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Policies for human capital development in Montenegro

An ETF Torino Process assessment

Release Date
21 Feb 2020
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3. ASSESSMENT OF KEY ISSUES AND POLICY RESPONSES

As briefly mentioned in Chapter 2, throughout the analytical documents related to human capital in Montenegro, whether country-led or produced by development partners, one may capture two main types of challenges:

those related to the structural skills mismatch through which employers' needs are not covered, neither by the training provided to young people as IVET, nor by the continuing training to employed adults or by the active labour market training measures offered to unemployed people. This skills mismatch is closely linked to the inappropriate level of quality and relevance of the training provision;

those related to the difficulty setting up genuinely shared governance of the VET system which would increase the effectiveness and impact of the policy, hence reinforce the policy capacity for VET, by seeking consensus about the reform choices, by sharing responsibilities in their implementation, and by imposing a collective monitoring and evaluation process for all policy measures and its reforms.

Policy responses have endeavoured to address these challenges, with uneven success so far, or rather with insufficient implementation time to enable proper assessment of their effectiveness. For each of these challenges, the next two sections aim to:

  1. analyse the situation;
  2. identify the policy responses to date;
  3. formulate recommendations for further progress.

3.1 Addressing and preventing the skills mismatch

The skills mismatch is identified by national stakeholders as one of the most worrying issues for HCD and use in Montenegro. Together with the lack of job creation, it is considered a key obstacle to growth and competitiveness. It has called for a diversified set of policy measures, yet more could be done to better articulate efforts and increase overall impact.

Analysis of the skills mismatch

In addition to regular analyses of labour market demand[9] See EAM labour market demand analyses, including vacancy monitoring, and similar studies done by business sector associations.
 and a recently established graduate tracking system[10] A tracer study is due to become a regular practice of the MoE.
, four relevant studies done in Montenegro over the last few years have contributed to an evidence-based picture of existing or emerging mismatches, reasons behind these and possible policy approaches, namely the Directorate-General for Education and Culture (DG EAC) study (2016), the ILO youth school-to-work transition (2016), the Montenegrin Employers Federation (MEF) study on mismatch between education and labour market needs (Radovic et al., 2016) and the ETF skills mismatch measurement study (2019). Below are the main conclusions from these works.

The skills mismatch is a combined consequence of a fast-changing labour market supply, which translates into loss of jobs (decreasing labour force demand), a lack of job creation and a limited or lengthy adaptation of the education and training supply to the new needs, both from a quantity and quality point of view. This is worsened by the fact that many VET students continue studying after graduation instead of going into the labour market.

The process of transition from a planned, production-oriented economy to a liberal service-oriented market has required a necessary adaptation and redistribution of the workforce between sectors, from production to services. This has led to a change in the demand for qualifications, as well as to closing some and opening up other job positions; however, this has not been balanced and the job vacancies have not been able to absorb workers who were made unemployed. This is one of the most important explanations for the skills mismatch. This cannot be solved by VET reform efforts alone, but curricula revision and provision supply planning can in theory contribute to finding solutions. Changes in the formal education system realised in view of adapting it to the new economic structure, although significant and in the right direction, cannot respond quickly enough to the new demands for workforce and dynamic changes in the labour market.

As per the EAM data (2016), total labour force demand (by employers) is 2.7 times lower than labour force supply. The first obstacle to a well-functioning labour market is a lack of job opportunities in absolute terms.

On average, the labour force demand decreased in the period 2015–16 by 10.4%. Tourism, trade and construction sectors registered the highest shares in demand. Looking at qualification levels, labour force demand increased for unqualified and semi-qualified people. The reason for such trends could be found in intensive economic activities in tourism and construction sectors, for which employers seek (possibly due to misinformation about opportunities or pressure on salaries) unskilled and lower educated people. Vacancy monitoring and other analyses reveal that there is still a strong demand in occupations requiring secondary and primary level of education, most vacancies being recorded in trade, administrative and auxiliary services, and tourism and the hospitality industry.

Although there is still a low percentage of highly educated people compared to many EU countries, there is also not enough demand for tertiary-level graduates. Some figures illustrate this issue: in 2017, 1 597 occupations were recorded (NRF, 2019, p. 14). There was demand for 721 of these occupations, but not for the remaining 876. For 510 (out of 721) of the requested occupations, the offer (observed as the sum of the number of unemployed at the beginning of the period and the number of newly registered) was higher than the demand. As for 103 occupations, the offer was equal to demand, and in 108 occupations, the demand was higher than the offer.

From the supply side, between 2015 and 2016, the labour force availability increased by 11.5%. More than one-third of the total supply are persons without work experience and 20% are younger than 25. On the other hand, a significant proportion of registered, often long-term, unemployed people are formerly employed people, whose knowledge and skills mirror the structure of labour and skills demands specific to the old economic structure and are obsolete.

Behind these average trends hide additional challenges for better skills matching:

regional disparities: some regions (namely the northern region) suffer more structural unemployment due to lack of economic opportunities;

informality: in more dynamic regions, where activity is generally seasonal (tourism or construction), this is often associated with a high incidence of informality.

Key findings of the 2018 measurement of skills mismatch incidence in Montenegro (ETF, forthcoming) show that:

  1. young persons are the most affected by the skills mismatch (30- to 49- and 50- to 64-year-olds are less affected);
  2. occupational mismatch in the form of over-qualification is higher for people with tertiary-level education, though this is a decreasing trend, while the incidence is lower but increasing for those with secondary-level education;
  3. women with upper secondary education are more exposed to the risk of working in mismatched occupations (compared to their male peers);
  4. decreasing shares of NEETs over the last three years indicate that the school-to-work transition has become easier and young people are finding jobs quicker than before; it seems, however, that the school-to-work transition is slightly quicker and easier for young males;
  5. VET graduates tend to have higher employment rates compared to people who graduated from general secondary education programmes.

First-time jobseekers face challenges in employment as employers increasingly require additional knowledge, practical skills and competences, capacity to perform jobs independently and the ability to carry out tasks within the profession, on top of qualifications acquired in regular education. This supposes a good level of key competences.

The skills mismatch manifests itself at secondary and higher education levels; it stems from high levels of people transitioning from VET to HE and to programmes less relevant for labour market needs. There seems to be an oversupply of HE graduates, particularly in low demand professional fields such as law or humanistic areas, leading to a high level of graduate unemployment.

The DG EAC study (2016) anticipated these findings, as it states that the main reasons graduates have difficulty finding jobs include the lack of available jobs and the fact that the HE system does not equip graduates with relevant skills. Social capital may end up being an impediment: there is a high reliance on friends and family when finding a job and this leads to inefficient recruitment practices. Having some work experience is important in enabling graduates to achieve a successful transition to the labour market in terms of both the probability of finding a job and of finding a job well matched to the field of study followed. Although graduates have strong numerical, reading and writing skills, employers are more concerned with the absence of interactive skills and report serious and growing skills gaps in this area. While most graduates are employed by large enterprises, much of the recent increase in graduate employment has been in fast-growth small and medium-sized enterprises (SMEs) called gazelles. These may be an important source of graduate employment in the future, hence the importance of building up entrepreneurial skills and a suitable mindset. For employers, the most important skills are sector-specific skills (for which vocational courses are relevant), computer skills, and analytical and problem-solving skills (i.e. a mix of cognitive and interactive skills). The relative weakness of such skills (apart from computer skills) among graduates indicates a major challenge facing employers, which many of them solve by providing additional training to their graduate recruits.

The ILO study, 'Labour market transitions of young women and men in Montenegro' (Djuric, 2016), applied to a youth cohort of 15- to 29-year-olds. Key findings point out a slightly higher incidence of overeducation among young workers (11.4%) than undereducation (8.0%). At aggregate level, the majority of young workers (80.7%) have managed to find work that is well matched to their level of qualifications. Among young people working in elementary occupations (ISCO group 9), more than half (53.6%) have a higher educational level than the primary level degree expected for effective performance in the job. The other occupations in which overeducated young people are primarily found are clerks (where 25.7% are overeducated) and service and sales workers (12.8%), but they are also found among technicians, associate professionals and plant and machine operators.

Cross-institutional collaboration is essential for early warnings about emerging mismatches and to tackle causes and effects of such imbalances, as stated in the report on the mismatch between education and labour market needs (Radovic et al., 2016) developed by the MEF. This paper recommends improved quality of education, effective active labour market policies, career guidance and lifelong learning. Enhanced cooperation between stakeholders could also serve a periodical in-depth analysis of mismatches using available data (Monstat, EAM) and additional empirical surveys/studies with an underlying methodology compatible with European practices to allow comparability.

In all instances, there is a need for larger investments in skills development and updating. This requires financial input, not only from the state but also companies, as they would have direct return on investment, in productivity terms in particular.

Policy responses

To address the skills mismatch from an education and training perspective, numerous measures have been taken, illustrating the priority that the Government of Montenegro has given to this issue. The Ministry of Labour and Social Welfare seeks to address these gaps, with a focus on improving cooperation of employment offices, municipalities and other actors at local level, to deliver tailor-made activation services to jobseekers and exposed social groups. Most active labour market measures implemented are subsidised employment schemes, while provision of (re)training and start-up incentives remain scarce (mainly due to underfunding). This is worrying since most unemployed people have low levels of education or hold mismatched qualification profiles against the labour market demand. Part of the solution relies on greater involvement of the private sector. The measures need to target all stages of the training path, from initial choice of relevant and in-demand occupations to successful integration into the labour market. These measures belong to different strategic frameworks, including the National Strategy for Employment 2016–20, the VET Strategy and the Strategy for SME Development.

Below is a summary of some of the key measures and policies that have been or are being put in place to address the issues.

  1. Active labour market policies: intermediation and outplacement support to improve the school-to-work transition for the available labour force. Specific projects have been designed and are currently being implemented to facilitate young people's inclusion in employment, for example:
    • The 'professional training of people with acquired HE' has been implemented since 2012 in cooperation between the EAM and the MoE. It supports internships for a period of 10 months after university graduation, for young people without experience. From around 3 000 beneficiaries per year, between one-third and half get a job after (NRF, 2019, pp 39–45).
    • The 'young people in winter tourism' project provides subsidies to employers from less developed municipalities who employ people under 24 years of age (the tourism sector represents 78% of these subsidies).
    • Programmes related to acquisition of professional qualifications and key skills for persons registered with the EAM, with priority to unemployed persons with experience in more profitable occupations.
    • The 'stop the grey economy' programme is aimed at preventing informal business and greater inclusion in the labour market of young people, women and long-term unemployed persons.
    • Youth employment fairs are organised regularly (10 in three municipalities in 2017–18).

The last measure is a good and inspiring example of the Montenegrin policy practice focusing on equity and inclusion. In this case, while addressing the skills mismatch, it provides affirmative action for vulnerable regions. This is a strong point of many public interventions in Montenegro.

Also noteworthy, in September 2017, the Ministry of Sports launched the draft process of a new Law on Youth (NRF, 2019, p. 38) that could serve as an umbrella to further support young people and their integration efforts to the labour market.

The inter-institutional cooperation between the MoE, Ministry of Labour and Social Welfare, EAM, schools and social partners has received particular attention to improve the quality of education and training, school-to-work transition and help young graduates find jobs matching their level and field of studies. For instance, the EAM and some social partners actively participate in the planning and development of vocational education and are present in the development of modularised and credit-worthy educational programmes. The results of such inter-institutional cooperation are still to be measured.

  1. Career guidance and counselling measures. Diversified efforts have been deployed to try to address the skills mismatch both upfront and with a long-term vision. Structural measures have been taken to improve the career guidance services within the education, training and labour market intermediation systems, starting from general education:
    • Eight centres for information and professional counselling operate within the EAM.
    • Training of teachers through the IPA funded programme 'career skills in secondary vocational schools': most VET schools have trained teacher teams of three for career guidance advice.
    • 'Career orientation initiatives and the labour market in elementary and secondary schools' programme: school visits have included 57 primary schools (3 692 students) and 18 secondary schools (1 850 students).
  2. Reform measures of the core IVET organisation include the following:
    • Development of a flexible system of competency-based and modularised qualifications in line with labour market needs, and based on the occupational standards developed with the support of industry representatives. This includes revision of curricula and the teacher training system.
    • Promotion of three-year programmes recognised by the labour market, which offer graduates the option of entering the labour market or continuing to general education (after passing an exam) or to VET. Out of 1 466 students enrolled in the three-year programmes, there is a positive expansion trend from one year to the other. Development of work-based learning and traineeship programmes is expected to improve the transition from school to work for both HE and VET.
    • Introduction of a genuine 'dual education' path, including financial incentives for employers hosting the young students in their workplace. Dual education is organised in 12 municipalities across 18 vocational and mixed schools, through 14 educational programmes. At present, 101 employers are involved in dual education. Incentives to first and second grade students are provided by the MoE; subsidies for the third grade are the duty of the employer. In total, out of 18 773 students in VET programmes, 277 follow dual education programmes. Although promising, this programme struggles to find interested employers in some regions, namely the northern region; moreover, its expansion could be limited if the number of employers decreases.
  3. Social communication campaigns and other promotional initiatives: to improve the attractiveness of VET, and in particular the required VET specialities, the government has increased the initiatives:
    • 'Vocational is key! Get employed, earn and build yourself' presents VET opportunities to families in secondary schools. Such promotional campaigns are organised every two years;
    • the EuroSkills competition profiles VET as a path of excellence;
    • the Festival of Adult Education raises awareness on the importance of having the right education for employment;
    • TV shows (such as Let's move!) have introduced 20 different professional orientations.
  4. Use of financial incentives: a financial envelope is secured in the state budget for granting scholarships for the in-demand or so-called deficit occupations; through this, in 2017/18, 119 students who enrolled in the first grade of level III programmes leading to occupations recognised by the labour market as being in demand received scholarships of EUR 70 per month. The enrolment figure increased to 300 in 2018/19.
  5. Support for entrepreneurship and self-employment:
    • With a view to securing greater employment in undeveloped areas of Montenegro, with an emphasis on the northern part of the country, the EAM has implemented an innovative programme for continuous stimulation of employment and entrepreneurship through preferential loans for business ideas that provide new employment; financial advisory and training support to those who start new businesses in agritourism; and other alternative forms of economic activity, such as green jobs.
    • At school level, 30 entrepreneurial clubs were established, reaching out to 150 students.
  6. Support for key competences: as the absence of key competences has been identified by employers as a major bottleneck to employing people, the issue is taken up through different projects and initiatives, such as:
    • ten workshops organised in cooperation with the University of Montenegro for students on self-presentation skills;
    • professional orientation services given to 4 770 people including 1 560 unemployed people in 2017.

The above list of initiatives shows both the concrete attention paid to this key challenge of skills mismatch and the vitality of the policy in Montenegro. The following section explains how expanding these to other actors could trigger more coordination and greater impact of these initiatives.

Recommendations for VET to contribute to addressing the skills mismatch in the short to medium term

The skills mismatch measurement analysis shows that efforts to improve the position of vulnerable people (e.g. women, young people, those with low education levels) in the labour market should continue. A precondition is related to adequate data availability and regular use and interpretation for follow-up measures. In addition to this continuous effort, some short- to mid-term approaches could bring interesting improvements and possibly 'quick wins' to the current state of play:

  1. In the short to medium term, further developing the system for recognition of non-formal and informal learning could help fill occupations that do not attract people with the required skills. More long term, the expansion of adult education provision and the systematisation of targeted active labour market measures combined with social protection should become a national priority, consequently better resourced from the state budget, given the demographic situation of the country.
  2. In complement, further development of dual education, as a major innovation within the VET system, with a proper mechanism for monitoring and evaluating impact, is a promising way forward: not only does it smooth the transition from school to work, but beyond individual cases, it also fosters engagement of the private sector in the training provision and in the management in the system more broadly. This is internationally recognised as a key condition for success.
  3. Maintaining and expanding the financial mechanism of individual incentives to engage in in-demand occupations is a safe channel to prepare young people with the necessary skills. In addition, as previously described, some financing instruments have been created to encourage young people to choose training pathways corresponding to in-demand occupations, and this measure needs to be continued, and possibly even expanded. This could also be combined with priority development of dual education in these occupations.
  4. Keeping and reinforcing the focus on the development of key competences throughout the whole education, training and employment programmes will be an important step to regaining the trust of employers in the quality of future employees, but also more broadly in the public provision.
  5. Last but not least, several measures could help reduce the gap between the structure and volume of demand and supply. It supposes proper targeting of economic and social needs in the education and training provision, and measures for stimulating demand and job take-up. It requires accurate knowledge of the situation and adequate tools. To start with, the discrepancy between existing occupations and actual job vacancies, highlighted by the national employment agency, calls for revision of the structure of occupations that serves as reference for designing or offering training. Longer term, there is a need to develop (and use) tools for more precise analysis of skills needs and also anticipation, with a view to harnessing the responsiveness of the VET system. The public institutions, which have a great influence on the labour market as big employers themselves, need further capacity building and proper resourcing to play an effective role in addressing the labour market and skills imbalances.

3.2 Sharing VET governance to improve policy capacity

Governance is a key pillar and condition for success of any public policy, including HCD, in any country. It focuses on actors, from public to private, local to national and sectoral, but also mechanisms for their coordination, and instruments or tools for their effective joint approach throughout the policy cycle, from design to implementation, without forgetting monitoring and evaluation. In Montenegro, for historical, cultural and administrative reasons, most of these dimensions remain underdeveloped, and are important conditions for sustainable success of VET and employment reform efforts, in other terms the national policy capacity.

Policy capacity refers to the competences and capabilities important to policymaking, as per the analytical framework developed by Wu et al. (2017). Competences are categorised into three general types of skills essential for policy success – analytical, operational and political – while policy capabilities are assessed at the individual, organisational and system resource levels.

Following this definition, in Montenegro, policy capacity remains a challenge for various reasons, including:

the strategic planning landscape, which prevents a systemic, holistic and results-oriented approach to HCD;

the institutional set-up characterised by a centralised governance tradition, which hampers shared decision-making based on a genuine social partnership and on the empowerment of different stakeholders outside the state;

limited institutional capacity, in terms of human, material and financial resources;

the weak monitoring and evaluation system, with unsystematic use of data, which does not enable use of results from various innovative pilot projects to upscale them into ambitious and unified VET reform.

The scattered strategic landscape and the lack of results orientation

Analysis of the situation and current policy responses

Montenegro has around 200 public policies and strategies, including the Vocational Education Development Strategy (2015–20). This strategy relies on a sound analysis of the current economic and employment situation in the country, including the main challenges to address, although it does not fully explain how VET can contribute to solving them. In line with the Riga mid-term deliverables, the main driver behind the reform processes, substantially supported by EU IPA funds, has been the need to develop a VET system able to respond to these labour market needs, mainly by introducing new approaches in developing VET standards through revising methodologies for occupational and qualification standards and curricula development to be more demand-driven and oriented towards a learning outcomes-based logic. These reforms mainly target SVET, with less consideration given to post-secondary or CVET.

Given the scattered landscape of strategies and the focused scope of Riga, the strategy is not comprehensive of the whole sector and makes it difficult to check full alignment with all skills-related strategies within or outside the sector (such as employment, SME development, teacher training and curricula development).

In terms of operational planning, the strategy has been well translated into two-year action plans (last one adopted in December 2016), with smooth articulation across documents.

The main challenge in terms of accountability is linked to the absence of results-oriented indicators, which limits the accountability of stakeholders to reporting on the completion of planned activities as per the strategy and action plan, following a traditional administrative approach, and does not instil a performance or impact measurement culture. This activity is performed quarterly.

In parallel, a review is conducted at Prime Minister level, with the aim to reduce the number of strategies and integrate them better. This raises specific questions about the connection between the VET and education strategy on the one hand, and the VET and employment strategy on the other, not to mention the abovementioned sub-strategies or the strategy for SME development for instance. However, overlapping and conflicting time frames and a certain sense of urgency to deliver new strategic documents once the previous ones expire, including to satisfy funding requirements for the EU and other donors, seem to play against a rational approach to strategic planning. This requires taking the time, for example, to review the different strategic documents and drafting processes, evaluate achievements and impact of the different ones, and assess the cost-effectiveness of having them separate. To date, these reasonable steps are not foreseen and there is still a gap between the political time (announcing merging of strategies) and the technical time (of delivering papers requested). Therefore, the recommendations below take this into account.

Recommendations for improving the strategic framework of VET reform

As the current strategy will expire in 2020, this provides an opportunity to prepare for the design of the next strategy by drawing lessons from current gaps. In particular, it will be important to:

  1. identify national strategies and reform efforts with a link to skills development (including ERP and key economic sectors' development strategies), and the nature of this link (potential impact on VET or needing VET provision support);
  2. ground the strategy in a clear vision for skills in Montenegro based on these links, but also a clear vision of the place and priority purpose of VET within the education and training system (preparation for HE or the labour market);
  3. broaden the strategic planning to the whole VET/skills development sector in order to mirror and back the economic development strategic priorities of the government;
  4. set safeguards for this new strategy to explicitly serve the needs of the labour market (by better use of relevant data)[11] VET is still often seen (culturally, historically) as a pathway to HE (through the four-year programme, in the absence of sufficient general secondary education supply); this change requires changing the three-year programme and increasing the attractiveness of VET per se, for employability purposes. This requires an increase in the social demand to ensure the expansion of the work-based learning stream as planned in the strategy. This remark relates to relevance of the strategy rather than credibility; however, it is a key assumption for the further development of the VET system.
    ;
  5. make the VET strategy more forward-looking and impact-oriented, including through the introduction of outcomes/impact objectives, targets and indicators (such as VET graduate placement, self-employment and mismatch rates) into a performance assessment framework. A costing methodology should be developed and agreed to ensure accurate and sustainable budget planning and execution.

Institutional set-up, centralised governance and the social partnership activation challenge

Analysis of the situation and current policy responses

The MoE leads the design of the strategic approach to IVET, with strong ownership of the European agenda. It entrusts public education institutions with its implementation, with a fair level of intra-sectoral coordination. Stakeholder commitment is rather high and the strategy enjoys support from the country's political leadership. Stakeholders of designated institutions are involved at all levels, such as school boards, the National Education Council and the National Council for Qualifications. Past record of the previous action plan shows that the MoE and its institutions effectively ensured implementation.

However, full ownership would probably require a larger basis of committed stakeholders. In particular, horizontal coordination across ministries needs to be developed, namely with ministries in charge of economic development and finance, to increase ownership of this strategy, and hence maximise the chances of making the case for VET, including financially.

In specific areas, coordination is encouraged by the creation of dedicated bodies, such as a coordinating body for career guidance comprised of representatives from the Ministry of Labour, MoE, Bureau for Educational Services, VET Centre, EAM, Chamber of Economy, MEF, University of Montenegro and schools.

Social partnership needs to be improved in Montenegro. In theory, each level of VET governance is well defined in the legal framework. In each body responsible for development of VET education governance, there are different stakeholder representatives. In practice, this legal framework is unevenly implemented. Consultation in the reform preparation phases is satisfactory, as seems to be the case for participation of enterprises in the operational activities, although they are not formally responsible for them. But when it comes to making decisions on policy priorities and jointly assessing progress, the central state seems to keep a predominant role. Other public institutions, social partners and actors at decentralised levels (including municipalities) have little recorded involvement. According to the MoE, the legal framework exists but is little used, due to low willingness of the private sector to get more engaged. This prevents further subsidiarity, and is limited to public education institutions.

At school and local levels, coordination efforts with actors outside the school walls are being made. However, there is no review of these. For example, CPD and ICT coordinators have been appointed to establish and maintain coordination between industry and the school to implement practical learning but to date there is no assessment of how this works.

Recommendations for fostering shared governance:

  1. The new VET strategy design process should foster interministerial coordination and involvement of social partners by setting up a post-2020 strategy task force. This should aim to enable better horizontal coordination across ministries, and to also ensure close complementarity across strategies (including education, training and employment). The presence of social partners should encourage more subsidiarity; as a first discussion point, the division of responsibilities in the next strategy could be a good chance to refresh what the legal framework already authorises and how to make the most of it.
  2. Regarding autonomy of VET colleges and decentralised governance, a greater degree of decentralisation could provide more autonomy (both in terms of management and financing) to the VET colleges so they are better able to adapt and respond to the skills needs of the local labour market. This should go hand in hand with revised accountability rules, based on agreed objectives. The youth advisory bodies that are foreseen in the new Law on Youth could also be interesting intermediary bodies for an inclusive approach to policymaking including young people.

Limited human, material and financial resources keep institutional and policy capacity at risk

Analysis of the situation and current policy responses

In general, stakeholders seem adequately equipped with human and material resources, but nuances need to be accommodated. The state budget mainly covers running costs, which does not allow equipment renewal, upgrade and other quality improvement unless it is a matter of capital investment which falls under a specific line in the budget. As a consequence, schools suffer from lack of equipment. Employers' representatives admit having limited human resources, translating into knowledge gaps in the field of skills development (ETF, 2018b).

The institutional memory is weak, due to human resources issues, and this has an inevitable impact on policy capacity. Several reasons are suggested: turnover of important staff, frequent changes in ministerial teams, and insufficient numbers of staff in certain institutions due to logistical or financial bottlenecks. Although teams that have participated in policy design and implementation usually remain in institutions and relevant bodies, this situation brings about some loss of the experience gained throughout the policy/strategy cycle and disrupts continuity. Capacity building needs, if more systematically identified, could be the starting point for planning to reach a critical mass of staff, not only in the MoE but also for social partners who are aware and involved in the steering of the strategy/policy.

The sector's financial resources have issues related to both the amount (the state budget does not cover the needs) and the source (insufficient diversification).

The main financing source is the state budget. The budget designated for education is part of the general annual budget approved by the Government of Montenegro, in accordance with Article 136 of the General Law on Education. All expenditure is financed, including wages and running costs. Public expenditure on education in 2016 was 4.5% of GDP and 9.7% of total expenditure. Secondary education represents EUR 34.9 million, out of which approximately 80% goes to VET (EUR 27.8 million), mainly covering salaries. The inter-sectoral prioritisation (at government level) of policies and strategic measures takes place through the medium-term strategy of the government set out in the Economic and Fiscal Programme. Mid-term sectoral priorities are defined by those documents and therefore the budgetary resources are planned accordingly. Mid-term strategic priorities are translated into annual priorities, aligned to the Fiscal Strategy 2017–20 and set on the basis of the action plan. However, there is no intra-sectoral prioritisation at the MoE level. The envelope of resources received from the Ministry of Finance is distributed among the subsectors of primary, secondary (where VET is included) and HE according to the needs derived essentially from the number of students in each subsector. For secondary education, no distinction is made between general education and vocational education despite the large cost discrepancies.

Until recently, international donors used to contribute mainly through technical assistance (the EU also provided equipment directly to VET). Now IPA funds also target the sector, but disbursement has been difficult due to formalised country requests. Recently, private enterprises have started to contribute, mainly through in-kind contributions, investing their physical resources through the dual system of education. VET schools are allowed to raise their own resources, of which the MoE retains one-third.

Financing mechanisms (including for resource allocation, and reporting and auditing) are well defined by the Ministry of Finance. Resource allocation methods are based on standard unit costs common to general secondary education and SVET, which should be changed. Wages are the main cost element and their implementation falls under the responsibility of existing MoE staff and subordinated institutions.

The diversification of financing sources is a recurring challenge (NRF, 2019, p. 74). There is no decentralisation of the sector; there was an intention to transfer parts of the financing responsibilities to municipalities, but the conditions for implementation do not seem to be in place. The Law on Local Self-Government Financing establishes the financial autonomy of the municipalities, which are half self-funded (for example through property tax, tax on personal income, and local administrative and communal charges and fees), with the other half coming from the state budget. Funding from the central budget is regulated by the Local Government Finance Law and takes the form of conditional grants or assigned revenues. An equalisation fund also provides additional revenue to poorer municipalities. Conditional subsidies can also be granted by the state for specific capital investments. In general terms, HCD remains underfunded.

Recommendations for systematically addressing the institutional capacity issue

  1. In order to accurately define remediation measures to the capacity issues, whether human, material or financial, a sound diagnostic assessment of the capacity state of play is required. It could easily build on existing methodological tools, including the SABER methodology from the World Bank, the SIGMA methodology from the OECD and EU, or other organisational audit methods.
  2. To address the institutional memory issue, corporate measures may include setting up an institutional database to be regularly updated and maintained, formalised handover procedures, and/or overlapping engagement of the current and new staff.
  3. For financing aspects specifically, and as recommended by the World Bank in its Growth and Jobs report (2018), a spending review could help 'verify whether efficiency of spending is appropriate given the limited ability of the sector to provide the right skills', and establish the baseline situation and scope of needs. Improving financial capacity requires assessment of investment needs to upgrade the infrastructure and the equipment in schools. The assessment should be based on the needs expressed by the schools, aggregated by categories of investment; establish the corresponding priorities by categories, municipalities and training providers; and make an investment plan over a longer period.
  4. Last but not least, to ensure financial sustainability, there is an urgent need to diversify the sources of funds and increase the share of non-state resources. Various means may help do this; for example, before introducing further fiscal facilities, one could first discuss existing incentives given to enterprises involved in the dual system, or allow, encourage or even train (if needed) training providers to apply for foreign donors' financial support for equipment, technology or technical assistance.

Financing mechanisms of the VET system: an interesting tool for steering policy and sharing governance

Analysis of the situation and current policy responses

Despite structural financial constraints, financing is seen and used as an opportunity to support the policy priorities, and dedicated instruments have recently been designed for this. Besides fostering consistency and sustainability of policy measures, this paves the way for more shared governance, including with stakeholders (e.g. enterprises) benefitting from or contributing to these financing mechanisms.

Capital budget. In addition to the abovementioned allocations, the government allocates special funds for the education system through the capital budget, within which a significant amount is allocated for the improvement of school infrastructure. This is based on the economic cost of enrolling pupils for a particular educational programme; the number of students; the coefficient of the programme group in which the educational programme is classified; and other criteria specific to the educational programme and the area[12] Rulebook on norms and standards for acquiring funds from public sources for institutions which are implementing educational programmes http://www.mps.gov.me/ResourceManager/FileDownload.aspx?rid=231272&rTyp…
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Fund for quality and talent. This fund is resourced by income generated by schools, and serves the objective of quality improvement (of teaching) and meritocracy. A public institution in the field of primary and secondary education that realises income from property (leasing), funds from the sale of services and products or other sources is obliged by law to give 30% of these resources to replenish a special account of the MoE[13] Rulebook on the criteria, method and procedure for allocating funds for improving the quality of teaching and talents http://www.mps.gov.me/ResourceManager/FileDownload.aspx?rid=305717&rTyp…
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Scholarships for in-demand occupations. Since 2017–18, the MoE has provided scholarships for short-term qualifications to pupils who are educated on three-year programmes related to in-demand occupations.

Subsidies for dual education. In addition, the MoE provides an allowance to pupils in the first and second grade of three-year educational programmes in dual education. It amounts to at least 10% of the average net salary in Montenegro for the first year of training and at least 15% for the second year. Employers are expected to pay the allowance cost in the third year, as students should then become productive, hence bring a benefit to the company.

Recommendation for further using financing mechanisms and schemes to reinforce policy capacity

Based on the experience with the funds for in-demand occupations, for talented students or with the subsidies for dual education, it would be interesting to explore what other schemes could be set up to similarly support the main policy priorities, for example in favour of vulnerable populations or lagging-behind regions in order to bridge the human capital gaps. This exploration should take into account the need to keep mechanisms as simple as possible in administrative and legal terms, both for targeted users to apply and for the public actors to manage them.

Data, monitoring and evaluation: the missing link to foster a culture of results and accountability on the one hand, and to convert the vitality of innovative pilot projects into systemic reforms on the other

Analysis of the situation and current policy responses

As evidenced in various reports (such as the ERP and NRF), there is a further need to strengthen processes of timely and reliable collection of data in Montenegro. Several indicators remain unavailable and are not being developed, particularly for social protection, inclusion and migration. In addition, several statistics are not harmonised with the EU standards or are not systematically transmitted to Eurostat. Financial and administrative capacities of responsible institutions are limited due to inadequate resources.

For example, although there are 13 000 refugees and asylum seekers registered in Montenegro, there are no figures reflecting their attendance in the education system and in employment.

However, effort has been constant in this domain, and some progress has been made, both at national and sectoral levels, in terms of data production. Data analysis, interpretation and use remain an issue.

On the positive side, Montenegro published the results of its first Statistics on Income and Living Conditions survey in December 2018, as mentioned in the European commission comments to the ERP. However, at the time of writing this report, it seems there is no publicly available data analysis and interpretation.

The MEIS is the ultimate point where all statistics related to pre-university education are collected, including all data about VET providers and students. From 2018/19, a separate MEIS module started collecting information about adult education providers and training offered and implemented. The first VET graduate tracer studies have also started being carried out. In all examples though, it is unclear how this data will be made public and used to monitor and evaluate the systems or to orient decision-making.

At national level, there are no well-defined monitoring and evaluation tools and mechanisms, except a reporting instrument that is used for checking if an activity or an action was implemented or not. Different databases co-exist, such as the abovementioned MEIS, but also databases from the EAM, Tax Directorate and University of Montenegro, which could support the monitoring, provided they are harmonised and made consistent.

Financial reporting and auditing is relatively good, but the periodical financial reports are limited to recording if costs were incurred or not. Cost-effectiveness or efficiency assessment elements are missing.

Officially, there is a methodology for external evaluation, but the tool is used only for checking if an activity or an action was implemented or not, and cannot be considered a tool for reviewing the strategy and defining remediation measures.

According to the Torino Process national report, each school has an annual plan for self-evaluation (managed by the quality team) that contains a status analysis, an assessment of performance against defined success indicators, and recommendations for the improvement of the school work. The results of the self-evaluation are expected to guide the objectives of the next annual work plan. This process is reported to an enlarged range of stakeholders, including teacher/expert councils and parents, and is endorsed by the school management body.

Many pilot projects are reported to have been implemented, with the support of development partners, including in the field of active labour market measures: 'innovate your dreams', EPALE project, 'empower me to succeed', the 'fund for professional rehabilitation', 'A step closer to the labour market'. This profusion shows the vitality of the policy reform area. Unfortunately, it seems that when projects come to an end, there is no procedure or mechanism in place to evaluate results and draw lessons learned. Furthermore, there is no collective reflection on the follow-up in terms of continuation, extension to other regions or other target groups, scaling-up or mainstreaming into country-led policy. This leads to a lack of continuity and limits possible impact.

Recommendations for improving data, monitoring and evaluation

  1. Building and institutionalising a shared monitoring and evaluation function, and related framework, will enable not only assessment of policy progress, but could also help engage stakeholders. Ideally, this monitoring and evaluation function should entail systematic evaluations and subsequent follow-up of pilot or other projects, including the dual education initial implementation.

This supposes that the body in charge would include representation from the different key stakeholders, including social partners. It would also interconnect the MEIS of the MoE with the databases of the Ministry of Labour and the Ministry of Finance. It would use the consolidated intelligence to monitor and follow up enrolment, graduation and placement, and it would ensure systematic evaluations of pilot projects and decision-making based on the recommendations that those evaluations would make. Again, the experiment of dual education may be a good example to evaluate, through a lessons learned exercise, in particular in view of more participatory governance. Implementation of this reform is monitored by the National Coordination Body, composed of representatives from the Chamber of Commerce, VET Centre and the MoE.