In recent years, Montenegro has experienced how high exposure to capital from an authoritarian country can undermine its stability and foreign policy goals. The Adriatic country’s recent tribulations demonstrate how a few poor choices can jeopardize state sovereignty. Given Montenegro’s popularity as a foreign investment destination as coupled with a hefty reliance on tourism, its economy is highly vulnerable to external actors. Disconcertingly, two in particular – Russia and China – are adversarial to Montenegro’s democratic progress.
Russia has been the largest investor in Montenegro for years. The total value of investments from Russia from 2006-2018 was approximately EUR 1.3 billion/30.9% GDP. The floodgates opened in 2005, when Russian billionaire Oleg Deripaska moved to buy the Podgorica Aluminium Plant (KAP) and bauxite mines in Niksic. At the time, the mighty KAP comprised over 50% of total exports, amounting to 15% of GDP.
Although KAP went bust, Deripaska’s imprimatur catalyzed Russian foreign investment. Numerous Russian investors took advantage of the following: The absence of an investment verification system, weak controls over the allocation of state aid to strategic industries, and privatization processes bereft of transparency and accountability.
Russia’s corporate presence has declined dramatically due to EU sanctions in reponse to Russia’s invasion of Ukraine, Deripaska’s departure, and Montenegro’s deepening engagement in transatlantic and European institutions. Nonetheless, Russia remains among the top five investors in the country.
Chinese investment in Montenegro is likewise significant, providing funds for infrastructure projects that would be challenging to acquire otherwise. As Western financial institutions have stricter lending policies, China’s seemingly “easy” money has proven too enticing, despite the loans’ dangerously one-sided (i.e. Beijing’s) terms.
A key example is the Bar-Boljare highway, paid for with Chinese loans as part of its Belt-and-Road Initiative. The environmental impact of the boondoggle known as the “Highway to Nowhere” is bad enough. Significantly more disconcerting is Podgorica’s exposure to Beijing. A 2019 report from the Munich Security Conference estimated that 40% of Montenegro’s total external debt is currently owed to the PRC. As a consequence of this loan, Montenegro’s debt is expected to approach 80% of its GDP. For a small country whose economy is highly reliant on its tourism sector, the COVID-19 pandemic has left this NATO member state dangerously vulnerable. Due to the pandemic, the highway project is in a state of uncertainty without any clear signs of its successful completion.
Economic dependence leads to political dependence on authoritarian states that thwart democratic consolidation. Only with the strengthening of democratic institutions, prosperity borne of substantive economic reforms, and a victory over a culture of corruption will Montenegro be less susceptible to the allure of filthy lucre from autocrats and their lenders.
 Central Bank of Montenegro.
 Portions of this segment were originally published in the Balkan Insight, in an article "Montenegro Must Escape its Dangerous Dependence on ‘Corrosive Capital’:" https://balkaninsight.com/2020/08/19/montenegro-must-escape-its-dangerous-dependence-on-corrosive-capital/