[Large Companies in Small Places] In 120 Cities and Municipalities, One Company Generates More Than Half of the Revenue

Croatia suffers from ‘Dutch disease’ not only at the state level, where we are overly dependent on tourism. At the local level, many municipalities, and even cities, face the danger posed by reliance not only on one industry but on a single company. This can bring great prosperity to the local community during times of economic growth, but even greater problems during times of crisis.

The most famous such case occurred in Detroit, which once rapidly developed on the wings of the auto industry led by Detroit’s giants – General Motors, Ford, and Chrysler. All roads for American workers and immigrants from around the world led to Detroit until 1950.

Sisak as the Croatian Detroit

With growth came increased land and labor costs, and car manufacturers – under pressure from Japanese competition – began to disperse production to other, cheaper parts of the U.S. and even abroad. Meanwhile, the ‘Detroit Three’ went through bankruptcy proceedings, and the city declared bankruptcy ten years ago due to a deficit of over $18 billion. Today, fewer than 600,000 residents live there, just a third of the peak prosperity in 1950.

Croatia has its own Detroit. When the Sisak Steelworks began to develop after World War II, Sisak grew with it – it was one of the main industrial centers in the former state. New jobs were created, residential areas for workers and their families were rapidly built, the population more than doubled, and consumption increased. All of this filled the city treasury. However, after the Homeland War, during which the Steelworks was bombed several times, the market of the former state was lost, and the black metallurgy collapsed. The Steelworks was not saved by conversion and privatization – it went bankrupt and changed several owners; only recently has the Italian ABS revitalized production. ABS Sisak is still the largest company in Sisak by revenue, but in other numbers: instead of more than 14,000 employees – as many worked in the Steelworks in the 1980s – today there are only 150. Adding to this the closure of the INA refinery, it can be said that Sisak experienced a real economic shock even before the devastating one on December 29, 2020. In thirty years, it has lost 35% of its population.

Zdenci are the most dependent

Similar ‘Detroit’ stories could be told for the small town of Čabar with Finvest Corp, but also for larger cities like Slavonski Brod (Đuro Đaković), Karlovac (Jugoturbina), Varaždin (Varteks)… There, too, the rise and fall of the dominant company dictated the state of the entire local community.

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Table 1

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A study conducted for Lider based on published company reports for 2021 by the consulting firm Konter showed that in Croatia, dependence on monoculture has most dramatically affected 111 municipalities and nine cities where one company generates more than half of local revenues. This is not bad when, for example, PP Orahovica is doing well. Then the entire municipality of Zdenci is doing well, where a company from the Agro Invest group of Stipe Matić generates a massive 99.3% of the revenue of all registered companies. And this is not an isolated case – the largest company dominates with over 90% of revenue in another seven municipalities.

How to Get Rid of Dependence

What is the perspective of places that depend most on one project? There are no short-term solutions. The mayors of these municipalities and cities must light a candle every day for their dominant companies to continue to operate successfully. Indeed, even the stagnation of the largest player pulls the entire region into financial lag. If salaries decrease or, worse – if layoffs have begun – the local budget and consumption decrease simultaneously, which chains a large part of local entrepreneurship into recession, from the partners of the main company to merchants and restaurateurs, who will automatically have lower revenues.

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Table 2

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A medium-term plan for addressing this financial dependence should be seen by local government in encouraging other projects, not only complementary ones but also from other industries.

This does not mean that agriculture-oriented Slavonia should switch to heavy industry, but perhaps for Zdenci, encouraging investment in IT could be a solution. An example of a place that has made a drastic developmental turnaround is the Slavonian town of Novska. Alongside agriculture and the wood industry, textile workers, metalworkers, and builders have thrived there. However, recently Novska has also become known as the Croatian center of gaming.

A makeover of this type, following the example of Novska, would certainly strengthen the position of local ‘dependents’. Just hope that everyone doesn’t rush into gaming…

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