One dubious court decision, five minutes of deconcentration, and energy exhaustion in 90 minutes of the semifinal against Argentina halted the Croatian dream of winning the FIFA World Cup. Thus, our wish to declare that success as the event of the year was not fulfilled. However, reaching the semifinals and securing third place in the world is a tremendous sporting achievement that ranks among the ten events that marked 2022. The bronze from Doha has significant business, or export potential, but we dare to predict that, unfortunately, we will not be able to monetize it beyond tourism.
For Prime Minister Andrej Plenković, the year coming to a close was the ‘year of delivery.’ He argued this with the enormous projects that have been in the works for years: entering the eurozone and Schengen area, completing the Pelješac Bridge, and Corridor 5c. He also highlighted the ‘mega-support’ for citizens and the economy in crisis ‘in the form of two packages worth 26 billion kuna,’ an agreement with unions in public and state services regarding wage increases, and European money, which has never been more available.
Ownership maneuvers around Fortenova
He mentioned a series of structural reforms, personally emphasizing healthcare – although the key element is the centralization or nationalization of county hospitals, which will thus come under the management of the HDZ.
However, the retrospective of the year can also be viewed from another angle. This year is actually – unfinished. Key trends will continue next year or will only be felt in 2023. In fact, the replacement of the kuna with the euro and the opening of borders with Slovenia and Hungary take effect from January 1, so we have listed them as if they are happening literally in the last second of this year.
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Inflation will not be halted on New Year’s Eve either. Admittedly, we constantly receive sedatives in the form of projections that price growth will slow down next year, but there are not many guarantees for that. The war in Ukraine is not calming down, so it is uncertain what will happen with oil and gas prices, and raw materials and supplies remain more expensive as supply chains bypass Russia and Ukraine. It is also questionable how long the government will keep diesel, super, and heating oil prices frozen.
Therefore, the energy saga will continue, just like the story about INA, with who knows what new scandals and branches. In any case, we should not expect a tightening in the management model for some time. Good relations with Hungary were necessary for our entry into Schengen, and now we also want to join the OECD…
The story with Fortenova is not over either. Russian-Arab maneuvers regarding the acquisition of the largest ownership stake are currently on hold, and this is linked to the fate of Peruško’s management, as well as the entire company, which has bonds of 1.2 billion euros maturing in September next year. Without a secure ownership structure, it will be difficult to achieve any new arrangement, and then we could have a new drama.
A tough year for Russian capital
In the shadow of the turmoil surrounding Fortenova caused by sanctions against Russia and Russian capital, there was also the express nationalization of Sberbank (according to the recipe of the European Union) and the change of ownership of Đuro Đaković TEP, which was taken over by the Austrian group Andritz from the company of Russian oligarch Alexey Mordashov. However, Mordashov was already placed under embargo four years ago. At that time, he ‘parked’ the ownership of his successful Slavonski Brod company in the British Virgin Islands and then took it back last summer. An additional interesting fact is that the same manager, Ivica Marić, has been at the helm of the company throughout, regardless of the formal change of ownership.
Current ownership changes in other Croatian companies are equally dramatic. The year was marked by the trend of acquiring large companies, with more and more of them transitioning to foreign ownership. However, foreigners have also started buying small ones – of the 150 best micro-companies, small and medium enterprises, almost half of them (72) are already in foreign ownership.
This year, the public was also concerned with the city administrations of the two largest cities. In Split, Mayor Ivica Puljak provoked extraordinary elections that solidified his power. In Zagreb, the focus was on waste collection, with a significant rebellion from Zagreb residents who were financially forced to separate plastic and paper waste from ‘real’ garbage, intended for collection in ZG bags. After initial dissatisfaction garnished with the confusion of Čistoća, no one talks about it anymore, and waste is now separated in Zagreb as well. Admittedly, according to a special model, but similar to many other cities.
Dying from corona is no longer news
This is the year in which corona is no longer news. The pandemic claimed 3,920 lives in the first year (from mid-March to the end of 2020), 8,618 last year, and this year, by the end of last week, another 5,136 lives. Thus, we can say that corona this year, 2022, in Croatia is just as deadly as it was at the beginning. And, while we are in the golden mean of the European Union in terms of the number of cases per million inhabitants, only Bulgaria and Hungary have more deaths relative to their population. In any case, we have learned to live with this virus (and die) and no longer look at the daily traffic light with the number of new infections, recoveries, those on respirators, and deceased. Corona was the third leading cause of death in Croatia in 2021. Circulatory system diseases were fatal for 37 percent of the deceased, tumors for 22 percent, and corona for 14 percent of the deceased.
Cohabitation, or the quarrel between Pantovčak and Banski dvori, has become everyday life, and the dispute over military aid to Ukraine was used by the prime minister as a demonstration exercise to gain a two-thirds majority in the Parliament. For now, he is short by four votes.
Changes in the government are no longer categorized as ‘headline news’; they continued this year as well. First, Minister of Construction Darko Horvat fell, the first minister to be arrested during his term, due to suspicions related to the allocation of grants and incentives from the time he was Minister of Economy. Due to the same USKOK investigation regarding the allocation of grants and incentives, SDSS Deputy Prime Minister without portfolio Boris Milošević and Minister of Labor Josip Aladrović also left. They were joined by Minister of Economy Tomislav Ćorić, who himself was burdened with a series of scandals, who left ‘at his own request,’ but was ‘safeguarded’ as the vice-governor of the HNB. This summer, the fifth member of the government, another deputy prime minister and Minister of Finance, Zdravko Marić, also resigned without a coherent explanation, who had been one of the key figures in HDZ governments since the beginning of 2016.
It seems to us that the ministerial parade in the government also falls into the category of unfinished events that will continue in accordance with the propagated zero tolerance for corruption. However, this Plenković mantra in practice has an unspoken addition: Be careful what you do because you will be politically and criminally responsible if caught with your fingers in the jam.
We entered the eurozone, but save your kuna coins
When representatives of Belgium, France, West Germany, Luxembourg, and the Netherlands met on June 14, 1985, in a small town on the border between Germany and Luxembourg, they could not know what the agreement they signed would turn into nearly ten years later. On March 26, 1995, five countries (Germany had since reunified), joined by Portugal and Spain, abolished border control. This provision was incorporated into EU legislation in 1999, and since then, this borderless area has expanded to 22 EU countries, as well as Norway, Iceland, Liechtenstein, and Switzerland.
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The entry into Schengen and the eurozone is certainly the event of the year for all business people. Croatia, with the first second of 2023, becomes the 27th member of the Schengen area, which encompasses external borders of about 50,000 kilometers, and the twentieth member of the eurozone. The abolition of physical and monetary borders with most of Europe will bring a new boost to tourism, but the benefits will be much greater in the unobstructed and faster flow of goods. Trucks will no longer stop at Bregana and Macelj, but only at Bajakovo and other crossings towards Serbia, Bosnia and Herzegovina, and Montenegro. This will significantly shorten time and reduce transportation costs to the rest of the EU. An even greater benefit will be the trust that the euro and Schengen bring with them. Therefore, increased interest from investors in Croatia can be expected, as well as a reduction in interest rate differentials between Croatia and the eurozone, which have so far been evident. Admittedly, this will not be felt at a time when the whole world, including the European Central Bank, is raising interest rates, but that growth would certainly be greater outside the eurozone.
Changing the currency is significantly more complicated than Schengen. It started with a blunder involving a plagiarized solution for the Croatian coin, so the tender was repeated. And when the first packages of coins were released into circulation – they were snatched up. The HNB assures that there will be enough coins from January 1, but there is a state of siege in banks. Some ATMs are already being filled with euros, while those with kunas will only be converted to euros later, which is why the interbank fee for cash withdrawals has been temporarily abolished. However, micro-entrepreneurs and small business owners do not believe they will be able to obtain enough cash, especially smaller denominations, so some of them pragmatically announced that they would close their doors and take a vacation for the first two weeks of the new year.
A special problem is what will happen with all the machines that accept kunas and how merchants will resolve the rental of carts, which are calibrated for two and five kunas. Therefore, it cannot hurt to supply a certain amount of kuna coins, not least due to nostalgia.
Inflation continues into 2023, are we waiting for a new blow in the fall?
The more politicians and experts assure us that inflation is deflating, the more the price increase from month to month contradicts them. To be fair, inflation is rising somewhat slower in the second half of the year, but that growth is not stopping (the only exception is August, when prices remained at July levels), so in November it reached a record 13.5 percent (compared to the same month last year). This record applies to the period after Valentić and Škegra. They managed to rein in hyperinflation, which exceeded 1900 percent in October 1993, in one year! However, this time inflation is imported – due to disrupted supply chains, rising energy prices, and the Russian invasion of Ukraine. Everyone hopes that hyperinflation like that of thirty years ago will not occur. However, there is no firm currency anchor like the then German mark. Expectedly, lowering VAT on basic retail items has not yielded any results, but freezing fuel prices seems to provide a sort of respite. But even that cannot last indefinitely, although prices per barrel are falling these days. Therefore, the government fears a new wave of inflation. Unlike most experts, influential chief economist of the European Central Bank Philip R. Lane is already announcing the possibility that the path to stable inflation of two percent will be long, that price growth could slow in spring and summer, but that after that follows – a new inflationary blow. It is better to be prepared for that.
