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Croatian Business & Finance Monthly Established in 1953 Monday / 7th January / 2013 Year V / No 0221




pvinternational pv international C R O A T I A N





Acceleration of strategic investment Selected project will enjoy full support from state bodies:from preparation and procedures for speedy issuing of required documentation, to the execution and support in post-investment period ing it into a more desirable location for investors. The construction of the LNG terminal on Krk could be one of the first strategic projects. It is expected that Qatar will confirm whether it would supply gas and participate in the construction of the terminal. If this project develops according to plan, the Ministry of Economy consider Omišalj as a location for the liquid gas

Igor Vukić he Government will soon be able to declare investments of over €20 million and investment into tourism projects over €50 million as strategic, and help them to be realised within the shortest possible deadline, Economy Minister, Ivan Vrdoljak, announced in December. The Strategic Investment Projects Act of the Republic of Croatia should be adopted by the end of the year. In addition to the level of investment, the Government will evaluate its contribution to the development of the Croatian economy, the number of new jobs created and other elements. Selected projects will enjoy the full support of state bodies: from preparation and procedures for the prompt issuing of required documentation to the execution and support in the post-investment period. Project participants will be selected, such as ministries and bodies of local administrations as well as responsible persons within these bodies in charge of rapid completion. The Government will sign a contract with each strategic investor, and these will


The government will sign a contract with each strategic investor

Welcomed amendments to the Mining Act The Ministry of Economy is also preparing other Acts that should strengthen the competiveness of the Croatian market. A unique tender for research and exploitation of mineral resources will be prescribed by an amendment to the Mining Act. Three tenders for various activities in one concessionary area have been implemented so far. Besides wasting its time, it also occurred that companies conducting the research could not obtain the rights for exploitation. The new act will shorten and simplify the procedure by 65%, said Minister Vrdoljak. define phases and elements of the implementation. The Government current declarative support of investment projects will

become formal, and according to Minister Vrdoljak, Croatia should considerably increase its level of competitiveness, turn-

trade with customers from the wider region. The terminal capacity could total 5 billion cubic metres. Croatia could use one billion, whilst other buyers will be sought for the remainder. At the same time, other gas routes will be developed, including that towards Serbia, that is, the highway gas pipeline, South Stream. Vrdoljak is convinced that the pipeline leg towards South Stream could diversify the source of gas and enable its purchase at the lowest possible price.


Privredni vjesnik Year V No 221


“Lack of measures to enhance industrial production”

Currently there are no measures to enhance industrial production, as industrial policy in Croatia is non-existent. Systemised industrial policy is of fundamental importance for economic development. Industrial policy in Croatia needs to focus primarily on the implementation of the analysis of industrial policy and on the elaboration of the methods to enhance Croatian agriculture, shipbuilding, mechanical engineering and the chemical industry, to name but a few, as well as on tackling hurdles for the development of these industrial areas. Unfortunately this is currently still in its inception phase in Croatia.


“Guarantees accounted for €99 million of investment”

The Croatian Agency for SME’s and Investment (HAMAG) approved 185 guarantees worth almost €33 million, resulting in nearly €66 million of grants for entrepreneurs. The total investment value granted by HAMAG was €99 million, achieving substantially better results in relation to the pre-recession year of 2008. Currently, around 90 projects are being considered and the number of guarantees this year is likely to exceed 200, whilst investment value is likely to exceed €107 million. It is anticipated 2013 will see €0.2 billion in investment, with the number of guarantees likely to reach around 500 annually in the near term.


“GDP growth likely” GDP growth is likely should the recently enacted Pre-Bankruptcy Settlement Act succeed in promoting the rapid revitalisation of Croatian economy through fostering business activity and generating corporate growth. There is huge potential both in local and international markets. Nevertheless, restructuring is critical and a pre-requisite for the effective functioning of the economy in order to tackle illiquidity and solvency issues, resulting in huge potential for growth. IMPRESSUM: Privredni vjesnik Kačićeva 9 10000 Zagreb +385 1 5600020 subscription

FOR PUBLISHER Nikola Baučić +385 1 4846661

IMC MANAGER Dea Olup +385 1 5600028

EDITOR IN CHIEF Darko Buković +385 1 5600003

TRANSLATION Lučana Banek Mirjana Cibulka

EXECUTIVE EDITORS Andrea Marić Vesna Antonić



We are pessimistic in searching for a posit

Despite all risks, Croatia has a chance of finding its position the largest world market – the EU – with remote, fast develo Drago Živković n the short run, we have no reason to be optimistic. In the long run, we depend on the recovery of our main trade partners, but this may not occur even by 2014. However, Croatia could use this crisis to find a better position on the global economic scene during times when this scene is rapidly changing parallel to the rise of the new economic forces of China and India. These messages were sent during the second assembly of the Croatian Chamber of Economy that also adopted a work plan as well as financial plans for next year. Over four years of recession, industrial production decreased 17% in real value; retail reduced by a fifth, and construction shows no sign of recovery. Transport is also in decline. Economic movements in 2013 will mainly be influenced by slow recovery in local demand, low consumer and investor confidence and slower economic growth of Croatia’s main trade partners, anticipates the Director of the Centre for Macroeconomic Analysis within the CCE, Jasna Belošević Matić. Positive movements in trade are not a consequence of stronger export of goods or growing competition, but slower growth of imports due to the decreased local spending (which accounts for 56% of total GDP). If a significant decrease in investment (20% of GDP) is added, it becomes evident Croatia has lost almost 10% of its GDP since


the beginning of the crisis, said Jasna Belošević Matić. Tourism shines Tourism is the only shining light, and not even tourism has yet reached the income level of precrisis 2008. In these circumstances, both the public and entrepreneurs are repaying debt; only the state is sinking deeper. Banks are the only ones that benefit from this situation. They avoid high risks and transfer excess capital abroad, instead of using it in the local economy. According to data provided by Jasna Belošević Matić, during the first eight months, banks transferred €1.6 billion from Croatia, of which €0.6 billion were placed into savings accounts with foreign banks. A few years ago, CCE President Nadan Vidošević noted he had predicted this recession could

Jednostavni d.o.o will not pay membership fee to the CCE

Since the CCE has already reduced chamber contributions three times this year, measures for rationalisation and further adjustments have been implemented within the Chamber, said CCE President Nadan Vidošević. He pointed out that simple limited liability companies, introduced by the recent amendments to the Corporation Act, will be relieved of paying chamber contributions and fees until their basic capital reaches €27,000, which would make them limited liability companies. Business & Finance Monthly

3 Deloitte research


n the short-term, ion in the long-term

on the global economic map, as a communication point for oping economies could be additionally complicated by the implementation of the regulations for improving financial discipline of pre-bankruptcy settlement as well as possibly more cases of bankruptcy, anticipates CCE Presidential Advisor, Jasna Borić. It should be pointed out that Croatia’s EU accession will trigger direct implementation of a series of EU legislative provisions regarding customs regulations; many sectors will be faced with direct competition, and it is possible that higher immigration will be seen from less developed EU countries. Significant changes will occur in trade relations with last an entire decade, for which he had been criticized by certain politicians. He now thinks he was wrong, and that the crisis will last even longer since the entire world is searching for a new global economic model. Despite all risks, Croatia has a chance to find its own position on the global economic map as a communication point to the largest world market – the EU – with remote, fast developing economies. Vidošević said that in this respect the CCE will continue to support the Croatian economy and remain a partner with the creators of the economic policy in the EU accession process, and especially after it is finalised. The CCE financial plan for 2013 has been harmonised with these goals, and according to Vidošević, it fully complies to the challenges, taking into consideration the need for constant rationalisation of the Chamber’s business affairs. Investment catalogue The work plan for 2013 is designed in such a way that the CCE can offer total economic support and help regarding all changes that await after EU accession, where education activities are especially highlighted. The situation

Not even a decade: the crisis will last even longer since the world is in search for a new global economic model, says CCE President Nadan Vidošević regional countries. Thus, the CCE will focus on training their members on how to use structural and cohesive EU funds, and a catalogue of potential investment projects will be made, including 120 projects worth over €5 billion. The President of the CCE Supervisory Board, Vinko Dumičić, advised the Assembly about the results of the audit of the Chamber’s financial operations for 2010. The results of the state audit are positive, and the objections have been taken into consideration during the drafting of the financial plan for 2013, said Dumičić. Seven verdicts of the CCE Court of Honour were also brought, relating to violations of ethics and good business practice of Links, Allianz, Rost, Poslovne informacije, Jurinac savjetovanje, Optika Stepinac and Prograd Dubrava.

Costs of dismissal in Croatia ranks amongst lowest in Europe Labour costs in Croatia are extremely low irrespective of the comments made by entrepreneurs to the opposite osts of dismissal throughout Western Europe are at least double compared with those in Croatia and throughout Central Europe, according to research conducted by Laga, the top legal practice in Belgium, in co-operation with Deloitte. The research was conducted in 22 countries and the results have recently been presented by Sanja Ifković and Tatjana Orešković Trcin from Deloitte. The highest costs of dismissal were recorded in Italy, Belgium, Holland and Sweden, with the highest severance pay in Belgium and Sweden. Moreover, the highest costs of legal proceedings were recorded in Italy. Croatia ranks


Italy, Belgium, Holland and Sweden face the highest costs of dismissal amongst lowest in Europe for the costs of dismissal, followed by the Czech Republic, Latvia and Switzerland. According to the research, severance pay recorded in those countries severely affected by the crisis, such as Italy and Spain, still exceed those for Croatia. Italy and Spain have recently seen flexible labour legislation eas-

ing dismissal procedures, yet workers retained higher rights compared with Croatia. Hence, salary per completed year of service in Spain, on par with the salary of 45 working days, was reduced to be on par with the salary for 33 working days, following the implementation of flexibility of labour In addition, prior to the crisis severance pay comprised 42 regular salaries, whilst currently it stands at 24 monthly salaries. The maximum amount of severance pay in Croatia is currently slightly in excess of €5,000 or 6x€860 which is non-taxable, unless there is a different arrangement stated in the management, collective or any other agreement. Nevertheless, temporary employees, accounting for 90% of the newly employed, are not entitled to severance pay. Subsequently, Croatian labour is low-cost, irrespective of the statements made by entrepreneurs concerning costly labour and high costs of dismissal. The highest severance pay figures were recorded in Central European countries, such as Bulgaria, Poland, Romania and Hungary, whereas Croatia and Slovenia rank amongst countries with lowest costs, which is certainly more attractive to foreign investors”, stated Sonja Ifković. (J.F.)


Privredni vjesnik Year V No 221

( €450 million

allocated to Croatia to implement Cohesion Policy

( €13.7 billion

from EU to Croatia in the first seven yea


Our goal is to change the

In addition to the public investment already in progress, our goal is to help entrepreneurs in the private sector with re resources of the EU funds Jozo Vrdoljak rivredni vjesnik spoke with the Vice-President of the Republic of Croatia and Minister of Regional Development and EU Funds, Branko Brčić, on the methods for drawing resources from EU funds and the measures the Government intends to use to boost growth of economic indices during the next year.


You are in charge of the economic co-ordination of the Government. What do you intend to change and in what way will the economic recovery start? Do you believe growth is possible in 2013 and to what extent? Investment in both the public and private sector are crucial for economic recovery. In addition to the public investment already in progress, our goal is to help entrepreneurs in the private sector with restructuring their companies and new investment. This is very important, and we have a great opportunity to do this, to connect local sources of funding

and resources of the EU funds. It is precisely Croatian EU accession that will offer us the possibility to change the trend and

At present, we have used 59% of the agreed IPA funds and 68% of all contracted resources from pre-accession funds boost economic recovery despite the fact Europe has reached a new recessionary bottom in the third quarter, which directly affects Croatia through the decline in exports and personal spending. The Government anticipates GDP growth of 1.8% next year. You stated several times we cannot be satisfied with the present draw-down of resources from EU funds or finalisation and preparation of projects. What more can be done and what can we do to be more efficient? At present we have employed 59% of the agreed IPA funds

and 68% of all contracted resources available to us from preaccession programmes: CARDS, PHARE, ISPA, SAPARD and IPA. We will contract IPA funds another two years definitely, and payments will be made by 2016, which creates room for

any increase. The key to quality absorption of funds is to accelerate the preparation procedure and approve projects. During the past several years this has not been approached systematically, and its consequences are felt even today. I am not only think-

€13.7 billion for Croatia during seven years How much of the resources from EU funds will be available to Croatia during the forthcoming period? Croatia is entering the EU at the end of its budget period that lasts from 2007 to 2013, and for the last six months of that period Croatia obtained €450 million for the implementation of the Cohesive Policy. This money will be spent on big projects in environmental protection and traffic, projects for strengthening the competitiveness of Croatian regions and human resources, development of entrepreneurship as well as promoting development of science and innovation.

The negotiations over the Multi-annual Financial Framework 2014-2020 are still in progress. At this moment it is still impossible to say how

much will be available to Croatia. It is estimated these funds will total around €1 billion during the first several years of membership, with a tendency to grow every year, and possibly reaching €1.4 billion in the final year of the Financial Perspective 2014-2020. A total of €13.7 billion would be envisaged for Croatia and these programmes during the seven year timescale. It is very important how this money is spent and what is the effect of the spent resources. This means the point is not to spend what we have, but rather spend it wisely and create value for the community. Business & Finance Weekly

rs of membership


( up to 85% of co-ďŹ nancing secured for projects from EU budget


trend and boost growth

estructuring their companies and new investment. It is very important to connect local sources of funding and EU or local, financed from the state budget or projects of private investors. How will the announced hiring of new experts in EU funds change the situation? In order to improve the situation, we will have to hire people with special expertise and skills, ready to adapt, learn and acquire new knowledge. With the budget limitations, the Government is aware of the need to increase the capacity, so we will hire 232

The Government is aware of the need to strengthen capacity and we will hire 232 experts to prepare projects ing about preparing applications and tender documentation, but also solving property-legal relations, licences, physical and project documentation, all of which inhibit the projects’ preparation and implementation, especially big projects, whether they are

experts for preparing projects financed from EU funds. After Croatia joins the EU, a percentage of their salaries will be covered by funds from structural instruments. We know that the additional costs of the salaries will have to last during next year,

but this is a minimum expense in relation to other available resources, which we could lose if we fail to secure the appropriate administrative capacity. How can essential personal funds for projects be secured? Do you think entrepreneurs and institutions will dare use credit lines intended for that purpose? Above all, this depends on applicant liquidity, since the dynamics of payments is unfavourable for them since a large proportion of activities have to be performed before the first payment of EU funds, which implies expense. Expenditure must be certified to prove it is acceptable and in accordance with the project proposal. The process for submitting requests for the payment of funds and certification of the submitted expenses can last several months, sometimes up to a year. We are aware of this problem, and we are working on solving the question of pre-financing. One of the instruments we are working on in co-operation with HBOR

concerns favourable credit lines that enable end-users to overcome risk periods. We are also preparing other instruments at a national level that will be focused on bigger projects. In any case we are aware of the needs of local and regional administration, public companies and agencies as well as the general public. The availability of money for covering the costs is certainly an important factor for motivating small-sized applicants, and a precondition, without which we will not be able to apply big projects. It is important to highlight that EU funds are certainty, and that up to 85% of co-financing will be secured for projects from the EU budget, which is certainly stimulating for any applicant. The private sector will have somewhat different conditions, since for example, IPARD offers up to 50% for co-financing investment, but it is very important to point out that if a private project is not financially sustainable even without the 50%, than we have consider whether we wish to finance it at all.

Private agencies and consultants also included Will you be using the services of private agencies and consultants? In what way can your Ministry help them? Of course, we count on private agencies and consultants, especially due to the limited human resources and extremely short deadlines for finishing the preparations before EU accession. After accession, we will face a series of new challenges that will require help from experts in various areas. There is a large share of aspects we do not want keep as an obligation on the public sector, since a solid share of counselling services can be provided by the private sector.

At this moment, the market for counselling services in Croatia is yet to develop, and it is very important to us that this market segment, primarily local companies and consultants, develops and reaches high standards in offering their services in Croatia and abroad. On the other hand, we need to take into account that our units of state administration control the processes in the expert area - this refers to content related to a specific field, in the technical sense also – which concerns the procedures and administration, since only a competent administration can secure the public interest. The Mi-

nistry is not only in need of consultant companies, but also partners from the academic and business community. We plan to form theme forums and special groups that can define the needs of the public and address them in new projects cofinanced by EU funds.


Privredni vjesnik Year V No 221


Strong crisis pressure, weakness squeezes out optimism The economic situation is worse than the previous year. The trend does not seem to be easing which is even more worrying. Entrepreneurs anticipate the crisis will hit business even harder in 2013. Darko Buković Vlado Smud he economic situation is worse than the previous year. The trend does not seem to be easing which is even more worrying. Entrepreneurs anticipate an even deeper crisis in 2013 and growth at the level of 2012, which they warned the previous year, highlighting the need for enacting strategic decisions that could secure normal business in the years to come. If the year does not bring any growth


and the basic economic indices remain unchanged, this will be an achievement nevertheless, according to present anticipations, especially if we know Croatian EU accession will bring many unforeseeable problems. The forthcoming year will be very difficult. Preserving its long-year tradition, Privredni vjesnik drafted another Economic Outlook 2013 in cooperation with entrepreneurs. In this year’s survey, 408 companies participated, which covers only 0.4% of the total number of

companies that submitted their balance sheets for 2011. These companies account for around 6.2% of total revenue; achieve some 5% of total profits and employ around 6.5% of all workers in Croatia. In this year’s survey 8.6% large-sized companies participated, as well as 26.4% medium-sized and around 65% of mainly small-sized companies. Financial indices were used for processing each company that participated in the survey to assess the answers to specific questions, ensuring the answers

adequate value and level of difficulty proportional to the financial strength of an individual company. We grouped the companies in several categories of activities to obtain a stratified picture of entrepreneurial attitudes. Companies were grouped and processed according to size and branch of activity, with special emphasis on companies from the well-known group of top 400. On January 1, 2013 a new statistical standard for data processing, defined by the new National Business & Finance Monthly


On a scale of 1 -5 how do you evaluate the general state of the economy in 2012?

2012 total economic growth when compared with 2011, will be:


The effects of the crisis on your company in 2013 will be:







2,09 11,01%







10,95% 0,06%





much larger

Classification of Territorial Units will enter into force in Croatia, according to which Croatia will be divided in two statistical territorial units: Adriatic Croatia (County of Primorje and Gorski kotar; Lika and Senj; Zadar, Šibenik and Knin; Split and Dalmatia; Istria; Dubrovnik and Neretva) and Continental Croatia (City of Zagreb, County of Zagreb; Krapina and Zagorje; Varaždin; Koprivnica and Križevci; Međimurje; Bjelovar and Bilogorje; Virovitica and Podravina; Požega and Slavonija; Slavonski Brod and Posavina; Osijek and Baranja; Vukovar and Srijem, Karlovac as well as Sisak and Moslavina. For the purpose of this survey, we grouped and processed companies into two groups. Average estimate of the economic conditions 2.09% A borderline 2. Evaluating the general economic affairs with grades between one and five, entrepreneurs graded this year’s economy with an average of 2.09. This result is slightly poorer compared with 2011 (2.31). The grouped processing showed only minimum deviations, and the poorest

1,39% slightly larger

approximately the same

grade totalled 1.89 (Adriatic Croatia). It is interesting that the companies providing hospitality services gave the highest grade (2.58). The percentage of those thinking the economy deserves a straight 1 increased. In relation to 2012, this percentage increased by several percentage points, and now 10.95%

Increased percentage of those thinking the economy deserves the lowest grade entrepreneurs think the economy does not deserve even a 2. On the one hand, this can be explained with the present reality and awareness of the state of the economy. However, it must also motivate executive and legislative authorities to introduce changes and implement reforms for strengthening the economic climate. No one can be satisfied with an economy with a borderline two. Economic growth roughly the same It is anticipated that overall economic growth in 2013 will be

Investment & doing business circumstances in 2013:

lightly smaller

much smaller

approximately on the same level as this year. Therefore, expectations are not high. They account to nothing actually. The stagnating optimism is the result of the awareness of the moment, environment and all weaknesses in the economy. Companies offering hospitality services expressed a low level of optimism, where 58.8% anticipated slightly higher economic growth (in relation to 2012, however), while 24.7% expect nothing to change. They are joined by the processing industry with 34.7% of companies expecting a slight increase, and 33.5% of companies expecting economic growth will remain at the same level. Trade companies are reserved when it comes to economic growth; 48% do not anticipate any changes; 35.3% anticipate a slight fall, and 12.5% anticipate a much greater fall in 2013. Almost a third think economic growth will slow in 2013. We must overcome the crisis As with the year before, the general attitude of 38.3% of the examined companies is positive. They believe they will successfully overcome the crisis (38.5%). This opinion is shared by companies from the process-

In 2013, your company will deal with the crisis:


easily & more or less successfully overcome overcome

extremely hard to overcome

Business conditions probably the same Considering the investment conditions and operations in 2013, the entrepreneurs do not anticipate any significant changes. Depending on the estimate of each group, they anticipate the situation will be slightly worse or slightly better. Of a total of 355 companies that responded to the question, 38.8% (with around 18,000 employees) do not anticipate any changes. Some 33.1% of companies, employing around 21,000 workers, are slightly optimistic, whilst 23.8%, employing around 12,000 workers antici-

Negative influences on your business in 2013:


43,38% 37,41%



14,67% 9,39%

11,01% 7,32%


0,12% slightly improved

barely overcome

ing industry in continental Croatia and in the City of Zagreb, a group that unites medium-sized economic companies. Other groups express a more moderate attitude, but are convinced they will overcome the crisis. Around 68% of construction companies with over 2,000 employees expressed their readiness to overcome the consequences of the crisis. However, 10.7% of economic operators feel it will be difficult to do that, and this is very worrying since it is the opinion of the construction engineers and industry representatives.


much improved

try to overcome

about the same

slightly worse

much worse

increase production/ sales

change production processes

reorganise business methods

reduce expenditure

reduce operating expenses

very large





4,97% minimal


Privredni vjesnik Year V No 221

Your views on tax and contribution in 2013 will be:

Your corporate liquidity in 2013 will be:



33,42% 22,54%


13,31% 7,82%

much higher

slightly higher


little less

pate slightly more aggravating conditions. Only around 4% companies, with around 2,500 employees, anticipate negative investment and business conditions. The Adriatic Croatia area suggests the conditions will stay roughly the same or will be slightly worse. A total of 31.9% do not anticipate any significant changes, and 29.4% hope the conditions will slightly improve as opposed to 34.2% of entrepreneurs who are prepared for more aggravating conditions. A total of 85 companies from the Adriatic Croatia area, employing around 7,400 workers, answered this question. A total of 41.4% trade companies do not anticipate any greater changes for their operations in 2013. However, 38.9% predict slightly more aggravating circumstances for them and their 4,900 employees. Around 64% of predominantly small-sized construction companies with in the region of 1,900 employees predict slightly better investment and business conditions. Smallsized companies are still faced with serious problems. How to fight the crisis in 2013? As opposed to last year, when the majority of the surveyed companies decided to fight against the crisis by reducing production costs, 38.8% companies with around 30,500 employees will rely on business reorganisation as their solution. Some 26% of companies, with around 15,000 employees, plan to increase their placements in 2013. A total of 14.6% with approximately 11,500 workers did, however, opt for downsizing production costs. Around 11% of companies, with roughly 8,200 employees, intend to fight the crisis by decreasing



much less

much better

2,86% slightly better

labour costs, and around 9.4% see changes in their production programme as the solution for their 5,000 employees. Most groups see business organisation as a solution, followed by placement increase. Industry overall (33.65%) will rely on placement increase, and around 30% will opt for reducing business costs.

Almost a third think economic growth will slow in 2013 Companies from the service sector (60.6%), with around 13,500 employees, will also aim to reorganise their operations. Around 18% of service providers will rely on reducing labour costs for solving the crisis in 2013. Crisis pressure remains The outlook for the crisis effects for 2012 was mainly within acceptable limits. However, the outlook for 2013 shows signs of a more intense crisis, anticipated by 43.3% of companies (22,000 employees) answering this ques-

about the same

little worse

much worse

tion. The effects will be within acceptable limits for 37.4% companies and their 18,000 workers. An overall 43.38% of the economy anticipates significant problems and negative effects of the crisis. This question was answered by 84 companies from the Adriatic Croatia area and their estimates of the crisis effect are as follows: extremely high effect - 31.3%; notable effect - 26.8%; acceptable effect - 38.7%; small effect - 2.5%; negligible effect 0.4%. In the survey last year, the top 400 predicted an acceptable effect of the crisis in 2012. This year, 46.7% (with around 11,600 employees) predict a notable set of effects on their business. Similar anticipations are shared by around 56% of trade companies from a total of 109 companies answering this question. Taxes and contributions remain the same When asked about the possible changes in taxes and contributions in 2013, 44.6% of companies answered they would remain the same. It is worrying that entrepreneurs, bombarded with similar anticipations, are

actually pessimistic, and a third (33.4%) predicts an even slightly greater tax load. A slightly lighter tax load is anticipated by 13.3% companies. Only 7.8% companies, with 4,000 employees, predict taxes will significantly increase. As oppose to last year’s outlook, when the majority were convinced the tax load would remain the same, between 70% and 80%, this year’s survey shows lower percentages: Continental Croatia - 45.3%; small-sized companies - 48.5%; medium-sized companies - 45.9%; big-sized companies - 43.3%; processing industry - 47.3%; service providers 62.8%; top 400 - 44%. The construction sector is an exception; 77.8% anticipate the tax load will remain at the same level.

In 2013 your company plans to achieve: TOTAL INCOME 42,81%



27,85% 13,57% 6,28%

4,99% much higher

slightly higher

about the same

slightly less


1,70% much less

1,24% much higher

slightly higher

about the same

slightly less

much less Business & Finance Weekly

Liquidity decreases optimism Similar to past years, this year’s evaluation is that liquidity will not change significantly in 2013, although the percentage is low. Actually, 53% are convinced significant changes will not occur compared with 76.2% in 2012. Therefore the number of those convinced liquidity will change increased by over 23%. The percentage of those anticipating slightly better liquidity increased from 6.4% to 20.2%, as well as the percentage of those convinced liquidity of their companies will be slightly poorer in 2013 (from 11.9% for 2012 to 22.5% for 2013). The majority of other groups share similar anticipations. The companies from the Adriatic Croatia area are the


exception, where 48.3% anticipate a slight decrease in liquidity, and service providers hope for a slight improvement (49.6%). The weighted structure shows that medium-sized companies, with around 10,300 employees, anticipate improvements, while small-sized companies (39%, 4,700 employees) anticipate the same level of liquidity for service providers in 2013. Construction still struggles This year’s prediction for construction is that companies operations will remain the same or slightly poorer. Of 355 companies answering this question, 53.4% do not anticipate any changes, and 35.1% predict slightly poorer results in 2013. A total of 75.3% companies from the processing


industry (15,000 employees) are strongly convinced their present conditions will remain the same. Service providers (57.1%), that is, mainly small-sized companies with around 5,600 employees do not anticipate any changes. However, the larger-sized services providers (22.5%) are convinced their companies will achieve much better results next year. This attitude is shared by a smaller number of large-sized companies, with around 7,000 employees. The construction sector (57%), cognisant of their situation, anticipate slightly poorer results next year. Only 35 companies from this branch answered this question. A similar attitude is shared amongst traders: 33.9% with around 4,700 employees, do not expect changes, while


the majority (61.2%) and around 6,100 employees, anticipate they will achieve poorer results in 2013. 2013 slightly better‌ but for whom? The majority of the groups predict positive changes in relation to 2012, especially regarding an increase in total revenue and nett profit, however, at the same time they anticipate significant downsizing. Of 408 responses, 87% intend to achieve the same or slightly higher total revenue, and consequently higher nett profit. The majority plan to maintain the number of the employees at the same level, but downsizing may well be inevitable. Therefore, 18.6% companies plan to let go a smaller number of employees,

EXPORTS 55,32%



35,57% 18,70%


4,54% much higher




0,85% slightly higher

about the same

slightly less

much less

much higher

slightly higher

about the same

slightly less

1,99% much less

7,27% much higher

slightly higher

about the same



slightly less

much less


Privredni vjesnik Year V No 221

Your estimation of company investment in 2013 compared with 2012: UPGRADING CAPACITIES








5,85% much higher

slightly higher




about the same

slightly less

and 19% announced significant downsizing. A similar is attitude is shared by companies in continental Croatia, as well as largesized companies that anticipate even more drastic downsizing. For example, 74.8% decided to increase their nett profit, of whom 17.5% will reduce the number of employees from a total of 5,100, while 30.6% will drastically reduce the number of their 8,800 workers. A similar scenario is anticipated by companies from Zagreb. Companies from the service area share the same goal in terms of finance, but are also prepared for considerable downsizing (47.9%). The top 400 companies have the same plan for 2013 – an increase revenue and profit, and reduce the number of employees. Construction companies intend to improve their financial affairs in 2013 with a slight reduction in the number of employees. Traders will be satisfied if they maintain their total revenue and profit at the present level or show a slight increase, but according to 70.8% they also do not intend to downsize. The processing industry also plans to increase their total revenue and nett profit in 2013, but 66% will not reduce the number of their employees; rather they intend to increase numbers. Investment atmosphere without improvement The results of the survey show that the investment atmosphere will be more or less at the level of 2012 - certainly not motivating. The majority of 52.4% will preserve this year’s level of investment in the modernisation of capacity. Some 13% plan to set aside substantially more for this purpose, while 15.5% intend to

13,54% 6,01%

4,29% much less

much higher

1,47% slightly higher

about the same

reduce investment considerably. Research and development will be financed at the same level by 46% of companies, while 30.1% intend to set aside slightly more for this purpose. Training will be financed at the same level by 65.2%, while 25.3% of companies will invest slightly more over 2012. Takeovers and acquisitions will be the focus of 49.3%, and they plan to invest for this purpose at a similar level as in 2012. However, 17.8% of mainly small-sized companies intend to reduce their funds slightly,

slightly less

much less

much higher

while 27.6% will reduce them significantly. Only a few smallsized companies announced an increase this area of investment. A total of 14.6% of processing companies will invest considerably more in the modernisation of personnel capacities, and merely 12.3% of these plan to set aside only slightly more in relation to 2012. A total of 44.1% will maintain this area of investment at the same level. A total of 55.7% will have the same budget for industrial research and development, while 38.1% intend to increase it

slightly higher

about the same



slightly less

much less

slightly in 2013. A total of 53.9% plan to invest the same amount in training their 11,700 employees, while 38.8% plan to increase it for their 6,800 workers. Industrial takeovers and acquisitions will be financed at the level of 2012 by the majority (61.8%), while 24.9% of companies will reduce such funds significantly. A turbulent year is ahead for the service sector, since 41.2% of companies intend to considerably increase funding in the modernisation of capacity; some 35.4% of companies plan to invest roughly the same amount as in 2012. A total of 24.6% will increase funding for research and development, while 21.1% plan a reduction. A total of 40.6% of service-providing companies plan to keep their investment at the level of 2012. The majority of 65.5% of service-providing companies will maintain their investment continuity in training, while 21.8% will slightly increase funding. Funding of takeovers and acquisitions will reduce considerably in 64.7% of companies of this branch. The Top 400 will start the forthcoming year in their usual rhythm of investment in the modernisation of their capacities, with 57.3% companies intending to maintain it at the same level as 2012. Only a smaller number of companies will reduce or slightly increase their investment. Funds for research and development will remain at the same level for 40.5% of the top 400, while 38.1% plan a slight increase. A total of 71% of companies will preserve this year’s level of investment in training, and 27.5% intend a slight increase. A total of 51.5% of companies will invest the same amount in takeovers and acquisitions, and 20% will Business & Finance Weekly

slightly reduce this type of investment, with 23.7% opting for considerable cuts. Import/export ratio For this year’s survey, 265 of 408 companies answered the question regarding their import/ export results. A total of 42.6%, with around 13,800 employees, achieved roughly the same import level compared with 2012. A total of 26.6% companies with 8,300 employees recorded slightly higher imports, while 22% (8,500 employees) showed reductions. Concerning exports, 24.3% companies with 9,000 employees achieved roughly the same export results, while 24.2% (7,300 employees) saw slightly better results. At the same time, 20.1% of exporters with 7,800 employees achieved slightly poorer results. A similar balance is visible in import/export results. Thus, 16.7% companies, with 5,300 employees, increased export results considerably, while 14.6% (4,300 employees) achieved significantly poorer results. The majority of the 256 companies (57.8% with 17,300 employees), that responded to this question, achieved approximately the same import/export ratio as in 2012. With 57.4% and 2,500 employees, the Adriatic Croatia region

11 achieved roughly the same import and slightly poorer export results (45.5% with around 2,100 employees). Therefore, the import/export ratio was slightly poorer compared with 2011, which resulted in lower export revenue for 40.6% companies with around 1,100 employees. Continental Croatia, with 39.6% of companies and 11,200 employees achieved import results similar to the last year, and at the same time 28.6% achieved slightly higher results, while 23.5% registered lower imports. A total of 15.7% achieved higher exports, 26.4% slightly

The majority of groups look to business reorganisation as an exit to the crisis higher, 26.1% roughly the same, 14.8% slightly lower and 16.8% achieved considerably lower exports results. In total, the import/export ratio for continental Croatia remained almost at the same level of 2011 (according to 64.1% import/export companies). Nevertheless, this region registered slightly higher revenue from foreign sales.

A total of 93% of construction companies confirmed approximately the same import results, 93.2% roughly the same export results, 94.8% achieved a similar import/export ratio, and 93.2% registered approximately the same export revenue as during 2011. 2013 - mild optimism Concerning import/export plans for 2013, the majority anticipate the same or slightly better results. Therefore, 55.3% companies with 20,000 employees plan to import roughly the same level in 2013, while 35.5% with 12,200 employees intend to increase imports. A total of 30.1% of companies with 11,000 employees plan to achieve roughly the same export results as in 2012, while 57.1% with 19,000 employees plan a slight increase. This should result in the same level (55.3%) or a slightly higher (31.2%) export/import ratio, as well as higher export revenue anticipated by 55.9% of companies with 18,400 employees. The majority of others (29.6% with 11,000 employees) plan to keep their export revenue within the limits of 2012. Adriatic Croatia anticipates roughly the same import results in 2013 (62.6% companies); 45.9% the same and 34.7% slightly higher. Further-

more, the same or a slightly better import/export ratio as well as total revenue achieved by exports is also anticipated. Similar positive anticipations are shared in Continental Croatia. The only difference is that they predict better import results (61.5%), and consequently, improvements in the relative share of total revenue (60.6%). Regarding imports and exports, the construction sector hopes to achieve slightly better results in relation to 2012. This is understandable, since 2012 was one of the worst years in terms of business and work results for the entire construction operations. The majority of companies expressed their aimed results with the following percentages: same level exports - 87.2%, slightly higher exports - 69.3%, slightly higher import/export ratio – 70%, and finally, slightly higher revenue than exports is anticipated by 70% of construction companies. Business results for 2012 Financial results for 2012 should show a mild increase in total revenue and nett profit, but also a decrease in the number of employees. A total of 8.8% companies announced they intend to end the business year 2012 with considerably higher total


Privredni vjesnik Year V No 221

Financing structure 2012. (in relation to 2011.) PERSONAL FUNDS much less 1,86%

much higher 6,33% slightly higher 14,66%

slightly less 6,95%

about the same


EU FUNDS much higher 9,67% slightly higher 8,98%

much less 17,74% slightly less 2,92%

about the same


BANK LOANS much higher


much less


slightly higher


slightly less



about the same

Liquidity in 2013 will not change significantly

BONDS, STOCKS much less slightly less 11,49%

revenue, 31.3% with slightly higher, 27.1% with roughly the same, 28.38 slightly lower, and 4.2% considerably lower revenue. Concerning anticipated nett profits for 2012, it clearly shows that over 50% of companies will achieve profit - 17.9% much higher, 25.78% slightly higher, 20.2% roughly the same, 17% slightly lower, 19% considerably lower. Company CEO’s anticipate that the

much higher 0% slightly higher 0%

21,04% 67,47%

about the same

OTHER SOURCES much higher 0,86% much less 12,12%

slightly higher 21,41%

slightly less 6,37%


about the same

final number of those employed at the end of 2012 (in their companies) will be considerably higher with 7.2% of companies (3,800 employees at the end of 2011); slightly higher for 22.74% (11,800 employees), roughly the same for 26.4% (13,800 employees), slightly lower for 25.3% (13,200 employees), considerably lower for 18.2% (9500 employees). As the size of the company grows, so does the percentage of those intending to reduce the number of employees. Therefore, SME’s, as the backbone of future activities, are positioned as those that will continue to employ since they are in need of workers. In terms of regions, the anticipated results for 2012 for Adriatic Croatia are: slightly lower total revenue (45.4%), slightly higher nett profit (48.8%), slightly lower number of employees (42.4%). A fifth of the processing companies (20.9%) anticipate much higher total revenue; 31.5% lower total revenue, and 28.8% will achieve roughly the same. Regarding nett profit, it should

be much higher for 26.7% of companies, and slightly higher for 32.9%; the number of employees will be higher for 10.5% (in relation to 2,300 employees at the end of 2011 – mainly small-sized companies); the number of employees will be only slightly higher for 30.7% (6,600 employees), and 25.9% companies anticipate roughly the same number of employees. The same percentages are anticipated for slightly lower number of employees, while 7.1% anticipate considerably lower levels. According to 61.2% of construction companies, they will end the business year with roughly the same total revenue as in 2011, lower nett profit (46.7% - slightly lower; 35.2% - much lower), while 63.8% anticipate roughly the same level of employees, and finally, 24.2% of construction companies expect this number will be slightly lower. The already implemented downsizing and decreased construction activity should be taken into account here. Trade companies have different opinions regarding the anticipate total revenue based on their balance sheet for 2012: 35% anticipate slightly better results; 40.9% anticipate slightly poorer results. Gross profits should be much lower according to 41.6%. The number of employees will be slightly higher for 38.6% of companies with 4,200 employees at the end of the year; roughly the same for 33.7% (with 3,700 employees), while 17.3% companies (with 1,900 employees in 2011) anticipate to end the year with significant downsizing. Companies from the service sector announced poorer results for 2012 in relation to 2011. A total of 28.4% anticipate slightly Business & Finance Weekly

13 Financing structure 2013. (in relation to 2012.) PERSONAL FUNDS much higher much less 4,02% 1,65 % slightly less 2,75%

slightly higher


about the same


EU FUNDS much higher 8,95%

much less 14,64%

slightly higher

slightly less 0,48%

27,91% 48,02%

higher total revenue, 31% the same, and 34.9% slightly lower. Nett profits for 33% of service-providing companies should stay at the same level; slightly lower for 22.3%, and much lower for 24.2%. The anticipated number of employees at the end of the business year should be much lower for 44.1% companies that ended the last year with around 7,000 employees; slightly lower for 30.3% (with 4,900 employees) and approximately the same for 13.5% companies that had around 2,100 employees at the end of 2011. The Top 400 anticipate almost the same scenario, except for a considerable reduction. Therefore, 10.4% anticipate much better results than in 2011, and 34.4% anticipate slightly lower total revenue. Some 28% with around 10,900 employees anticipate roughly the same revenue. Slightly lower revenue is anticipated by 27.1% with around 6,500 employees. Much higher nett profits for their 8,200 employees will be achieved by

Bank loans will play a part in the financial construction of 59.3% companies 25.3% companies, and 33% of companies with 7,800 employees will achieve slightly lower nett profits. Roughly the same profit should be achieved by 17.6% of the Top 400 companies with 3,600 employees. Slightly lower profits are anticipated by 8.4%, and 15.4% with 2,700 employees are preparing for much lower profit. During 2012, these companies employed

and also downsized. Therefore, 10.7% will have considerably higher employment rates compared with the former 3,000 employees, while 26.7% companies with 7,500 employees at the end of 2011 will have a slightly higher employment rate. A total of 13.3% with 3,800 employees will have the same employment rate. A total of 23.1% employing around 6,500 workers will have a slightly lower employment rate, and 25.9% stated they would end the business year with a considerably fewer number of employees in relation to the previous 7,300.

about the same

BANK LOANS much higher 8,37%

much less 10,20%

slightly higher 11,43%

slightly less 10,67%


about the same

BONDS, STOCKS Financing in 2012 Corporate financing through personal funding remained roughly at the same level for 70.2% companies in relation to 2011. The majority of 60.7% used EU funds as in 2011, only 17.7% of mainly small-sized companies used them to a considerably lesser extent. A total of 41.6% used bank financing to the same extent as the year before; 19.2% used them to a slightly greater extent and 8.9% to a much greater extent. A total of 21.6% of companies asked for loans less, and 8.4% for loans to an even lesser extent. Bonds and shares were used at roughly the same level for 67.4% of companies, while 11.4% used this financing source to a slightly lesser extent. A total of 21% companies reduced this type of financing considerably. In 2012, funding from other sources remained at a roughly same level as in 2011, which was confirmed by 59.2%. A total of 21.4% used other sources slightly more, and 12.1% used them considerably less in relation to 2011.

much higher slightly higher 0,13% 0,43% much less



about the same slightly less 2,50%

OTHER SOURCES much higher 2,12%

slightly higher

much less slightly less 2,75%




about the same

14 Companies from the Adriatic Croatia area used different funding sources to the same extent as in 2011, although 31.2% used personal resources slightly less, and 52.3% used bank loans slightly more. Some 76% of companies from the continental Croatia region used personal resources for investment at the same level as 2011, some even slightly more (13.4%). A total of 57.4% used EU funding at the same level as 2011, while 18.6% decided to reduce this type of funding. A total of 45.2% used bank loans at the same level as 2011, while 24.9% decided to reduce this type of financing. The situation is the same in the case of financing with bonds and shares. The majority (65.6%) used shares and bonds at the same level as in 2011; 13.3% slightly less, and 21% much less. A total of 55.2% of companies used other sources at the same level as in 2011. Some, (24.4%) used these funds slightly more than in 2011, and a smaller number, (12.1%) used them considerably less compared with 2011. The majority of companies from the Zagreb area (79.1%) used personal funds for financing as they did in 2011, however, the use of EU funding increased. EU funds were used considerably more by 24.4%, slightly more by 19.7%, and roughly the same by 31.7%. At the same time, 6.9% companies used EU funding to a slightly less extent in 2012, and 17.1% considerably decreased the use of these funds as a source

A total of 57.4% used EU funding at the same level as 2011, while 18.6% decided to reduce this type of funding of financing. Some 51.3% of companies used bank loans to the same extent as in 2011, of which 17.7% were medium-sized companies who used them much more than in 2011, with 17.2% mainly small-sized companies using these funds slightly less. About 51.7% used shares and bonds at the same level as in 2011. This type of financing was used slightly less by 27.5% in

Privredni vjesnik Year V No 221

First things first The order of priority must shift. It is questionable whether the executive power listens to companies when it comes to prioritising and crucial decisions the Government must make to exit the crisis. In 2012, priority number one was to reduce labour contributions and taxes. On the other hand, 22.7% of companies regard illiquidity as the biggest problem to be faced during 2013. This implies a shortage of money, slimmer possibilities for securing cash flow and liquid funds for normal business. In second place, at 19.9%, concerns the need to cut labour taxes and contributions. For 17.9%, the third priority concerns attracting foreign investment. Considerable downsizing of the state administration is the fourth priority with 17.3%, cheaper entrepreneurial loans take is the fifth priority with 13.7% votes. Finally, limiting the duration of bankruptcy procedures concerned 8.2% of companies. With the majority of groups, the order of priorities and the accompanying percentages are very close to those mentioned. Only construction companies have a different opinion. Their first priority is attracting foreign investment (24.3% of companies). The second, third and fourth places are similar according to percentage shares: considerable downsizing of state administration - 18.7%, reduction of labour taxes and contributions – 18%, solving illiquidity - 17.8%. The last priority of the construction sector went to limiting the duration of the bankruptcy procedures (9.1%).

Priority ranking of decisions imperative for solving the crisis in 2013

22,72% 19,93%


17,35% 13,75% 8,29%

cheaper lending to entrepreneurs

significant reduction in state administration

2012, and 20.7% used them considerably less. Even 43.5% companies that used other sources for financing continued to do so in 2012, and they were joined by 35.2% of companies using this type of financing slightly more. During 2012, the processing industry used mainly personal financing as in 2011 (64.9%), with 10.9% using them considerably more this year compared with 2011. A total of 68.3% used EU funding at the level of 2011, but 17% used them much less, compared with the last year. There were changes in the use of bank loans in relation to 2011. Around 8.2% companies used them much more than in 2011, and 16.6% used them slightly more. Some 38% used bank loans at the level of 2011. Around 28.6% reduced

reduced taxation and mandatory payments

improve liquidity

their use during the year, while 11.4% used them even less compared with 2011. Around 54.7% companies used shares and bonds at the level of 2011, however, 25.4% used them slightly less and 19.7% used them considerably less. A total of 69.6% of companies in the processing industry used other sources for financing at the level of 2011; 13.8% slightly reduced this type of financing, and 14.3% used other sources considerably less. Personal fun ding in the financing plans for 2013 According to the results of our survey, 64.7% of companies will use personal funding at roughly the same level as during 2012, with a tendency to increase their use. Around 48% companies

more rapid liquidation processes

attract foreign investment

should use EU funds on the same level as during 2012, where 35% of the responding companies plan to use them considerably more. Around 14.5% companies intend to decrease their use considerably during 2013. Bank loans will play a part in the financial construction of 59.3% of companies; the remaining 40% will use these funds more or much more, and roughly the same percentage will try to reduce their use slightly or considerably. Shares and bonds will be used at the same level as in 2012 by 71.3% companies, and some 25.6% will reduce their use. Around 53.6% companies will use other financing sources on the same level as during 2012. Next year, 22.8% companies will use other sources slightly more, and 18.5% companies will significantly reduce this type of financing. Business & Finance Monthly



Vigorous and deep reforms essential to avoid long-term stagnation Any significant economic growth over the medium-term will not be achieved unless the political elites are prepared to replace the formerly adopted ‘doctrinal-oriented’ approach to (or perhaps confusion in) resource management of the Croatian economy, relying on state capitalism 012 can mainly be remembered as a year of great expectations for the corporate sector from economic policy measures announced during the first year of the term of office of the government of Prime Minister Zoran Milanović. Unfortunately, the announced short-term measures, specifically investment made by state-owned companies that was supposed to revive domestic demand (vital for a large number of Croatian private companies), was not implemented. Government policy focused on the preservation of liquidity of the central state, which was its principal objective during this first year of term in office. Irrespective of


and minor savings in expenditure, whilst simultaneously increasing the base VAT rate, merely raised negative expectations in the private sector and caused a new recessionary wave. Anxious ministers State-owned companies were not in a position to launch a new investment cycle, due to strategic and operating (mainly human and financial) deficits. The private, household and corporate

Croatian economy reentering a new cycle of free-fall, following shortterm stabilisation in 2011 the fact that the contraction in aggregate domestic demand caused a decrease in state tax revenue, the most severe threat for the state budget was non-existent and if there was one, it could not be managed. The exhaustion of political credit granted to the government during the elections, mainly due to the preservation of liquidity

sectors did not see sufficient optimism in the economic policy measures implemented by the government and in the dubious behaviour of government ministers. Risks were huge in 2012 and significant private investment was a rarity, whilst on the other hand savings increased. Unemployment continued to

rise as a result of the adaptation of the private sector to newly arisen circumstances and rising insolvency. The rational myth of tourism consumption, which has been dominant in Croatian economy for decades, finally most probably dissolved in 2012. Tourism resources were explored to the maximum extent, due to a long and extremely hot summer. Summer heat is particularly advantageous for Croatian tourism, based on the old-fashioned concept of “sun-and-sand”, yet it adversely affected agriculture, the second most important sector of the economy, resulting in reduced activity in the food processing industry during the third quarter in 2012. The Croatian economy is re-entering a new cycle of freefall, following short-term stabilisation in 2011. The optimism expressed by the government concerning the stabilisation of Croatian economy in 2013 and anticipation of positive trends indicating economic growth appear to be utterly unfounded. Turning point imperative Long-term stagnation, which would deepen economic and social erosion, can be avoided primarily by vigorous and deep reforms. The Croatian government and the political elites need to opt

for a new economic model, radically different from the existing one. Significant economic growth over the medium-term will not be achieved unless the political elites are prepared to renounce the formerly adopted ‘doctrinaloriented’ approach to (or perhaps confusion in) resource management of the Croatian economy, relying on state capitalism. 2013 will be the year of Croatian EU accession and the year of integration with the European market, one of the two largest markets globally. The domestic private sector, with insufficient capital and political support, will in most cases not manage to integrate. A similar situation occurred in Slovenia, which saw a breakdown of her capitalism. Private companies will be given the opportunity to use EU fiscal stimulus instruments allocated to Croatia, which she will probably not manage to use to its full potential, as the government is primarily focused on state-owned companies. Irrespective of a ‘positive shock’ concerning Croatian EU accession in mid-2013, economic uncertainty will most probably persist through 2013, unless there is a turning point in government policy and unless the government opts to open towards the private sector.


Privredni vjesnik Year V No 221


2013: another arduous year for Croatian economy Rising operating costs over the medium term is the greatest challenge for domestic entrepreneurs ollowing an extremely difficult year for the local economy, to be remembered primarily for a plunge in economic activity and employment, as well as for a steep rise in prices, it is exceptionally demanding to be an optimist. A lack of consistency in fiscal policy and currently a slow pace in the implementation of structural reforms are additional reasons for concern, indicating the low reforming capacity of Croatian society. Croatians need to draw several conclusions based on their experiences in 2012, notably concerning the fact that current times are not the best for unfounded optimism, primarily within the recession conditions that are likely to persist throughout 2013. Moreover, stable conditions on world financial markets at the end of 2012 were due primarily to unconventional


and expansive monetary policy measures, indicating the likelihood of positive trends to be merely short-term. The effective functioning of monetary authorities is notably reduced within ex-

treme variations of interest rates. Against a background of similar circumstances in the international environment and being aware that there is no simple and rapid solution for the current problems

in the domestic economy, anticipated stagnation in domestic GDP (reaching just 0.4% growth) in 2013 can be considered as acceptable. It has to be highlighted that the current unfavourable trends in the economy will also persist during the first six months in 2013. The overall impact of Croatian EU accession on the local economy is uncertain thus far. Long-term benefits are certain, yet a large number of challenges in the short-term are likely to exceed benefits. Rising operating costs in the medium term might be the greatest challenge for local entrepreneurs. Producer prices in Croatia have been rising considerably compared with those throughout the EU over the last several years. Simultaneously, the reduced tax burden and parafiscal taxes have been

implemented ineffectively, in order to mitigate higher production costs for entrepreneurs, as a result of the fact that relieving the private sector can occur primarily providing current public consumption is reduced, and the public sector is thoroughly restructured. Consequently, unfavourable trends can be anticipated in the domestic labour market, which will generate pressure on living standard during 2013, also due to on-going price rises at above 3%. Hence, we are facing a new year during which we will need to tackle most of our misconceptions, primarily those based on the belief that Croatian EU accession will provide the solution to all our problems and subsequently Croatians will not have to implement major changes to their businesses, whilst being able to achieve excellent results.


A good time for the application of the theorem of ‘the impossible trinity’ Economic reforms are essential, as well as anti-crisis policies that need to focus on fostering economic growth, industrial revival and reduced unemployment he current adverse macroeconomic trends in Croatia are a result of two major adverse trends – primarily comprising of an inappropriate development model and secondly of the sovereign debt crisis in Europe. Croatian EU accession will happen against a backdrop of the second sovereign debt crisis in the European Monetary Union, with any solution to the crisis being tackled with considerable uncertainty, mainly considering the structural discrepancies within the Monetary Union. Discrepancies between political integration and the level of monetary integration


among members are a fundamental issue. On the other hand, substantial discrepancies between the common monetary policy and national fiscal policies primarily account for inherent instability within Monetary Union. The European Central Bank is the third structural disadvantage, irrespective of the fact that the monetary strategy of the ECB has been substantially upgraded to prevent a further banking crisis in the EU. The fourth major issue is the very weak level of co-ordination between macroeconomic policies of the Eurozone members and the European Union, as well as an absence of effective

mechanisms for tackling the crisis. Current economic conditions are a major obstacle to a Croatian exit from the crisis, due also to the fact that Croatia has a small and very

open economy. Consequently, Croatia will need to implement thorough economic reforms, as well as anti-crisis policies that need to focus on fostering economic growth, industrial revival and reduced unemployment. Such reforms need to create room to manoeuvre for flexible macroeconomic policies (reflationary monetary policies and fiscal stimuli to foster aggregate demand) in order to enable a Croatian exit from the crisis in 2013 and achieve planned economic growth by applying the theorem of ‘the impossible trinity’ or adopting a new model of economic growth. Business & Finance Weekly



Comprehensive reforms an imperative for growth Export growth rates are now flat due to exports being stifled by low level of competitiveness, a narrow export base, and an unfavourable external environment n 2013, we anticipate a low level of economic recovery and real GDP growth to stand at 0.5%, since it is highly exposed to negative risks. Thus, Croatia may be facing another difficult year or an economic downturn for the fifth consecutive year. Real growth of 0.5% is based (predominantly) on a mild recovery in (public) investment although such investment is simultaneously the most insecure and a hardly predictable category. Hence, it is exceptionally difficult to estimate whether any long anticipated investment will eventually be implemented, as well as whether it will imply benefits and contribute significantly to sustainable economic development. It has to be stressed that it


most certainly cannot be a medium-term growth promoter, as this was previously ineffective when both investment and consumption were financed by large foreign capital inflows creating the illusion of rising wealth. A stimulating investment climate, which is fundamental for private investment, is created through

the abolition of a vast swathe of administrative hurdles, tax changes, labour market flexibility, and the comprehensive reform of public services that are crucial for fostering effectiveness. According to new regulations on financial operations and prebankruptcy agreement enforced in October 2012, B2B payment deadlines stand at 60 days, whilst payment deadlines between companies and the state will be 30 days. The implementation of these regulations will accelerate the disappearance of insolvent companies. The negative impacts of reduced production and employment over the short-term will significantly lower the level of economic activity, although the investment climate is antici-

pated to improve, as well as sustainable economic development to be promoted over the medium and long-term. Domestic demand is not expected to recover in 2013. Export growth rates are anticipated to be minimal due to exports being stifled by low levels of competitiveness, a narrow export base and an unforgiving external environment. The trend of reducing the cost of external financing begun during the third quarter of 2012, is anticipated to persist until mid2013, or by the time of Croatian EU accession (providing the investment rating is retained). Nevertheless, the accepted budget for 2013 anticipates rising public debt, hence further increasing the vulnerability of the state to external shocks.


2013. will see stagnation n 2012, the Croatian economy saw a 1.9% drop over the third quarter, with a 1.8% decrease year-on-year, irrespective of an excellent tourism season that did not succeed in compensating for a sharp decline in both industry and trade. Thus, 2013 will see stagnation, with growth will slightly above zero. The Ministry of Finance has been focusing on fiscal discipline and simultaneously slightly increasing tax pressure, irrespective of its unwillingness to admit it. In addition, 2013 will see higher taxes on gas and electricity, as well as tobacco, whilst the zero-rate of VAT will be removed. Croatia will see a similar situation as that of 2012. Tax authorities have been tackling the grey economy, whilst simultaneously increasing the tax burden.


Banks have stopped lending and have been increasingly withdrawing funds from Croatia as a result of the frustrating economic conditions. Demand for loans from the household sector is nonexistent, due to overall economic uncertainty. 2012 saw a 5% drop in living standards, primarily as a result of soaring energy prices. 2013 will see a continuation of such trends, albeit at a slightly slower pace and standards will decrease by around 2%. Nevertheless, the corporate sector will be the most severely affected. Invoice payment and liquidity have hardly ever been more unsatisfactory. Most Croatian companies have been mainly focusing on the domestic market and are hence currently facing tax pressure and decreasing demand, having little or no exports and thus being caught in a vicious circle.

They generally opt for short-term solutions such as redundancies and 2013 is likely to see a continuation of such trends. Optimism

Tax authorities have been tackling grey economy, whilst simultaneously increasing tax burden

can hardly be maintained under these circumstances. The restructuring of public companies and the implementation of several reforms are imperative and would substantially encourage recovery in the corporate sector. Croatian tourism has seen excellent results for the last several years, hence compensating for export losses. Nevertheless, 2013 will yet again see excessive expectations from the public sector. Investment will foster productivity in the energy sector, yet competitiveness will not rise significantly. Croatia might even incur substantial costs. The investment cycle in Croatian water (Hrvatske vode) will certainly result in rising prices in the long-term and consequently water prices will double over the next decade, which might adveresely affect general public spending.


Privredni vjesnik Year V No 221

( 1,000 contracts on investment protection between EU members and third countries

Foreign investment promotion and protection

Contracts are signed, but it is vague whether they will apply After the Treaty of Lisbon came into force, it became obscure whether the contracts on investment promotion and protection would apply. This primarily concerns contracts signed between the members of the EU Drago Živković ince 1993, Croatia has signed a total of 59 contracts on investment protection and promotion, of which 23 were signed with EU members. The majority of the contracts were signed between 1996


On the basis of the signed contracts, investors instituted two arbitration procedures against Croatia, and two settlements were agreed and 2001. The contracts with the following states have been terminated: Cuba, Indonesia, Mongolia, Morocco, Oman, Russia and Zimbabwe. Negotiations over contracts and bilateral agreements on economic co-operation, which had been subject to the jurisdiction of the Ministry of Economy, were taken over by the State Office for Trade Policy. The contracts are signed by the Government, and they mainly define dispute settlements in arbitration procedures by applying international rules. On the basis of the signed contracts on investment protection and promotion, investors instituted two arbitration procedures against Croatia, and two settlements were reached, said Deputy State Attorney, Federica Merijer Dusman, at the 20th Croatian Arbitration and Conciliation Days. An investor from Canada instituted a procedure before arbitration in Stockholm, claiming

Croatia had violated equality, which led to the expropriation of his investment. The arbitration court in Stockholm refused his request in May 2008. An investor from Austria instituted a procedure before an arbitration court in Den Haag, and his request was also denied. The investor then referred to the regular court in Den Haag, requesting it to overrule the verdict of the arbitration court, and this claim was denied on August 15, 2012. The appeal procedure is in progress. Treaty of Lisbon Investors from Italy and Sweden filed requests for a peaceful dispute settlement. In both cases it was determined that the actions of the state bodies led to expropriation at the cost of the investor. Two settlements were then reached and the disputes settled. A further two investors from Italy and the USA, as well as one from the Belgium-Luxembourg

Investment of €26 billion

Total value of foreign direct investment into Croatia from 1993 to the end of June 2012 is €25.85 billion, and the majority relates to financial mediation, trade, real estate, post and telecommunication. Austria is the largest investor, followed by the Netherlands, Germany, Hungary, Luxemburg, France and Italy. Economic Union, filed requests for peaceful dispute settlement, but their requests have not been accepted for now. During the process of Croatian EU accession, one part of the contract on investment promotion and protection was harmonised with the acquis communautaire. This led to signing additional protocols together with the existing agreements with Albania, Romania, Slovakia, Turkey, the Czech Republic, San Marino and Israel. Negotiations are in progress with several other

states, and the protocols will be signed soon. Other countries, on the other hand, refused to accept changes in the contract. In 2008, a contract was signed with Azerbaijan, which was fully harmonised under EU law. However, after the Treaty of Lisbon had come into force on December 1, 2009, it became obscure whether these contracts were valid. This primarily concerned the contracts signed between EU members. According to the Treaty of Lisbon, foreign direct investment falls under common trade policy, which is exclusively subject to the jurisdiction of the EU. The difference in opinions relates to whether the contracts on investment promotion and protection are compatible with EU law, and whether the arbitration courts are competent for settling disputes arising from these contracts. Commission against arbitration In May 2010, the European Commission proposed a draft of a directive that would solve this problem, but the directive has still not been adopted by the European Parliament. The directive regulates the transfer regime for roughly 1,000 contracts, signed between the EU and third countries, and the replacement of old contracts with new ones, in which the EU would act as the contract party. Judging accordingly, the disputes will not be settled when Croatia joins the EU on July 1, 2013, which means it is uncertain whether the contracts on investment promotion and protection Croatia has with EU members will be valid. Business & Finance Weekly


( 11.5% growth in investment anticipated by the government in 2013


Will investment plans be implemented in 2013? The government has devised an ambitious plan of investment growth of €0.6 billion in relation to 2012 when investment in state-owned companies stood at around €1.4 billion Igor Vukić nvestment in Croatia is anticipated to grow by 11.5% or almost €1.2 billion. Total investment of €9.6 billion is anticipated, as announced by Branko Grčić, Vice-President of the Government during the government session held in December. Irrespective of any anticipation of remarkable investment growth in several sectors, primarily in the railway sector, Grčić pointed out that the total announced investment will slightly exceed investment in 2010. Nevertheless, it will be substantially lower than in 2007 when it stood at €12.4 billion. The state is planning to invest €2.9 billion. Investment into public companies will slightly exceed €2 billion. The government has devised an ambitious plan of investment growth of €0.6 billion in relation to 2012, when investment in state-owned companies stood at around €1.4 billion. According to Prime Minister, Zoran Milanović, 2012 was the year of “preparation of projects, whereas it is anticipated 2013 will be the year of project implementation”.


Major projects Primary investment is planned in HEP, the largest provider of public electricity supply services in Croatia, (€0.4 billion), as well as

in Croatian Roads (Hrvatske ceste) worth €0.3 billion, Croatian Motorways (Hrvatske autoceste) of €0.3 billion, HŽ Infrastructure (€0.2 billion) and Croatian Water (Hrvatske vode) with an investment value of €0.2 billion.

State planning to invest €2.9 billion It is important to highlight projects in the energy sector and primarily the construction of the Ombla Hydro Power Plant, worth around €24 million. In addition, €16.9 million is earmarked for Bloc C of the Thermal Power Plant Sisak, with €16.4 million planned for the Zakučac Hydroelectric Power Plant. €37.6 million is the planned investment value for oil terminals in Zagreb and the Krk-based Omišalj, with an initial investment of €6 mil-

lion being planned for the LNG terminal. Plans for the transport sector comprise the construction of the A5 Motorway Beli ManastirOsijek-Svilaj that will proceed in 2013, (€74 million). Some €60 million is the planned investment of the Split-Ploče section. Work valued around €40 million is expected to proceed on the ZagrebSisak motorway. The largest investment of €90.8 million is planned for the rail sector concerning primarily the renovation of Corridor X, extending from West to East of Croatia. Around €29.3 million will be invested in the renovation of the OštarijeKnin-Split railway. Private investment The government anticipates growth in private investment of €0.2 billion during 2013. Private investment in 2012 was assessed at €6.5 billion, whereas in 2013

From Hungary to Rijeka – by rail through plains and valleys

The railway committee, chaired by Prime Minister Milanović, has recently decided to begin the construction of a rail link extending from the Hungarian border to Rijeka and running through plains and valleys. The new railway will go from the border to Skradnik near Josipdol (halfway between Zagreb and Rijeka) and another track will be constructed from that point to Rijeka along the existing rail link, running through the Gorski kotar valleys. Trains will operate at an average speed of 120kph, whilst the construction will start in 2015 and will be completed in 2018 with substantial inputs of EU funding.

it is anticipated to stand at €6.7 billion. Grčić also announced the continuation of reforms to enhance competitiveness, in compliance with directives from the World Bank. The state is planning to co-operate with the private sector and thus anticipates investment implementation worth €0.4 billion. In addition, the Zagreb Airport project implementation will commence, as well as Bina Istra construction works, Zagreb-Macelj motorway, Port of Ploče Authority and several others. It is also anticipated that Croatian EU accession will foster the inflow of foreign investment. Milanović stated that, according to estimates made by the European Commission, it is anticipated 2013 will see a slight growth of 0.4%, due to the fact that Italy and Slovenia, important export partners, have been severely affected by a new wave of crisis. Nevertheless, according to the European Commission, both countries will see slightly better results, which will consequently have a significant impact on a rise in Croatian exports which the government believes will foster GDP growth. According to government estimates, growth will stand at 1.8%, providing personal consumption figures remain on par with those in 2012 and the announced investment plans are implemented.


Privredni vjesnik Year V No 221

( 2100 abandoned military bases at 84 locations entered into official records in 2009


From military bases to tourist resorts Some 20 abandoned military bases will be renovated and used as tourist facilities and 38 more will be used as tourist resorts by 2019 Sanja Plješa here are a large number of abandoned military bases at attractive locations throughout Croatia that were to be renovated and used for tourism purposes years ago in order to make more effective use of them. Subsequently, it was decided that several would become campuses, whilst the remainder would undergo tourism renovations and updating. Abandoned military bases in Zadar, on the island of Molat, in Pula and Umag are also to undergo a similar process. Several, such as Kupari-Srebreno and on the Brijuni


Abandoned military bases in Zadar, on the island of Molat, in Pula and Umag will also undergo tourism updating and renovation

military purposes. A year ago, the Agency for State Property Management (AUDIO) assumed management of 85 similar facilities. According to AUDIO, 70% of these assets need to be revitalised through local authorities, whilst development projects will be devised for the remaining 30%.

rivijera, two large military bases will adapted to tourist resorts, are managed by local authorities. The registry of the Ministry of Defence from 2009 consisted of 210 military bases at 84 locations that were declared inadequate for

Adapted bases Viktor Koprivnjak, Assistant Minister of Defence, stated that it would be possible to use some 20 currently abandoned military bases for tourism purposes in 2013 provided they are thorough-

ly renovated. His comments primarily referred to the commercial building in Zagreb, the Zdenčina military base, the Petrovija estate, the Barbariga-based military base, the Turtijan warehouse in Istria, the military headquarters in Lošinj, Križ and JAZ I,II and III (warehouse and military base) in Zadarska County, as well as the military base near Ražanj and in the north on the island of Žirje, on the islets of Koromašna and Zlarin in Šibenik-Knin County. In Split-Dalmatia County, there are the KUK-1, the Gata estate, the Marinča, Stupišće and Nova

Pošta capes, whilst the Lastovobased military base, the Sirena hotel, a command centre for the former Yugoslav Army and Zvekovica near Cavtat are located in Dubrovnik-Neretva County. Koprivnjak pointed out that in the case of several abandoned military bases there are currently still unresolved legal and property issues that need to be overcome in order to start the renovation process for tourism and make it possible for 38 similar facilities to be renovated and used as hotels, hostels or similar tourist accommodation.

Agency for Investment and Competitiveness in charge of project preparation The Agency for Investment and Competitiveness began operations on 1st September 2012 in order to encourage and facilitate renovation and adaptation of abandoned military bases. Its primary goal is a systematic implementation of competitiveness enhancement policy within the Croatian economy. The Agency focuses on the prepa-

ration and promotion of similar projects, as well as on the application for public tendering in order to select the best investor. The Agency has thus far prepared promotional material for 13 tourism projects from the government portfolio, as well as for the Kupari-Srebreno development programme.

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