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Proposals of the Croatian Industrial Strategy 2014-2020 If the optimistic scenario is accomplished, we will eliminate crisis effects by 2020

Doing Business in Croatia Business and investment conditions require comprehensive changes, claim majority of companies in the survey

Economic outlook Businessmen evaluate which activities should be undertaken and explain what theyy expect in future

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Croatian Business & Finance Monthly Established in 1953 Monday / 3rd March 2014 Year VII / No 0234 www.privredni.hr

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INTERVIEW: IVAN VRDOLJAK, MINISTER OF ECONOMY

Every investment is important Entrepreneurial initiative is the corner stone of economic development, and the foundation of each such initiative is the belief we will create additional value through the synergy of work, expertise and capital. Every success story is based on the same thing – new ideas and knowledge, quality of invested work, faith in ourselves, focus on the end-user, and optimism Svetozar Sarkanjac rivredni vjesnik talked with Minister of Economy, Ivan Vrdoljak, on the possible ways to boost the economy, what can be expected from Croatian EU accession and his view on the future of the Croatian economy

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What does the Government plan to do by the end of its term regarding economic growth? Frankly, it is not easy to be Minister of Economy during these difficult times, carry the weight of great expectations and quick results. However, the most important thing is that we managed to stop the negative trends. Positive indicators, which we anticipated during 2013, will be evident for 2014. The Ministry of Economy is working on several areas to turn the present negative trends into economic growth. In co-operation with many partner institutions, the Ministry is currently working on several extremely important strategic documents that will be the foundation of economic growth and devel-

opment during the next decade. In addition to these strategic documents, we are also working on concrete development policies. I would like to highlight a few areas in the domain of the Ministry of Economy where we have managed to achieve results and where we anticipate even greater success in the future.

Over the next two years we will focus on speeding up reforms, improving the investment climate and decreasing public spending Concerning the changes in the field of energy, we created the preconditions for Croatia to become an energy junction point for the wider region. We created the conditions for higher investment into research and exploitation of hydro-

carbons; we enabled the completion of projects that will provide Croatia with a stable supply of energy products and secured the cheapest possible energy products for the industry, which will motivate the industrial development, employment and the overall economy. Our goal for renewable energy

sources (RES) is to keep in the state as much money as possible from subsidies through the promotion of special RES segments and to use local components to the greatest possible extent. What else has been achieved? We managed to successfully finalise the privatisation process of all three problematic large state shipyards, reducing the load on the state budget. The restructuring process preserved the ship building industry as one of the most important economic branches and saved several thousands of jobs. Furthermore, we increased industrial subsidies through sector and regional subsidies. Special attention was paid to fulfilling the programme of subsidising projects in those industries with the greatest influence on the economy – the processing industry. For example, the Operating Programme for subsidising the processing industry secures around 1000 new vacancies each year.


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Some complain we do not have an economic strategy. The economic development strategy, as an umbrella strategic document, is a complex strategy consisting of many substrategies: Industrial, Innovation, Tourism Development, Business Development, Investment Promotion, Smart Specialisation, Human Resource Development and many others. We have great expectations from this document, since for the first time Croatia will have a comprehensive strategic document that will provide a transparent framework and guidelines, as well as defining the policies for future economic development. In any event, we are anticipating economic growth in 2014. This is a realistic plan with which all local and foreign institutions agree. Croatia lacks optimism in social, political and economic life, and in my opinion, the Government, especially the Ministry of Economy, should be ambitious and optimistic. We are continuing with all measures and policies that showed results, and even though our funds and resources are limited, we are doing everything in our power to use them in the most efficient way. To what extent have the plans been changed in relation to those set when you took over government in 2011? Around twenty promises from the Plan 21 are under the jurisdiction of the Ministry of Economy.

Privredni vjesnik Year VII No 0234

At this moment, half way through our mandate, we managed to fully or partially keep twelve of them. The remaining eight are partially under the jurisdiction of the Ministry of Economy and we are working on their finalisation with state administration and public institutions. Of course, there were some changes in the plan since we were not fully informed of the situation when we took over government. Unfortunately, we discover skeletons in the closet even today and change the actuality of our plans accordingly. We do not intend to give up on the plans and promises set in the Plan 21or change them substantially. During the next two years, we will focus on speeding up the pace of reforms, improving the investment climate and decreasing public spending. What is your view on the longterm development of the Croatian economy in this context? For example, by the end of the new budget period of the EU, that is, by 2020? By that time, our economy has to become competitive and dynamic, based on know-how and with equal business conditions in all parts of Croatia. Additionally, our economy has to be developed through improving industrial production and the reindustrialisation of the country, with high-tech production competitive throughout the entire EU. We will have an even safer

and more stable energy system as well as an available and sufficient energy supply. By that time, we will have the cheapest possible energy for both public and economy; we will efficiently

The Government’s task, on which we are working very hard, is to create laws and regulations that will promote entrepreneurship manage mineral resources and additionally network with other European energy system. This is already happening, but by that time we will be the energy junction point of Central and Eastern Europe. By then, and this is not demagoguery, I anticipate stable sustainable growth and economic as well as GDP growth at over 3%, based on the competitive real sector and investment. What is realistic to expect from the more important investment projects in 2014? Every investment is important to us, whether it creates 5, 50 or 500 vacancies. Currently, the Ministry of Economy and the Agency for Investment and Competitiveness are preparing around a hundred investment projects with a total value of over €7 billion and their completion will create over 10,000 vacancies. These invest-

ment projects are in different phases, varying from the initial query, contact and interest to the finalisation and start of production, that is, performing of activity.Unfortunately, I cannot talk about the names of the investors now, but I can say that some of the more important investment projects currently completed in Croatia or those that will start in 2014, will result in a total investment of €1.5 billion, and it is estimated that around 200 people will be employed. These investment projects are mainly related to tourism and production-processing.In addition to attracting investment, we are also working on removing the administrative obstacles for existing investors who found these obstacles during the implementation of their projects. Through the Work Group for business climate and private investment, founded in January 2013, we have solved 23 investment projects worth a total of €1.25 billion and which could employ around 3,000 people. We also removed the obstacles for 11 investment projects worth €474.93 million, which will create work for almost 2,000 people. We have been listening to the same story about how we are a small country with great potential, but without any concrete results. What can we do to get rid of this feeling of depression that has spread across public, businessmen and managers? A single measure which would eliminate this feeling you mentioned does not exist. I think this depression is a consequence of a societal lack of management in the global business environment. It seems that a certain areas of the public still believe the state creates jobs. As a government, our task is to create laws and regulations that stimulate business. We are committed to this task, which is evident from the fact we designed and adopted 22 acts, 63 subordinate acts and regulations as well as 21 strategic documents in the economic arena with the goal of creating a favourable business climate and legal preconditions for performing successful business. This is our task, but we are also aware it will not be enough to change the general mood in Croatia without public support.


www.privredni.hr Business & Finance Weekly There is an impression that investors are not welcomed in certain areas… Certain resistance towards businessmen and investors can be felt in certain public areas, as though they are collectively responsible for the mistakes and anomalies

I am convinced that cooperation between work and capital is still the winning formula of the market economy resulting from the privatisations and transformations of the 90’s. There is no economic future without the present entrepreneurs and investors, which also includes the owners of large, medium and small-sized companies. What good are all incentive acts and regulations if an entrepreneur or investor does not feel welcome in the environment in which he wants to invest? On the other hand, with their attitude towards employees and communities in which they are active, entrepreneurs have to make it absolutely clear that staff and their knowhow are the biggest internal capital of every business venture. I am convinced that co-operation between work and capital is still the winning formula of the market economy. After all, adapting to the global business environment I previously mentioned is necessary at all levels, from state bodies to the public administra-

3 tion, from the labour market to the education system for future workers and entrepreneurs. Although we have been officially in the EU for little over six months now, there are no signs of the positive use of this advantage. I cannot agree with you. As I mentioned, the number of investors interested in us as a possible point of entry of their goods into the EU market is increasing, as well as the number of investors covering the wider SEE area from Croatia. We added stability and transparency brought by EU membership to all our competitive investing advantages, and concrete results will be soon visible.I feel it is important to highlight that Croatia is presently in the planning and programming process of the European structural and investment funds within the framework of the Cohesion Policy for the EU fiscal period 2014-2020. Total allocation for the Cohesion Policy for the Republic of Croatia is over €8 billion.The European Parliament adopted the legislative package for the Cohesion Policy in November 2013, confirming new rules that should redirect investment towards the real sector and areas crucial for growth and employment in the EU fiscal period 2014-2020. May we discuss concrete projects? Of concrete projects and amounts, currently nine big pro-

jects worth €222 million and 26 grant schemes worth €80 million are in process (over €300 million in total).Tenders for projects worth €161 million and grant schemes worth €100 million were invited for by the end of 2013. By the first quarter of 2014, tenders will be invited for projects worth €207 million and grant schemes worth €15 million (€483 million in total). The Strategic Investment Project Act has entered into force. What concrete results do you expect from this Act? The Strategic Investment Project Act should be regarded as an instrument that will speed the process of obtaining complete documentation for developing public and private projects of strategic interest to Croatia, which should act as the basis for accelerating the start of the next investment cycle, growth and development of the Croatian economy. The first step towards achieving results from this Act is the Committee for evaluating and defining the strategic project proposals. One of the tasks of the Committee, founded by the government, is to evaluate the proposals of individual strategic projects and define whether a certain project is strategic or not. The Government Committee, with permanent members deciding on strategic projects, also includes two representatives from the local community in which the project is planned. Therefore, the local administration is fully

included in the decision making process. Furthermore, some projects will not be considered at all if they are not included in the physical plan and they will not be on the list of strategic investments if they do not comply with the physical plan of the county, municipality or city. What is the atmosphere in the Government regarding the stimulation of much wanted optimism accompanied by economic growth? The atmosphere in the Government is not the only problem, since we are aware of the difficulty of this task. I fear the main problem is the mood of the entire society – from politics to economy and the wider public as well as the media. Our mission is to stimulate optimism accompanied by economic growth, and we will succeed in the task we are working on daily whether today, in a month or half a year. In any case, it will be later than we anticipated, but we will succeed. However, success could be achieved faster and more easily if society would believe in it. I have a feeling we are all waiting for economic growth as a precondition for optimism, although it is a fact there is no economic growth without optimism. Entrepreneurial initiative is the foundation of economic development, and the foundation of each such initiative is the belief that we will create additional value through the synergy of work, know-how and capital. If there is no optimism to start with,

Our mission is to spread optimism based on economic growth I fear it will be much harder to achieve economic growth. There are many positive and successful stories in the business environment that the media are not giving enough space to reporting. I am not calling upon this media space so the story of our entrepreneurial successes could benefit the Government or the Ministry of Economy, but so that we could all learn what is important today to succeed in the market. What we would all conclude is that every success story is based on the same thing – new ideas and know-how, quality of the invested work, faith in ourselves, focus on the enduser, and optimism.


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Privredni vjesnik Year VII No 234

(7

th

March

last day of the public discussion on the Industrial strategy

PROPOSALS OF THE CROATIAN INDUSTRIAL STRATEGY 2014-2020 020

If the optimistic scenario i eliminate crisis effects by

The authors of the Industrial Strategy have identified the following key problems of Croatian industry: a poor institut insufficient investment into research and development; low work productivity; difficult access to capital markets and Drago Živković he proposals of the Industrial Strategy 2014-2020, drafted by the Ministry of Economy, represent a good basis for both professional and public discussion. Representatives from leading Croatian companies have already joined the discussion, including the economic analysts who participated at the first public presentation of the Industrial Strategy organised by Privredni vjesnik

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Three scenarios were defined, and the most pessimistic envisages present trends will continue until 2020 A team of around 20 people worked for eight months on the Strategy, that focuses on the industrial sectors of the economy, defined as the Processing Industry, Construction and Informations & Communications (ICT), as team leader Tomislav Radoš pointed out in his opening speech. The authors of the Strategy consider it as a basis for public discussion that started on the day when a 300-page abstract of the Strategy were published on the web site of the Ministry of Economy. The Strategy is divided in two goals: analytical and strategic. The analytical part contains a series of numerical data on the present condition of industry and trends during the past several years. During this recession,

from 2008 to 2012, the largest fall in gross added value (GAV) was achieved in construction (-35.54%), and agriculture and forestry (-7.45%). The processing industry achieved a considerably smaller GAV fall (-2.59%), and its share in total GAV was a little over 16% in 2012. Poor institutional environment The analysis showed the processing industry generates total revenue higher than total expenditure, but with a slower growth rate. Revenue growth was produced mainly through higher production prices, and not through increased volume of production. The number of employees per working hour in the processing industry reduced during the recession from 230,257 in 2010 to 224,441 in 2012. The industry achieves much higher exports than imports with constant growth in favour of the former. Between 2010 and 2012, the construction industry generated total revenue below total expenditure, with a downward trend. The number of employees reduced from 90,842 in 2010 to 79,926 in 2012, while work and capital productivity plummeted rapidly (22% and 31%). The coefficient of current liquidity in the construction industry is extremely low also on a downward trend, pointing to an increased problem of servicing short-term obligations with current assets. The ICT sector in Croatia includes 4,215 companies in which the number of employees varied between 31,081 and 31,843 from 2010 to 2012. Small-sized com-

panies hold a 98.79% share of the ICT sector, but larger-sized companies employ over 40% of total employees and they have two and half times higher revenue. ICT is a profitable sector during recession, but work productivity reduced by 1.79%, whilst capital productivity is growing continuously. A constant downward trend of current liquidity is noticeable, and the value of exports is slowly approaching the value of imports. Five main sub-activities The Industrial Strategy identifies the following key problems of the Croatian industry: poor institutional environment; a low level of foreign direct investment; a low percentage of highly educated work force; insufficient investment in research and devel-

opment; low work productivity; difficult access to capital markets and high capital costs; low level of technological capacity, imbalanced education system and the need of the industry. According to the assessment model chosen for the strategy, the sub-activities are divided in five main groups: generators, guardians, question marks, problems and those without influence. The main goal of the Croatian strategy for the period 2014-2020 is to reposition the identified strategic activities on the global value chain according to the development of activities that create added value. Three scenarios have been identified: the p essimistic one envisages the present trends will continue up to 2020; the realistic one anticipates economic develop-


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( 33 measures in 4 areas envisaged in the industrial development strategy

s accomplished, we will 2020

ional environment; a low level of foreign direct investment; a low percentage of a highly educated work force; high capital costs; a low level of technological capacity, an unbalanced education system and the needs of industry Goals of the Industrial Strategy • Increase industrial production volume at an average annual rate of 2.85% • Increase the number of employed by 85,619 by the end of 2020, of which a minimum of 30% are highly educated • Increase work force productivity by 68.9% in the period

2014-2020

h period i d • Increase exports iin the 2014-2020 by 30% and change the structure of exports in favour of exporting products with high added value.

Key activities in the Industrial Strategy • Production of basic pharmaceutical products and preparations • Production of computers, electronic and optical products • Production of ready-made metal products ment will reach the level of 2008, and the optimistic one predicts high growth rates of all analysed indicators. Relying on exports The plan is to achieve the goals with different measures divided in four priority areas of the industrial strategy. The first priority is to create a stable investment environment; the second is to stimulate strategic co-operation between industry and the education system; the third priority is to restructure public administration and the fourth concerns capital markets and alternative financing sources. The Strategy envisages 33 measures in these four areas, including various tax reliefs, financial incentives, rentfree state property leasing and a series of regulatory changes.

Assistant to the Minister of Economy and acting president of the CCE Sabina Škrtić highlighted that the guarantee fund for the processing industry is also included in this Strategy – €5.25 million was envisaged for this fund this year, which could generate investment worth around €16 million. Sabina Škrtić also invited entrepreneurs to encourage their counties to answer the public invitation of the Ministry for using the guarantee fund to activate the development of poorly developed parts of Croatia. Although she is not convinced the goals set in the strategy will be achieved according to the plan, Chairman of Končar Elektroindustrija Darinko Bago welcomes the decision to rely on exports. Notwithstanding, he

• Computer programming, counselling and the related activities (ICT) • Production of electric equipment • Production of machines and devices thinks that first the material and ethical framework for achieving the goals of the strategy have to be set, and according to him it would include energy, food, wa-

count all these elements, and he believes the proposed document is a courageous act. Therefore, we should approach the Strategy with caution not criticism. Director of HSTec from Zadar, Željko Goja, identifies poor cooperation between the academic community and the economy as the biggest problem, which is why the industrial environment is devastated. Without innovation and exports there is no industry, Goja is convinced, and his company has invested €0.5 million in equipment last year. It is unlikely that production growth predicted by this Strategy will be achieved, but Boris Cota, President of the Economic Advisory Council of the President of Croatia, Ivo Josipović, welcomes it, since the biggest problem of Croatian industry so far has been a lack of industrial policy. Cota thinks the Strategy should be decentralised with subsidies being distributed to as many companies

According to Cota, the Strategy should be decentralised, subsidies should be distributed to as many companies as possible, and the most successful supported ter, communications and health as well as a changed attitude towards science which does not occur in institutions, but in the people’s minds. Bago is convinced the Strategy should take into ac-

as possible, and the successful and competitive ones supported. The public discussion regarding the Draft of the proposal of the Industrial Strategy will last until the 7th March 2014.


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Privredni vjesnik Year VII No 234

DOING BUSINESS IN CROATIA

Business and investm comprehensive chang 423 small, medium-sized and large companies participated in the survey. Companies

surveyed employ

Vlado Smud Darko Buković oing Business in Croatia survey was prepared by Privredni vjesnik Research Centre in order to collect information on conditions for investment and conducting business activities in Croatia. 423 small, medium-sized and large companies participated in the survey that was conducted at the end of 2013 simultaneously with the Business expectations survey. Those companies surveyed em-

D

42% of those surveyed see conditions for investment and business as mediocre, 40.26% as discouraging, and 13% as unacceptable ploy over 76,000 staff, generate almost â‚Ź7.5 billion in total revenue, and account for nett profits of around â‚Ź0.2 billion. The survey provided a choice of multiple responses: extremely positive (++), positive (+), medium or neutral (=), negative (-), extremely negative (--). Subsequently, each response was

weighted against the total revenue of each company. In addition to the standard approach to data analysis, we implemented several types of data analysis aiming to provide comprehensive insight into audience opinion. Consequently, companies were ranked according to their size, activity and region. The top

Conditions for investment and business activities are 41,69%

400 best companies were analysed as a separate group. Business conditions According to survey results, conditions for business and investment are deemed mediocre by 42% of entrepreneurs, 40.26% find them discouraging and an additional 13% see them

as unacceptable. A small number of large companies within one group opted for mediocre options, whilst the most negative options were provided by small companies and hence the conclusion was reached concerning the impact of company size on the stance the company normally takes: the smaller the company,

The impact of administrative apparatus Economic regulative framework is on investment and business activities is 45,19%

40,26%

36,60%

35,46% 33,15% 18,95%

21,36% 12,96%

8,91%

5,05% 0,04% encouraging

acceptable

mediocre

unacceptable

discouraging

0,11%

0,18%

positive

favourable

0,07% helpful

adverse

hindering

stable/ transparent

acceptable functional

unacceptable

unstable/ non-transparent


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ent conditions require ges over 76,000 staff, generate almost â‚Ź7.5 billion in total revenue, and nett profits of around â‚Ź0.2 billion two thirds of respondents deem conditions discouraging. Those in the export industry provided similar responses. Irrespective of the fact that according to their responses they opted for mediocre and discouraging options, their overall opinion on conditions for investment and business was that they are unacceptable.

the more negative was the option provided. Notwithstanding the prevailing fear of mediocre business conditions amongst large traders, the ultimate attitude of trade branch deems them as unacceptable, according to weighted prices of around 80% small and medium-sized traders. Similar results were obtained from

an analysis conducted in Adriatic Croatia and in companies located in Zagreb. According to the responses provided by those employed in the construction industry, conditions for investment and business are unacceptable and adversely affect investment. According to weighted responses in the service sector, around

Entrepreneurial climate in 2014 will

Administrative apparatus adversely affecting and impeding business According to most respondents in the survey, the administrative apparatus adversely affects investment and presents an obstacle for business activities. 45% of those surveyed believe the administrative apparatus to be effective, whereas 55% of the respondents see it as a huge impediment to business. Around 50% of large companies deem administrative apparatus to be effective, 18% see it as an obstacle and around 31% believe it adversely affects business activities. A similar distribution of attitudes has been recorded amongst exporters, whilst around 57% of companies in the services sector stated administration negatively affects their business activities and investment.

Taxes and mandatory contributions are

Under 2% of those surveyed believe the administrative apparatus enhances business activities.

Over 95% companies surveyed believe the implementation of EU standards and harmonisation are imperative, acceptable and normal Nevertheless, effective administrative apparatus would certainly have a significant positive impact on business results. One third of the companies surveyed deem the current economic regulations acceptable The regulatory framework also caused some ambivalence amongst those surveyed. 35.4% of respondents believe regulations to be acceptable, whereas 36.6% deemed them as unstable and non-transparent. Only a small percentage of those surveyed stated regulations were unacceptable. A similar ratio of attitudes was seen also amongst the group comprising of 400 most successful companies in

The judiciary in the economic sector is 78,47%

69,53%

46,09% 31,85% 20,75%

1,23%

0,07% improve signific antly

improve

remain unchanged

deteriorate deteriorate significantly

0,06%

0,04%

1,54%

encoura- acceptable customary gingly low

18,85%

15,44%

13,44%

high

discouragingly highi

independent and effective

0,71%

1,94%

acceptable functional and effective

insufficiently effective

dependent and ineffective


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Privredni vjesnik Year VII No 234

Entrepreneurial loans are 63,49%

27,62%

0,81%

3,04%

easily available

considerably available

5,05% reasonably available

insufficiently available

unavailable

Export climate is 50,90%

28,53% 16,12% 0,16%

4,30%

encouraging acceptable

mediocre

unacceptable

discouraging

Competitive Croatian products and services in the broader market 48,43% 36,84%

2,61% available with new ones still being launched

still developing

planning to develop

6,71%

5,41% searching for

unavailable

Workforce mobility and flexibility are deemed 62,73%

13,32%

10,46%

10,31%

3,18% positive

acceptable

customary

abnormal

negative

Continental Croatia, and Zagreb, amongst large companies and exporters. It has to be highlighted that a small number of large companies stated the regulations were acceptable, although most mediumsized and small companies believed them to be unstable and non-transparent. Economic regulations were assessed as unacceptable by small and medium-sized companies, the processing industry, service providers and companies in Adriatic Croatia, whereas those in the construction industry assessed the regulations with the worst grading. Entrepreneurial climate unchanged Respondents anticipate the entrepreneurial climate in 2014 will remain mainly unchanged with a slight improvement in prospects. 32% of companies surveyed believe 2014 will see improvement. Those belonging to the group comprising of 400 best companies, trading companies and companies located in Zagreb have shown the highest optimism in their anticipations of improvement. Positive anticipations have been recorded also in Continental Croatia, amongst service providers, large companies and exporters. On the other hand, small and mediumsized companies anticipate unchanged entrepreneurial activity with slightly negative trends in 2014, whereas those involved in the processing industry and primarily those in the construction industry, anticipate a significant worsening of the entrepreneurial climate in 2014. Taxation and mandatory contributions overly high Responses provided concerning taxes and mandatory contributions on labour are almost identical, showing insignificant opinion fluctuations amongst the previously mentioned groups and thus pointing to the uniformity of attitudes amongst those surveyed. Almost 70% of respondents believe taxes and contributions to be overly high, whilst 15.5% stated they were discouragingly high. Taxes and contributions were assessed as

high and discouragingly high by all respondents, irrespective of region, financial potential or activity in which they are engaged. Judiciary insufficiently effective The judiciary was rated similarly with almost identical responses amongst those questioned yet again. The highest number of entrepreneurs assessed the judiciary as insufficiently effective, whilst a huge percentage of entrepreneurs deemed them as dependent and ineffective, according to the results of the overall analysis of all respondents in the survey, as well as the individual analysis of answers grouped according to company size, business activity or operating area. Those engaged in the construction industry assessed the judiciary with the lowest ratings, pointing out the judiciary in the economic sphere were dependent and ineffective. Insufficient entrepreneurial lending Two thirds of those surveyed believe there is a lack of lending to entrepreneurs, whereas around 25% of entrepreneurs deemed entrepreneurial loans reasonably available. Similar estimates were pro-

Export climate is deemed mediocre by 50% of those questioned, whilst 15% see it as unacceptable vided by the companies belonging to the top 400group, Continental Croatia, Zagreb-based companies, large companies and exporters. Those in the trade sector deemed loans as insufficiently available. Most companies engaged in construction pointed out that loans were insufficiently available for them and there is an equal number of those who stated loans were reasonably available and those who believe loans are wholly unavailable. The overall opinion is that entrepreneurial loans are insufficiently available.


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Export climate mediocre Around 50% of companies surveyed believe the export climate to be mediocre, whereas around 15% stated it was unacceptable and around 33% deem it discouraging. A similar ratio of attitudes was also seen amongst many other groups surveyed, including exporters. Nevertheless, there are several exceptions. Adriatic Croatia and the services sector expressed the attitude that the export climate is discouraging,

Administrative apparatus greatly deters and hinders investment, according to overall opinions expressed whilst most traders believe it to rank from average to showing unacceptable trends. Those engaged in the construction industry expressed dissatisfaction with the export climate and consequently around 80% of respondents from that sector assessed it as discouraging.

in competitiveness of Croatian products and services. A slightly lower percentage of small and medium-sized companies are prepared for competition and there are currently around 30% of small and medium-sized companies who are still developing a competitive product or a service. Workforce flexibility a normality According to 63% of the respondents workforce flexibility is a normality. The percentage of companies surveyed who deem workforce mobility as positive is surprisingly small. Over 40% of those engaged in construction assessed workforce flexibility as abnormal. Nevertheless, according to entrepreneurs in the service sector, workforce flexibility received the lowest ratings, whilst

over a quarter of those surveyed believe workforce mobility and flexibility to be negative. EU standards imperative Over 95% believe implementation of EU standards and harmonisation with them is an imperative, and acceptable and customary. According to the results of the latest survey, over 50% of respondents stated EU standard implementation was an imperative, whereas in the survey conducted in 2012 showed only some 40% of companies expressed a similar stance. It has to be highlighted that around 90% of the companies surveyed deemed the implementation of EU standards and harmonisation with them as positive. Irrespective of the fact that the awareness of the requirement of doing business in com-

pliance with the EU standards has been raised and provided support amongst all groups of respondents, there still are those who oppose it. Consequently, 16% of small companies and one fourth of those engaged in the construction industry believe the implementation of EU standards and harmonisation with them are unacceptable and unnecessary. Foreign investment welcome Around three quarters of respondents welcomed foreign investment into the Croatian economy. A similar stance has been shown by most analysed groups with the exception of the construction sector where attitudes were divided with slightly less than half of those surveyed welcoming foreign investment, whereas the remainder deemed it discouraging. Public procurement mediocre Survey participants assessed the procedure and Law on Public Procurement from mediocre to acceptable, whilst around 15% of those questioned deemed them generally unacceptable or extremely negative. Generally, most respondents believe the procedure and Law on Public Procurement to be mediocre, whilst a smaller percentage of those surveyed rated it between mediocre and positive or between mediocre and negative. The companies in processing and those located in Continental Croatia deemed both the procedure and the Law acceptable. On the other hand, small and medium-sized companies and service providers stated they believe the procedure and the Law on Public Procurement is generally unacceptable.

Competitive products According to responses provided by companies surveyed, most companies or 50% of companies already have or are currently developing or launching new products or services, which are competitive in the business environment and an additional 37% are currently developing such products or services. The share of such products and services amongst the group of 400 exceeds 90%. A similar picture was also painted as a result of the analysis according to business activity where between 75% and 90% of the respondents, primarily exporters, showed their belief

Implementation of EU standards and harmonisation with them is

Foreign investment into the Croatian economy is

The procedure and the Law on Public Procurement is 59,62%

74,96%

50,20%

24,18%

24,69%

20,55%

imperative acceptable customary

2,83%

2,25%

unacceptable

unnecessary

8,85%

11,16% 7,01%

6,07%

extremely consideraencoura- bly encouging raging

welcome

highly discouraging

3,11% extremely discouraging

4,24%

0,29% extremely ogenerally positive acceptable

mediocre

generally unacceptable

extremely negative


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Privredni vjesnik Year VII No 234

ECONOMIC OUTLOOK FOR 2014 – THE BUSINESS VIEW

Businessmen evaluate ge at a low of 2.24 How will we handle the crisis? Which activities should be undertaken and in what order? What kind of business wanted answered Vlado Smud Darko Buković usinessmen evaluated the general economic affairs with a low of 2.24, which means Croatia cannot anticipate any kind of significant improvement in 2014. A consensus on the measures that could aid the economy and stable business conditions has to be achieved, and the practice of constant regulatory changes has to stop. That is why almost all participants in the survey do not expect any changes in 2014, except maybe slight improvements. Business outlook of Privredni vjesnik

B

The Business outlook of Privredni vjesnik is somewhat of a barometer of the state business climate has been providing the public with an outlook of the Croatian economic development for years. This outlook is based on its participants’ evaluations, acting as some kind of a barometer of the state business climate. A total of 423 companies partici-

The results your company achieved in 2013 compared with 2012 were: IMPORTS EXPORTS 49,34%

EXPORT TO IMPORT RATIO

40,31%

54,95%

26,28% 26,37%

28,82%

20,08% 17,22% 5,96%

7,53%

5,80%

1,11% considerably /substantially higher

slightly higher

almost unchanged

slightly lower

considerably /substantially lower

considerably /substantially higher

slightly higher

almost unchanged

slightly lower

considerably /substantially lower

9,43%

4,09% considerably /substantially higher

2,71% slightly higher

almost unchanged

slightly lower

considerably /substantially lower


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11

eneral economic affairs results do we plan to achieve? What can we expect from 2014? Those were some of the questions to which we

With which grade from 1, the lowest, to 5, the highest, do you evaluate general economic affairs in 2013: 55,80%

average grade

2,24

34,22%

9,95% 0,03%

0% 1

2

3

pated in our research that consisted of two surveys: Business outlook and How to conduct business in Croatia. In total revenue these companies reflect a figure of 9.5%; they generated around 5.3% of profits and employ around 9.3% of the total local work force. Their business strength and representation is reflected in the fact that together they employ over 76,000 workers, responsible for almost â‚Ź7.5 billion in total revenue and around â‚Ź0.2 billion in nett profit. How will we handle the crisis?

Which activities should be undertaken and in what order? What kind of business results do we plan to achieve? What can we expect from 2014? Those were some of the questions we wanted answered. Compared with the survey conducted the year before, 2013 indicators are slightly higher since around 7% more respondents and roughly 2% more large-sized companies participated. The answers from each company were evaluated proportionally to its financial indicators.

Do you anticipate investment and business conditions in 2014 will: 73,31%

38,64%

7,04%

14,39% 11,67%

6,08%

0,07% slightly higher

almost unchanged

2.24 for general economic affairs Last year, businessmen evaluated general economic affairs with an average 2.24 (1- being the lowest, 5-the highest). On reviewing each group individually, it is evident that the opinion of larger companies, especially those specialising in trade, had the strongest impact on the final results together with the companies belonging to the top 400 group and those in Zagreb. Small-sized companies evaluated the economy with the poorest grade (1.75), followed by the construction sector (1.83). A total of 45% of businessmen anticipate slightly weaker economic growth in 2014 and their anticipations are equally shared by small, medium and large-sized companies. A total of 38.7% of those surveyed think there will be no changes, and 14.4% be-

44,58%

35,50%

14,92%

considerably /substantially higher

5

Compared with 2013 overall economic growth in 2014 will be:

EXPORT REVENUE 36,46%

4

To obtain a greater insight into the opinions of businessmen, the companies were grouped and processed according to size and main activity, while the group of the top 400 companies was included in a special category. Companies from the Zagreb area were also processed separately.

slightly lower

considerably /substantially lower

considerably /substantially higher

slightly higher

almost unchanged

slightly lower

2,33%

2,25%

considerably /substantially lower

substantially / considerably improve

11,26% 1,50%

slightly improve

remain unchanged

slightly deteriorate

substantially /considerably deteriorate


12

Privredni vjesnik Year VII No 234

Compared with 2012 your company saw: TOTAL REVENUE NETT PROFIT 48,39%

NUMBER OF EMPLOYEES

39,03%

33,12% 26,57%

28,16%

32,01%

20,70% 16,76% 13,21%

12,77% 3,94% considerably /substantially higher

slightly higher

almost unchanged

slightly lower

lieve in the possibility of slightly stronger economic growth. Small-sized entrepreneurs think mainly that the situation will remain the same. As for the past few years, companies are convinced they will continue to successfully handle the crisis and overcome its impact on their business. Service providers share the greatest optimism, expressing they are ready to successfully overcome the crisis impact. Members of the top 400 companies, Zagreb entrepreneurs, traders and exporters are moderately optimistic. Other groups do not anticipate any problems, except for the construction sector that is aware of the relentless grip of the crisis. Over 50% of entrepreneurs believe they will manage to overcome the crisis impact. According to answers from small-sized entrepreneurs, it seems that 74%

Entrepreneurs set their priorities as follows: solve illiquidity, reduce labour taxes and contributions as well as administration will manage to overcome the crisis impact since they are prepared to adapt and make faster decisions. Even though the majority of the survey participants opted for increased sales of their products and services as a possible scenario for overcoming the crisis, the highest share of the entrepreneurs will continue with reorganising their business activities. As a result, 40% of the economy will increase their sales, where 30% will also additionally reorganise their business activities.

2,88%

3,87%

considerably /substantially lower

considerably /substantially higher

15,72% 2,86%

slightly higher

almost unchanged

It is suggestive that around 15% of entrepreneurs will look into decreasing production costs and reducing labour expenses as a possible exit. Only 3% will try to resist the crisis by changing their production programme. The general opinion is the crisis will not loosen its grip during the 2014. However, 53.4% entrepreneurs feel the negative effects will be more acceptable since they are now used to working under difficult circumstances. A third of entrepreneurs felt the impacts would be visible, while 5% believe it will be very high. Import-export without more changes During 2013, the majority of the surveyed companies achieved roughly the same import results as the year before. Small-sized companies for the most part pre-

slightly lower

considerably /substantially lower

considerably /substantially higher

served their import volume, and the distribution of import activities of medium-sized companies was equal, that is, around a quarter achieved slightly higher imports; a third had equal import results, and a quarter imported slightly less than in 2012. Only 15% companies registered much lower import results. Concerning service providers mainly large-sized companies - roughly 42% achieved higher import results, and around 45% reduced their imports compared with the year before. Smallsized service providers registered the same import results as in 2012. The majority of Zagrebbased large companies achieved slightly higher imports. Imports in the construction sector halved, so a small number of small-sized companies with a 42% weighting imported the same quantity as in 2012, and

slightly higher

almost unchanged

slightly lower

considerably /substantially lower

large-sized companies with 55% weighting achieved much lower import results. A similar distribution of activities manifested also in the export sphere. The majority stayed within the framework of 2012, and only few large companies registered slightly higher export results. The import/export coverage was equal to last year. In general, slightly higher export revenue will be achieved primarily by the service sector, and companies in continental Croatia as well as companies located in Zagreb. Trade and SME’s will achieve roughly the same results as last year. In relation to 2012, the processing industry did not register any significant oscillations regarding their import-export activities, so their revenue will remain on the level of 2012. The construction sector achieved the poorest re-


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13

sults in 2013, with this branch registered much worse results in relation to 2012.

What are the top priority decisions for recovery from the crisis in 2014?

20,72%

How to exit the crisis Despite the problems, plans and anticipations for 2014 are optimistic: entrepreneurs mainly anticipate an increase in total revenue and nett profit as well as mild corrections in the number of employees. According to the top 400 group, 2014 will be better than 2013 in

Almost 40% of entrepreneurs intend to increase their products and services terms of total revenue; nett profit will be higher, and the number of employees will range around the current level. Continental Croatia, Zagreb, the processing industry, large-sized companies and trade anticipated similar results, where only industry, trade specifically, could register higher employment. Small and medium sized companies anticipate the greatest changes, where some will be more successful than others;

17,63%

18,57%

17,92%

13,87% 11,28%

cheaper entrepreneurial loans

considerable downsizing in state administration

however they are convinced that they will end the business year 2014 with a positive financial balance. However, the number of employees will probably reduce. Construction anticipates an even more difficult year, with a further decrease in profits and employment. Trade does not anticipate great improvements during 2014, but the majority agree they will achieve higher total revenue and nett profit and employ more

The negative impact of the crisis on your company in 2014 will be:

reduction in taxes and labour contributions

tackling the illiquidity issue

people than during 2013. The question of what should be done first to exit the crisis, resulted in different opinions. As in 2013, the majority of entrepreneurs agree that illiquidity is number one on the list of priorities. Secondly should be a reduction in tax and labour contributions. Considerable downsizing of state administration is identified as the third priority, which was mainly welcomed by the construction sector. The

Do you expect taxes and labour contributions in 2014 to:

53,44%

limited duration of bankruptcy procedures

attracting foreign investment

fourth priority concerns the need to provide cheaper entrepreneurial loans, an option mainly supported by traders. Attracting foreign investment slipped from third place last year to fifth place this year, and this priority was mainly supported by the service sector. Limited duration of bankruptcy procedures came last on the list of priorities, just as in 2013, and this option was mainly welcomed by service companies.

2014 will see the liquidity in your company:

51,81%

39,42%

43,52%

39,48% 33,50% 15,64% 5,08% Substantial

Considerable

Acceptable

3,10%

4,88%

Slight

Insignificant

6,66%

1,76% Increase substantially

Increase slightly

Remain unchanged

Decrease slightly

0,28%

0,24%

Decrease substantially

Substantially improve

1,17% Slightly improve

Unchanged

Slightly worse

Substantially worse


14

Privredni vjesnik Year VII No 234

DARINKO BAGO, MANAGEMENT BOARD PRESIDENT, KONČAR GROUP

We are planning 8% medium-term growth We export globally. The annual value of work performed by our subcontractors ranges between €46 million and €52.5 million and over half is exported Končar successfully operates under current business conditions. Our revenue in 2013 rose by 6% in relation to 2012; we achieved 7% growth in the local market, primarily due to co-operation with HŽ Infrastructure and Croatian water. We did not succeed in implementing our plans with HŽ Passenger Transport and the Croatian electricity company HEP, yet we compensated for this with other projects. We saw 5% global expansion and in 2013, we agreed contracts accounting for 14% more compared with 2012.

5% growth on global markets Nevertheless, we laid off 111 staff, primarily due to restructuring implemented in the Household Appliances area where we are establishing a company employing 70 to 80 staff who will sign multiple-year contracts. Following the restructuring of Household Appliances, we are planning the restructuring of the Catering Equipment area. The overall reduction in the number of employees is relatively insignificant and the redundant staff were mainly those eligible for retirement. We employed 170 new staff and, being a technology company, we aim to employ highly educated individuals and specialist expertise. We employ over 900 degree staff, 27 doctoral degree staff and 62 master’s degree staff, and our welders are recertified biannually. We are a large company focused on on-going learning and aiming to create a high level of added value per employee. Moreover, we are an entrepreneurial centre for small and medium-sized entrepreneurs, as we provide jobs for our subcontractors whenever we manage

to contract work with high added value. The annual value of work performed by our subcontractors ranges between €46 million and €52.5 million and over half is exported. The subcontractors need to adopt our standards and criteria and once they manage to export their products, they continue operating in compliance with these standards and criteria whilst exporting their own products, such as transformer tanks which our subcontractors initially produced to meet our requirements and subsequently resorted to exporting them. We can express our utmost satisfaction at the fact that our subcontractors are developing and becoming independent, since they also share their new experiences with us and this mutuality is vital. The most important investment in 2013 was high-voltage laboratory Končar – Distribution and special transformers. We focused primarily on their development and produced high voltage power transformers, an innovative solution used in areas deprived of substations yet covered by electric power transmission gridlines, providing a village or a farm with the opportunity to transform energy and receive the required voltage. In addition, we developed a 123kV switchgear; as one of the few companies globally, and we are planning to develop a 145kV gas-insulated metal encapsulated switchgear in 2014.

Our resilience is the result of our high degree of specialisation in specific products exported globally - to India, Finland, Kuwait, Bosnia and Herzegovina, the United Arab Emirates, Philippines, Norway, Canada, Sweden, Albania, Costa Rica, Turkey, Macedonia and Iraq. In 2014, we are anticipating a 4% increase in revenue, and a 6% rise in exports; I believe our contracted work in the local market will also see a slight increase. In my opinion, the energy production sector will not see a significant rise in investment in 2014. Nevertheless, we anticipate investment in HŽ Infrastructure and Croatian water that are likely to see double-digit growth. The finalisation of the

announced investment in passenger transport will additionally enhance our results. We are planning further restructuring to boost effectiveness, as well as vigorous knowledgebased development based on experience. The group comprises of around twenty companies and we instantly tackle any issues arising through a wide range of measures, which has been shown by our results thus far. A sales increase of around 8% has been anticipated in our medium-term plan from 2014 to 2018, and approved by the Supervisory Board. It is an ambitious plan, yet I hope there will be no major hurdles in its implementation.


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ALAN ŠIŠINAČKI, CHAIRMAN, HOLCIM CROATIA

We need new investment We have been operating at a loss in Croatia for the past four years. Our situation was additionally aggravated by pre-bankruptcy procedures that put many companies on an unequal footing Holcim Croatia has been operating at a loss in Croatia for the past four years, and we can expect negative business results for this year. In 2013, our sales income decreased 15% in relation to 2012. Our situation was additionally aggravated by prebankruptcy procedures that put many companies on an unequal footing – by simple writing-off of a large share of debts and continuing to operate under the same conditions on the same market, competing with the companies that regularly settle their obligations towards employees, suppliers and the state. It is positive the state is focused on projects that create new jobs, since only new values can help the Croatian economy recover. However, we are convinced that a lot more effort has to be invested into preserving current jobs;

local and regional initiatives that could employ present production capacities and stimulate both local and regional economic cycles through regular salaries rather than unemployment payments. Therefore, we need new investment projects in order to establish healthy and positive businesses as well as preserve over 300 workers. We see the solution in projects that would use local resources; possibly a construction plan for 300 kilometres of new bicycle routes, a project that would employ local contractors and use locally produced material, and at the same time increasing the value we offer tourists. The same principle could be applied in the construction of new large and small ports, or in applying new local and inventive products in the construction of bus stations,

roundabouts and crossroads, much needed in Istria, for example. It should also be noted that these projects would be highly useful to our partners: concrete producers and local construction companies. Holcim Croatia activated a company recovery plan whose goal is to achieve positive results in 2015. The plan encompasses many initiatives and actions, including a team that would be formed for payment collection, process optimisation support, sale of non-core assets and the optimisation of non-profit centres. However, the set goal will not be achieved with saving alone, and we are aware of this. Our rolled concrete has attracted a lot of interest on the market – this is an innovative product that offers great advantages and wide use. In the light of this, it can

be concluded that an innovative product, which creates additional value for the end-user, enables additional income regardless of the market situation. This is why we have gathered our top experts who will create a new development centre in order to continue developing new products and services with the goal of creating additional values for our customers.

TIHOMIR OREŠKOVIĆ, CHAIRMAN, PLIVA

We are investing in research and development Last year was marked by the opening of a new production area for dry (solid) oral medicine in Zagreb valued at $100 million. In addition to this investment, Teva Group, under which Pliva operates, approved a further investment of $20 million in the production of sterile forms of medicine. At the end of February 2014, we opened in Zagreb a financial unit for the whole of Europe. I am certain this investment by Teva can serve as an example to other global companies that it is possible to invest in Croatia. For the first quarter of 2014, we additionally plan to intensify research and development. We have already secured an

ficiency of treatment and reduce the number of side effects. In Zagreb, we have already started

In Zagreb, we have already started on researching new generic molecules for various markets additional 1500 m² in our main building. The focus of our research will also include new therapeutic entities, a new generation of products which reduce the total number of medicines for patients with multiple health issues and which increase the ef-

on researching new generic molecules for various markets, including Canada and Japan, which has extremely high standards and where generic medicines have to be even better than the original according to total product characteristics in order to be ap-

proved. We believe this will help Croatia to reach the goal set by the EU as soon as possible – that investment in research and development will reach 3% of GDP. Numerous changes in the healthcare system and the announced restructuring are responsible for the challenges in our business. In the light of this, we felt additional pressure on our industry and the reduction of prices. I hope the announced reforms will be implemented, having in mind the overall healthcare system. Today Pliva is a strategic company who invests and develops. It is in our interest to increase the number of employees through long-term sales of our products.


16

Privredni vjesnik Year VII No 234

DAMIR ZEC, COUNTRY DIRECTOR, IBM CROATIA LTD.

Our present borders spread much wider One of the key factors for development and competitiveness certainly include investment and continued investing in ongoing and new projects as well as new technologies and standards

Firstly, we can safely say last year was a challenge. In spite of this, many significant projects were achieved in different industrial branches, and we witnessed Croatia joining the EU, which is certainly a new opportunity for us. Croatia is no longer an island and our present borders spread

much wider which can certainly contribute to our development. One of the key factors for development and competitiveness certainly include investment and continued investing in ongoing and new projects as well as new technologies and standards that increase efficiency, and quality for the general public and the private sector. Furthermore, it is visible that users in all sectors and industries managed to adjust to the situation in which they found themselves, regardless of the functioning of investment in terms of funding arriving from outside the country. In terms of the demand for technology, users today are mainly focused on maintaining the current level of services, whilst

those forced by the market invest in order to survive. Regarding 2014, we can expect that the pos-

IBM has been operating successfully in Croatia for a number of years, with plans to continue this trend itive measures that are being implemented will show results, and the underlying economic trend will start to change. We should also take into consideration the available EU funds which will also motivate these changes. In any case, we have to believe the industrial branches, which

have already started to show that it is possible to be competitive and successful in the EU in terms of their export results, will be strengthened by newer branches that are yet to become competitive. Considering my personal experience, our IBM colleagues successfully use their know-how and capabilities in the most complex global projects and we are proving on a daily basis we are highly competent and competitive, and I am optimistic. As far as IBM Croatia is concerned, the company has operated according to how we anticipated. IBM has been operating successfully in Croatia for a number of years now and our plans are to continue.

STRAHIMIR FILIPOVIĆ, OWNER AND DIRECTOR, MANDARINKO

Directed towards Central Europe Due to the permanent shut down of Moscow mega-markets last year, we lost a large and important Russian market for long period Agricultural production in Croatia last year was marked with price reductions on fruit and vegetables as a consequence of public purchasing power in Croatia and the wider European area. Consumers were forced to think carefully how they would spend after paying utilities and loans. Bad weather additionally jeopardised our revenue concerning the production of fresh fruit and vegetables in the south of Croatia. Last year was the most challenging year of the past decade for our business, even though we achieved the same level of success as in 2012, but with lower revenue. We were forced to adjust and invest in innovation. While searching for new possibilities

to penetrate the market, I had an interesting journey throughout the southern rim of Europe. Today I am even surer we have to be directed to Central Europe, Slovenia, north Italy, Bavaria, Switzerland, Austria, the Czech Republic, Slovakia, all the way to Poland and a part of Hungary. Even this year, we will not expect the state to help us, although we could use support for promotional activity on new markets. In order to reach a higher level of independence as a national and political community, the political elites have to change their behaviour, take concrete measures and stop flattering voters. If the present state policy continues in the same direction, we will

be faced with a market collapse and inevitable general bankruptcy of assets as well as moral values. If the policy of state savings, and greater efficiency of local administrations continues and at least a hint of development projects con-

tinue during 2014, this year will start to lead us in the direction of an end to the crisis which should be final by the end of 2016. I hope the efforts of agricultural producers will be rewarded during 2014, at least with better weather conditions compared with those over the past four years. We will invest special effort into presenting and selling our products in Central Europe. If we fail to create new possibilities in this area, we will show disastrous results concerning the sale of our tangerine yield in 2014, since we lost a huge and important Russian market for a long period of time due to the permanent shut down of the mega-markets in Moscow last year.


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GORDANA KOVAČEVIĆ, PRESIDENT, ERICSSON NIKOLA TESLA, ZAGREB

Positive stories expand perspectives Entrepreneurs are now operating against a backdrop of similar business conditions and are faced with similar challenges; nevertheless, some are more successful Recession issues and gloomy scenarios are constantly making the headlines so I will not be covering similar issues. Positive stories are of absolute importance as they expand the mind-set and enhance optimism. In 2013, Ericsson Nikola Tesla achieved its strategic objectives and operated on the path of success. We created 150 new jobs for highly qualified staff primar-

Exploiting the considerable potential of innovative and motivated individuals and teams in Croatia is an imperative ily in our research and development department, and marked 60 years of quality co-operation with the Swedish provider Ericsson that began in 1953 following the signing of the first license agreement. Thus, one might reach the conclusion that our company is operating under business conditions that differ significantly from those faced by other Croatian companies - which is certainly

not the case. Entrepreneurs are now operating against a backdrop of similar business conditions and are faced with similar challenges; nevertheless, some are more successful. I believe success is primarily due to global networking, technological leadership, innovativeness, exceptional commitment and work, as well as highly motivated employees. The EU 2020 strategy for smart, sustainable and inclusive growth by 2020 addresses the issues our country has been facing recently such as stumbling development due to structural problems, scant investment in research, development and innovation, trade barriers and the insufficient use of ICT technologies, unemploy-

ment and population ageing. In accordance with the EU 2020 strategy there are seven initiatives directly or indirectly linked with ICT technologies and their use for the benefit of people, business activities and the environment which will provide solutions to current issues, as well as an opportunity to keep abreast with the fastest-growing economies. Hence, I believe Croatia needs to take a strategic turn towards such initiatives and recognise the potential of the ICT sector and strategically enhance it through the strengthening of R&D activities, technological development as well as the ICT infrastructure, including co-operation between the ICT sector and others. In order to meet the defined strategic objectives together with other EU member states we need to define operating programmes that are focused on the future, yet realistic. These documents are simultaneously the fundamental prerequisites for the absorption of funds from European Structural and Investment Funds which are available as sources of financing for demanding and complex projects related to the

implementation of a Croatia 2020 strategy. Consequently, we are faced with immense challenges and the success we achieve in 2014 will be proportional to the consensus we manage to achieve at public, civil and business sectors and the general public and Croatian leadership on the direction of development, the priority issues and the teams for strategy implementation. I believe the exploitation of our ample potential in innovative and motivated individuals and teams in Croatia is an imperative.

DAMIR KOBAĹ , DIRECTOR, SAME DEUTZ-FAHR

Lower levies, higher subsidies We anticipate production growth this year, which can be achieved only if we offer a new series of products Last year was very difficult for agricultural mechanisation and the market is still slowly recovering from the crisis. With aggravated market conditions, the producers of agricultural equipment had also to fight strong competition, investing in production innovations at the same time. Of course, all this accompanied by constant production cost cutting to improve

product competitiveness. My answer to the question on which measures the legislative, executive, monetary and fiscal authority should be implemented to alleviate the effects of the crisis, is simple and concise: reduce parafiscal levies and prices of energy products, motivate local production by stimulating customers to buy Croatian products. We are anticipating pro-

duction growth this year, which can be achieved only if we offer a new series of products on such a demanding market. As a result, we presented a new combine harvester from the series 9000 at Hannover Messe 2013 in November and received extremely positive feedback on which we are basing our anticipations of increasing production and the related results during 2014.


18

Privredni vjesnik Year IV No 0165

DAMIR BULIĆ, BOARD PRESIDENT, KRAŠ, ZAGREB

Negative trends reversing We anticipate 2014 will see the end of a five-year fall in economic activity and decreasing GDP, creating the conditions for a stable business development in the near future

According to data provided by Kondin, the Croatian association of confectioners, confectionery industry production amongst their members dropped by almost 500 tonnes during the first nine months of 2013, showing a continued production decline which in 2012 stood at 3%, identical to the decrease in the total sales of the confectionery industry in 2013. Moreover, 2013 saw the continued increase in imports of around 10%. Hence, the conclusion may be reached that the level of the domestic confectionery industry on the local market accounts for only one third. Nevertheless, the export-oriented domestic confectionery industry exported half its production output globally and

created new jobs. Subsequently, the value of exports during the first eight months of 2013 stood at $70 million, 6% up compared with 2012. Kraš has been continuously adapting its operations to the new market conditions in order to retain its share both within the local and on the CEFTA markets, against the backdrop of strengthening foreign competition. Consequently, its business planning focused on the development of new, and the improvement of, existing products. Croatian EU

and Kosovo) where customs duties are applied to imports of confectionery products exceeding import quotas. Kraš exports three quarters of its total exports to EU markets. In addition to Slovenian, Czech and Slovak markets, where we own subsidiaries, we are planning to expand exports to Germany and Great Britain where we are also present, as well as to Scandinavian countries and other EU member states. We anticipate 2014 will see the end to the five-year drop in eco-

nomic activity and decreasing in GDP, resulting in the creation of a stable business development base in the near future – primarily concerning the significant rise in investment activity through increased foreign direct investment and the full absorption of all available EU funding. Moreover, we are anticipating stimulating monetary policy measures for those exporters who have retained their market position, such as agricultural producers, the food industry and confectioners.

Exports to the EU market account for three quarters of total exports by Kraš accession has not resulted in substantial changes in business operations. The consequences are harmonisation with single market regulations, such as changes in value added tax in trade with EU member states. This will primarily affect exports to several CEFTA member states (Bosnia and Herzegovina, Macedonia

ERNEST TOLJ, MANAGEMENT BOARD PRESIDENT, EUROCABLE GROUP

Draft budget revealing expectations Last year was yet another strenuous and challenging business year. 2013 saw a plunge in business activities and the GDP of Croatia, as well as the lack of investment that might have reversed current trends. Nevertheless, it has to be stressed that the implementation of fiscal discipline and Croatian EU accession saw 2013 swing into positive momentum and this positive impact is to be expected over forthcoming years. The recently presented draft budget summarising

all economic policies that will be implemented by the government

clearly reveals the expectations emanating from economic and tax policy, employment policy, export growth and tackling of investment hurdles in 2014. The potential inflow of available EU funds is anticipated, as well as the launching of previously prepared projects. I believe 2014 will be a difficult year and our success in attracting foreign direct investment that can foster economic activity and increase employment opportunities and fiscal capacity, is uncertain at

present. The promotion of measures to improve our competitive environment and to attract foreign investors and increase employment opportunities, as well as of legal safety and creditor protection are critical in order to mitigate the impact of the crisis. The launch of previously prepared projects will encourage activity that we believe will provide opportunities for our company and consequently we are anticipating the improvement of our market position in the region.


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DAMIR SKENDER, MANAGEMENT BOARD PRESIDENT, SAPONIA

ZDRAVKO JELČIĆ, DIRECTOR, SPIN VALIS

Improvement by the end of the year

Spin Valis planning considerable investment

Financing will not see substantial improvement due to We are anticipating stability and reasonable growth current GDP situation. However, authorised institutions irrespective of the challenges; we believe in our need to focus primarily on absorbing EU funding success and a positive impact on business in 2014

2013 and the past several years have been marked by severe crisis conditions. Saponia, as the largest Croatian detergent producer, is one of the few Croatian companies that have managed to see the end of the year with revenue growth irrespective of extremely severe competition, a further decline in retail sales and upward pressure on prices. We managed to maintain our market position by focusing on development projects and through vigorous marketing and sales that are currently of fundamental importance. Significant improvement has been achieved via technology, through an investment cycle of €2.6 million in 2013. Macroeconomic expectations for 2014 do not show optimism for the real economy. A further increase in unemployment will result in further decline in both consumption and demand, specifically in their financial value. Financing will not see any substantial improvement, due to the current level of GDP. Nevertheless, authorised institutions need to focus primarily on absorbing EU funds. Moreover, the Euro-

zone recession will additionally influence the Croatian economy negatively, and consequently any economic recovery and improvement in economic indicators may be expected only at the end of the year, albeit only in the case of a substantial recovery in the global economy. Nevertheless, Saponia will proceed implementing its clearly defined business strategy under current economic conditions, mainly through cutting input costs, the optimisation of inventory and a substantial increase in cost effectiveness. In 2014, Saponia will mark its 120th anniversary and yet its strategic orientation remains unchanged. We anticipate business activity will remain stable with growth trends. We are planning more intense market penetration through sales increase in those markets with high potential, by focusing on programmes to boost competitiveness, by developing products and through further strengthening of premium brands. Saponia is an export-oriented company and it generates half its revenues through exports. Consequently, exports will provide ample room for growth.

uptick of employment, primarily youth employment. In addition, economic issues require extensive media coverage, primarily through success stories that subsequently encourage the investment that is vital for economic

State support for exports is fundamental Clear national economic objectives through industrial policy and sector strategies harmonised with the EU 2020 strategy and the integrated industrial policy of the EU are imperative against the backdrop of the severe crisis, recession and depression, in 2014. We are anticipating and striving for a final draft of the strategy documentation for Croatia that has been delayed many times, as well as the comprehensive involvement of the state and public administration in the preparation of projects eligible for EU funding. Responsible and committed business people and those with practical expertise propose the implementation of prompt operational measures, harmonised economic and development policies to foster competitiveness – primarily the low level of social competitiveness – as well as imminent public administration reform. State support for exports is fundamental, and the consequent

recovery. Horizontal subsidies from national resources or from the budget need to focus on those sectors, for example the wood industry, where rapid and effective return on investment may be achieved. Comprehensive changes to monetary policy and the use of foreign exchange reserves for economic development and growth, as well as a modification of the exchange rate policy in 2014 at least at the level of delta inflation (the difference between inflation in the Eurozone and inflation in Croatia) are imperative. These are only some of the fundamental measures implemented by countries such as Poland, and the effects of the implementation of these measures are significant. Spin Valis is planning substantial investment in 2014. We are anticipating stability and reasonable growth irrespective of the challenges; we believe in our success and a positive impact on business in 2014.


20

Privredni vjesnik Year VII No 234

( 50% surveyed

belive the business climate will deteriorate

( 39% surveyed

say investment conditions are unacceptable

Readership Responses

Business activities in dire straits, why additional hurdles?

Companies will tackle the crisis through reorganisation of business activities, by slashing labour costs, boosting sales, reducing production costs and by changing production programmes ome 20% of the Privredni vjesnik readership who responded to the electronic surveys – “Business expectations” and “Doing business in Croatia” – believe that the business climate will remain unchanged in 2014, whilst 50% of those surveyed believe it will deteriorate. Economic growth in 2014 will remain on a par with that of 2013, according to 36% of respondents. 32% of readers perceive economic growth as declining slightly, whereas economic growth will see a sharp decline in 2014 according to 21% of those replying. Additionally, only 13% of those who provided responses to online surveys believe investment conditions and business activities in Croatia will be mediocre, whilst 39% deem them unacceptable and 43% see them as discouraging. According to 10% of the respondents taxation and mandatory contributions are standard,

S

whereas 46% of those surveyed believe they are excessive and 38% see them as demotivating; 43% anticipate both taxes and

priorities in achieving economic recovery in 2014, according to those surveyed. Economic regulations are acceptable for only

Only 4% of respondents deem the current economic regulations acceptable mandatory contributions will increase slightly in 2014 and 14% believe they will see a substantial increase, whilst 6% optimistically believe they will see a slight decrease. Consequently, a considerable reduction in state administration, decrease in taxes and mandatory contributions, the tackling of illiquidity, the restriction of the duration of court proceedings, more affordable loans for entrepreneurs and reaching decisions which will attract foreign investment were seen as

4% of those surveyed, whereas 85% deem them unacceptable or unstable and non-transparent. Hence, the administrative apparatus is deemed effective in investment procedures by only 10% of respondents, 38% see it as a hurdle, whilst 50% believe it adversely affects corporate investment. Surprisingly, none of the respondents saw the administrative apparatus as favourable for investment. 50% of those surveyed welcome foreign investment, 18% see it as encouraging, but 25% of those surveyed deem

it extremely discouraging. Nevertheless, almost 85% of those surveyed believe implementation of EU standards and harmonisation are imperative. According to the readership of the digital edition of Privredni vjesnik, general economic conditions were ranked with an average grade of 1.59, although for 50% of those surveyed the average grade was 1. More than 30% of respondents stated they believed the company for whom they work will see a significant impact of the crisis in 2014; 24% anticipated the impact of the crisis will be considerable, with 32% anticipating the impact will be acceptable due to previous preparation. Consequently, 24% of those questioned stated they believe the crisis will be tackled through reorganisation of business activities and slashed labour costs, 22% by boosting sales, 15% by reducing production costs and 13% through changing production programmes.


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