[CROATIAN SWOT] Veljko Ostojić: The Threat of the ‘New Normal’ Must Be Used as an Opportunity by Tourism

Should we ‘heal’ our weaknesses or strengthen our strengths in times of crisis? Roughly speaking, Croatia’s ‘weak’ points in the tourism sector (high dependence on auto-destinations, i.e., underdeveloped air transport, and a diverse accommodation segment led by private accommodation and camps) have now, in the time of corona, proven to be our advantages.

The Croatian tourism marketing strategy for the 2021 season will likely be based on these two ‘trump cards’. However, they must not remain in that status in the long term.

The accommodation structure is unfavorable and has reached a peak in the growth rate of private accommodation over the last three years, while the hotel segment stagnates, especially in the greenfield investment segment, which we will have to wait even longer for under these circumstances. This year, only those investments that were already in some phase of realization and for which budgets had already been prepared were realized. Major global hotel brands continue to bypass us as luxury projects are delayed or do not exist at all. The largest investors are existing companies that have a destination monopoly, which is specific to the Croatian market, and there are no new ones in sight.

Taxation for Social Peace

In addition, for the sake of social peace, the government has unevenly taxed organized tourism in Croatia (tourist companies) compared to owners of apartment accommodation (so-called household accommodation). On the other hand, tourist companies were a priority in the government’s job-saving measures during this crisis, while private accommodation was not saved by anyone, and it can be assumed that this crisis will put a significant number of renters in an unenviable position, not only from the perspective of business potential but also future unemployment.

The tourism sector has been dragging the tails of unresolved legislative frameworks for too long. The day we will finally have the issue of land concessions resolved has not yet dawned. The situation is similar with the Law on Maritime Property.

There has also been a push for the reorganization of the system of tourist boards, which were supposed to be redirected at the local level into destination management organizations that would be less of a ‘system’ and more of a creator of content and offerings; however, greater changes are still not visible (with exceptions). Innovative projects continue to be the result of individual enthusiasts, rather than a strategic determination of the tourism system.

And the offerings and content of destinations are resources that bring much greater added value than a good geographical position of a country. A major challenge will be to find an alternative push for destinations like Dubrovnik and Zagreb, which will certainly be in trouble next year due to dependence on air guests and the structure of guests from distant markets.

A Significant Contribution from Hoteliers

The hotel sector, although the smallest in volume, contributes the most financially to the state budget. Hotel companies have prepared very well for various scenarios during the corona and reacted even better to rapid and immediate changes in the market dictated by epidemiological measures. There were no drastic cuts in the workforce, which is chronically lacking in normal times; however, it will be a very big challenge to maintain liquidity.

When the line is drawn over the financial year 2020, the sector will brutally feel the drop in revenue, and there is no guarantee that next year will be better. The state will still have to be the main lever for preserving the tourism sector, which may be fair. Regardless of the very high share of tourism in GDP, which most economic experts consider dangerous, moreover, one of the greatest threats to the economy, the state has been reaping the benefits for years without plowing or digging. Now is the time for some reciprocity and financial support for the sector. After all, there is no alternative on the coast for employing people who live off tourism.

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