Page 1

Export and import of agricultural and food products → Significant growth in food exports PAGES 4-7

SUPPORTED BY THE CROATIAN CHAMBER OF ECONOMY

www.privredni.hr

Clusters – Tools for Enhancing Competitiveness in Southeast Europe → Clusters transform rivals into partners PAGES 12-15

Croatian construction in 2016 → The crisis left i ts mark, but there are signs of recovery PAGES 16-19

PVinternational C R O A T I A N

B U S I N E S S

&

F I N A N C E

M O N T H L Y

May 2017, Year X, No 269

GOVERNMENT BUDGET

THE LOWEST DEFICIT FOR 15 YEARS Croatian government budget deficit in 2016 was €0.37 billion, or 0.8% of GDP, the lowest deficit since records began in 2002 by Ilijana Grgić

T

he Croatian government budget deficit in 2016 €0.37 billion, which was 0.8% of GDP. Simultaneously, public debt dropped to 84.2% of GDP, according to data provided by the Croatian Bureau of Statistics. Marko Krištof, Director of the Croatian Bureau of Statistics, was surprised by such a low deficit level and pointed out that this is the lowest deficit since records began in 2002. “This is a significant decrease compared with 2015, when the government deficit stood was €1.5 billion, or 3.4% of GDP; in effect, this means the deficit has fallen in the region of €1.1 billion, primarily due to growth recorded throughout all sectors of the economy and also during an excellent tourist season”, noted Krištof, adding that the primary surplus of the general government sector has been recorded for the second consecutive year and hence in 2016 it stood at 2.5% of GDP, or €1.1 billion. In 2016, government revenue greatly exceeded government expenditure, which had a positive effect on the budget deficit. Consequently, total budget revenue in 2016 increased by €1.65 billion or 8.2% over 2015. Simultaneously, the general government budget expenditure rose by a considerably lower €0.5 billion or 2.3%.

Moreover, 2016 saw an increase in all tax revenues, with taxes on production and imports being the highest, up by 5.6%, and reached €9.3 billion, as well as current income tax and wealth tax, which rose by 8.1% and reached €2.9 billion, whilst capital gains tax soared 29.4% compared with the previous year, to €1.9 million. Interest expenses decreased, and even less significant increases in other revenue categories also positively affected the overall drop. According to data released by the Croatian Bureau of Statistics that has been confirmed also by Eurostat, December 2016 saw public debt drop to €38.5 billion or 84.2% of GDP, a decrease of €67 million compared with the same month for 2015,

when it stood at 86.7% of GDP. “A decrease in debt for short-term debt securities that were refinanced with long-term debt securities exerted the most significant impact, as it resulted both in reduced repayments and total debt reduction”, explained Krištof, adding that local government debt was also reduced concerning all loans and debt securities. Due to its budget deficit of 0.8% of GDP in 2016, Croatia rates amongst EU member states with the lowest level of budget deficit as a percentage of GDP, whilst concerning its public debt of 84.2%, it ranks amongst 16 EU member states whose debt exceeds 60% of GDP, according to data released by Eurostat.


RON BROWN U.S.- CROATIAN INNOVATION COUNCIL

CO-OPERATION CRUCIAL FOR THE DEVELOPMENT OF ECONOMIC RELATIONS Last year we created CIRAZ to provide support for the development of industrial capacity, which is vital for the Croatian economy, pointed out Želimir Kramarić, stressing the extreme importance of interconnectedness between academia and the entrepreneurial sector by Miro Soldić

T We are going to define areas of common interest with the U.S. and subsequently initiate a knowledge exchange and launch pioneer projects based on the requirements of the private sector. Marko Rajković, CIRAZ

he Croatian Chamber of Economy, in co-operation with the US Embassy, has recently organised the presentation and first meeting of the Ron Brown U.S.- Croatian Innovation Council. The main topic was to finalise the decision on expansion and the identification of new methods of co-operation between the U.S. and Croatia made in Dubrovnik last year during the marking of the 20th anniversary of the tragic air crash of the American delegation on a trade mission led by the U.S. Secretary of Commerce, Ronald Brown.

COMMON VALUES “We are continuing the heritage of Ron Brown, since we believe that his mission had great value. We will focus on issues of the highest importance for relations between the U.S. and Croatia. Last year we created CIRAZ to provide support for the development of industrial capacity, which is vital for the Croatian economy. Hence, we are striving to share both our experiences and knowledge with you in order to be more successful”, emphasised the Vice-President of the CCE for International Affairs and the EU, Želimir Kramarić, adding that co-operation is crucial for the development of economic relations. He pointed out that American experiences need to be used as much as possible during the development of CIRAZ, since the U.S. is a global leader concerning entrepreneurship. “This opportunity will provide us with guidelines on where and how to launch co-operation, as we are certainly aiming to strengthen our bond with the U.S.”, noted Kramarić, stating that inter-connectedness be-

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tween academia and the entrepreneurial sector is of immense importance. Julieta Valls Noyes, the U.S. Ambassador to Croatia, stressed that this is a sad anniversary of Ron Brown’s death, yet it needs to be marked joyfully, being also the 25th anniversary of the

ENTREPRENEURSHIP AND INNOVATION ARE EXTREMELY IMPORTANT ASPECTS IN THE WORK OF OUR EMBASSY IN CROATIA, NOTED JULIETA VALLS NOYES establishment of official diplomatic relations between the U.S. and Croatia. “The meeting of this Council marks the start of a celebration of the issues that bring us together and the common values we have been working on -. Entrepreneurship and innovation - are of immense importance to the work of our Embassy in Croatia, and we are highly committed to it. Moreover, we are currently fully committed to encouraging female entrepreneurship and an enhancement of the overall entrepreneurial environment”, emphasised Julieta Valls Noyes, adding that she is convinced of the success of this initiative.


Don Hudspeth, President and Dean of Rochester Institute of Technology Croatia (R.I.T. Croatia), stated that his wife comes from Dubrovnik and their children attend schools in Croatia and thus there is a personal connection with Croatia in his case. “Educational system reform is an issue in which this Council can provide assistance. It is a huge initiative whose implementation will be a serious challenge. Education needs to focus more fully on critical thinking, and schools need to provide children with a space for creativity and problem solving. There are some advantages to the current educational system, yet it is currently still primarily focused on memorising facts, at the expense of critical thinking. We can provide assistance on this issue through the work of the Council and by bringing together higher education and industry”, noted Hudspeth.

U.S. – A MARKET FOR CROATIAN INNOVATION Mario Antonić, State Secretary at the Ministry of Economy, Entrepreneurship and Crafts, expressed his delight with the fact that the Council primarily focuses on innovation development. “Croatia is a young country and we can all agree that it has potential, yet it is faced with poor organisation and a lack of self-confidence. This is what we would like to improve and I believe we have a lot to learn about such issues from our American visitors. An excessive amount of time is wasted during the making of important decisions and that is an obstacle to economic development. We need to focus on synergies between European and American advantages, and this Council can provide ample assistance on this point”, he concluded.

Marko Rajković from CIRAZ delivered a comprehensive presentation about CIRAZ and the U.S. - Croatia Innovation Council. He explained that it is a newly-established sector whose specific objectives are to provide support for the industrial development of the country and to strengthen economic competitiveness. Furthermore, it also focuses on strengthening the position of Croatia within global value chains, the development of knowledge and skills in the business sector required to meet the objectives of industrial development, internationalisation, the promotion and branding of the economy, as well as the foundation of an effective national innovation system. “Croatia currently lags behind in the allocation of resources for development and innovation, which slows its economic development and adversely affects its global competitiveness. Over the last three years, we have prepared strategies intended to provide assistance, such as smart specialisations and the development of innovation networks”, noted Rajković, pointing out that the U.S. innovation system provides guidelines for learning globally, not only Croatia. “We are going to define areas of common interest with the U.S. and subsequently start a knowledge exchange and the launch of pioneer projects based on the requirements of the private sector. Since the U.S. is the largest market in the world, our innovative products could be sold there”, concluded Rajković. The talks between the CCE and the U.S. Embassy continued behind the closed-door Council meeting, with participation by representatives of American institutes for innovation, Kristi Dulu, Gabrielle Buckley and Peggy Parfenoff.

There are some advantages to the current educational system, yet

it is currently still primarily focused on memorising facts, at the expense of critical thinking. We can provide assistance on this issue through the work of the Council and by bringing together higher education and industry. Don Hudspeth, President and Dean at R.I.T. Croatia

May 2017 | No 269 | PVinternational | 3


EXPORT AND IMPORT OF AGRICULTURAL AND FOOD PRODUCTS

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SIGNIFICANT GROWTH IN FOOD EXPORTS Almost 62% of the value of total exports of agricultural and food products is exported by Croatia to the EU, pointed out Žaklina Jurišić from the CCE, adding that exports to CEFTA signatory states is still on a downward trend by Krešimir Sočković

A

ccording to statistical data, in 2016 both Croatian imports and exports of agricultural and food products increased, whilst trade in goods with EU member states showed the most dynamic and most significant growth. “Almost 62% of the value of total exports of agricultural and food products is exported by Croatia to the EU. This is primarily due to amendments in trade provisions resulting from and adopted following Croatian EU accession”, explained Žaklina Jurišić, Assistant Director of the Agriculture, Food Industry and Forestry Department at the Croatian Chamber of Economy. In 2016, the total value of exports of these products increased by 13%, with exports to the European Union rising by almost 30% in relation to 2015. “Nevertheless, the data on Croatian exports to CEFTA markets painted a rather different picture. The downward trend continued throughout 2016 and exports of goods dropped by 8% compared with the previous year. The overall results for 2016 compared with 2015 were marginally better”, highlighted Žaklina Jurišić, stressing the fact that the negative balance showed improvement.

NEGATIVE BALANCE REDUCES 2015 showed the highest negative balance on record at €969 million, which means that Croatian food imports greatly exceeded food exports. Since in 2016 exports growth exceeded that of imports, the negative balance improved by €100 million. The value of food im-

ports in 2016 was €2.6 billion, whilst exports of similar goods was €1.7 billion. Nevertheless, the export/ import ratio in 2016 came in at 67%, as opposed to 2015 when it was 61%. Total imports were up 4%, with food and agricultural products imports from the European Union recording the highest growth by €120 million.

LAST YEAR CROATIA MAINLY EXPORTED SUGAR, CHOCOLATE, FRESH FISH, CORN AND WHEAT Croatian main export markets for such products were again Italy, Slovenia, Bosnia and Herzegovina, Hungary, Serbia and Germany, whilst the main import markets were virtually similar, yet they showed slight differences according to the share of imports. Croatia imported the largest quantity of food products from Germany, followed by Italy, Hungary and Slovenia, whereas more significant levels of imports originated from Holland and Poland. The data on Croatian imports and exports of food and agricultural products paints the most accurate picture of their competitiveness and sufficiency. Low consumer purchasing power in Croatia and consumer preferences May 2017 | No 269 | PVinternational | 5


EXPORT AND IMPORT OF AGRICULTURAL AND FOOD PRODUCTS THE MOST IMPORTANT IMPORTED PRODUCTS IN 2016.

THE MOST IMPORTANT EXPORT PRODUCTS IN 2016.

Fresh pork Fr meat

Sugar

Chocolate e Wheat Chocolate C hoc late l t Animal Anim ffeed eed

Corn Fresh fish

Bread and pastry B t

2.6 6 billion

of food imported into Croatia in 2016

1.77 billion

of food exported from Croatia

for products within the lower price range certainly need to be considered when addressing this issue. Concerning imports, the Croatian market is primarily faced with a shortage of meat and meat products, as in 2016 the value of imports of these products were €325 million, closely followed by grain and starch products at €205 million, animal foods at €199 million and milk and dairy products reaching €190 million. The value of various other imported food products was €175 million, whilst beverages and alcohol imports were worth €174 million and imported fruit was also high, reaching €173 million. Cocoa products imports were worth €152 million, as opposed to imported vegetables (€116 million). When various products are considered separately, Croatia imported the highest quantities of fresh pork, chocolate, animal feed, bread and pastry. A more significant increase in frozen beef imports was seen, which soared by 42% and hence the import

Food exports in 2016 (€ millions) 200 180 160 140 120 100 80 60 40 20 0

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sh Fi

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IN 2016 CROATIA MAINLY IMPORTED FRESH PORK, CHOCOLATE, ANIMAL FEEDS, BREAD AND PASTRY value of these products was €18 million. Moreover, chilled fish imports were up by 39%, the value hitting €13.7 million. Meat products imports were up by €22 million, whereas fruit juice imports were worth €21 million, an increase of 14% over 2015. Food and agricultural products, classified within the category of various food products, accounted for the highest share of Croatian exports at €178 million, whilst the value of Croatian sugar


and sugar products exports was €161 million with grain exports totalling €150 million. The value of Croatian beverages and alcohol exports stood at €136 million. Moreover, Croatia exported grain and starch products worth €126 million and oilseed worth €112 million, whereas the value of exported cocoa products reached €101 million. Processed meat and fish exports were €82 million. The value of animal feed exports was also significant, at €80 million.

SUGAR – THE MOST IMPORTANT EXPORT PRODUCT When export products are considered individually, the highest export earners were sugar, chocolate, fresh fish, corn and wheat exports. In addition, cooking oil, beef and pork exports recorded a significant increase. Since 2013, rapeseed oil exports have recorded continuous growth and, compared with 2015, its exports have tripled from €5 million in 2015 to €15

million in 2016, whilst simultaneously sunflower oil exports jumped by 73%, to reach €17 million, which is a most satisfactory result. 2016 saw cattle exports rise by 80% or by around €12 million, and its export value reached €27 million. Furthermore, following Croatian EU accession, pork exports have been showing constant growth. In 2016, pork exports were up by one third on an annualised level and total pork exports were worth €24 million. Sugar was the most important export product in 2016, due to the fact that its export value reached €148 million, showing a significant increase of 70%, or the value of sugar exports was up by €60 million in relation to the previous year. Following a drop in citrus fruit exports, which mainly covers tangerines originating from the Neretva Valley, in 2016 the market recovered compared with the previous year and the value of exports recorded stood at €19 million, which suggests a sizeable increase.

677% export to import ratio last year

Food imports in 2016 (€ millions) 350 300 250 200 150 100 50 0

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May 2017 | No 269 | PVinternational | 7


INTERVIEW LEJLA ZUKIĆ KRIVDIĆ, GENERAL MANAGER AT MICROSOFT CR

TODAY, DATA ARE BECOMING A BUSINESS CURRENCY Technology has become an inevitable part of every company’s success. The state is also aware of the importance of this industry, and in my opinion, it invests effort into its promotion and development as well as introduces policies for more successful growth interviewer Boris Odorčić

T Microsoft Croatia

celebrates its th

20

anniversary

Microsoft co-operates on a regular basis with

1100 IT companies in Croatia

€0.7 billion in revenue generated by ICT sector in Croatia

around

32.000 employed in this sector

his year, Microsoft Croatia celebrates the 20th anniversary of its entity. It has been present in Bosnia and Herzegovina for over 11 years, and during this period an important business community has been created consisting of 1,400 IT companies with whom Microsoft co-operates on a regular basis (1,100 in Croatia and 300 in Bosnia and Herzegovina). It also contributes significantly to the development of both the Croatian and Bosnian and Herzegovinian IT industry as well as the economy in general. Lejla Zukić Krivdić, General Manager of Microsoft Croatia, Bosnia and Herzegovina, says the company offers quality technological platforms and solutions; forms strategic partnerships with many state bodies and in general promotes the importance of education and technology which contribute to the strengthening of national competitiveness. There are two Microsoft Innovation Centres in Croatia, one in Osijek and the other in Split. There is only one MIC in Bosnia and Herzegovina (in Banja Luka), and the goal of these centres is to promote innovation, entrepreneurship and the development of start-ups.

 What is your assessment of Microsoft’s work in Croatia? Digital transformation is a daily routine for every company globally. Advanced data analyses, machine learning, CRM and innovative solutions based on cloud services have become today’s necessity. According to research, those who do not take this direction will soon start to lag behind the competition. In this context Microsoft is rapidly transforming, so that it could transform other companies. This means that the cloud share is growing in total revenue. On a global level, the Azure solution

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grew by 93% during last year. Therefore, we receive 120,000 new users every month. The cloud’s intensive growth is also seen in Croatia, and the same situation is with total revenue of the company. Cloud in Croatia has shown three-figure growth and we do not lag behind global trends. We are working intensively on implementing cloud solutions with various cli-

THE CLOUD IN CROATIA IS MARKED BY THREEFIGURE GROWTH, AND WE DO NOT LAG BEHIND COMPARED WITH GLOBAL TRENDS ents. I am especially pleased that in addition to the private sector, there are more and more state and public sector organisations opting for them. Besides cloud, we have a strong position in service provider virtualisation (ERP and CRM). I have to say that Microsoft recognises Croatia for its innovation, globally referential programmes, export of top business technological practice and excellent experts who are famous outside the borders of Croatia.

 In general terms, how do you evaluate the Croatian ICT market? The ICT sector employs almost 32,000 people and generates €0.7 billion in revenue with annual growth of 12%, which significantly ex-


OATIA, BIH

Many solutions of our companies and partners have been recognised outside Croatia.

May 2017 | No 269 | PVinternational | 9


INTERVIEW We can contribute to the development and strengthening of the Croatian economy through an holistic approach Could you highlight some of the future business moves of Microsoft Croatia, Bosnia and Herzegovina? - In the future, Microsoft will be oriented towards developing cloud technologies and various technological solutions for increasing productivity, contributing to the promotion of business processes and supporting the development of new business models. Our clients recognise us a company which has the capability and references for helping users in their business transformations, whether they regard transformation and optimisation of business processes, training of employ-

Microsoft recognises Croatia for its innovation, globally referential programmes, the export of top business technological practices and excellent experts who are famous outside the borders of Croatia.

ees, transformation of products and services and development of new and inventive business models. This is something we have been building for years and we will continue in this direction. We will support the educational system through offering free software, various training and programmes for providing hardware and the necessary infrastructure. We work and we will continue working with many start-ups. We will continue supporting the partnership community and we will be oriented at software producers which first have to be transformed since they have to realise how the technology influ-

ceeds export growth of the remainder of the economy. However, professionals remain a limiting factor, that is, insufficient numbers of qualified experts, which poses the need for educational reform. If that could soon be achieved, we could have 50,000 newly employed over the next eight years according to some estimates. The majority of them would be employed in software and IT services development. Microsoft’s partnership society, with over 1,000 members in Croatia, has been rapidly adapting its skills in the areas of global megatrends. Today, for example, we have 280 partners selling cloud services. This shows that Microsoft’s partners are ready for global challenges. Many solutions of our companies and partners have been recognised outside Croatia.

 What are the state’s relations with the ICT sector? Technology has become an inevitable part of every company’s success. The state is also aware of this industry’s importance, and in my opinion, it invests effort into its promotion and development as well as introducing policies for more successful growth. We can discuss about whether things happen at the rate the industry would wish, but I think in general we are heading for a bright future. Also, the cloud era is transforming companies in Croatia in a positive manner. State bodies have been increasingly aware of the general connection and the value of meaningful information in the heap of data we are surrounded with. Actually, data are becoming a business currency today; they double each year and there will be over 20 zettabytes by 2020.

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ences an individual business vertical and then they need to adapt to the fast moving changes. I think we can contribute to the development and strengthening of the Croatian economy through this kind of holistic approach.

 You often co-operate with local startups, gather various teams and create numerous communities. Isn’t that a fact? Considering the fact that Microsoft’s mission is to strengthen each organisation and individual so they may achieve more, we are focused on supporting start-ups through various technology platforms and specially designed programmes which can be applied to various industries. Our goal is to help start-ups develop their business outside the country by supporting various business factors (technology, leadership, team development) so they could ultimately become mature companies. We have been implementing the MS Bizspark programme in Croatia since 2008 through which over 600 start-ups have gone through to date. We currently have over 200 active ones. The users of the programme have free access to using products of solution development which they still own even when they conclude the programme. Also, they have the possibility to activate and use the Azure cloud service, and if they need more resources, they can apply for the Bizspark plus programme which offers additional benefits. Many companies took advantage of these benefits and now they are known on both the Croatian and world start-up scene. Some of them worth mentioning are: Agrivi, Farmeron or Repsly, and Core Interface, Mogy or Adopto are companies we believe we will hear much about. I would like to highlight that we also organise programmes for stimulating student start-ups. One of the best known is the Software StartUp Academy, free programme and business training in the area of information for pupils, students and unemployed through which many known student projects have


passed. We also organise the Imagine Cup, the biggest world student technical competition.

 You often stress the importance of online security and development of STEM knowledge from early ages… In these times of rapid technological development, everything is becoming connected; children come into contact with different devices at nursery age. It is evident there is a need for working with children in the STEM area, especially information technology. Unfortunately, information science is not a mandatory subject in elementary schools in Croatia, and you cannot select it before the fifth grade. So it is obvious that changes are needed. Microsoft Croatia continuously works on educating young people in digital technology and developing their skills for the jobs of the future. Some of our projects are the suHour of Code for promoting programming, MS Showcase school for promoting the use of digital technology in various school subjects, YouthSpark Live and DigiGirlz, projects for orienting high

WE ARE ALSO FOCUSED ON SUPPORTING START-UPS THROUGH VARIOUS TECHNOLOGY PLATFORMS AND SPECIALLY DESIGNED PROGRAMMES schoolers to STEM careers. Of course, we are aware of the challenges posed by the use of digital technology and our activities are directed at educating the young on the appropriate use of the internet as well as safety and protection of internet privacy. Children of today spend a lot of time on the internet and they find themselves in undesirable situations which they often do not talk about. This is why we have recently implemented the Web Detectives programme with a non-governmental association Centre for missing and abused children. Its goal was to train children in Croatian schools on how to recognise and report inappropriate behaviour and content on the internet. Today we have 95 detectives in Slavonia and there will be more in other parts of Croatia. We also participate in marking the International day of safer internet by organising various activities, workshops, quizzes and lectures. This year we covered 197 schools with over 9,000 pupils, which

is almost 50% more compared with the year before. The online questionnaire on internet safety was answered by 16,625 children.

 Are you satisfied with Croatian IT experts and do we have enough of them? We are witnessing a larger number of training programmes in IT and STEM, but Croatia does not have enough IT experts. Their quality is at a high level, but we need to continue improving and developing IT skills considering the rapid technological development. Today we talk more and more about digital transformation and cloud technologies, and I notice we lack competent experts.  How would you describe the Croatian educational system and does it deliver staff of appropriate quality? According to the latest results of the Programme for International Student Assessment (PISA), in which 72 countries participated, Croatia’s position is somewhere in the middle of the scale. Concerning reading literacy, it ranks 31 and 37 according to natural science literacy. Based on mathematical literacy the rank is 41. The reason for this is not insufficient knowledge of the matter, as pointed out by PISA, but practical application. I would say this is the biggest problem in the educational system. We learn different facts from an early age and we give a satisfying answer about them when asked. However, when we need to do something meaningful with this information, that is, put it into practice, we are not as good. Some time ago UNESCO highlighted that individual and social prospects should focus on skills development – learning and literacy as well as life-skills. For example, learning skills include critical thinking, collaboration, communication and creative thinking, but I am not sure that the school curricula covers, and stimulates, the development of these skills. As a company, we promote these same skills through using technologies in education.  Which parts of the ICT sector will grow, fall or stagnate based on your predictions? As I’ve mentioned already, cloud services are showing triple-digit growth and this trend will continue both in Croatia and the world. The development of software and applications based on cloud technologies, Internet of Things, Big Data… all these are areas which have already shown considerable growth and this trend will intensify further. The trend we have already started to notice, and which will certainly continue, is a downward trend in the sale of hardware which is directly linked to the development of cloud service.

Croatia lacks IT experts. The quality of IT experts is at a high level, but we need to continue improving and developing IT skills when considering the rapid technological development.

Microsoft Croatia continuously works on training the young on the importance of digital technologies and the development of their skills for jobs of the future.

May 2017 | No 269 | PVinternational | 11


SPECIAL CONFERENCE CLUSTERS – TOOLS FOR ENHANCING COMPETITIV

CLUSTERS TRANSFORM RIVALS INTO PARTNERS There are a large number of examples of competitiveness clusters in Europe, since they are tools through which SME’s become more competitive and present on the international market. Hence, this area of the economy is being raised to a higher level, pointed out Tomislav Radoš, Vice-President at the CCE by Jozo Vrdoljak

A 65 5 business clusters operating within the Cluster Alliance at the CCE

460

around companies

brought together through clustering

special conference: Clusters – Tools for Enhancing Competitiveness in Southeast Europe held in Mlini brought together over 130 participants, primarily experts, originating from 12 countries. It was the first but similar conference held during the past four years and that fact was frequently pointed out throughout the conference. Clusters are included in all strategies linked with economic development in Croatia, yet no government budget resources have been allocated for their development. According to Marko Šantić, President of the Chamber of Economy of the Federation of Bosnia and Herzegovina, in Bosnia and Herzegovina clusters have not been considered important in development documentation either. Other countries in Southeast Europe are faced with a similar situation which needs to be changed, as emphasised by conference participants, since the Conference primarily and comprehensively addressed the issue of clustering. Considering the fact that decisions on the desired direction of cluster development in Croatia have not been made thus far, the Conference provided an opportunity for discussion and analysis of a broad range of proposals and ideas that can quickly be transformed into concrete measures intended for strengthening competitiveness, as well as for cluster recovery. The Conference was organised by the Croatian Wood Cluster and co-organised by the Croatian Competitiveness Cluster for the Food Processing Industry, the Croatian Competitiveness Cluster for Electrical and Mechanical Machinery Industry and Technology,

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the Croatian Competitiveness Cluster for the Construction Industry and the Croatian Competitiveness Cluster for the Wood Processing Industry. It was sponsored by the Croatian Parliament, and the Croatian Chamber of Economy, Agency for Investments and Competitiveness and the Chamber of Economy of the Federation of Bosnia and Herzegovina were Conference partners.

EFFECTIVENESS IS FUNDAMENTAL The Croatian Wood Cluster is an operating cluster that covers some 100 members from the wood industry and forestry, and is one of the most active clusters in Croatia. It was allocated two INTERREG projects and it applied for several additional projects, stated Rosana Šimunović, Project Manager.

CLUSTERS ADOPT A BROADER AND MORE SOPHISTICATED APPROACH BUT ARE NOT BUSINESS ASSOCIATIONS, NOTED MARIJAN KAVRAN Marijan Kavran, Director of the Croatian Wood Cluster, believes that effectiveness is considerably more important than the met-


ENESS IN SOUTHEAST EUROPE

hods of operation of a cluster. “Our specific objective at this point is to provide a more propitious environment and support, either through government support or through interconnectedness. In addition to horizontal integration, a cluster also needs to be vertically integrated into a sector. Smart and integrated projects are crucial for meeting our objectives and, considering the state-of-affairs in the 21st century, research and development is fundamental for development of any industry or sector”, pointed out Kavran. Moreover, in his opinion, there are no unique solutions since solutions cannot be provided by replicating basic models from best practices within the European Union. Nevertheless, through the implementation of international experience and practices we can define the direction to take whilst organising our activity in Croatia and in Southeast European countries. “Clustering is a highly important issue for any economy and primarily for small economies. Clusters transform rivals transform into partners. There is huge potential to clustering. Furthermore, they can impact on employment and research and development, as well as both on the acquisition and implementation of new knowledge. It has to be no-

ted that clusters adopt a broader and a more sophisticated approach as they are not business associations. Southeast European countries are currently faced with the challenge of harmonisation with European Union policies, whilst we simultaneously need to strengthen the vital cornerstones concerning innovation development”, emphasised Kavran.

A TURNING POINT FOR CLUSTERS According to Tomislav Radoš, Vice-President of the Croatian Chamber of Economy for Industry and IT, Energy and Environmental Protection, clusters in Croatia are currently at a turning point. “Most problems are caused by poor communication and so conferences play a fundamental role in helping communication and providing solutions”, noted Radoš, adding that clusters are frequently associated with the competitiveness in a national economy. “The CCE helps in raising corporate competitiveness to a higher level and clusters provide a model through which this can be achieved. In 2003, we started providing support to the creation of operational clusters only to start with the foundation of 13 competitiveness clusters at a national level in 2013. Cluster foundation directly impacted on the development of the

13 Croatian competitiveness clusters founded

May 2017 | No 269 | PVinternational | 13


SPECIAL CONFERENCE:

Our specific objective at this point is to provide a more effective environment and support, either through government support or through interconnectedness. In addition to horizontal integration, a cluster also needs to be vertically integrated into a sector. Marijan Kavran, Director of the Croatian Wood Cluster

Smart Specialisation Strategy, due to which Croatia currently has over €1 billion at its disposal for investment into research and development of innovation. Furthermore, clusters have assumed a crucial role in defining future competence centres. There are a large number of examples of competitiveness clusters in Europe, since they are tools through which SME’s become more competitive and present on the international market. Consequently, this economic segment is being raised to a higher level”, stressed Radoš. Jacques Viseur, Communications Manager from European Cluster Collaboration Platform, also highlighted the importance of the role played by clusters in national policies and strategies. “Cluster internationalisation and business networking is of extreme importance for any economy. Our platform is intended both for bringing together and the co-operation of clusters comprises of over 550 members. It was established several years ago and has already brought together so many members. We have been progressing at a fantastic pace and we can voice your concerns and provide support in Brussels”, stated Viseur. Andrea August, Assistant Director at the Agency for Investments and Competitiveness, noted that the Agency has continuously participated in and supported cluster development since their creation. “We grew together, acquired new knowledge, exchanged knowledge and experiences and defined projects. Against the backdrop of current circumstances, clusters could provide a stronger upswing using the resources provided through EU funding. Thirteen competitiveness clusters have been created primarily in order to absorb resources from EU funds and thus to provide additional dynamism to cluster operations. All the required strategies have already been developed and clusters are expected to see an upswing

through realisation and implementation of these projects. This is the only way to absorb funding by sectors and so strengthen them. The purpose of clustering is primarily in innovation within traditional sectors. The principal role of clusters will comprise of identifying innovative niches in specific sectors”, explained Andrea August.

NETWORKING IMPERATIVE FOR DEVELOPMENT Florence Castel, CEO at the French cluster Advancity, represented a cluster comprising over 180 members and she emphasised as follows: “Our objective is project networking and we are looking for partners in South East Europe”.

CO-OPERATIVES HAVE NOT BEEN IDENTIFIED AS A RECOMMENDED BUSINESS MODEL IN CROATIA, STRESSED ILDA STANOJEVIĆ Vladimir Gumilar, Director of the Construction Cluster of Slovenia, a member of European Circular Construction Alliance, believes that development is currently impossible without networking. “Challenges require co-operation, not only inside sectors, but also networking with others, which is impossible without the services provided by clusters. We are currently working on networking with clusters in other countries. The European Union supports clusters and cluster members in internationalisation and networking, as well as

ŽELJKO ERKAPIĆ, DIRECTOR OF THE AGRICULTURAL EQUIPMENT CLUSTER

How to revitalise clusters? Željko Erkapić, Director of the Agricultural Equipment Cluster, and the founder of two competitiveness clusters, noted that the cluster development process is currently stagnating against the backdrop of the circumstances arising from various policy changes. «We are faced with the challenge of how to revitalise clusters and get them back to the path we had planned. We have thus far achieved some results, yet we are cu-

14 | PVinternational | May 2017 | No269

rrently faced with stagnation. We have actively brought members together. At the inception, there were eight founders and now there are 23. Some projects have improved cluster competitiveness substantially, especially concerning business internationalisation and we are currently included in all the data bases of international producers. Our members export 70% of their products», pointed out Erkapić.


TAJANA KESIĆ ŠAPIĆ, DIRECTOR OF THE INDUSTRY AND IT SECTOR AT THE CCE

12 priority industrial sectors with high potential within the Croatian economy Tajana Kesić Šapić, Director of the Industry and IT Sector at the CCE, noted that clusters have been participating in the Croatian economy since 2003. During the period between 2005 and 2011, the Ministry of Economy, Labour and Entrepreneurship co-financed 46 clusters and initiatives for cluster foundation through the provision of €3.6 million. These clusters and initiatives covered 504 companies with 25,063 employees. The Alliance was founded at the CCE in 2007. “12 priority industrial sectors with high potential have been identified within the Croatian economy, based on the collected analytical data, and the results of detailed mapping of existing clusters in Croatia. Moreover, several business clusters have been founded at the CCE amongst which it is important to note the AD Cluster, Intelligent Energy Cluster and Wood Cluster of North-West Croatia, whilst several communities and

associations also operate as clusters. The Cluster Alliance at the CCE covers 65 business clusters that bring together around 460 companies. In addition, 13 competitiveness clusters have been founded at the national level”, emphasised Tajana Kesić Šapić. According to her, the specific objective of clustering is focused on the creation of a network of entrepreneurs who will jointly provide new products, and address the issues linked with fragmented production and a lack of production capacity. “The formation of clusters and bringing companies together into clusters was based and focused on joint investment into research and development, appearance at both domestic and international trade fairs, joint marketing expenditure, professional development programmes and finally via more competitive procurement. Bringing companies together into clusters is based

in their appearance on third markets”, explained Gumilar. Danka Milojković, Director of the Niš-based Cluster House, a Conference Partner, believes that clusters are tools for sustainable economic growth. “Cluster sustainability depends on three aspects: sustainability of company members, cluster governance and public sector support, yet it also depends on the strategy implemented by individual countries. In the case of EU member states, it is linked with the sustainability of SME’s, whilst in South-East Europe it all comes down to private sector enthusiasm and cluster management. It has to be stressed that clusters cannot be developed only via private sector initiatives, since these are primarily focused on generating profit. The state needs to provide a framework for economic development”, believes Danka Milojković. Vlado Orešković, Director of Croatian Competitiveness Cluster for Electrical and Mechanical Machinery Industry and Technology, believes that networking and regional co-operation are fundamental for business and imperative for sustainable business in the future.

CO-OPERATIVES RECOMMENDED IN THE EU Tomislav Kovačević, President of Local Action Group Lika, presented the Integrated Deve-

on the concept of increasing exports and providing the opportunity to access new markets, the transfer and introduction of new technologies into the Croatian economy, improvement of framework conditions for innovation, networking between various complementary sectors and intermediary organisations. Moreover, the issues of introduction and improvement of quality standards and processes in clusters and cluster members certainly need to be addressed”, noted Tajana Kesić Šapić.

lopment Programme for Lika and Primorje. “We have brought together all those involved in agriculture in Lika Coop, which will participate in various programmes and apply for tenders. Travel agencies have also been brought together in a special project and thus we are all currently included and participating in an integrated project. Considering the fact that the project has been comprehensively planned, we believe it will be successful and some progress is already visible”, noted Kovačević. Ilda Stanojević, Director of the Croatian Centre for Co-operative Entrepreneurship, believes that clustering, as well as co-operatives, are all various aspects of networking that is primarily intended to enhance the competitiveness of members and strengthen their position on the market. “The main obstacles we are faced with are a lack of harmonised legislation and the regulations concerning cooperatives. Co-operatives are currently not recognised in Croatia as a desirable business model, whilst they are highly recommended in other EU member states, certainly in agriculture. Unfortunately, in Croatia that is not the case, irrespective of the fact that co-operatives are a highly desirable business model in terms of the absorption of EU funds”, concluded Ilda Stanojević.

The foundation of 13 competitiveness clusters at the national level directly impacted on the development of Smart Specialisation Strategy, due to which Croatia currently has over €1 billion at disposal for investment in research and development of innovation. Tomislav Radoš, VicePresident of the CCE

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ANALYSIS CROATIAN CONSTRUCTION IN 2016

THE CRISIS LEFT I TS MARK, BUT THERE ARE SIGNS OF RECOVERY The recovery in construction is encouraging due to its significance to the Croatian economic structure and particularly to its intense multiplier effect on several production and service activities, points out Zvonimir Savić of the CCE by Ilijana Grgić

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€1.99 billion kn construction GVA in 2016

37,77% lower than in 2008

ast year will be remembered for the first identified gross value added growth in construction since 2008. However, it should be stressed that the actual level of gross local value was 37.7% lower in 2016 compared with 2008. An analysis of the sector, performed by the Croatian Chamber of Economy, shows that last year’s gross added value by construction reached €1.99 billion, up 2.7% over 2015. This is the first registered growth after seven years of continuous fall the most intense was in 2010 when GVA decreased 17.1%. During the past three years, construction’s share in total GVA stabilised at 5.2%, considerably below its share during the pre-crisis years. The recovery in construction is encouraging due to its significance in the economic structure of the country and especially its intense multiplier effect on a number of other production and service activities. It is also positive that data anticipating future construction activity are optimistic, since the number of issued licences has been growing steadily as well as the value of new orders. We are, therefore, anticipating an upward trend in the construction cycle to continue, which will, in addition to the existence of available EU funds, provide support for realising investment programmes and for further recovery in this sector, Director of the Sector for financial institutions, business information and economic analyses with the CCE Zvonimir Savić evaluated. It is interesting to note that at the EU28

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level, the percentage share of construction in total GVA stabilised at 5.3% over the past three years, which is not only higher than the level of Croatia, but also a weaker fall compared with 2008, when this percentage was 6.4%. The countries with the highest GVA share in con-

FOR THE FIRST TIME AFTER 2008 GROSS VALUE ADDED IN CONSTRUCTION INCREASED struction are Slovakia (7.5%) and Poland (6.8%). However, the pre-crisis golden age remains unreachable for many, so these GVA values were reached by only seven EU countries. After Cyprus, Spain and Latvia, Croatia enters a group of the five countries farthest from the level achieved in 2008.

PHYSICAL VOLUME GROWTH OF CONSTRUCTION WORK One aspect that can bring a smile to the faces of construction workers is last year’s 2.9% growth in construction activity. This is the first growth in construction after seven stagnating years and it is highly influenced by an 8.9%


growth in building work. On the other hand, in other, mainly infrastructure work, construction has been suppressed, so during the past eight years, with the exception of 2013, they have seen a continuous downward trend. Activity continued to grow in the EU for the third consecutive year, with construction increasing by 1.4%, albeit with fall in 12 countries and growth in 14. The deepest drop last year was in Hungary (-18,8%), Latvia (-17.9%), Slovenia (-17.8%), Bulgaria (-16.6%), Poland (-14%) and Slovakia (-10,7%), whilst activity grew in Finland (+6,1%), the Netherlands (+7%), Sweden (+10,9%), Ireland (+18,5%) and Greece (+22,7%).

GROWING NUMBER OF CONSTRUCTION LICENCES SigniďŹ cant growth in the number of issued construction licences was reported in 2008, the result of an awakening by businesses and investment optimism due to accelerated economic growth and the possibility of using large amounts of available funding from the EU. In these circumstances, 26.7% more licences were issued compared with 2015. This is the ďŹ rst growth in total number of issued construction licences since 2005, marked by simultaneous growth in the number of licences for constructing buildings (25%) and the num-

26,77% rise in construction licences issued in 2016 over 2015

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ANALYSIS

GVA share of construction in total GVA (as a %) 9 8 7 6 5 4 3 2 1 0

Croatia

EU28

Construction work index (by calendar year 2007=100) 120 Croatia

110

EU28

100 90 80 70 60 50 2008. 2009. 2010. 2011. 2012. 2013. 2014. 2015. 2016.

2008. 2009. 2010. 2011. 2012. 2013. 2014. 2015. 2016.

Source: Eurostat; Processing: HGK

Source: Eurostat; Processing: HGK

ber issued for other types of construction (33.9%).

We are, anticipating the upward trend in the construction cycle to continue, which will, in addition to the existence of available EU funds, provide support for achieving investment programmes and for the further recovery of the construction sector in Croatia.

RECOVERY OF RESIDENTIAL BUILDING After nine years of atrophy, the signs of positive movement in residential construction have been seen. Some 9,398 licences were issued for constructing apartments with a usable surface of 859,996 m2. In relation to 2015, this is a 35.2% increase in the number of issued licences and 32.2% growth in the planned usable surface of flats. It can be concluded that investors anticipate higher demand for residential property for this year and into the future. Despite the high growth in 2016, the deep and long-lasting crisis has left its mark. The number of licences for building flats issued last year was still 34.7% lower compared with pre-crisis 2008, with 43.7% lower anticipated value of work and a 61.8% lower number of licences issued for constructing apartments. The continuous recovery in construction activity and its stronger dynamics are also visible in terms of new orders which increased 15% during 2016. Additionally, the value of new orders for other construction increased even further (17.7%) in relation to the value of contracts for buildings which increased 11.9%. The CCE highlight that the near future will probably be marked by a more dynamic growth in the construction of infrastructure. However, the value of new contracts, totalling €2.1 billion in 2016, still remains 39.1% lower than that of 2008.

FINALLY A RECOVERY Zvonimir Savić, Director, Sector for financial institutions, business information and economic analyses with the CCE

In 2016, growth in the physical volume and value of construction was observed for the first time since 2008. Also, for the first time since 2005, the number of issued construction licences has grown, and the value of new contracts increased at a double-digit rate, the

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IN 2016 THE NUMBER OF ISSUED CONSTRUCTION LICENCES INCREASED FOR THE FIRST TIME SINCE 2005 highest since 2007. At the same time, the use of funding from EU funds has been improving and new infrastructure projects are getting off the ground. Ultimately, all this means more work for the construction sector, which will have to adapt, in organisational and technological terms, to the changed structure of work, the issue of an insufficient workforce will have to be resolved and the answers to stronger pressure of foreign competition on the local market will have to be found. Basically, the light at the beginning of tunnel has been seen, but there is still a long way before the end is reached.


MIRJANA ČAGALJ, CCE Vice-president for Construction, Traffic and Connections

The hardest recession blow suffered by construction Construction activities remain below the level of seven years ago and is still waiting for a strong investment boost. Construction is one of the economic branches needing a lot of time to recover and is currently progressing at a slower pace than expected

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ompanies in the construction industry should adapt to contemporary business methods. They should refresh their management and staff as well as change their education and development system, according to CCE Vice-President for Construction, Transport and Connections Mirjana Čagalj. She also points out that a platform needs to be developed for motivating employees to continue their education as well as a life-long learning process and also to introduce dual education.

 Statistics point to a moderate recovery in construction. Is it possible to reach pre-crisis levels? As seen from the numbers, construction suffered the harshest blow during the recession in Croatia. Construction points to oscillations in activities during the past couple of quarters, and its activities remain below the level of seven years ago. It is still waiting for a strong investment boost. We lost many possibilities during this crisis, some of which are probably irreversible. Construction is one of the economic branches which needs considerable time to recover and it is currently progressing at a slower pace than expected.  The crisis has also left its mark on the business of related companies. In 2015, there were some 19,000 construction companies compared with 11,000 in 2008. This increase was a result of the crisis as some large construction companies went under and smaller companies were created. This fragmentation as a result of the crisis is a trend across the whole of Europe and Croatia.

However, liberalisation of the workforce importation from neighbouring countries which are not EU members is a measure which would not solve the problem in the long term. Dual education is the longterm solution to this problem as well as other educational activities in cooperation with ministries and state bodies. Also, the popularity and affirmation of construction sites which are not attractive at the moment should be increased.

A large market opened after EU accession. Competition is strong, so it is difficult to compete in such an environment. This is felt both by medium- and smallsized companies. In addition to the problems in construction, which has been halved during the past few years, there is also the omnipresent problem of a drain in quality workers.

 To what extent will the lack of workforce affect further growth? The lack of a qualified workforce is becoming a limiting factor and one of the most severe current problems. The greatest lack concerns qualified masons, carpenters, assemblers of dry construction, steel benders, tile installers and house-painters. In practice, there are more and more cases where a company has to refuse work due to insufficient number of workers.  How can this problem be solved? The CCE has been warning about the problem of a lack of qualified workforce in construction companies for two years. We suggested introducing quotas for the temporary import of workers with the aim of helping construction survive.

 To what extent is the region a good place for greater presence of Croatian construction companies? Large Croatian construction companies are mainly present in the neighbouring countries, such as Bosnia and Herzegovina or Serbia. The business potential is also high in Macedonia and Kosovo. Croatian companies already operate in regional countries; I would highlight the bridge over the Sava between Croatia and Bosnia and Herzegovina on the Pan European V c corridor. As you can see, the potential is there.  What is the long-term perspective for construction? Construction definitely requires reconstruction, and this is actually possible. The perspective of the construction sector and its related companies lies in specialisation. A good example is the energy efficiency reconstruction of buildings, which is in its full swing due to subsidies offered by EU funds. Other construction specialszations include infrastructure investments: the construction of railway tracks, capacity increase of sea ports, construction of bridges as well as communication and energy infrastructure. (I.G.) May 2017 | No 269 | PVinternational | 19


FINANCIAL WORLD LEARN, INVEST, MULTIPLY

AN IDEAL PRODUCT FOR CAPITAL MARKET ACCESS Investment funds are highly popular globally, being considered a good way of meeting personal objectives such as creating income in old age or child education by Boris Odorčić

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ome 205,000 Croatian citizens are currently investing into UCITS funds. In 2016, the number investing in such funds increased by over 10,000. Aiming to both promote investment funds and make them more accessible, the Croatian Chamber of Economy and the Association of Companies for Investment Fund Management at the CCE have recently placed an Information Desk at the Zagreb-based Cvjetni Square. The Information Desk was intended to mark the World Day of Investment Funds on 19th April, under the slogan Learn, Invest, Multiply, and was part of an Action Plan intended to improve the financial literacy of consumers in 2017. The Action Plan is adopted on an annual level based on the National Strategic Framework of Financial Literacy of Consumers for the period 2015 to 2020, adopted by the Croatian government. Hrvoje Krstulović, President of the Association of Companies for Investment Fund Management at the CCE, stressed the fact that total personal assets held in investment funds exceeds €1 billion. On the other hand, overall investment fund assets in Croatia stand at around €2.5 billion, and comprise of personal, institutional investors and legal entities. It is important to note that almost 50% of UCITS fund assets are owned by individuals. The average value of investment implemented by the general public exceeds €4,700. According to Krstulović, investment funds are ideal for capital market access. “Nowadays savings and investment 20 | PVinternational | May 2017 | No269

carrying slightly higher risk. Investment funds are gaining popularity globally as a method of meeting various objectives such as generating revenue in old

IT WOULD BE OVERLY NAÏVE TO EXPECT THE VALUE OF INVESTED ASSETS TO DOUBLE WITHIN A SHORT TIME FRAME, NOTED HRVOJE KRSTULOVIĆ into capital market are an imperative”, he believes, adding that each person should consider their total financial assets and divide it into several “pots” when investing. Hence, some assets need to be deposited in banks, some in insurance, voluntary pension funds and investment funds.

REASONABLE RATE OF RETURN ON INVESTMENT There are several types of funds – money markets, bonds, equity, mixed (balanced) funds and special funds. Moreover, these funds, in which assets owned by various investors have been collected collectively investing assets into various securities such as equities, bonds and treasury bills, can be divided into lowrisk (money market funds) and those

age or child education. Nevertheless, as pointed out by Krstulović, it would be overly naïve to expect the value of invested assets to double in a short space of time. “This is certainly the approach to be avoided”, he noted, adding that funds’ returns were rather unrealistic prior to the financial crisis, both in 2006 and 2007. “Such returns have currently reached normal, usual levels”, stressed Krstulović. It has to be noted that there is a broad range of open-end investment funds in Croatia; there are currently 91 undertakings for collective investment in transferrable securities (UCITS funds) which meet various requirements and investment objectives and also have various investment strategies.


20TH ANNIVERSARY OF THE CROATIAN BUSINESS COUNCIL FOR SUSTAINABLE DEVELOPMENT

Sustainable development is the only relevant path to development The Croatian Business Council for Sustainable Development brings together representatives from the Croatian economy who have pooled their expertise, innovativeness and responsibility in order to provide a formula for business success, social welfare and environmental protection by Krešimir Sočković

T

he Croatian Business Council for Sustainable Development (HR PSOR) is a private sector institution that brings together 38 members, representatives from the Croatian economy who have pooled their expertise, innovativeness and responsibility in order to identify a path to development, striving to meet the objectives of business success, social welfare and environmental protection. Sustainable development, as opted for by members of the Croatian Business Council for Sustainable Development (HR PSOR) is considered the most appropriate form of development that enables a rational use of resources and distribution of goods, meeting the requirements both of current and future generations. In 1995, representatives from the economy identified the importance of sustainable development. Leading representatives from the World Business Council for Sustainable Development came to Zagreb at the beginning of 1996, whilst the first Working Group meeting for the foundation of the Croatian Business Council for Sustainable Development (HR PSOR) was held at the end of March 1996. 20 years ago, HR PSOR was created by a small group of enthusiasts aware that sustainable development is the only valid path to development, noted Mirjana Matešić, Director of the Croatian Business Council for Sustainable Development. “Following systematic work on the promotion of this topic and methods of integration of this system into the Croatian economy, we can now state that sustainable development has become a gene-

for Sustainable Development (HR PSOR) stands for”, she added.

IDEAS ARE BEING IMPLEMENTED

THE IMPORTANCE OF SUSTAINABLE BUSINESS HAS BEEN GROWING, STATED JOHN GAŠPARAC rally accepted method of development of the Croatian society”, highlighted Mirjana Matešić. 20 years ago, our very young organisation recognised the potential and importance of sustainable development, stated Marta Brkić, Director of Dvokut Ecro, one of the founders of the Croatian Business Council for Sustainable Development (HR PSOR). “We were striving to be a part of a team that launched this idea. We are professionally involved in environmental protection and sustainable development and so are compatible with what the Croatian Business Council

The Croatian Business Council for Sustainable Development (HR PSOR) is involved in information exchange, as well as in bringing people together and promoting best practices and new opportunities. Moreover, it provides information about regulation and implementation of such practices to meet the requirements of small and medium-sized entrepreneurs. It is striving to strengthen its role in the presentation of companies involved in sustainable development and the establishment of dialogue with public authorities. Corporate social responsibility in entrepreneurship is encouraged, as well as reporting on environmental protection, eco-efficiency and best business practices. Co-operation is established concerning the development of environmental regulations and the opening of a productive dialogue with the regulator, primarily on the role of business in the process of adjustment to and harmonisation of environmental regulations to European practices. The awareness of sustainable business has been growing, stated John Gašparac, President of the Management Board of PwC Croatia. “A large number of our clients have recognised the value of corporate social responsibility and sustainable development. Large companies recognise it due to their size, yet even small businesses operating in specific market niches find room to harmonise their activity with best business practices”, concluded Gašparac. May 2017 | No 269 | PVinternational | 21


FINANCING START-UPS

MONEY ISN’T EVERYTHING Many are able to succeed without money since most ideas can be achieved through invention and hard work. We like to see hunger for success, and the chances to obtain funding are greater if one knows what is required, Davorin Štetner by Miro Soldić

T Capable founders are essential for a successful start-up. The idea is not so important, since many can succeed with the same project where others have failed. Thus, it is not possible to speak in general terms about projects which receive the green light, but it is desirable if the owners have at least 30% of the capital Mirela Đuran, Head of Department of micro entrepreneurs with CBRD

he recent Start-up Wednesday on financing start-ups and small enterprises, organised by the Croatian Business Angels Network (CRANE) and the Croatian Chamber of Economy, attracted a large number of participants. They completely filled the Big Hall of the CCE clearly showing that entrepreneurs are highly interested in all types of programmes intended for their assistance, from early-phase business angels and venture capital funds to other public-private models. Before the start of the main event, the position of CRANE President was confirmed for Davorin Štetner, and he highlighted that the Network has invested €4 million so far in 35 start-ups, and their membership has doubled over the past two years. “We, as business angels, invest in start-ups which have shown they are positive. We like to say that money isn’t everything and many can succeed even without it since most ideas can be achieved through innovation and hard work, Štetner said. He also sent a message to new entrepreneurs that there are many programmes available which require detailed research before addressing by business angels. We like to see a hunger for success and the chance to obtain funding is greater if everything is researched beforehand, Štetner concludes.

HOW TO ATTRACT VENTURE CAPITAL One of the panellist’s present was Jure Mikuž, managing partner at VC fund South Central Ventures that invests exclusively in technology companies. One such company is Bulb Technologies in which they have recently invested €2 million. Start-up entrepreneurs were interested in what they should do to attract venture capital, and Mikuž explained what for them, as investors, is the most important thing. The main criteria for entrepreneurs is to have brains, that is, a clever idea, since they usually do

22 | PVinternational | May 2017 | No269

not have any property which could provide a guarantee for return on investment. The potential of the founders is also required, an idea which could pay off ten times what is invested in it, Mikuž said. He also highlighted that the

GLOBAL DEVELOPMENT REQUIRES MONEY, WHICH IS WHY IT IS BETTER AT THE START TO FOCUS ON A SPECIFIC REGION, MIKUŽ SUGGESTS SCV fund has active access to monitoring their investments, since they have a board member in each company they finance allowing them to keep track of how their money is used. “I noticed that all companies in the region are similar since they have equally strong engineering and programming staff, but lack the talent for sales”. This is why he recommended startup entrepreneurs aiming at foreign markets, like London or New York, to hire local experts in areas where they are not sufficiently qualified. Although we should think globally, which all start-up entrepreneurs do, I prefer a more focused approached on a specific region, Mikuž said. He also added that the first common mistake start-ups make is that they contact the funds when they have already run out of money and cannot pay salaries. He briefly described the process of selecting a company in which they will invest, so that interested parties know what is happening. I mentioned that the most important thing for us is to know the


founders, since everything depends on them, and this is why we talk to them more. We organise a few pitches and research markets and competition, and if we still find the story interesting, we negotiate the terms which is actually an introduction to the investment contract. The whole process lasts around six months and then the story begins to unfold, Mikuž explained. In addition to venture capital funds, which for start-ups are hard to get to, there is also an increasing number of institutional programmes which should make their lives as well as access to the needed money simpler. Some of these programmes are offered by the CBRD and they were presented in more detail by Mirela Đuran, CBRD Head of Department for micro entrepreneurs. “We are focused on financing risky groups since the banks are not fond of them. Our conditions are much more favourable than the market and we offer a longer maturity period compared with commercial banks. We receive the majority of applications from micro-segments and the sums usually range around €0.1 million, Mirela Đuran said.

FAITH IN THE PROJECT She highlighted that the company has to be liquid enough to agree the interest rate for the grace period which can last up to five years. The warranties are personal to the entrepreneur, promissory notes and debenture bonds, and there is no loan without them. This shows

the entrepreneur has faith in his project and will try harder for the company to succeed. One important condition is the documentation quality which can have a significant influence on the speed of issuing a loan. She also said the CBRD focuses on three key segments: tourism, exports and agriculture. Just as Mikuž, she also pointed out that capable founders are essential for a successful start-up. The idea is not so important, since many can succeed with the same project where others have failed. Thus, it is not possible to speak in general terms about the projects which receive the green light, but it is desirable if the owners have at least 30% of the capital; the remainder can be obtained as a loan. The idea itself is not as important as a well-elaborated idea, Mirela Đuran concluded. Frane Šesnić, Director of the Development Agency Zagreb and Tomislav Pašalić, Director of the Sector for Financing Instruments with HAMAG BICRO also presented their institutional programmes available to start-ups. Šesnić warned the most important aspect is to change social awareness. “We have to convince people that entrepreneurship is good and it is not a shame to fail. We need to motivate people to start a business. The problem is that we shy away from partnerships; the owners safeguard their companies almost obsessively trying to keep control over them, which is why they hardly every opt for sharing their ownership, Šesnić said. He also highlighted that education is the foundation of everything, since it strengthens the individuals’ competences.

The main criteria for entrepreneurs is to have brains, that is, a clever idea since they usually do not have any property which could provide a guarantee for a return on investment. The potential of the founders is also required, an idea which could pay off ten times what is invested in it. Jure Mikuž, Managing partner with VC fund South Central Ventures

May 2017 | No 269 | PVinternational | 23


JUMPIT FORUM

ICT – important economic link ICT’s results are motivating for other industries within the Croatian economy since in addition its vertical action, the ICT industry also acts horizontally, which is perhaps even more important, the Ministry of Economy pointed out by Boris Odorčić

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TC International from Budapest and Zagreb based company SMM organised the first international JumpIT Forum in Zagreb. This is an independent conference which gathered ICT companies from Croatia, representatives of business associations, public administration, media as well as international consultants. The Ministry of Economy, Entrepreneurship and Crafts, the Croatian Chamber of Economy and the Croatian Regulatory Agency for Network Activities were partners and sponsors of this conference. At the opening of the conference, the Government Vice-President and Minister of Economy, Entrepreneurship and Crafts, Martina Dalić, highlighted that the Government and her Ministry recognise the growing significance and importance of the ICT industry in Croatia. “We did not forsake those who create additional quality and contribute to development and growth, which the ICT industry is about. ICT’s results are motivating also for other industries within the Croatian economy since in addition to its vertical activity, the ICT industry also acts horizontally, which is perhaps even more important since it motivates all other sectors to use ICT technology”, she pointed out.

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KNOW-HOW IS IMPORTANT During the panel session, which gathered the state prominent former informatisation project leaders, the Government Vice-President touched on the issues of the lack of quotas and quality workforce

THE FUTURE DEVELOPMENT OF CLOUD COMPUTING AND OTHER SERVICES WILL BE MARKED BY PEOPLE OUTSIDE THE IT SECTOR in the Croatian ICT sector and the potential importation of workers from other countries. Concerning the ICT sector, this is not a simple issue. The ICT sector is specific, and one of its advantages is that it is a sector which allows working via remote locations. Besides the issue of quotas, there is also the need to consider

regulation of other forms of work which could contribute to the ICT industry. The ICT sector, especially the segment producing ICT services, points to the potential, which could affect the growth of productivity and the economy across the entire Croatian economy, Dalić pointed out. She also added that it is extremely important that the education system produces a sufficiently educated workforce of a satisfactory quality so that the ICT industry can continue to be an important part of the Croatian economy and one of the key players of transformation of the economy as a whole. Looking back over the past 25 years, the panellists concluded that some achievements are the equivalent of gold dust, and further development should be based on them. This particularly concerns projects One Stop Shop (Hitro.hr) and Strategy H21. The future of ICT will determine other professions, the panellists agreed. Knowhow will be all-important and that people from other professions work with the IT sector on the development of new technologies, services and business processes. The future development of cloud computing and other services will be marked by people from outside the IT sector.


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