The main reasons are legal uncertainty and tax issues.
According to the preliminary data of the Croatian National Bank (HNB), the total amount of foreign direct investments (FDI) in Croatia in the first quarter of this year was 427 million euros. Compared with the same period last year, the value of foreign direct investments decreased by 126 million euros, or 22.8 percent, reports Index.hr on 16 July 2017.
After a significant annual decline in FDI in 2015 (by almost 75 percent), data for 2016, which showed that FDI in that year amounted to 1.7 billion euros, recorded a slight recovery.
Looking at foreign investment statistics by country, the highest direct investments in the first quarter of this year came from Austria (217 million euros), followed by investments from the Netherlands (84.9 million euros) and Luxembourg (39.2 million euros).
According to the revised data, in the period from 1993 (when foreign direct investment statistics became available) until the end of the first quarter of 2017, Croatia recorded total foreign direct investments in the amount of 31.2 billion euros. Excluding the so-called circular investments (which have the effect of increasing direct investments in both directions), this number is somewhat lower and amounts to 28.8 billion euros.
During the observed cumulative period, the highest value of foreign direct investment came to Croatia from the financial intermediation sector (about 30 percent), from investments in the wholesale trade, except for motor vehicles and motorcycles (9.6 percent) and real estate business (7.2 percent).
According to the Foreign Investment Association (FIC), an important role of foreign direct investments in the growth and development of host countries has been confirmed by numerous empirical studies. All groups of FDI companies demonstrate faster increase in income and capital than other local businesses, and the productivity also grows faster in such enterprises. FDI companies represent a significant part of the Croatian economy by looking either through their capital, total income, exports, employment or investments. The capital of FDI businesses represents nearly a third of the total capital in Croatia, while their share of exports is close to 40 percent.
On the other hand, as stated in the FIC’s White Book, the most difficult business climate problems facing Croatia, which hamper the arrival of new foreign investments, can be summarized in the following categories: legal uncertainty in terms of changes in the legal environment, changes of rules, inadequate implementation of EU regulations, taxes (tax law changes, contradictory decisions of different levels of tax authorities), non-tax fees (additional costs to be paid without clear links to business operations), public administration system and judiciary, length of court proceedings, different rules at local and national levels, labour issues (rigid and inadequate labour laws) and access to financial resources.