on the 2023 assessment of existing cluster structures and the government’s analysis for the export-potential database, is essential for targeted interventions. This work should be integrated into the upcoming S3 revision. All generated data insights from the mapping must directly inform new cluster development measures and be embedded in both the S3 and the MSME Strategy to maximise impact and accelerate the green and competitive transformation of SMEs. Developed clusters would also benefit from industrial symbiosis, which supports the circular economy by allowing collective action in industrial sectors where byproducts of waste flows of one industry become input materials for another, deepening interlinkages between industries and clusters (see Box 3.4).
Develop indicators to track how SME network development contributes to the green transition. The Ministry of Economic Development has implemented numerous matchmaking and networking initiatives, particularly in supplier and production networks, but their contribution to green transition objectives remains unclear. Establishing a targeted set of indicators would enable Montenegro to monitor the effectiveness of these networks and assess how they support progress toward the Green Agenda commitments within the private sector.
About the marketplace
The Albo Circular platform was launched in 2023 by Confindustria Emilia Area Centro as a free online marketplace to support companies offering or seeking circular-economy solutions. The platform enables Italian firms to post listings and search for suppliers or partners by company type or waste stream, including paper, wood, construction materials, metals, plastics and organic waste. It also connects companies with circular-economy service providers, such as those offering material analysis, certification, validation services and lifecycle assessments. By facilitating these exchanges, Albo Circular promotes industrial symbiosis, resource efficiency and new forms of inter-firm collaboration.
How SMEs could benefit
Industrial symbiosis generates multiple benefits for SMEs, including reduced raw material costs, lower waste disposal fees, and new revenue streams from byproducts and residual materials. Participation also helps firms strengthen their environmental performance and market positioning, while fostering innovation through collaboration within and across value chains.
In Montenegro, a similar digital marketplace embedded in a cluster development approach could help SMEs identify local circular-economy opportunities, reduce resource costs, and build partnerships within industrial zones or sectoral clusters. Such a platform, supported by business associations or development institutions, could play a catalytic role in advancing SME greening, competitiveness and regional value chain integration.
Sources: European Cluster Collaboration Platform (2023[54]); Confindustria Emilia Area Centro (2025[55]).
Business research and innovation activities are central to an enterprise’s ability to adapt, reduce emissions, and withstand external shocks. For SMEs in Montenegro, scaling up innovative practices will be crucial to boosting productivity, strengthening their positioning within value chains and staying competitive as market conditions continue to shift. Montenegro performs relatively well compared to the EU average on several SME innovation indicators, including having roughly twice as many product innovators in 2024 and a higher share of SMEs collaborating on innovation (European Commission, 2024[56]).
While these are important strengths, the economy has not yet succeeded in building strong innovation clusters aligned with its S3, and the broader innovation ecosystem remains underdeveloped. Sustaining progress will require more deliberate efforts to expand knowledge networks, deepen co-operation between SMEs, academia and research institutions, and support the emergence of high-quality innovation ecosystems that can anchor long-term competitiveness in a sustainable economy.
This section examines how well government strategies are translated into advanced innovation infrastructure, effective incentives, and strengthened SME knowledge networks that enable sustainable transformation.
3.5.1. Advancing strategic innovation for a green and resilient economy
Montenegro’s innovation policy framework is primarily guided by the MSME Strategy 2023-2026, which aims to stimulate innovation among SMEs, complemented by broader strategies such as the expired S3 2019-2024 and the Strategy for Scientific Research Activities 2024-2028. The latter builds on and continues the S3 priorities. Elements of green and resilience-enhancing innovation are further addressed through sectoral strategies, notably the Adaptation Strategy for Tourism and the Circular Transition Strategy, which promote sustainable and circular business models.
According to the implementation reports of the MSME Strategy, Montenegro has made visible progress in fostering SME innovation. The number of programme lines supporting innovation increased from two in 2022 to eight by 2024, reflecting a stronger policy push. Over 100 SMEs received grants for the early commercialisation of new products and services. At the same time, several initiatives were launched to boost participation in Horizon Europe, EUREKA, and the EEN, expanding access to international innovation networks. Implementation of the Circular Transition Strategy also shows tangible results, with over 30 agricultural enterprises receiving up to EUR 150 000 each to adopt innovative technologies and practices, alongside other projects focussed on product optimisation, circularity and energy efficiency.
A major recent development was Montenegro’s adoption of the Law on Incentive Measures for the Development of Research and Innovation in October 2025, and the Rulebook detailing the conditions for acquiring beneficiary status and control over the use of incentive measures. This law is critical for expanding the scope and impact of innovation incentives economy-wide. Beyond existing grant-based programmes, research and development (R&D) tax incentives are still the main fiscal tool for promoting SME innovation. Yet, there is no clear evidence of their effectiveness, particularly in driving green or sustainability-oriented innovation. In this context, the 2024 Renewable Energy Law represents an important step forward, with its provisions for prosumers (including simplified connection procedures) expected to accelerate renewable energy adoption among SMEs and strengthen their role in the green transition (Parliament of Montenegro, 2024[57]).
Other instruments, such as public procurement of innovation, remain largely underdeveloped in Montenegro. Some progress is being made to integrate innovation-based and sustainability-related criteria into selected procurement frameworks, but these efforts are still at an early stage.9 At present, there is also no central mechanism for SMEs to access clear information on available innovation incentives. Support measures remain fragmented across multiple policies and institutions, and no comprehensive evaluation system exists to assess whether these incentives are effectively driving SME innovation and productivity gains or contributing to the green transition.
Finally, regarding the intellectual property (IP) framework, SMEs in Montenegro can access advisory services on IP management through EU-funded networks and the Intellectual Property Office, which also collaborates with innovation hubs such as the Technopolis Center to provide first-line support. SMEs may receive preferential treatment for sustainable technologies that enhance ESG performance, but only when participating in specific grant schemes or EU-funded programmes.
Beyond these limited channels, there are no dedicated incentives or support measures to stimulate innovation focussed on the broader green transition or on more targeted topics such as climate adaptation or climate risk resilience, leaving significant untapped potential to align IP policy with sustainability objectives. The latest available data on sustainable innovation also corroborates this. In 2019, 33.3% of Montenegro’s patents relate to environmental technologies, a share notably higher than both the EU average (12.9%) and the average across five other Western Balkan economies (20.9%) in 2018 (OECD, 2023[58]). However, these statistics are inconsistent over time for both Montenegro and some WBT economies, which limits their reliability, especially when compared with more robust data on overall innovation performance in Montenegro and the wider Western Balkan region (European Commission, 2025[59]). This suggests that while there is clear potential for sustainable innovation, more systematic policy support, investment and monitoring are needed to translate these early results into a consistent and strategic driver of green growth.
3.5.2. Capitalising on knowledge networks for driving SME innovation
As Montenegrin businesses seek to strengthen their resilience and seize opportunities in the green economy amid broader megatrends (see Section 3.1), the role of inclusive and connected innovation ecosystems is becoming increasingly critical. SMEs need accessible pathways to partnerships, research networks and resources that help them develop new business models and compete in markets driven by knowledge and technologies. To unlock this potential, deeper collaboration between SMEs, public research institutes, universities and other enterprises is essential. This would enable effective technology transfer, accelerating the adoption of sustainable innovations, and positioning Montenegro for long-term, green-led competitiveness.
Montenegro offers several technology-extension services across the economy to support innovation and enterprise development. The Innovation and Entrepreneurship Centre Tehnopolis provides agro-tech labs, prototyping support, and incubation services for start-ups and innovative projects. Complementing this, the Science and Technology Park (STP) of Montenegro, opened in June 2024, serves as the only government-backed technology transfer office, facilitating collaboration between research and industry. The University of Montenegro also plays a central role in STP, which acts as both an accelerator and incubator, supporting innovation, start-ups and the growth of new enterprises.
While Tehnopolis focuses on supporting sustainable agriculture and other green innovations linked to the bio- and blue economy or broader sustainability sectors, the STP promotes green innovation by aligning its support with the S3 priority areas. Both institutions have provided tangible support to SMEs in the green economy since 2022, including through donor-funded programmes, such as Interreg and Erasmus+, as well as development agency initiatives. However, the overall scale of support remains limited, with only around five to six domestic SMEs benefitting from incubation or programme-based support for green business models each year.
The Innovation Fund of Montenegro also plays a key role in fostering scientific co-operation, research and innovation between businesses and academia. Since 2024, it has operated a voucher scheme, with the 2025 edition increasing funding per voucher from EUR 8 000 to EUR 10 000 and allocating 70% of the budget to projects aligned with S3 priorities. This approach encourages scientific research and commercialisation of innovations that support both digitalisation and the green transition. Based on prior evaluations of voucher accessibility, the application and documentation process was also simplified for SMEs, reflecting a clear commitment to enhancing impact and participation.
The Action Plan of the Strategy for Scientific Research Activities (2024-2025) identifies two key instruments under the Innovation Fund to promote science-economy collaboration: the Collaborative Innovation Grant Programme and the Proof-of-Concept Programme. However, both primarily support ICT-focussed projects under the S3, with limited attention to sustainable technologies and SME-driven green innovation. Other relevant initiatives include the Promotion of Participation in EUREKA and the Instrument for Pre-Accession Assistance (IPA) 2020 grant scheme, and Scientific Potential in the Service of Innovation, which aim to strengthen collaboration between academia and businesses in line with S3 priorities. As of 1 January 2023, eight approved projects under these programmes have begun implementation.
While the Collaborative Innovation Grant Programme does not specify evaluation criteria for green or sustainable collaborative innovation, one out of six projects selected in 2024 focussed on waste valorisation (no data publicly available for 2023). The Proof-of-Concept Programme, in contrast, includes a dedicated environmental impact assessment (see Box 3.5), ensuring alignment with Montenegro’s sustainability standards and green transition commitments. In 2024, 1 of 11 projects targeted the sustainable tourism sector, and in 2023, one of seven funded projects focussed on renewable energy generation.
Policy context
The Innovation Fund of Montenegro recognises that all projects it supports can generate both positive and negative environmental impacts. Aligned with national environmental regulations and government climate commitments, the fund aims to steer R&D toward sustainable practices and technologies. To achieve this, it has developed a Framework Programme for the Management of Environmental and Social Issues, which defines procedures to ensure supported projects protect and preserve natural resources.
Operational aspects
The framework is currently not applied to all innovation-support programmes, but implementation is expanding. The fund hires external ESG experts to ensure alignment with the framework’s provisions. The framework outlines relevant national legislation and the obligations of funding beneficiaries, with the environmental impact assessment (EIA) serving as its core tool.
All projects subject to the framework undergo initial screening to determine environmental risk:
Low risk: Exempt from an environmental management plan (EMP).
Medium risk: Requires an EIA and EMP before financing.
High risk: Ineligible for funding.
Medium-risk beneficiaries must prepare an EMP that undergoes public consultation and revision, after which the fund reviews the project’s eligibility. Projects with negligible impacts are approved, while those requiring mitigation measures must comply with agreed actions. Projects where mitigation is not feasible are rejected. Once approved, the fund, together with the ESG experts, conducts field and administrative supervision to ensure compliance until project completion, upon which a final evaluation is done.
Policy impact
The framework provides practical guidance for SMEs and their partners on preparing EMPs and embedding greener practices in innovation project design. By making tools and templates accessible, the fund helps build SME capacity for sustainable innovation. Moreover, the framework enables the fund to prioritise low-impact projects, organise training on sustainable practices, and improve monitoring of green performance indicators, strengthening Montenegro’s alignment with EU sustainability standards and the green transition agenda.
Source: Innovation Fund of Montenegro (2025[60]).
These examples indicate that support for innovation partnerships contributing to SME resilience and sustainability is gradually taking root in Montenegro. However, the overall scale remains limited, and the uncertainty regarding programme continuation beyond 2025 raises concerns about the sustainability of funding and strategic alignment, particularly with the yet-to-come revision of S3.
The way forward
Ensure a clear, targeted incentive framework that accelerates the adoption of green, resilience-enhancing technologies by SMEs. Now that the Law on Incentive Measures for the Development of Research and Innovation has been adopted, the government is encouraged to ensure that SMEs can easily access and understand the full incentive landscape. This includes providing clear guidance, practical information, and awareness raising on how individual instruments work and the benefits they offer. Targeted outreach will be essential to enable effective uptake and support sustainable innovation. The Chamber of Commerce of Montenegro, in co-ordination with the Innovation Fund, building on its experience in organising information days and SME outreach, could play a central role by convening meetups, offering tailored application support, and providing training to improve SMEs’ success rates in accessing these incentives.
Improve indicators and data collection on the relationship between innovation, productivity and SME resilience. Current monitoring does not provide a clear picture of how past measures have contributed to innovation uptake, productivity gains or resilience improvements in the SME sector. Developing robust indicators and systematically tracking outcomes is essential for assessing what works, refining policies, and directing resources toward high-impact interventions. Montenegro can look to OECD Member country practices that have yielded concrete results in this matter (see Box 3.6).
Accelerate the integration of innovation-based and sustainability criteria into public procurement frameworks to drive market demand for greener, high-value SME solutions. With the electronic public procurement system (see Section 3.1.2) now able to collect data on the use of green award criteria in contracts, its coverage could be expanded in the future. To maximise impact, the Government of Montenegro should consider explicitly incorporating innovation-oriented criteria to help create a procurement system that rewards SMEs in the procurement process for developing sustainable, resilient, and technologically advanced products and services.
Scale the impact of technology transfer offices and related innovation-support institutions. Expanding both the financial resources and technical capacities of technology transfer offices, such as the STP, and other technology-extension services, including Tehnopolis, is essential. It will also be important to ensure that all S3 priority areas receive balanced attention. This could be achieved through measures such as setting quotas or applying EIA frameworks more consistently across a broader range of Innovation Fund programmes. Together, these efforts would better align innovation support with Montenegro’s Green Agenda goals. They would help SMEs adopt greener technologies, strengthen their resilience, and accelerate the shift toward sustainable practices across industries.
In Canada, the national statistical office collects data on energy R&D expenditures by technology area through its Annual Survey of Research and Development in Canadian Industry. This provides a detailed picture of business investment in clean energy innovation, including long-term data on the share of in-house energy-related R&D in areas such as energy efficiency, hydrogen and fuel cells, and electric power. As Figure 3.5 shows, from 2014 to 2022, energy efficiency increased from 5.8% to 21.5%; hydrogen and fuel cells, from 3.6% to 11.1%; and electric power, from 3.7% to 13.5%.
In CAD millions
Sources: Based on OECD (2025[61]) with data from Statistics Canada (2024[62]).
Montenegro could adopt a similar approach, with a narrower focus on SMEs that have received innovation support. Tracking their in-house R&D before and after support over several years would help assess whether policy measures have lasting effects. This could be complemented by monitoring SME greening and productivity indicators, such as SME GHG emissions, energy consumption levels, emission intensity and price burden, to assess resilience to price volatility (OECD, 2023[63]).
Source: OECD (2025[61]).
Networks play a major role in increasing resilience as a certain degree of redundancy and diversification across nodes helps to reduce interdependence, promote risk management culture, reduce the cost of shock mitigation and allow for easier recovery and adaptation (Brende and Sternfels, 2022[64]; OECD, 2004[65]; OECD, 2023[66]). SME networks can take different forms comprising various actors that exchange products, services, knowledge, and other resources. They can be divided into four main types, with the according typology illustrated in Figure 3.A.1 below.
Sources: Based on OECD (2023[2]), drawing on EC/OECD (2023), Unleashing SME Potential to Scale Up, https://www.oecd.org/cfe/smes/sme-scale-up.htm, Phase II on Network expansion; EC/OECD (2023), Fostering FDI-SME Ecosystems to Boost Productivity and Innovation, https://www.oecd.org/industry/smes/fdi sme.htm, Phase II on FDI-SME linkages and ecosystems.
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← 1. While Montenegro has set a coal phase-out date for 2035 (Ministry of Energy and Mining, 2025[67]), the decommissioning of the Pljevlja thermal power plant is currently planned for 2041. The Executive Director of the Pljevlja Coal Mine has expressed that an earlier transition would be preferable, though this will depend on the development and implementation of a just transition plan for the plant (Bankar.me, 2025[68]). The plant has been disconnected from the grid since 31 March 2025 for environmental remediation work to extend its service life in line with environmental standards. The EUR 54.4 million project includes works to enable desulfurisation, denitrification and noise protection facilities, as well as a district heating system for the city of Pljevlja.
← 2. Although Montenegro, as the only Contracting Party of the Energy Community, has an operational emission trading system, there is a significant price gap. The domestic price for carbon is fixed at EUR 24 per tonne of carbon dioxide equivalent (tCO2eq), whereas the EU ETS benchmarks averaged EUR 56.63 tCO2eq in 2024. It is estimated that at this rate, EU importers could face a total annual CBAM cost of approximately EUR 189.9 million that would massively shock the competitiveness of Montenegrin exports (Energy Community, 2025[69]).
← 3. According to the Ministry of Energy and Mining of Montenegro, during a meeting with the European Commission in December 2025, the Carbon Border Adjustment Mechanism was identified as one of the country’s main priorities. Recent reforms, particularly the Law on Energy and related by-laws, have aimed to fully align Montenegro’s legal and strategic framework with European Union requirements (Todorović, 2025[70]).
← 4. In 2025, the government launched the Investment Support Programme (Ministry of Regional-Investment Development and Cooperation with Non-Governmental Organizations) with a budget of EUR 1.2 million. It is intended for SMEs and entrepreneurs and offers co-financing for equipment, strengthening production activities and economic potential, and encouraging production and business results. This programme includes Support for Key Investments (EUR 700 000) and Support for Small and Sustainable Investments (EUR 500 000). The support intensity is up to 50% of eligible costs, and increased support up to 80% based on the classification of local government units by development level. Through this programme, the ministry aims to promote investment projects that contribute to strengthening domestic production, advancing digitalisation and the green transition, modernising infrastructure, developing innovative services and products, and promoting inclusive employment, particularly for youth and women.
← 5. Under representative concentration pathway (RCP) 4.5.
← 6. On 4 April 2023, for example, the Chamber of Commerce of Montenegro (2023[71]), in co-operation with the Center for Climate Change, Natural Resources and Energy of the University of Donja Gorica, E3 Consulting and AvantGarde Group, organised a seminar on the topic of ESG principles in corporate business and decarbonisation.
On 16-17 May 2023, the Green Economy Conference, organised by the Chamber of Commerce of Montenegro (2023[72]), the Ministry of Economic Development, and the Ministry of Science and Technological Development, was held. The meeting was organised within the framework of the Montenegrin chairmanship of the South East European Cooperation Process (SEECP), with the aim of initiating a discussion on the green economy from multiple angles that could lead to the conclusions necessary to define guidelines for sustainable growth and development.
In March 2025, the Chamber (2025[73]) also participated in a panel held as part of the Sustainable Finance Forum organised in Podgorica by the Center for Finance to talk about the importance of sustainability and innovation in the economy.
← 7. On 20 November 2024, the Chamber of Commerce of Montenegro (2024[74]) organised a seminar called "Challenges and Importance of Implementing a Sustainable Business Report as Part of ESG". This The seminar underlined the role of developing non-financial reporting to enhance transparency and the positive ESG impact of companies.
← 8. Networks are systems of connected actors that enable the exchange of information, products, services, assets and/or resources. They may be supported by physical infrastructure, formal agreements, or remain informal relationships (OECD, 2023[2]).
← 9. The Ministry of Economic Development is a partner in the implementation of the “GPP2ADRION project – Fostering the adoption and implementation of Green Public Procurement procedures to promote a transition towards a circular economy”. This project, running between September 2024 and August 2027, is implemented within the framework of the Interreg IPA programme for the Adriatic-Ionian region (IPA ADRION). Its aim is to promote the adoption of green public procurement in the Adriatic and Ionian region, with the aim of overcoming barriers to the transition to a circular economy. To do so, the project will develop a common knowledge base within selected economies and boost the demand and offer of circular products and services (Interreg IPA ADRION, 2024[75]).