The Competitiveness of Croatia is Sinking Deeper

The National Council for Competitiveness today presented the Global Competitiveness Report 2010-2011 issued by the World Economic Forum at the Journalists’ House and initiated a discussion on Croatia’s deteriorating position in it.

The competitiveness of Croatia is decreasing every year, the report shows, in which Croatia ranked 77th out of 139 countries, experiencing a drop of five places compared to 2009. The year before, we recorded an even greater decline, namely 11 places, and since the report is based on statistical data from 2009 and surveys among entrepreneurs from the first half of 2010, we can expect an even greater drop in competitiveness next year. This situation, emphasized Ivica Mudrinić, the council president, is not caused by the recession, but by the policies and strategies that are (not) implemented in Croatia. The report particularly highlights the contrast between neighboring countries that are becoming increasingly competitive and Croatia, which is stagnating and falling further behind. For example, Montenegro recorded a rise of 13 places and is currently ranked 49th, while Hungary rose by 6 places to 52nd.

Members of the NC emphasize that we can now notice a continuous trend of declining competitiveness in Croatia, as well as a distorted value system in society, in which we are sinking deeper and deeper. Mudrinić stated that Croatia has fallen into a trap where everyone is fighting for a piece of the pie that is getting smaller and smaller, and Goran Radman added that everyone is scrambling to scrape the bottom of the pot, while no one is concerned about how to fill it. This dysfunction in our society, emphasizes Mudrinić, has led to a campaign-driven approach, day by day, without a view to the future and the development of policies that will enable growth and prosperity. Therefore, the NC has embarked on building a document titled the Charter for Development 2025, in which it aims to identify key goals for the next 15 years and achieve a consensus among political forces around these goals. “If we were to adopt a Charter that everyone would support, we would find ourselves in a situation where politicians compete over who will better achieve them, and their mandates could be compared based on results, thus achieving a certain political accountability that is currently lacking in Croatia,” said Mudrinić. “Without political will for serious reforms from the state to local levels, it will not be possible to achieve the set goals,” emphasizes Branko Grčić.

The pillars of competitiveness where we record the worst results are innovation, financial markets, business sophistication, institutions, and the efficiency of labor and goods markets. Mudrinić explains the poor situation in the financial market with an example where the Croatian government borrows money on the market at an interest rate of 7 percent, thus determining the credit conditions for companies. “When capital is so expensive, it is extremely disincentivizing for economic activity,” claims Mudrinić. Therefore, it is more profitable to buy government bonds than to take the risk of investing in the economy. Grčić pointed out that the tax system is disincentivizing and unfair. He also indicates that there are no new and modern financing models in Croatia, and that a transfer of know-how from other countries will need to be made in this regard. “Another key issue to address,” says Grčić, “is lifelong education, without which it is impossible to achieve a flexible labor market.

The shortcomings of Croatian competitiveness are numerous, but particularly highlighted are the cooperation between employees and employers and the burden of government policies. In these two segments, Croatia ranks 136th out of 139 countries. It can be observed that countries among the top ten most competitive, such as the Scandinavian countries and Germany, have a well-developed tradition of social dialogue and partnership, which evidently results in economic progress. Radman emphasizes that social and societal dialogue does not exist in Croatia, and that there is deep distrust between social partners. This should be changed by agreeing on common goals.

Natko Vlatković from the Croatian Chamber of Trades and Crafts emphasized the need for Croatia to prepare for a new investment cycle that will be initiated by funds from structural and cohesion funds when we enter the EU. In this process, Vlatković believes that part of the responsibility should be transferred to employers who will be the ultimate beneficiaries of these funds. Mudrinić responded that the EU is a means, not an end, and that for this reason, Croatia needs to achieve consensus on desired goals in order to mobilize funds from structural funds for their realization. The National Council for Competitiveness positions itself as the best initiator and catalyst for achieving consensus on development goals in the next 15 years with its impartiality. We are all aware that structural changes are necessary in Croatia and that any further waiting will only complicate their implementation. Whether the NC will succeed in mobilizing political forces and the public to achieve this commendable endeavor and to realize the shift in thinking and action that is urgently needed remains to be seen. (Zlatko Salahović)