The Republic of Croatia joined the European Union (EU) on 1 July 2013. It became a member of NATO on 1 April 2009 and a World Trade Organisation member on 30 November 2000. All this transpired following the declaration of independence in 1991 and the struggle that followed. Croatia has built its economy fast and, not surprisingly, the EU is now Croatia’s most important trading partner. But what of the future? What has Croatia got to offer crossborder investors and upon which sectors will the Republic of Croatia build its FDI strategy? Jo Murray speaks to Svjetlana Momcilovic, Head of the Investment Promotion Division within the International and EU Affairs Sector of the Croatian Chamber of Economy (CEE).
Croatia stands out amongst the EU transitional economies as one that has already built a relatively high level of FDI. Ms Momcilovic points out that, between 1993 and Q3 of 2016, the total FDI attracted by Croatia stood at €30.2bn. She says that the Netherlands, Austria, Germany, Luxembourg and Hungary were the leading investors; and that the sectors that attracted that investment were largely: finance, wholesale, real estate, post and telecommunications, retail, and the manufacture of coke and petroleum.
While the achievement is to be applauded, the structure of Croatia’s FDI’s efforts going forward is likely to shift. “What should be, and is, of interest to Croatia in the future,” says Ms Momcilovic, “is a substantial share of investors in high-value added manufacturing and export activities as well as R&D.”
She confirms that the most important sectors for building the Croatian economy and offering cooperation and investment opportunities to overseas investors in the future are: industry, tourism, agriculture and food production, the energy sector and infrastructure.
To be clear, it is worth mentioning that the word “industry” is a very broad term in CEE usage; so let’s take a moment to dissect it. The strongest sub-sectors of Croatian industry are: food products, oil and petroleum products, chemicals, plastics and pharmaceuticals, electronics, ICT and optical products, metal products, wood products and furniture, and the manufacture of transportation equipment (including shipbuilding). The Croatian industrial sector is traditionally export-oriented and represents a massive 94.5% of total Croatian exports.
These industrial sub-sectors have produced reliable Croatian suppliers and contractors with skilled workforces, a long tradition of production and a strong manufacturing ethos. And let’s not forget that Croatia also offers a highly educated workforce. These qualities are what will help to “sell” FDI opportunities to overseas investors. Ms Momcilovic is emphatic that local expertise in ICT, pharma (both manufacturing and R&D), metal processing, automotive, electronics, wood processing, and plastics and rubber, for example, will all attract FDI in the near future.
Croatian ICT, in particular, is creating a buzz. It is generating a start-up scene and pioneering innovation. MP3 Audio, PhotoMath, PhotoPay, SMS Pay, blinkID and Repsly are all products and innovations to watch. And there is a significant presence of global IT companies in Croatia, namely: Microsoft, IBM, Cisco, HP, SAP and Oracle. Croatia is a 100% digitised country and with high broadband internet penetration. The digital economy is alive and well, with e-government, the National Electronic Health Care System, the Real Estate Registration and Cadastre Joint Information System, and mobile solutions to support the education sector all being examples of Croatia’s forward-facing and e-enabled public processes.
Pharma is already attracting overseas interest from Israel, the USA, India, etc. It may be a fairly modest industrial sub-sector with just 50 pharma companies located in Croatia, but it has much to boast about having produced two Nobel Laureates in chemistry (Leopold Ružička and Vladimir Prelog) and is home to two key patents: diazepam and azitromicin.
Moving on from industry takes us to the tourism sector. Tourism is a no-brainer for Croatia. It boasts three different climate zones (continental, mountainous and Mediterranean) within a 400km radius. The country is abundant with sites of outstanding natural beauty, including eight national parks and 1,244 islands, as well as locations listed by UNESCO as being of significant importance to the world’s heritage.
Ms Momcilovic says: “Croatia has a longstanding tradition in tourism and, with its natural beauties, shows great potential for further development. Regarding investment possibilities, the priority is investment in high quality tourist facilities, and greenfield and brownfield projects. Investment possibilities also exist in nautical, health and congress tourism.”
There are more than 15,500 registered tourism companies in Croatia, and more than 93,000 employees in the sector. Of course Croatia’s location in the middle of mainland Europe helps; there are land connections to all European transport routes, and only two to three hours’ air distance to any European destination.
The Croatian climate also favours its agriculture and food production sectors. Wine, cereals, fish, olives, fruit and vegetables are all being produced. “The Croatian food production industry boasts internationally known food products such as confectionary, dairy products, olive oil and Mediterranean fruits,” says Ms Momcilovic. “All business activities are conducted according to the highest food quality and safety standards. There is plenty of potential in aquaculture and healthy food production.”
The climate – again – contributes to the success of the energy sector. “Because of its favourable climate, unpolluted natural environment, over 2,700 hours of sunshine per year, windy regions by the Adriatic sea, access to vast amounts of biomass and geothermal energy from natural sources – as well as substantial (although already engaged) hydro-power potential – Croatia is a perfect destination for the production of clean energy,” says Ms Momcilovic. She adds that there are investment opportunities associated with an existing hydro power plant system (on Rivers Lika and Gacka HES Kosinj/Senj II), as well as the potential for engagement in environment protection projects and future clean energy production projects.
As a country in transition from an efficiency-driven to an innovation-driven economy, Croatia has a long list of infrastructure projects that are being pursued and are seeking international investment. Key infrastructure developments on the agenda are the Croatian airport reconstruction projects and the modernisation of seaports (for example Rijeka Airport, Osijek Airport, the Port of Ploče, Brajdica Nautical Port, Eco Marine Tučepi and the Gate of Zadar). Ms Momcilovic is at pains to point out that some of these projects exist at a strategic state level (such as the public energy and infrastructure projects) but there are also very definitely private projects for which private investment is being sought.
Helpfully, the CEE has produced a catalogue of these investment opportunities which can be viewed at http://projekti.hgk.hr/?lang=en. “This is the most extensive database of investment projects gathered through the network of the county chambers, providing information on almost 100 private (and public) projects partially or fully prepared for investment,” she says. “The estimated total value is €4.7 billion.”
Importantly, Croatia is building its economy with foreign investors in mind and is at pains to accommodate the protections an overseas company will demand to mitigate any perceived investment risk. In fact, the Croatian legal framework governing foreign investment has been designed such that it does not distinguish between domestic and foreign investors. All opportunities open to domestic investors are also available to foreign investors. What is more, the Croatian Constitution provides that no law or other legal document shall reduce the rights granted to a foreign investor at the time of investment in Croatia. It also guarantees the free repatriation of profits or capital upon fulfilment of all legal obligations.
The stability associate with EU membership is another selling point. “Our legislation is harmonised with the basic postulates of the EU and, as such, ensures business activities of the highest standard. Being a member of EU opens up the possibility of using EU funds and gives you access to a market of over 500 million people,” says Ms Momcilovic. There are also double taxation agreements signed with over 50 countries and various business incentives as well as over 100 enterprise zones.
Finally, Ms Momcilovic points out that Croatia has innovation and creativity in its DNA. Who knew that everyday items such as the pen, tie, electrical current and parachutes were all discovered in Croatia?