The business year 2016 will be a year of progress and growth for Croatian entrepreneurs, as I believe that after six years of continuous decline, the time has finally come for the economy to show its potential.
In this regard, it is crucial how the new government will direct its activities for the economy, as failing to create conditions for its growth will result in existing positive trends yielding only short-term effects, while we will simultaneously miss the opportunity for positioning for long-term and sustainable growth.
Turning Point
Entrepreneurs will remember 2015 as a turning point from stagnation to slight economic growth. This year, business conditions are somewhat more favorable than in previous years, primarily due to the effects of joining the European Union (its support programs) and a series of minor improvements aimed at encouraging entrepreneurship. Evidence of this is Croatia’s jump on the World Bank’s Doing Business ranking, despite the change in methodology. However, among entrepreneurs, there is still doubt as to whether the growth of GDP and industrial production in the last two quarters signifies a real recovery of the economy. Many believe that the growth is merely a reflection of an excellent tourist season and external factors such as falling oil prices, and they think that without serious structural reforms, conditions for long-term growth of the Croatian economy cannot be created. This specifically means that the Croatian legal and regulatory system is still insufficiently predictable and that it lags behind by about a decade compared to the systems found in developed economies and some more successful transitional countries. Such a situation is still too risky for attracting more investors, especially when we add many unpleasant experiences that investors have had in dealing with parts of the public administration and local government in recent years of doing business in Croatia.
The cause of Croatia’s insufficiently rapid adaptation to the demands of modern business lies in the gap between the needs of the private sector and the understanding of public administration on how to create an administrative environment for business in the 21st century. Although some ministries intensified the simplification of the regulatory framework in 2015, i.e., reducing administrative barriers in some areas, unfortunately, we are still witnessing a lack of interest from parts of relevant public administration bodies for real changes. Thus, throughout the year, we could witness unilateral and insufficiently thought-out regulatory ‘ad hoc’ solutions in some areas of the economy that, instead of following international trends of smart regulation, actually mean resorting to outdated solutions that leave too much room for interpretation, thereby diminishing the predictability of key segments of the economy, such as some aspects of tax policy. Furthermore, employers still spend a lot of time ensuring compliance with regulations, and there is much room for improvement in that regard. The government has estimated the potential for reducing business costs by twenty percent or more, so I believe that the new government will recognize this potential and intensify the reduction of administrative barriers for the economy. Therefore, the imperative of public administration should be to relieve the economy of unnecessary bureaucratic obstacles and reduce the unpredictability of the Croatian regulatory, judicial, and tax systems. Deregulation and self-regulation of many activities are just some ways to achieve this, but the main goal must aim to change the mentality of public administration from being the policeman of the socio-economic system to being a partner that, in collaboration with the private sector and the economy, brings a stimulating development policy, rather than preventing entrepreneurship, innovative business models, and thus progress through repression.
