Investment in Croatia is at an all time low. With the phrase ”ABC” having become the term for ”Anything But Croatia” in investor circles, the country needs to do some serious work in order to redeem itself. In order for Croatia to become much more attractive to foreign strategic investors, more concrete and clear steps need to be taken, and high on the agenda lie the proper preparation of public finances and more legal security.
As Ana Blaskovic/Poslovni Dnevnik writes on the 21st of February, 2019, despite dramatic headlines, the economy is growing and Croatia’s level of public debt is falling. It is commonly forgotten that Croatia is growing at a pace below three percent – the slowest of all. Neighbouring Slovenia experienced 4.9 percent GDP growth, Hungary experienced growth of 4.1 percent, and Bulgaria saw 3.8 percent growth. There’s no such great wisdom to be spoken of in Croatia’s case here, the economy will grow as much as it has, or is given, the power to do so, and its momentum is the only thing that can make Croatia look much more friendly to investors, a move it desperately needs to make.
Even if there was a real willingness and the capacity for proper reforms existed, which are both evidently lacking, the key question is what moves should be made first to garner the fastest results in terms of investment in Croatia.
In that regard, there are no real dilemmas in the mind of respected economist Velimir Šonje, and what needs to be ensured are business climate reforms which include the Doing Business Report of the World Bank’s recommendations for Croatia.
“By moving to around number 30 on the Doing Business Report, we’ve entered the club of countries like Poland, we’re visible on the Eastern European map (which isn’t the case today) and we have a marketing tool to attract investors,” said Šonje, adding that these concrete measures would have a direct impact on Croatia’s ability to properly facilitate business and investment, such as issuing building permits or reducing the number of steps required when paying taxes.
At the very top of the Croatian Government’s priorities lies the transparent privatisation of state-owned companies through their listing on the stock market within the wider revitalisation plan of the capital market in order to better stimulate foreign investment in Croatia.
“It’s no accident that investments are at a relatively low level since the capital market has died in Croatia. Without its revival through several major privatisations and listing and strengthening programs to attract medium-sized businesses in some of the simpler stock quotes, there will be no better investments, as capital market development has positive spill-over effects and attracts the interest of foreign investors,” stated the esteemed economist.
Following the liberalisation of the internal market, the strengthening of the protection of equal market competition (so that there are no already protected existing players), the transparency of public procurement and the abolition of parafiscal charges and other obstacles to strengthening competition, especially in the service sectors where there are significant area of potential such as the health, education and IT industries,”
When it comes to better attracting investment in Croatia, the proper and decent handling of public finances also ranks very high on the list of consultant Andrej Grubišić from Grubišić and partners, with a very specific goal.
“It’s necessary to reduce government spending, ie, a 30 billion kuna budget over a five-year period, and thus leave more money to a private initiative that will drive the development of small and medium-sized enterprises for their own economic interests (independently and without the help of the state),” said Grubišić. This would become more attractive for investment by foreign strategic investors through takeovers and/or recapitalisations through which intensified internationalisation would continue.
The hope is that the state will cease their classic style of favouring particular sectors or industries, such as IT or renewable energy sources, as this approach almost always promotes unwanted crony capitalism. Moreover, treating everyone in the same way is a clear signal to a foreign investor that he does not have to fear that his industry will be considered less desirable tomorrow and lose his privileged status to someone else who is deemed closer to the wishes of the political elites and those who are better lobbied.
In this context, there is a real need for adequate judicial protection. In the Croatian Chamber of Commerce (HGK), the emphasis is placed on attracting investors to production and opening up an investment space that would be geared towards the design of high value added products, investments in research, and in development and exports.
“We need to create a business climate that will stimulate domestic entrepreneurs, thus creating the conditions for the stronger engagement of foreign entrepreneurs and investments in Croatia,” stated HGK’s Luka Burilović.
He added that entrepreneurs have the most objections in the area of legal certainty, justice, taxation and public administration.
“Here we can take the appropriate concrete measures that could immediately show results. Investors are becoming more demanding, they’re looking for solutions, not just locations. One of the options for a change of approach is to put the focus on Croatia’s “portfolio”, and not on the entire territory,” Burilović stated.
When asked how Croatia will look in the eyes of an investor, the answer remains very the same according to Burilović: “We’re relatively unknown to investors, we don’t have a brand built, and we’re mostly recognised as a tourist destination,”