Branko Vukelić, Minister of Economy, Labor and Entrepreneurship (2006)
Five Stars Croatia Issue 2 — April 01, 2007.

Croatia is a country with a small but open economy that has in recent years achieved stability which manifests itself through a stable GDP growth rate, low and stable inflation, and positive trends in tourism.

The investment cycle referring to intensified investments by entrepreneurs in long-term capital, as well as intensified housing construction and major state and infrastructure projects, is becoming increasingly important as well. Market liberalization in the sectors that used to be dominated by monopolies on one side, and enlargement processes in the sectors that used to include a lot of small players on the other, have forced entrepreneurs to fight for competitiveness even more strongly.

Small and medium-sized entrepreneurship is an economic sector that has been growing at the fastest pace during the past 15 years. In 2006, the sector included 99% of the total number of all registered business entities, 55% of the total number of employed persons, and it represented approximately 44% of the GDP, representing almost 60% of exports. The positive shifts are also evident in the TEA Index, an index by means of which the number of newly formed companies in relation to the number of citizens is measured. In Croatia, this coefficient equaled 3.6 in 2003, 6.11 in 2005, and 8.58 in 2006, securing Croatia a higher position in comparison with other countries, from the 42nd to the 18th place.

The Ministry of Economy, Labor and Entrepreneurship has in the past years been implementing projects aimed at raising competitiveness, i.e. the projects related to technical adjustment, introduction of new technologies, innovation development, creation of new products, improvement of marketing activities, and other. 9,551 supports in the amount of HRK 396.6 million have been allocated in the past three years. The greatest number of supports has been allocated for new technologies, new products, technical adjustment and innovations, i.e. more than 14%. Around HRK 320 million of non-repayable funds for the construction of entrepreneurial zones have been allocated in the past three years as well, so that we now have a total of 284 zones across Croatia actively including 1,260 entrepreneurs and employing 18,000 people. An important project concerning the provision of favorable loans has also been initiated. A credit potential of HRK 5 billion has been created through commercial banks, and loans in the amount of HRK 3.7 billion have been approved.

This year's budget also envisages significant funds dedicated to entrepreneurship. Almost HRK 125 million is allocated for non-repayable supports alone, while HRK 88 million is allocated for the development of entrepreneurial zones, and HRK 5 million for cluster development. The continuous growth of direct foreign investments has also contributed greatly to the economic growth of Croatia. In the period from 1993 until the first half of 2006, direct foreign investments in Croatia amounted to more than USD 12.5 billion.

The Government of the Republic of Croatia has undertaken a series of measures aiming to create a favorable investment climate and enhance the attractiveness of the Republic of Croatia to both foreign and domestic investors. The process of accession of the Republic of Croatia to international organizations, and the efforts put into the elimination of administrative barriers and the reduction of labor costs have greatly contributed to the afore-mentioned as well. The Hitro.hr and Hitrorez Projects, as well as the E-Croatia Program under which the e-Porezna (e-Tax Administration), e-PDV (e-VAT), e-Regos (e-Central Insured Persons' Registry), e-KATASTAR (e-CADASTRE) and e-PRAVOSUĐE (e-JUSTICE) projects are currently being implemented, will enable the creation of conditions that will facilitate entrepreneurship. Through the Government's Entrepreneurial Zones Development Program, the Ministry of Economy, Labor and Entrepreneurship also creates and enhances the network of entrepreneurial zones in local self-government units where potential foreign investors can purchase infrastructurally equipped lots under very favorable conditions (cca EUR 7 = 1 sq m), and start their own entrepreneurial activity in the field of production.

On the basis of the new Investment Incentives Law, incentive measures, such as tax and tariff benefits, will be approved to both domestic and foreign companies that intend to steer their investments into activities related to production and processing, development and innovation, and strategic business support. Special attention is given to employment incentive measures, i.e. opening of new jobs and professional education or training of employees. The new Law clearly states the interest in the development of Croatian economy through increasing the number of production facilities and the capital/labor ratio, as well as through increasing the quality and, in doing so, the productivity of production factors as well. The new Law also clearly states the intention of the Government of the Republic of Croatia to adjust the field of regulating supports intended for investments in the Croatian economy with the acquis communautaire of the European Union in the field of state regional supports.

The highest monthly coverage of imports by exports in the amount of 57.9% was recorded in December 2006, which had a small positive effect on the total trade exchange in 2006. Such high coverage was achieved thanks to the greatest monthly value of exports recorded in the past year (USD 1.1 billion) and the moderate growth of the imports value. Such movements of trade imports and exports in December 2006 brought about an increase in the cumulative rate of the coverage of imports by exports from 47.4% at the end of November to 48.3% at the end of last year, i.e. an increase of 1 percentage point in the comparison with the coverage in 2005. The increase in coverage is a result of a more dynamic growth of exports than imports. Namely, the value of exports in 2006 grew by 18.3% in comparison with 2005, whereas the value of imports grew by 15.8%. The total trade exports in 2006 equaled EUR 8.3 billion, whereas the total trade imports equaled EUR 17.1 billion, which resulted in a foreign trade deficit of EUR 8.8 billion. The annual growth rate of the foreign trade deficit did, however, slightly slow down in comparison with the previous year, equaling 12.2%.

It is therefore necessary to focus on the increase in exports in order to change the trend of the foreign trade deficit. The export promotion project named Croatian Export Offensive (Hrvatska izvozna ofenziva) was launched in January 2007. The purpose of this project is to give a boost to exports, increase the number of exporters, change the export structure, form six export clusters (water, small shipbuilding, textile-clothes, ICT solutions, marine culture - Croatian fish, and wood - furniture) and raise competitiveness in the production of raw materials and semi-finished goods. The end goal is to increase exports in relation to imports, and achieve a positive foreign trade balance. For the purpose of realizing the afore-mentioned strategic goals in the following three years, as envisaged by the Croatian Export Offensive Strategy, concrete measures will be undertaken, i.e. a total of 29 measures of which 24 are related directly to entrepreneurs. The strategy is highly operational and covers everything that the institutions must do to create good conditions for export companies and their foreign market penetration.

These are just some of the measures the Government is undertaking in order to create favorable conditions for both foreign and domestic investors and entrepreneurs. Therefore we invite you to tell your friends what else Croatia has to offer besides its exceptional natural beauties, especially in the field of economy. The 21st century Croatia is not only a great vacation destination, but also a country offering great business opportunities.