More than half of HZZ subsidies received by 11 activities

Due to the closure or restriction of a significant part of economic activities by the decisions of the Civil Protection Headquarters of the Republic of Croatia, there has been a significant reduction in business activities. The reduction in business activities is particularly evident in the significant decline in business revenues of a large number of business entities that applied for subsidies for job preservation from the Croatian Employment Service. A revenue drop of more than 20 percent was a condition for eligibility for the subsidy.

In the first 'round' of job preservation subsidy payments, 83,955 business entities employing 484,992 workers applied. The state paid these entities a total of 1.55 billion kuna in subsidies for March 2020.

The number of workers for whom job preservation subsidies are used in March is important to put in the context of the total number of employed persons in the Republic of Croatia. At the end of March 2020, according to the Croatian Bureau of Statistics, the total number of employed was 1,515,174, while at the same time the number of unemployed was 143,461. According to this, job preservation subsidies are used for 32 percent of all employed persons in the Republic of Croatia.

After excluding public sector employees from the number of employed, of which there were 232,087 according to the Ministry of Administration at the end of 2019, it is found that subsidies are used for 38 percent of workers employed in the economy.

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Graph 1 – Overview of job preservation subsidies in the economy

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Number of entities using job preservation subsidies in relation to the total number of active entities in the economy

According to data available on the Fininfo portal, the total number of 'active' business entities on May 18, 2020, is 257,803. Of the comparable active entities, subsidies were paid to 83,955 entities, meaning that approximately 33 percent of 'active' entities in the economy requested subsidies.

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Since the percentage of entities that received subsidies (33 percent) in relation to the entire economy is lower than the percentage of employees for whom subsidies were received (38 percent) in relation to the entire economy, this indicates that subsidies were predominantly received by entities that, on average, employ more than the rest of the economy, or that subsidies were potentially received by entities operating in labor-intensive industries.

Importance of entities receiving subsidies for the economy and analysis of the legal forms of subsidy recipients

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The importance of entities using job preservation subsidies is also indicated by the fact that subsidy recipients account for approximately 38 percent of all business revenues and employ 45 percent of all workers in business entities in the Republic of Croatia that submitted the last fully available annual financial reports. This also suggests that entities that received subsidies operate in labor-intensive activities and/or are less productive than others that submitted the last financial reports.

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Graph 2 – Comparison of business revenues

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In addition to the importance of entities that received subsidies considering their business revenues in relation to the business revenues of the entire economy, it is interesting to see the structure of entities by legal form.

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Table 1 – Legal form

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According to the number of entities crafts and limited liability companies dominate, which together represent 82 percent of entities that received subsidies. In terms of the number of workers, limited liability companies are significantly larger than crafts, so a slightly smaller number of limited liability companies that received subsidies employ almost 4 times more workers than crafts. Besides crafts and limited liability companies, the only larger legal forms by the number of employees and the number of entities are joint-stock companies and simple limited liability companies.

Activities most affected by the coronavirus

Considering the subsidies paid for March, the coronavirus most affected 11 NKD activities. Entities operating in these activities received a total of 867.47 million kuna, or 56 percent of all subsidies paid for March. Entities in the remaining NKD activities received 683.77 million kuna, or 44 percent of the subsidies paid for March.

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Graph 3 – Share of the most affected activities by the amount of subsidies

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Graph 4 – Share of the most affected activities by the number of employees

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Below is a list of the 11 NKD activities that received the largest subsidy payments for March. 

1. Preparation and serving of food and beverages
2. Retail trade (except vehicles)
3. Wholesale trade (except vehicles)
4. Accommodation
5. Land transport and pipeline transport
6. Specialized construction activities
7. Manufacture of fabricated metal products
8. Manufacture of food products
9. Construction of buildings
10. Processing of wood and wood products and cork
11. Trade in motor vehicles

The amount of business revenues of entities receiving subsidies is an interesting category. Below is an overview of business revenues in billions of kuna for the 11 most affected NKD activities and for the remaining activities.

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Graph 5 – Business revenues in billions of kuna

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If we only consider entities that submitted annual financial reports for 2018 (the last publicly available reports), entities operating in these 11 activities account for almost two-thirds of business revenues in 2018.

In recent weeks, much has been said about hospitality, specifically the activity of preparing and serving food and beverages. The fact that entities in this activity were the first in terms of total subsidies received indicates that they have been strongly affected by the coronavirus crisis; however, they rank only eighth in terms of revenues achieved in 2018 among the mentioned 11 most affected activities.

Take a look at the comparison of the ranking of entities in the most affected activities by the amount of subsidies received and the participation of these business entities in the economy measured by business revenues.

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Table 2 – Activities and amount of subsidies

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Status of entities that received subsidies for March

Of the total number of entities that received subsidies (just under 84 thousand), nearly 43 thousand submitted annual financial reports for 2018 (the last publicly available reports). Along with just over 32 thousand crafts, which received subsidies and in the vast majority do not have an obligation to submit reports, among other entities that did not submit annual financial reports for 2018 are freelance professions and limited liability companies and simple limited liability companies established in 2019 and early 2020.

The mentioned 43 thousand business entities with financial reports employ just over 398.4 thousand employees out of a total of 484.9 thousand employees for whom subsidies were paid. Considering that these entities employ 82 percent of all employees for whom subsidies were paid, we made a brief overview of their business.

The table shows selected data in millions of kuna for nearly 43 thousand business entities that submitted reports in 2018 and are using job preservation subsidies for March.

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Table 3 – Activities and revenues, profit and personnel costs

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According to available data on the annual gross personnel cost and state subsidies for the mentioned approximately 43 thousand entities that have reports, it is possible to analyze how much of the normalized gross salary amount is covered by the state and how much amount needs to be covered by the business entities themselves.

The coverage of salaries by subsidies varies significantly from activity to activity, with the state covering 29 percent of the gross production cost in the manufacture of fabricated metal products, while at the same time the state covers 55 percent of the gross salary cost in the activity of preparing and serving food and beverages. On average, the state covered approximately 43 percent of the gross salaries paid in entities that received subsidies and submitted the last available annual financial reports.

Instead of a conclusion

The most important findings of the analysis of job preservation subsidies:

• Subsidies for job preservation were requested for 38 percent of all employees in the economy (484,992 workers) in March.
• Business entities that received job preservation subsidies account for 38 percent of the business revenues of all business entities that submitted annual financial reports, generating a total of 278.14 billion kuna in business revenues and employing 45 percent of all workers in entities that submitted annual financial reports.
• Crafts and limited liability companies account for 82 percent of business entities that received job preservation subsidies.
• The eleven most affected activities received 56 percent of the paid subsidies, or 867.47 million kuna.
• The state covered an average of 43 percent of the normalized gross salary of workers for whom subsidies were requested in March. The data on the coverage of the average salary by the state was determined by comparing the amount of subsidies and normalizing (reducing to the number of employees in March 2020) the monthly gross salary costs for entities that submitted annual financial reports.

Author: Ivan Oreški, Fininfo

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