Croatia Ranked 5th Most Attractive Investment Location in CEE Region

Lauren Simmonds

Updated on:

Copyright Romulic and Stojcic

May the 17th, 2023 – The Republic of Croatia has been listed among the five countries most attractive for investment out of sixteen nations located in Central and Eastern Europe.

As Poslovni Dnevnik writes, the analysis of this year’s economic research conducted by the German-Croatian Chamber of Industry and Commerce for the 18th year on 141 companies has found that more than 80% of companies would be ready to invest in Croatia again.

This is an extremely positive indicator that the willingness of companies to reinvest in Croatia has remained at the same level as it was back in 2021 and 2022. Croatia ranked highly at 5th place among the 16 countries of Central and Eastern Europe surveyed when it comes to the attractiveness of the location for investors. Almost 90% of entrepreneurs rated the business operations of their own companies as good or satisfactory despite the typically very complex economic conditions in which they operate.

Business expectations for 2023 are significantly worse than the assessment of the current economic situation, and those in business are pessimistic as a result – only 23% of respondents expect the business situation to improve during the remainder of 2023.

The availability of professional labour has been characterised as the biggest risk in business, followed by the high prices of energy and raw materials and the cost of labour. For the third year in a row, membership of the European Union, the qualifications of workers and the academic education of said workers have all been rated positively in Croatia. The suppression of crime and corruption has been cited as the biggest drawback of doing business in Croatia, followed by tax burdens, the overall tax system and public administration.

40% of respondents consider the work of the current Croatian Government to be poor, and the same percentage considers it to be satisfactory

“In an active dialogue with our members and state bodies, the Chamber, as the largest bilateral business community in the country, advocates for the strengthening of conditions that favour the greater attractiveness of Croatia as an investment location. This year, Croatia took a high fifth place among sixteen countries across the region with regard to the attractiveness of the country as a business location.

Croatia’s entry into the Eurozone and into Schengen certainly contributed to it being seen as having a positive business climate. The Croatian Government is making great efforts to mitigate and prevent the spillover of energy price increases to both people and to business entities, but according to the results of the survey, entrepreneurs in Croatia as well as in other countries in Central and Eastern Europe cite the increase in energy prices as one of the biggest risks for their business. When we talk about the results in Croatia, those in business state that the first limiting factor in business is the lack of skilled labour,” said Mr. Marjan Vucak, president of the German-Croatian Chamber of Industry and Commerce during the presentation of the results of this particular economic survey.

The current state of the Croatian economy has been rated as satisfactory for more than half of the respondents

Almost 60% of respondents rated the current economic situation in Croatia as satisfactory, which represents an increase of 5% compared to the previous year, while 20% of them consider the situation to be good. Comparing those percentages with those from back in 2022, 22% of respondents believed that the economic situation in Croatia is better. When it comes to the perception of the economic situation, the countries of Central and Eastern Europe (CEE) rate the economic situation of their own countries in almost the same percentage as the survey participants in Croatia.

Despite the polycrisis, entrepreneurs are optimistic when they talk about business in their industry

57% of the respondents to this survey rated the current business situation in their own industry as satisfactory and 32% as good despite the uncertain economic situation. Compared to 2022, the share of companies that consider the situation in their industry to be good fell by 10%. 50% of the respondents rated business in their own company as good and 45% deemed it satisfactory. Similar results were recorded in the other 15 CEE countries, among which, in addition to Croatia, an economic survey was also conducted. Only 7% of respondents in CEE countries rate their business situation as bad. Slightly more than 60% of entrepreneurs state that turnover has increased compared to the previous year, while exports have increased by 38% compared to 2021.

Economic expectations for next year remain somewhat pessimistic

When it comes to forecasts of the economic situation for 2023, the estimates continue to be pessimistic. Those in business estimate that the situation will remain unchanged (55%), and only 23% believe that it will improve at some point in 2023. We can look for and easily find the reasons for that sentiment in the very complex economic conditions caused by the ongoing war in Ukraine, the still record high inflation rate and the continued economic consequences of the global coronavirus pandemic.

The level of attractiveness of an investment destination

Croatia’s entry into the Eurozone and the Schengen area is expected to create a more positive business climate, as was confirmed by the research results (71% believe that Croatia’s entry into the Eurozone have a positive impact on business throughout 2023, while 77% believe that Croatia’s entry into Schengen will have positive business consequences. The above is not surprising considering that more than 80% of Croatian trade is also done with Schengen countries.

Croatia was, as stated, ranked in the first 5 most attractive locations for investment among 16 countries of Central and Eastern Europe. Slovenia (1), Poland (2), the Czech Republic (3) and Estonia (4) were among the four most attractive countries. Back in 2021, Croatia was in 8th place, and this year’s result is the best result since the Chamber has been conducting economic research. An encouraging 81% of the companies that participated in the survey would choose Croatia again as a location for investment. This means that the number of companies that would invest in Croatia again has been at almost the same level for three years.

Risks in business – the lack of skilled labour is a dominant challenge for companies

For the first time, companies surveyed stated that the availability of qualified labour is the biggest threat to the development of their company (51%). In a high second place are the prices of energy and raw materials (43%), then labour costs (41%), domestic demand (26%), which has been significantly reduced as a risk compared to last year’s research (48%), the predictability of economic policy (25%) and payment discipline (23%).

Analysing the data across the CEE region, the increase in energy prices as a risk factor when it comes to doing business is most represented in Poland (82%), Macedonia (71%), Hungary (67%), Slovenia (62%), the Czech Republic (60%) and Latvia (58%). The availability of professional labour as a business risk was especially highlighted by companies operating in Macedonia (71%), Bulgaria (65%), Albania and Romania (61%), Hungary, Kosovo and Slovakia (57%).

Work and the workforce

47% of respondents stated that the number of employees in their company will increase, while an insignificant number (5%) estimates that the number of employees will decrease. Given that inflation back in 2022 stood at a high 10.8%, it’s rather interesting to note that the largest number of respondents believe that salaries will increase by 10-20% during the rest of 2023.

Changes in the international division of labour are ubiquitous on a global scale. Survey respondents estimate that long-term changes in international supply chains will manifest themselves in increased political influence on supply chains (37%), changes in transport routes (30%), growth in protectionism (29%), changed risk assessments of business destinations (27%), moving production to new locations (27%) and moving production closer to the German/European domestic market (27%).

Expanding the offer for internal education (43%) is the most common measure that employers plan to take when talking about the lack of professional labour. This is followed by increased automation and the digitisation of business (36%), an increase in the average salary (32%), encouraging employees nearing retirement to stay with the company (29%), an increase in allowances paid alongside employee salaries (25%) and increased cooperation with various types of educational institutions (25%).

The dire economic consequences of the war in Ukraine

A little over a year after Russia’s aggression against Ukraine began, the global economy continues to face various negative consequences. High prices for energy, raw materials and other such items (which are a concern for almost 82% of respondents) represent the greatest concern for business owners when it comes to the short-term consequences of this war. This is followed by disruptions in supply and logistics chains (46%), a shortage of raw materials (27%), increased legal uncertainty (19%), a reduction in incoming orders (14%) and the loss of business partners (14%).

The advantages and disadvantages of doing business in Croatia

Membership of the European Union, employee qualification(s), the adequacy of higher education, payment discipline, infrastructure, productivity and the commitment of employees to gaining better work results are all mentioned as positive aspects of doing business in Croatia. The insufficient fight against corruption stands out as the biggest shortcoming of business in Croatia. As disadvantages, entrepreneurs then cite tax burdens, the tax system, the poor public administration and the lack of transparency of public procurement.

The application of the EU taxonomy

Only 3% of respondents were familiar with the EU taxonomy, the EU classification tool that signals the success of companies in contributing to sustainability. 54% of them consider their own knowledge of the application of the EU taxonomy to be insufficient.

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