Six representatives from embassies and their economic departments confirmed that investors from their countries want to invest in Croatian infrastructure, industry, energy, tourism, agriculture, trade, and the financial industry. They also explained why
prepared by Kristina Kardum
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Between 1993 and 2009, 23 billion euros of foreign investments entered Croatia, which, despite the dissatisfaction of Croats with the amount of foreign investments, is a respectable sum. However, Croatia still needs foreign investments, which greatly depend on further development and progress. To attract them, it is important to analyze not only the areas attractive to investors but also to find out what the experiences of previous investors have been, both positive and negative. What good moves should continue to be made, and what mistakes should be corrected to continue and increase the inflow of foreign investments, were revealed by representatives of embassies and economic chambers of foreign investors in Croatia at Lider’s round table. Ljiljana Figar Kužnar, economic advisor at the Embassy of Slovenia, Nataša Kalauz, head of the Economic Department of the Embassy of the United Kingdom, Don Markušić, president of the American Chamber of Commerce, Thomas Glück, trade relations attaché of the Austrian Foreign Trade Office at the Embassy of the Republic of Austria, Paolo Palminteri, deputy head of the Italian mission and head of the Economic Department of the Embassy of Italy, and Andreas Haack, head of the Economic Department of the Embassy of Germany, also discussed the perspective of Croatia as a country attractive to foreign investors before and after joining the European Union. The moderator of the round table was Gordana Gelenčer, a journalist at Lider.
Positions of foreign investors’ representatives
Where does Croatia have the best chances?
1. infrastructure
2. industry
3. energy
4. tourism
5. agriculture
6. trade
7. financial industry
• On the World Bank’s ‘Doing Business’ ranking for 2010, Croatia ranked 103rd out of 183 places. Thus, it is in the lower, worse part of the ranking. It is known that everything is evaluated, from starting a business, registration, obtaining permits, hiring workers, property registration, taxation, protection of ownership rights to closing businesses, etc. What is the biggest problem in Croatia?
Figar Kužnar: I do not know what methodology the World Bank applies, but in my experience, factors such as corruption, discriminatory and non-transparent public tenders, and bureaucracy negatively affect Croatia’s competitiveness. Slovenian companies complain the most about these three issues.
Markušić: Corruption is one of the main problems for Croatian competitiveness. When making a decision to invest in Croatia, the rule of law, favorable taxes, transparency, less bureaucracy, and generally favorable investment climate are important. In addition to these economic factors, the personal aspect is also important for investors so that they can bring their families to Croatia without problems. This has been extremely difficult in Croatia. Many embassies, along with the American Chamber of Commerce, have influenced the change of such a situation. The Croatian government has realized that this is a problem, and I am proud that we have managed to change it.
Kalauz: The World Bank’s methodology has been challenged multiple times as legalistic. The results related to administrative barriers, problems with registration, obtaining permits, paperwork… And Croatia has always been poor in that regard. Investors are confused by the complex administration that is difficult to understand, decision-making at multiple levels, and jurisdictional boundaries. Therefore, when it comes to the ‘Doing Business’ methodology, we are poorly positioned; moreover, we have fallen even further in recent years. However, this trend is not an indicator of Croatia’s regression, but rather the progress of others while we stagnate, i.e., do not develop as quickly.
Glück: I have a great advantage in answering this question because as many as 800 Austrian companies operate in Croatia. Every year we conduct a survey in which we ask about various factors, including satisfaction with business locations. We can say that there is certainly a lot of room for improvement. When excluding problems with the economic crisis, the first factor that complicates business is public administration. I would certainly highlight the problem that the perception of public administration was even better two or three years ago. The trend is negative, and the problem is increasing.
Palminteri: The overall picture is positive. Of course, there are obstacles, as we see from the still modest number of Italian investments in the Croatian market. However, I would emphasize that there are legal remedies for many problems. On several occasions, first-instance local courts have made decisions against Italian investors. These decisions were later overturned by the Higher Court in Zagreb, but if local courts had done their job according to the legal principles of the profession, the decisions would not have needed to be overturned. There are ‘business-friendly’ areas more conducive to business, such as Međimurje, Istria, and cities like Čakovec and Bjelovar, where Italian investments are successfully implemented.
• To clarify the issue of the quality of the World Bank’s ranking… Countries such as Georgia, Azerbaijan, Kyrgyzstan, and even Bulgaria, which also struggles significantly with corruption, are rated better than Croatia. I ask you, would you really prefer to invest in Kyrgyzstan rather than Croatia?
Haack: This is primarily a decision for companies and their strategies. Croatia is certainly a better investment destination than some EU countries. First of all, Croatia is not Greece. It has a stable environment, social stability, a population that is ready and wants to develop, and a good geographical position. We also conduct an annual survey. True, the number of German companies is smaller than that of Austrian companies, but we have similar experiences – with one significant exception, the positive attitude of German companies towards the government’s fight against corruption, which has intensified over the past year. This is a dramatic improvement. A secure legal environment is essential, and greater efficiency of the courts would mean a lot. I hope that Minister Šimonović will manage to complete the improvement of the Commercial Court before he leaves, as this is an important aspect for business.
Approaching the EU
It is worth comparing ourselves to those better than us
• Are we moving up the ranking of desirable investment destinations as we approach the EU?
Figar Kužner: Croatia is moving, and not just a little, but quite a lot. Fifty-six percent of Slovenian companies responded that the country’s entry into the EU would mean a lot for their business and that there would be fewer obstacles, thus supporting entry.
Markušić: The situation is improving. Among the favorable factors are very good laws, good institutions, and political will. In line with efforts, citizens’ awareness is also developing. For example, Croatia has an excellent Intellectual Property Law, but citizens are increasingly recognizing its importance and behaving accordingly.
Kalauz: The United Kingdom, of course, supports Croatia’s EU membership as a crucial step and helps all efforts in that direction. It will certainly be easier for me to ‘sell’ Croatia as a destination for investment and business, not just for vacation and summer holidays, when it becomes part of the European family. However, the EU cannot and will not solve all of Croatia’s problems. It is dangerous to think that things will change on their own with the date of entry into the EU, which many full member countries facing serious problems are realizing today, along with the understanding that mere membership is not a solution.
Glück: EU membership is crucial. I would emphasize that Croatia is unfairly paying the price of the previous major enlargement on this path, so it has much more difficult tasks and conditions than other countries had. But all of this is to Croatia’s benefit. Meeting these requirements will change the country in the next two years, improve it, and make it more competitive. The next step for Croatia after independence and joining the EU is certainly to improve economic development and society, and then to compete with neighboring countries. I would certainly commend the government’s efforts and economic program, which is very well conceived. We are heading in the right direction.
Haack: Joining the EU is a great opportunity, but one cannot just wait and sit for it to happen; a lot of work must be done. Changes need to be implemented before entry because, above all, one must prepare for very strong competition. The EU will not be of great help in this regard as many Croats hope. Once we enter, we must continue to work, not just be self-satisfied that the country is better than Serbia or Bosnia and Herzegovina. We need to raise the bar and compare ourselves to those better than us.
Palminteri: In Italy, the biggest current advocates of Croatia’s entry into the EU are the Italian minority in Croatia and business people. This entry brings them the most advantages. They currently have problems due to numerous legal reforms in Croatia when they want to invest, but they understand that this is a normal phase that needs to be overcome.
Markušić: The point is that the World Bank table is not a league football ranking. And it should not be thought of that way. A similar problem exists with the Transparency International ranking, and everyone discusses why Burkina Faso is better positioned on it. However, the goal should not be to be in the top 10 on the list or to be better on the list than your neighbors, but rather continuous work on improvement.
• We have identified corruption as one of the key problems. How do companies from your countries deal with it? At the state or local level?
Figar Kužnar: Slovenian experiences show that local levels are a very big problem. You all remember the example where Terme Čatež wanted to buy Sunčani Hvar. The deal that had already been agreed fell through due to pressures from local authorities on Zagreb. The Croatian government should educate local levels on why foreign investments are positive and important and how they contribute to economic development.
Kalauz: I would not agree that corruption is the main problem. First, it is necessary to distinguish between indications and provability. The word ‘corruption’ has entered the jargon and is now mentioned too quickly even when there is nothing behind it. Since corruption is a serious problem, this word should not be thrown around lightly. I would also emphasize that in corrupt behavior, both the giver and the receiver are equally guilty, which does not receive enough attention. The fight against corruption is extremely important, and we welcome the efforts being made in this area. They are visible, but our position is that prosecution and an objective approach should be exclusively in the domain of the judiciary, not the media. Corruption is just one of the factors. It should be kept in mind that there are many countries with high corruption rates but also significantly higher levels of foreign investment than in Croatia. Some things are much bigger problems for investors.
Figar Kužnar: The Slovenian embassy, by surveying 150 Slovenian companies, compiles a questionnaire about the problems they face in doing business in Croatia. Every year, corruption ranks first among the problems. As many as 52 percent of Slovenian companies stated that it is a problem for them. There has been no progress in this area for five years since we have been conducting the survey. We also have examples of companies that contact us for help. The government is fighting at a higher level, but problems are encountered at lower levels. We hope that efforts will reach those lower levels.
• Mr. Glück, what do you think about this problem considering the connection of Austrian banks with our political elite? ?
Glück: Progress has been made. According to our surveys, corruption is now only the tenth problem for Austrian entrepreneurs in Croatia. It was always in first place before. It is still one of the major problems, but something is happening; we are moving in the right direction. Other things besides corruption are problematic: there are simply too many levels of decision-making, too many authorizations, signatures, and approvals that need to be obtained. Austria has been in the European Union for 15 years, so we are used to having no borders. When something is approved in one country, it is approved for all; there are not many different inspections. Austrians are therefore surprised that they encounter these problems, which existed in Austria but 20 years ago, in a country that is on the verge of entering the Union.
Markušić: The fight against corruption is not simple, nor can it be completely isolated. It goes hand in hand with reducing bureaucracy and increasing transparency.
• In Croatia, foreign investors have bought what was already completed, built, but there are too few greenfield investments. Why?
Haack: I am familiar with some examples of barriers to investments at the local level, including greenfield investments. With Croatia’s entry into the EU, this will fundamentally change.
Glück: I represent Croatian companies that are owned by foreign companies, in my case, Austrian ones. The problems are the same for them. When a domestic company changes ownership, it must, for example, obtain a series of new permits, pay double the price for gas, etc. This is a big problem. Therefore, the real question is not how to attract investments, but how to change the business environment.
Kalauz: Croatia often has a rather fairy-tale vision of itself and does not perceive the global market at all, forgetting that it is not only competing with countries in the region but with the whole world, with Singapore, Brazil, Italy, as well as Serbia. To achieve this, it needs to find its place in the sun. Croatia cannot compete in an economy of scale; it is too small for that. It is not suitable for labor-intensive jobs. It should strive for jobs that require and develop added value. It has a qualified workforce; it needs to work on developing infrastructure – railways, waterways, and airports.
Palminteri: There are excellent examples of Italian greenfield investments. Calzedonia has launched a factory in Čakovec with 1,600 employees. A complete production and export program is being implemented there. In Osijek and Labin, factories have been opened by Benetton. These investors have recognized the advantages of a large number of workers with the required skills and low production costs. However, there are also bad examples: one concrete and gypsum manufacturer has been waiting for seven years for an environmental permit for a plant near Zadar.
• In which areas, or economic sectors, do you see the greatest opportunities?
Haack: I would highlight six areas. The first is infrastructure: a lot of money from European funds will flow into it in the future, and the need and potential are great. Then there is industry, or as former president Stjepan Mesić said, reindustrialization. This is now a small sector that needs to grow. In the energy sector, there are significant needs and opportunities in infrastructure, pipelines, the development of the entire network, but also in renewable energy sources. Greece produces ten times more energy from renewable sources than Croatia, and it has similar conditions. There is, of course, tourism and agriculture, which is the economic pillar of the country and where we see great potential in the Slavonia region after joining the EU. As the last area, I would highlight trade. Croatia has successfully liberalized the economic sector. We are proud that the German dm has been the most desirable employer for two consecutive years. This sector vividly demonstrates the importance of competition for market development and cost reduction, and its connection with agriculture is also very important.
Glück: It is a little too late for reindustrialization. After all, the question is whether Croatia should and wants to embark on that path considering the importance and contribution of the tourism sector, which simply does not go along with, for example, the development of ironworks. It does not even have a strong tradition. If Austrians want to invest in industry, they will invest in EU countries; however, if they are looking for a country outside the Union, they will rather go to Serbia and Bosnia and Herzegovina because there that industry has a tradition. On the list of sectors, I would add the financial industry as the seventh sector. Otherwise, I would warn that in sectors such as agriculture, Croatia needs to be better prepared for EU entry and the sudden increase in competition.
Kalauz: I agree with my colleagues. In the UK, we certainly promote investments in sectors that will be financed from EU funds and in areas such as railway infrastructure and energy, for which British companies have a lot of knowledge, expertise, and willingness. When it comes to reindustrialization, it is very bad to rely solely on the service sector. There are countries like the Caribbean that are tourist paradises and yet are poor. Croatia should focus on so-called clean industries with added value and new technology. I have an example of a British company that produces software. Its headquarters are in London; however, it operates in Croatia, where the price of quality educated engineers is three times lower. In addition, we have greenfield investors in the chemical industry who have openly stated that they will move from the Czech Republic to Croatia as soon as the country joins the EU, simply because of its better position.
Palminteri: I agree that we need to invest in sectors that will use EU funds. We even advise Italian companies to apply in Croatia only for tenders that are announced in cooperation with the EU or that are announced solely by the Union. Everything else has often proven to be a waste of money and time, for all the reasons we mentioned earlier.
Figar Kužnar: While in 2007, 20 percent of Slovenian foreign investments went to Croatia, the situation changed the following year – the most investments went to Serbia. However, we certainly have positive examples, such as Perutnina Ptuj in Čakovec. The company has overcome obstacles such as quota problems, inspections at the borders, and issues with Konzum. Why doesn’t Croatia have many more greenfield investments? Croatia is a transitional country. Privatization was a long process, and investors found investment opportunities that they successfully exploited. Now is the time for the government to direct its strength towards creating conditions for new investments and greenfield investments. Otherwise, it is still problematic for foreign investors to invest in tourism because Croatia is sentimental about it and foreign owners are very difficult to accept.
