As a long-time businessman and member of the management board of manufacturing companies, as well as a former banker, I feel optimism for the first time since 2008, which is based on statistical data from the EIZ and DSZ, but also on real movements in the economy.
Unfortunately, the old folk proverb has come true that after seven ‘fat’ years (2001 – 2008) comes seven ‘lean’ years, and so it goes on repeatedly. Riding the waves and the cyclical movement of the economy, both national and global, along with a multitude of uncertainties, is one of the constants, or rather the only constant is constant change and adaptation. Fortunately, we have realized that there is no life solely from services, construction, and tourism, but that we must again develop industry, namely: food, wood, metal, chemical, textile, etc.
The state is like a company
Key indicators such as GDP growth, industrial production growth, investment index growth, as well as the effects of tax relief on labor, along with promises of further reduction of tax pressure and taxation of labor towards consumption and wealth taxation, are a direction that promises and awakens optimism.
In my position as a member of the management board in the wood sector from 2012 to the present, I have worked with a team and managed to increase revenues by 250 percent, exclusively export revenues, increase employment by 100 percent (plus 300 workers), invest around thirty million kuna in acquisitions and new facilities, so I am aware that only optimism and a structured focused approach, the willingness of entrepreneurs to develop and take risks, along with an instinct for survival, can bring growth to key components such as GDP, exports, and industrial production.
The state is like a company and can spend as much as it earns, no more than that, or if it does spend temporarily, it must be directed towards development that will bring competitive advantages and create new added value and income.
I believe that 2016 will be a year of new beginnings, the beginning of an upward trend in GDP, which I expect to grow in the range of 1.3 to 1.7 percent depending on the implementation of key reforms and the stability of the government and its policies. This is not enough, but it is the beginning of a momentum that should turn from 2017 to 2020 with growth of 2.5 to three percent per year, assuming there are no new global threats and risks that will bring a decline in economic activity in our main export markets.
Seven key points
The key policy is continuity and the continuation of strong reforms regardless of the parties in power, which are as follows:
1. government stability and implementation of key reforms (‘spend what you earn’), without ideologies and a firm orientation towards the economy
2. further fiscal consolidation and reduction of the deficit below five percent of GDP, reform of public administration (judiciary, public companies), and a sharp move towards a zero deficit in the next period
3. further reduction of the tax burden on labor income (contribution to consumption);
4. further export growth with the introduction of a plan for controlled depreciation of two to three percent per year over the next 10 years, i.e., until entering the monetary union and introducing the euro, to stimulate the export economy, which will not jeopardize citizens who have a currency clause
5. reduction of interest rates for citizens and the economy by one to three percent equivalent to the decline in interest rates on deposits in banks
6. abolition of a number of parafiscal levies as well as encouraging investments by reinvesting profits or exempting from profit tax
7. a greater positive contribution to investment activity primarily through greater absorption of EU funds.
The main drivers of growth in Croatia should be industrial production (wood, metal, chemical, and sustainable construction based on planned implementation of housing policy with low interest rates and stable prices without speculative bubbles) and agricultural production, which will export without transport costs abroad as it is consumed in Croatia and paid for in foreign currency. Furthermore, in addition to traditional industries, the IT industry and pharmaceuticals should also be encouraged, but with an emphasis on seeking the base in Croatia’s comparative advantages and basic traditional industries. Let us turn to what we have a base for and maximize economic policies and tools to support such sectors.
Despite everything that could be better, we must be satisfied that we finally have a growth trend, and the largest since pre-recession times in 2008.
We must also all work together to ensure that entrepreneurs become key people in the state and that we make a shift from the cult of state administration to the cult of entrepreneurship, and that the state administration becomes an efficient service for entrepreneurship.
Production, exports, and employment must become the key mantras of the government, which must make a shift from declarative support to real support for entrepreneurship and success, with the key prerequisite that the state cannot spend more than it earns.
Despite all the risks and instabilities and the challenging environment both in Croatia and globally, I view 2016 and the growth of GDP and all key macroeconomic indicators in Croatia positively and optimistically, with the note that we should seize the opportunity in the next seven ‘fat years’ to create a stable capital base and invest in knowledge and competencies to be as competitive as possible in sectors where we already have basic comparative advantages, so as not to repeat the painful lesson of undercapitalization from the crisis period of 2008 to 2015.
