Analysis of the ICT Sector: Results are Optimistic, but There is No Room for Euphoria

Revenues and profits of the ICT sector in Croatia are continuously growing, as is productivity, which is increasing faster than the EU average, and sector exports have risen to 1.6 billion euros. Two unicorns, Infobip and Rimac, account for as much as 4.1 percent of Croatia’s gross domestic product. Likewise, the number of employees in ICT has grown by nine percent last year, despite news of layoffs worldwide and in Croatia, while in the first eight months of this year it recorded a growth of as much as 10 percent , and today this sector employs around fifty thousand people. Salaries are also rising, profitability is improving in a sector that is well-capitalized and highly liquid, and everything is ready for investments. This was shown by the analysis of the ICT sector presented today by the Croatian Employers’ Association at Infobip’s premises.

Irena Weber, the CEO of HUP, emphasized that it can rightly be said that the IT industry is a strong driver of the Croatian economy. However, in the subsequent discussion, it was pointed out that despite the optimistic results and great potential of the ICT sector, there is no room for euphoria.

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Irena Weber

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A major problem is that ICT professionals are already circulating in the EU labor market, and many are working remotely. For Croatia to compete in the common European labor market and retain talent, and for the ICT sector to surpass tourism in terms of GDP share, Hrvoje Balen, president of the HUP-ICT association, presented several policy recommendations:

1. significant relief of salaries for highly qualified employees
2. removal of unfair competition
3. improvement of the tax incentive system for investments in R&D
4. removal of barriers for the Smart Specialization Strategy, transition of the industry from service to project-based
5. strengthening competitiveness
6. strengthening support centers for students at institutions
7. adoption of immigration policies and implementation plans – how to retain people in Croatia
8. expansion of very high-capacity networks, increased use of renewable energy sources
9. strengthening the role of the National Council for Digital Transformation

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Hrvoje Balen

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Referring to the proposals, Marin Piletić, Minister of Labor, Pension System, Family and Social Policy, emphasized that the Government of the Republic of Croatia is intensively discussing and acting on all nine points mentioned. However, he would place the last point first.

– In June, the Government formed the National Council for Digital Transformation, whose role must be strong in order to implement all other points. According to European averages and the share of unicorns in GDP, we are at the top, and this motivates us even more to continue acting – said Piletić, adding that surpassing tourism ‘would be more beneficial and sustainably viable for the labor and salary system’.

THE USA BECOMES THE MAIN MARKET

Hrvoje Stojić, chief economist of HUP, also pointed out some weaknesses of the ICT sector. For example, the gross added value in programming is more than twice lower than the EU average. Therefore, the Croatian ICT sector needs to position itself more through products and highly specialized services in the future.

– This is the only guarantee that we are moving up in productivity, which is a prerequisite for faster salary growth, although they have risen quickly and are 70 percent above the average of the Croatian economy, but are still two to three times lower than the EU average. As long as this is the case, we will continue to lose talent in this sector, and that is the biggest threat to this sector. If we do not know how to retain quality labor, we will lose the best people and strengthen the competitiveness of some other economies. After entering the eurozone and Schengen, we no longer have a domestic labor market but a European one, shared. Through policy initiatives, we need to do everything we can to attract and retain quality labor in ICT – explained Stojić.

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Hrvoje Stojić

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However, on the global scene, a significant indicator of optimism is emerging, added Stojić, which is the expectations of investors from major American investment banks who predict that the information and communication services sector will grow in the long term. This is important to consider since the analysis showed that the USA is the main export market for Croatian companies. Following it are the United Kingdom, Germany and Sweden.

– At the beginning of the year, there were certain uncertainties and changes in the number of jobs, but this sector quickly organized itself and will have the highest growth rate in the future. At the end of last year and the beginning of this year, there was talk that the global technology industry was reducing the number of employees. In Croatia, employment is strong, with a growth of around 10 percent. The second sector after ICT is tourism, which has half the employment growth rate – added Stojić.

RETAINING TALENT AS THE ONLY IMPERATIVE

Croatia’s entry into the eurozone and Schengen has opened numerous opportunities, as noted by Ivan Bešlić, co-founder of Sofascore. However, the gross income per employee in the Croatian ICT sector is 100 thousand euros, while the EU average is around 400 thousand euros, Bešlić noted, emphasizing the importance of retaining talent.

That the growth potential of the ICT sector is much greater than what we are utilizing was stated by Roberto Kutić, co-founder of Infobip, also emphasizing human resources as our greatest potential.

– We have always had strong schools. We do not only have the best football players, but we are also strong in IT. Therefore, we must ensure that our football players do not play for others but for us, to be competitive and to be the best at what we do – said Kutić.

Yes, we have good faculties and high schools, but changing professions outside the curriculum is important, added Piletić.

– Given that this year is the European Year of Skills, as a Government we have secured more than 40 million euros to enable our employers and economies to retrain through education vouchers. Currently, 90 percent of those vouchers have been used for digital occupations – emphasized Piletić.

However, digitalization and the growth of the ICT sector would not be possible without infrastructure development, added Siniša Đuranović, a member of the Management Board and Chief Corporate Affairs Officer of Hrvatski Telekom and Vice President of the HUP-ICT association. It is the foundation of every digital transformation, said Đuranović, emphasizing that Croatia is at the forefront of 5G infrastructure, but we are lagging in the development of fixed networks.

Finally, to stay in Croatia, we must first mentally leave Croatia, said Krešimir Mudrovčić, a member of the management of CROZ.

– To be able to work on global projects, we must become global and European players. The key is to create large new and added value, and in that part, we are significantly lagging behind the EU. It is very good when you have a good product, and our unicorns are a testament to that. We must be careful not to do the lowest-paid jobs, leaving us only the wages for programmers – concluded Mudrovčić.