PV International 0221

pvpvinternationalinternationalCroatian Business & Finance MonthlyEstablished in 1953Monday / 7th January / 2013Year V / No 0221www.privredni.hr

2008 20092010 2011

2012

S U P P O R T E D B Y T H E C R O A T I A N C H A M B E R O F E C O N O M Y

Igor Vukić

The Government will soon be able to declare invest-ments of over €20 million

and investment into tourism pro-jects over €50 million as strate-gic, and help them to be realised within the shortest possible dead-line, Economy Minister, Ivan Vrdoljak, announced in Decem-ber. The Strategic Investment Projects Act of the Republic of Croatia should be adopted by the end of the year. In addition to the level of investment, the Govern-ment will evaluate its contribu-tion to the development of the Croatian economy, the number of new jobs created and other el-ements.Selected projects will enjoy the full support of state bod-ies: from preparation and pro-cedures for the prompt issuing of required documentation to the execution and support in the post-investment period. Project participants will be selected, such as ministries and bodies of local administrations as well as responsible persons within these bodies in charge of rapid completion. The Government will sign a contract with each strategic investor, and these will

define phases and elements of the implementation. The Gov-ernment current declarative sup-port of investment projects will

become formal, and according to Minister Vrdoljak, Croatia should considerably increase its level of competitiveness, turn-

ing it into a more desirable loca-tion for investors.The construction of the LNG terminal on Krk could be one of the first strategic projects. It is expected that Qatar will confirm whether it would supply gas and participate in the construction of the terminal. If this project devel-ops according to plan, the Minis-try of Economy consider Omišalj as a location for the liquid gas

trade with customers from the wider region. The terminal ca-pacity could total 5 billion cubic metres. Croatia could use one billion, whilst other buyers will be sought for the remainder. At the same time, other gas routes will be developed, includ-ing that towards Serbia, that is, the highway gas pipeline, South Stream. Vrdoljak is convinced that the pipeline leg towards South Stream could diversify the source of gas and enable its purchase at the lowest possible price.

MINISTER FOR THE ECONOMY, IVAN VRDOLJAK, ANNOUNCES

Acceleration of strategic investmentSelected project will enjoy full support from state bodies:from preparation and procedures for speedy issuing of required documentation, to the execution and support in post-investment period

The government will sign a contract with each strategic investor

The Ministry of Economy is also preparing other Acts that should stren-gthen the competiveness of the Croatian market. A unique tender for re-search and exploitation of mineral resources will be prescribed by an amendment to the Mining Act. Three tenders for various activities in one concessionary area have been implemented so far. Besides wasting its time, it also occurred that companies conducting the research could not obtain the rights for exploitation. The new act will shorten and simplify the procedure by 65%, said Minister Vrdoljak.

Welcomed amendments to the Mining Act

SURVEY OF CROATIAN BUSINESS

EXPECTATIONS 2012DATA, ANALYSES AND COMENTARIES

2 Privredni vjesnikYear V No 221

IMPRESSUM:

Privredni vjesnikKačićeva 910000 Zagreb+385 1 [email protected]

www.privredni-vjesnik.hr/subscription

FOR PUBLISHERNikola Baučić+385 1 [email protected]

EDITOR IN CHIEFDarko Buković+385 1 [email protected]

EXECUTIVE EDITORSAndrea Marić[email protected] Antonić[email protected]

IMC MANAGERDea Olup +385 1 [email protected]

TRANSLATIONLučana [email protected] [email protected]

INTERNATIONAL OPERATIONS Ray [email protected]

Drago Živković

In the short run, we have no reason to be optimistic. In the long run, we depend on the

recovery of our main trade part-ners, but this may not occur even by 2014. However, Croatia could use this crisis to find a better po-sition on the global economic scene during times when this scene is rapidly changing parallel to the rise of the new economic forces of China and India. These messages were sent during the second assembly of the Croatian Chamber of Economy that also adopted a work plan as well as fi-nancial plans for next year. Over four years of recession, indus-trial production decreased 17% in real value; retail reduced by a fifth, and construction shows no sign of recovery. Transport is also in decline. Economic move-ments in 2013 will mainly be influenced by slow recovery in local demand, low consumer and investor confidence and slower economic growth of Croatia’s main trade partners, anticipates the Director of the Centre for Macroeconomic Analysis within the CCE, Jasna Belošević Matić. Positive movements in trade are not a consequence of stronger export of goods or growing competition, but slower growth of imports due to the decreased local spending (which accounts for 56% of total GDP). If a sig-nificant decrease in investment (20% of GDP) is added, it be-comes evident Croatia has lost almost 10% of its GDP since

the beginning of the crisis, said Jasna Belošević Matić.

Tourism shinesTourism is the only shining light, and not even tourism has yet reached the income level of pre-crisis 2008. In these circumstanc-es, both the public and entrepre-neurs are repaying debt; only the state is sinking deeper. Banks are the only ones that benefit from this situation. They avoid high risks and transfer excess capi-tal abroad, instead of using it in the local economy. According to data provided by Jasna Belošević Matić, during the first eight months, banks transferred €1.6 billion from Croatia, of which €0.6 billion were placed into sav-ings accounts with foreign banks.A few years ago, CCE President Nadan Vidošević noted he had predicted this recession could

OUTLOOK FROM THE CROATIAN CHAMBER OF EC

We are pessimistic insearching for a positDespite all risks, Croatia has a chance of finding its position the largest world market – the EU – with remote, fast develo

Since the CCE has already reduced chamber contributions three times this year, measures for rationalisation and further adjustments have been implemented within the Chamber, said CCE President Nadan Vidoše-vić. He pointed out that simple limited liability companies, introduced by the recent amendments to the Corporation Act, will be relieved of paying chamber contributions and fees until their basic capital reaches €27,000, which would make them limited liability companies.

Jednostavni d.o.o will not pay membership fee to the CCE

VLADIMIR FERDELJI, PRESIDENT OF CROATIAN MANAGERS AND ENTREPRENEURS’ ASSOCIATION (CROMA):

“GDP growth likely”

Currently there are no measures to enhance in-dustrial production, as industrial policy in Croa-tia is non-existent. Systemised industrial policy is of fundamental importance for economic de-velopment. Industrial policy in Croatia needs to focus primarily on the implementation of the analysis of industrial policy and on the elabora-tion of the methods to enhance Croatian agricul-

ture, shipbuilding, mechanical engineering and the chemical industry, to name but a few, as well as on tackling hurdles for the development of these industrial areas. Unfortunately this is currently still in its in-ception phase in Croatia.

The Croatian Agency for SME’s and Investment (HAMAG) approved 185 guarantees worth al-most €33 million, resulting in nearly €66 million of grants for entrepreneurs. The total investment value granted by HAMAG was €99 million, achieving substantially better results in relation to the pre-recession year of 2008. Currently, around 90 projects are being considered and the number of guarantees this year is likely to exceed 200, whilst investment value is likely to exceed €107 million. It is anticipated 2013 will see €0.2 billion in investment, with the number of guarantees likely to reach around 500 annually in the near term.

LJUBO JURČIĆ, PROFESSOR, FACULTY OF ECONOMICS, UNIVERSITY OF ZAGREB:

“Lack of measures to enhance industrial production”

DARKO LIOVIĆ, BOARD PRESIDENT OF HAMAG INVEST:

“Guarantees accounted for €99 million of investment”

GDP growth is likely should the recently enacted Pre-Bankruptcy Settlement Act succeed in pro-moting the rapid revitalisation of Croatian econ-omy through fostering business activity and gen-erating corporate growth. There is huge potential both in local and international markets. Neverthe-less, restructuring is critical and a pre-requisite for

the effective functioning of the economy in order to tackle illiquidity and solvency issues, resulting in huge potential for growth.

Costs of dismissal through-out Western Europe are at least double com-

pared with those in Croatia and throughout Central Europe, ac-cording to research conducted by Laga, the top legal practice in Belgium, in co-operation with Deloitte. The research was conducted in 22 countries and the results have recently been presented by Sanja Ifković and Tatjana Orešković Trcin from Deloitte. The highest costs of dismissal were recorded in Italy, Bel-gium, Holland and Sweden, with the highest severance pay in Belgium and Sweden. Moreover, the highest costs of legal proceedings were re-corded in Italy. Croatia ranks

amongst lowest in Europe for the costs of dismissal, followed by the Czech Republic, Latvia and Switzerland. According to the research, severance pay recorded in those countries se-verely affected by the crisis, such as Italy and Spain, still exceed those for Croatia. Italy and Spain have recently seen flexible labour legislation eas-

ing dismissal procedures, yet workers retained higher rights compared with Croatia. Hence, salary per completed year of service in Spain, on par with the salary of 45 working days, was reduced to be on par with the salary for 33 working days, fol-lowing the implementation of flexibility of labour In addition, prior to the crisis severance pay comprised 42 regular salaries, whilst currently it stands at 24 monthly salaries. The maximum amount of sever-ance pay in Croatia is currently slightly in excess of €5,000 or 6x€860 which is non-taxable, unless there is a different ar-rangement stated in the man-agement, collective or any other agreement. Nevertheless, tem-porary employees, accounting for 90% of the newly employed, are not entitled to severance pay. Subsequently, Croatian labour is low-cost, irrespective of the statements made by en-trepreneurs concerning costly labour and high costs of dis-missal.The highest severance pay fig-ures were recorded in Central European countries, such as Bulgaria, Poland, Romania and Hungary, whereas Croatia and Slovenia rank amongst coun-tries with lowest costs, which is certainly more attractive to foreign investors”, stated Sonja Ifković. (J.F.)

www.privredni.hrBusiness & Finance Monthly 3

ONOMY

n the short-term, ion in the long-termon the global economic map, as a communication point for

oping economies

last an entire decade, for which he had been criticized by cer-tain politicians. He now thinks he was wrong, and that the crisis will last even longer since the en-tire world is searching for a new global economic model. Despite all risks, Croatia has a chance to find its own position on the global economic map as a com-munication point to the largest world market – the EU – with re-mote, fast developing economies. Vidošević said that in this respect the CCE will continue to support the Croatian economy and re-main a partner with the creators of the economic policy in the EU accession process, and especially after it is finalised. The CCE fi-nancial plan for 2013 has been harmonised with these goals, and according to Vidošević, it fully complies to the challenges, tak-ing into consideration the need for constant rationalisation of the Chamber’s business affairs.

Investment catalogueThe work plan for 2013 is de-signed in such a way that the CCE can offer total economic support and help regarding all changes that await after EU accession, where education activities are es-pecially highlighted. The situation

could be additionally complicated by the implementation of the reg-ulations for improving financial discipline of pre-bankruptcy set-tlement as well as possibly more cases of bankruptcy, anticipates CCE Presidential Advisor, Jasna Borić. It should be pointed out that Croatia’s EU accession will trigger direct implementation of a series of EU legislative provi-sions regarding customs regula-tions; many sectors will be faced with direct competition, and it is possible that higher immigration will be seen from less developed EU countries. Significant changes will occur in trade relations with

regional countries. Thus, the CCE will focus on training their members on how to use struc-tural and cohesive EU funds, and a catalogue of potential invest-ment projects will be made, in-cluding 120 projects worth over €5 billion. The President of the CCE Supervisory Board, Vinko Dumičić, advised the Assembly about the results of the audit of the Chamber’s financial opera-tions for 2010. The results of the state audit are positive, and the objections have been taken into consideration during the drafting of the financial plan for 2013, said Dumičić. Seven verdicts of the CCE Court of Honour were also brought, relating to violations of ethics and good business practice of Links, Allianz, Rost, Poslovne informacije, Jurinac savjetovan-je, Optika Stepinac and Prograd Dubrava.

Not even a decade: the crisis will last even longer since the world is in search for a new global economic model, says CCE President Nadan Vidošević

Deloitte research

Italy, Belgium, Holland and Sweden face the

highest costs of dismissal

Costs of dismissal in Croatia ranks amongst lowest in EuropeLabour costs in Croatia are extremely low irrespective of the comments made by entrepreneurs to the opposite


( (allocated to Croatia to implement Cohesion Policy from EU to Croatia in the first seven yea

€450 million €13.7 billion

Jozo Vrdoljak

Privredni vjesnik spoke with the Vice-President of the Republic of Croatia

and Minister of Regional Devel-opment and EU Funds, Branko Brčić, on the methods for drawing resources from EU funds and the measures the Government intends to use to boost growth of econom-ic indices during the next year.

You are in charge of the eco-nomic co-ordination of the Government. What do you intend to change and in what way will the economic recovery start? Do you believe growth is possible in 2013 and to what extent?Investment in both the public and private sector are crucial for economic recovery. In addition to the public investment already in progress, our goal is to help entrepreneurs in the private sec-tor with restructuring their com-panies and new investment. This is very important, and we have a great opportunity to do this, to connect local sources of funding

and resources of the EU funds. It is precisely Croatian EU acces-sion that will offer us the pos-sibility to change the trend and

boost economic recovery despite the fact Europe has reached a new recessionary bottom in the third quarter, which directly af-fects Croatia through the decline in exports and personal spend-ing. The Government anticipates GDP growth of 1.8% next year.

You stated several times we cannot be satisfied with the present draw-down of resourc-es from EU funds or finalisa-tion and preparation of pro-jects. What more can be done and what can we do to be more efficient?At present we have employed 59% of the agreed IPA funds

and 68% of all contracted re-sources available to us from pre-accession programmes: CARDS, PHARE, ISPA, SAPARD and IPA. We will contract IPA funds another two years definitely, and payments will be made by 2016, which creates room for

any increase. The key to quality absorption of funds is to accel-erate the preparation procedure and approve projects. During the past several years this has not been approached systematically, and its consequences are felt even today. I am not only think-

INTERVIEW: BRANKO GRČIĆ, GOVERNMENT VICE-PRESIDENT AND MINISTER OF R

Our goal is to change the In addition to the public investment already in progress, our goal is to help entrepreneurs in the private sector with reresources of the EU funds

At present, we have used 59% of the agreed IPA

funds and 68% of all contracted resources

from pre-accession funds

How much of the resources from EU funds will be available to Croatia during the forthcoming period?Croatia is entering the EU at the end of its bud-get period that lasts from 2007 to 2013, and for the last six months of that period Croatia obtai-ned €450 million for the implementation of the Cohesive Policy. This money will be spent on big projects in environmental protection and traffic, projects for strengthening the competitiveness of Croatian regions and human resources, de-velopment of entrepreneurship as well as pro-moting development of science and innovation.

The negotiations over the Multi-annual Financi-al Framework 2014-2020 are still in progress. At this moment it is still impossible to say how

much will be available to Croatia. It is estima-ted these funds will total around €1 billion du-ring the first several years of membership, with a tendency to grow every year, and possibly reaching €1.4 billion in the final year of the Fi-nancial Perspective 2014-2020. A total of €13.7 billion would be envisaged for Croatia and the-se programmes during the seven year timesca-le. It is very important how this money is spent and what is the effect of the spent resources. This means the point is not to spend what we have, but rather spend it wisely and create va-lue for the community.

€13.7 billion for Croatia during seven years

www.privredni.hrBusiness & Finance Weekly 5

ing about preparing applications and tender documentation, but also solving property-legal rela-tions, licences, physical and pro-ject documentation, all of which inhibit the projects’ preparation and implementation, especially big projects, whether they are

EU or local, financed from the state budget or projects of pri-vate investors.

How will the announced hir-ing of new experts in EU funds change the situation?In order to improve the situa-tion, we will have to hire people with special expertise and skills, ready to adapt, learn and acquire new knowledge. With the budget limitations, the Government is aware of the need to increase the capacity, so we will hire 232

experts for preparing projects financed from EU funds. After Croatia joins the EU, a percent-age of their salaries will be cov-ered by funds from structural instruments. We know that the additional costs of the salaries will have to last during next year,

but this is a minimum expense in relation to other available re-sources, which we could lose if we fail to secure the appropriate administrative capacity.

How can essential personal funds for projects be secured? Do you think entrepreneurs and institutions will dare use credit lines intended for that purpose?Above all, this depends on appli-cant liquidity, since the dynamics of payments is unfavourable for them since a large proportion of activities have to be performed before the first payment of EU funds, which implies expense. Expenditure must be certified to prove it is acceptable and in ac-cordance with the project pro-posal. The process for submitting requests for the payment of funds and certification of the submitted expenses can last several months, sometimes up to a year. We are aware of this problem, and we are working on solving the ques-tion of pre-financing. One of the instruments we are working on in co-operation with HBOR

concerns favourable credit lines that enable end-users to over-come risk periods. We are also preparing other instruments at a national level that will be fo-cused on bigger projects. In any case we are aware of the needs of local and regional administra-tion, public companies and agen-cies as well as the general public. The availability of money for covering the costs is certainly an important factor for motivating small-sized applicants, and a pre-condition, without which we will not be able to apply big projects. It is important to highlight that EU funds are certainty, and that up to 85% of co-financing will be secured for projects from the EU budget, which is certainly stimu-lating for any applicant. The pri-vate sector will have somewhat different conditions, since for ex-ample, IPARD offers up to 50% for co-financing investment, but it is very important to point out that if a private project is not fi-nancially sustainable even with-out the 50%, than we have con-sider whether we wish to finance it at all.

(rs of membership secured for projects from EU budget

up to 85% of co-financing

REGIONAL DEVELOPMENT AND EU FUNDS

trend and boost growthestructuring their companies and new investment. It is very important to connect local sources of funding and

The Government is aware of the need to strengthen capacity and we will hire 232 experts to prepare projects

Will you be using the services of private agen-cies and consultants? In what way can your Ministry help them?Of course, we count on private agencies and consultants, especially due to the limited hu-man resources and extremely short deadlines for finishing the preparations before EU accessi-on. After accession, we will face a series of new challenges that will require help from experts in various areas. There is a large share of aspects we do not want keep as an obligation on the pu-blic sector, since a solid share of counselling services can be provided by the private sector.

At this moment, the market for counselling ser-vices in Croatia is yet to develop, and it is very important to us that this market segment, pri-marily local companies and consultants, deve-lops and reaches high standards in offering the-ir services in Croatia and abroad. On the other hand, we need to take into account that our units of state administration control the proce-sses in the expert area - this refers to content related to a specific field, in the technical sen-se also – which concerns the procedures and administration, since only a competent admini-stration can secure the public interest. The Mi-

nistry is not only in need of consultant compa-nies, but also partners from the academic and business community. We plan to form theme forums and spe-cial groups that can define the needs of the public and address them in new projects co-financed by EU funds.

Private agencies and consultants also included


Darko BukovićVlado Smud

T he economic situation is worse than the previous year. The trend does not

seem to be easing which is even more worrying. Entrepreneurs anticipate an even deeper crisis in 2013 and growth at the level of 2012, which they warned the pre-vious year, highlighting the need for enacting strategic decisions that could secure normal busi-ness in the years to come. If the year does not bring any growth

and the basic economic indices remain unchanged, this will be an achievement nevertheless, ac-cording to present anticipations, especially if we know Croatian EU accession will bring many unforeseeable problems. The forthcoming year will be very difficult.Preserving its long-year tradition, Privredni vjesnik drafted another Economic Outlook 2013 in co-operation with entrepreneurs.In this year’s survey, 408 compa-nies participated, which covers only 0.4% of the total number of

companies that submitted their balance sheets for 2011. These companies account for around 6.2% of total revenue; achieve some 5% of total profits and em-ploy around 6.5% of all workers in Croatia. In this year’s survey 8.6% large-sized companies par-ticipated, as well as 26.4% me-dium-sized and around 65% of mainly small-sized companies.Financial indices were used for processing each company that participated in the survey to as-sess the answers to specific questions, ensuring the answers

adequate value and level of dif-ficulty proportional to the finan-cial strength of an individual company.We grouped the companies in several categories of activities to obtain a stratified picture of en-trepreneurial attitudes. Compa-nies were grouped and processed according to size and branch of activity, with special emphasis on companies from the well-known group of top 400.On January 1, 2013 a new statis-tical standard for data process-ing, defined by the new National

ECONOMIC OUTLOOK 2013

Strong crisis pressure, weakness squeezes out optimism The economic situation is worse than the previous year. The trend does not seem to be easing which is even more worrying. Entrepreneurs anticipate the crisis will hit business even harder in 2013.

www.privredni.hrBusiness & Finance Monthly 7

Classification of Territorial Units will enter into force in Croatia, according to which Croatia will be divided in two statistical ter-ritorial units: Adriatic Croatia (County of Primorje and Gor-ski kotar; Lika and Senj; Zadar, Šibenik and Knin; Split and Dalmatia; Istria; Dubrovnik and Neretva) and Continental Croa-tia (City of Zagreb, County of Zagreb; Krapina and Zagorje; Varaždin; Koprivnica and Križevci; Međimurje; Bjelovar and Bilogorje; Virovitica and Podravina; Požega and Slavoni-ja; Slavonski Brod and Posavina; Osijek and Baranja; Vukovar and Srijem, Karlovac as well as Sisak and Moslavina. For the purpose of this survey, we grouped and processed companies into two groups.

Average estimate of the economic conditions 2.09%A borderline 2. Evaluating the general economic affairs with grades between one and five, entrepreneurs graded this year’s economy with an average of 2.09. This result is slightly poorer compared with 2011 (2.31). The grouped pro-cessing showed only minimum deviations, and the poorest

grade totalled 1.89 (Adriatic Croatia). It is interesting that the companies providing hospi-tality services gave the highest grade (2.58). The percentage of those thinking the economy de-serves a straight 1 increased. In relation to 2012, this percentage increased by several percent-age points, and now 10.95%

entrepreneurs think the econo-my does not deserve even a 2.On the one hand, this can be explained with the present real-ity and awareness of the state of the economy. However, it must also motivate executive and leg-islative authorities to introduce changes and implement reforms for strengthening the economic climate. No one can be satisfied with an economy with a border-line two.

Economic growth roughly the sameIt is anticipated that overall eco-nomic growth in 2013 will be

approximately on the same level as this year. Therefore, expecta-tions are not high. They account to nothing actually. The stagnat-ing optimism is the result of the awareness of the moment, envi-ronment and all weaknesses in the economy. Companies offer-ing hospitality services expressed a low level of optimism, where 58.8% anticipated slightly higher economic growth (in relation to 2012, however), while 24.7% expect nothing to change. They are joined by the processing in-dustry with 34.7% of companies expecting a slight increase, and 33.5% of companies expecting economic growth will remain at the same level. Trade companies are reserved when it comes to economic growth; 48% do not anticipate any changes; 35.3% anticipate a slight fall, and 12.5% anticipate a much greater fall in 2013. Almost a third think eco-nomic growth will slow in 2013.

We must overcome the crisisAs with the year before, the general attitude of 38.3% of the examined companies is posi-tive. They believe they will suc-cessfully overcome the crisis (38.5%). This opinion is shared by companies from the process-

ing industry in continental Croa-tia and in the City of Zagreb, a group that unites medium-sized economic companies. Other groups express a more moderate attitude, but are convinced they will overcome the crisis. Around 68% of construction companies with over 2,000 employees ex-pressed their readiness to over-come the consequences of the crisis.However, 10.7% of economic operators feel it will be difficult to do that, and this is very wor-rying since it is the opinion of the construction engineers and industry representatives.

Business conditions probably the sameConsidering the investment con-ditions and operations in 2013, the entrepreneurs do not an-ticipate any significant changes. Depending on the estimate of each group, they anticipate the situation will be slightly worse or slightly better. Of a total of 355 companies that responded to the question, 38.8% (with around 18,000 employees) do not antici-pate any changes. Some 33.1% of companies, employing around 21,000 workers, are slightly opti-mistic, whilst 23.8%, employing around 12,000 workers antici-

Increased percentage of those thinking the economy deserves the lowest grade

11,01%

38,57% 38,32%

10,70%

1,39%

The effects of the crisis on yourcompany in 2013 will be:

easily &successfully

overcome

more or lessovercome

try toovercome

barelyovercome

extremelyhard to

overcome

On a scale of 1 -5 how do you evaluate thegeneral state of the economy in 2012?

1 2 3 4 5

10,95%

19,31%

69,57%

0,10%0,06%

Average

2,09

2012 total economic growth whencompared with 2011, will be:

muchlarger

slightlylarger

approximatelythe same

lightlysmaller

muchsmaller

0,10%

37,25%

26,40%

6,74%

29,51%

0,12%

33,14%

38,80%

23,81%

4,13%

Investment & doing businesscircumstances in 2013:

muchimproved

slightlyimproved

about thesame

slightlyworse

much worse

26,11%

9,39%

38,82%

14,67%

11,01%

In 2013, your company will deal withthe crisis:

increaseproduction/

sales

changeproductionprocesses

reorganisebusinessmethods

reduceexpenditure

reduceoperatingexpenses

7,32%

43,38%

37,41%

6,91% 4,97%

Negative influences on your businessin 2013:

very large remarkable acceptable small minimal


labour costs, and around 9.4% see changes in their production programme as the solution for their 5,000 employees. Most groups see business organisation as a solution, followed by place-ment increase. Industry overall (33.65%) will rely on placement increase, and around 30% will opt for reducing business costs.

Companies from the service sec-tor (60.6%), with around 13,500 employees, will also aim to reor-ganise their operations. Around 18% of service providers will rely on reducing labour costs for solving the crisis in 2013.

Crisis pressure remainsThe outlook for the crisis effects for 2012 was mainly within ac-ceptable limits. However, the outlook for 2013 shows signs of a more intense crisis, anticipated by 43.3% of companies (22,000 employees) answering this ques-

tion. The effects will be within acceptable limits for 37.4% com-panies and their 18,000 work-ers. An overall 43.38% of the economy anticipates significant problems and negative effects of the crisis. This question was an-swered by 84 companies from the Adriatic Croatia area and their estimates of the crisis effect are as follows: extremely high effect - 31.3%; notable effect - 26.8%; acceptable effect - 38.7%; small effect - 2.5%; negligible effect - 0.4%. In the survey last year, the top 400 predicted an acceptable effect of the crisis in 2012. This year, 46.7% (with around 11,600 employees) predict a notable set of effects on their business. Simi-lar anticipations are shared by around 56% of trade companies from a total of 109 companies an-swering this question.

Taxes and contributions remain the sameWhen asked about the possible changes in taxes and contribu-tions in 2013, 44.6% of com-panies answered they would remain the same. It is worrying that entrepreneurs, bombarded with similar anticipations, are

actually pessimistic, and a third (33.4%) predicts an even slightly greater tax load. A slightly lighter tax load is anticipated by 13.3% companies. Only 7.8% com-panies, with 4,000 employees, predict taxes will significantly increase.As oppose to last year’s outlook, when the majority were con-vinced the tax load would remain the same, between 70% and 80%, this year’s survey shows lower percentages: Continental Croatia - 45.3%; small-sized companies - 48.5%; medium-sized compa-nies - 45.9%; big-sized compa-nies - 43.3%; processing indus-try - 47.3%; service providers - 62.8%; top 400 - 44%. The con-struction sector is an exception; 77.8% anticipate the tax load will remain at the same level.

Almost a third think economic growth will slow in 2013

7,82%

33,42%

44,67%

13,31%

0,77%

Your views on tax and contribution in 2013 will be:

much higher slightly higher

same little less much less

1,34%

20,25%

43,01%

22,54%

2,86%

Your corporate liquidity in 2013 will be:

much better slightly better

about the same

little worse much worse

7,87%

49,46%

27,85%

13,57%

1,24%

NETT PROFIT

muchhigher

slightlyhigher

about thesame

slightlyless

much less

4,99%

42,81% 44,24%

6,28%

1,70%

TOTAL INCOME

muchhigher

slightlyhigher

about thesame

slightlyless

much less

In 2013 your company plans to achieve:

pate slightly more aggravating conditions. Only around 4% companies, with around 2,500 employees, anticipate negative investment and business condi-tions. The Adriatic Croatia area suggests the conditions will stay roughly the same or will be slightly worse. A total of 31.9% do not anticipate any significant changes, and 29.4% hope the conditions will slightly improve as opposed to 34.2% of entrepre-neurs who are prepared for more aggravating conditions. A total of 85 companies from the Adriatic Croatia area, employing around 7,400 workers, answered this question. A total of 41.4% trade companies do not anticipate any greater changes for their opera-tions in 2013. However, 38.9% predict slightly more aggravating circumstances for them and their 4,900 employees. Around 64% of predominantly small-sized construction companies with in the region of 1,900 employees predict slightly better investment and business conditions. Small-sized companies are still faced with serious problems.

How to fight the crisis in 2013?As opposed to last year, when the majority of the surveyed compa-nies decided to fight against the crisis by reducing production costs, 38.8% companies with around 30,500 employees will rely on business reorganisation as their solution. Some 26% of companies, with around 15,000 employees, plan to increase their placements in 2013. A to-tal of 14.6% with approximately 11,500 workers did, however, opt for downsizing production costs. Around 11% of companies, with roughly 8,200 employees, intend to fight the crisis by decreasing


Liquidity decreases optimismSimilar to past years, this year’s evaluation is that liquidity will not change significantly in 2013, although the percentage is low. Actually, 53% are convinced significant changes will not oc-cur compared with 76.2% in 2012. Therefore the number of those convinced liquidity will change increased by over 23%. The percentage of those antici-pating slightly better liquidity increased from 6.4% to 20.2%, as well as the percentage of those convinced liquidity of their com-panies will be slightly poorer in 2013 (from 11.9% for 2012 to 22.5% for 2013). The majority of other groups share similar an-ticipations. The companies from the Adriatic Croatia area are the

exception, where 48.3% antici-pate a slight decrease in liquidity, and service providers hope for a slight improvement (49.6%). The weighted structure shows that medium-sized companies, with around 10,300 employees, anticipate improvements, while small-sized companies (39%, 4,700 employees) anticipate the same level of liquidity for service providers in 2013.

Construction still strugglesThis year’s prediction for con-struction is that companies op-erations will remain the same or slightly poorer. Of 355 companies answering this question, 53.4% do not anticipate any changes, and 35.1% predict slightly poorer results in 2013. A total of 75.3% companies from the processing

industry (15,000 employees) are strongly convinced their present conditions will remain the same. Service providers (57.1%), that is, mainly small-sized companies with around 5,600 employees do not anticipate any changes. However, the larger-sized ser-vices providers (22.5%) are convinced their companies will achieve much better results next year. This attitude is shared by a smaller number of large-sized companies, with around 7,000 employees. The construction sec-tor (57%), cognisant of their situ-ation, anticipate slightly poorer results next year. Only 35 com-panies from this branch answered this question. A similar attitude is shared amongst traders: 33.9% with around 4,700 employees, do not expect changes, while

the majority (61.2%) and around 6,100 employees, anticipate they will achieve poorer results in 2013.

2013 slightly better… but for whom?The majority of the groups pre-dict positive changes in relation to 2012, especially regarding an increase in total revenue and nett profit, however, at the same time they anticipate significant down-sizing. Of 408 responses, 87% intend to achieve the same or slightly higher total revenue, and consequently higher nett profit. The majority plan to maintain the number of the employees at the same level, but downsizing may well be inevitable. Therefore, 18.6% companies plan to let go a smaller number of employees,

4,54%

18,70%

39,00%

18,69% 19,07%

NUMBER OF EMPLOYEES

muchhigher

slightlyhigher

about thesame

slightlyless

much less

7,27%

57,17%

30,14%

3,39% 2,03%

EXPORTS

muchhigher

slightlyhigher

about thesame

slightlyless

much less

0,85%

35,57%

55,32%

6,27%1,99%

IMPORTS

muchhigher

slightlyhigher

about thesame

slightlyless

much less


Your estimation of company investment in 2013 compared with 2012:

13,02% 13,19%

52,42%

5,85%

15,52%

muchhigher

slightlyhigher

about thesame

slightlyless

much less

R&D

4,29%

30,17%

45,99%

13,54%

6,01%

muchhigher

slightlyhigher

about thesame

slightlyless

much less

and 19% announced significant downsizing. A similar is attitude is shared by companies in conti-nental Croatia, as well as large-sized companies that anticipate even more drastic downsizing. For example, 74.8% decided to increase their nett profit, of whom 17.5% will reduce the number of employees from a total of 5,100, while 30.6% will drastically reduce the number of their 8,800 workers.A similar scenario is anticipat-ed by companies from Zagreb. Companies from the service area share the same goal in terms of finance, but are also prepared for considerable downsizing (47.9%). The top 400 companies have the same plan for 2013 – an increase revenue and profit, and reduce the number of employees. Construction companies intend to improve their financial affairs in 2013 with a slight reduction in the number of employees. Traders will be satisfied if they maintain their total revenue and profit at the present level or show a slight increase, but according to 70.8% they also do not intend to downsize. The processing industry also plans to increase their total rev-enue and nett profit in 2013, but 66% will not reduce the number of their employees; rather they intend to increase numbers.

Investment atmosphere - without improvementThe results of the survey show that the investment atmosphere will be more or less at the level of 2012 - certainly not motivating.The majority of 52.4% will pre-serve this year’s level of invest-ment in the modernisation of capacity. Some 13% plan to set aside substantially more for this purpose, while 15.5% intend to

reduce investment considerably. Research and development will be financed at the same level by 46% of companies, while 30.1% intend to set aside slightly more for this purpose. Training will be financed at the same level by 65.2%, while 25.3% of com-panies will invest slightly more over 2012. Takeovers and acqui-sitions will be the focus of 49.3%, and they plan to invest for this purpose at a similar level as in 2012. However, 17.8% of mainly small-sized companies intend to reduce their funds slightly,

while 27.6% will reduce them significantly. Only a few small-sized companies announced an increase this area of investment. A total of 14.6% of processing companies will invest considera-bly more in the modernisation of personnel capacities, and merely 12.3% of these plan to set aside only slightly more in relation to 2012. A total of 44.1% will main-tain this area of investment at the same level. A total of 55.7% will have the same budget for indus-trial research and development, while 38.1% intend to increase it

slightly in 2013. A total of 53.9% plan to invest the same amount in training their 11,700 employees, while 38.8% plan to increase it for their 6,800 workers. Industri-al takeovers and acquisitions will be financed at the level of 2012 by the majority (61.8%), while 24.9% of companies will reduce such funds significantly.A turbulent year is ahead for the service sector, since 41.2% of companies intend to consid-erably increase funding in the modernisation of capacity; some 35.4% of companies plan to in-vest roughly the same amount as in 2012. A total of 24.6% will increase funding for research and development, while 21.1% plan a reduction. A total of 40.6% of service-providing companies plan to keep their investment at the level of 2012. The majority of 65.5% of service-providing com-panies will maintain their invest-ment continuity in training, while 21.8% will slightly increase funding. Funding of takeovers and acquisitions will reduce con-siderably in 64.7% of companies of this branch.The Top 400 will start the forthcoming year in their usual rhythm of investment in the modernisation of their capacities, with 57.3% companies intending to maintain it at the same level as 2012. Only a smaller number of companies will reduce or slightly increase their investment. Funds for research and development will remain at the same level for 40.5% of the top 400, while 38.1% plan a slight increase. A total of 71% of companies will preserve this year’s level of in-vestment in training, and 27.5% intend a slight increase. A total of 51.5% of companies will invest the same amount in takeovers and acquisitions, and 20% will

EDUCATION

1,47%

25,33%

65,21%

4,40% 3,59%

muchhigher

slightlyhigher

about thesame

slightlyless

much less

UPGRADING CAPACITIES


slightly reduce this type of in-vestment, with 23.7% opting for considerable cuts.

Import/export ratioFor this year’s survey, 265 of 408 companies answered the question regarding their import/export results. A total of 42.6%, with around 13,800 employees, achieved roughly the same im-port level compared with 2012. A total of 26.6% companies with 8,300 employees recorded slight-ly higher imports, while 22% (8,500 employees) showed reduc-tions. Concerning exports, 24.3% companies with 9,000 employees achieved roughly the same ex-port results, while 24.2% (7,300 employees) saw slightly better results. At the same time, 20.1% of exporters with 7,800 employ-ees achieved slightly poorer re-sults. A similar balance is visible in import/export results. Thus, 16.7% companies, with 5,300 employees, increased export re-sults considerably, while 14.6% (4,300 employees) achieved significantly poorer results.The majority of the 256 companies (57.8% with 17,300 employees), that responded to this question, achieved approximately the same import/export ratio as in 2012.With 57.4% and 2,500 employ-ees, the Adriatic Croatia region

achieved roughly the same im-port and slightly poorer export results (45.5% with around 2,100 employees). Therefore, the im-port/export ratio was slightly poorer compared with 2011, which resulted in lower export revenue for 40.6% companies with around 1,100 employees. Continental Croatia, with 39.6% of companies and 11,200 em-ployees achieved import results similar to the last year, and at the same time 28.6% achieved slightly higher results, while 23.5% registered lower imports.A total of 15.7% achieved higher exports, 26.4% slightly

higher, 26.1% roughly the same, 14.8% slightly lower and 16.8% achieved considerably lower exports results. In total, the im-port/export ratio for continental Croatia remained almost at the same level of 2011 (according to 64.1% import/export compa-nies). Nevertheless, this region registered slightly higher revenue from foreign sales.

A total of 93% of construction companies confirmed approxi-mately the same import results, 93.2% roughly the same export results, 94.8% achieved a similar import/export ratio, and 93.2% registered approximately the same export revenue as during 2011.

2013 - mild optimismConcerning import/export plans for 2013, the majority antici-pate the same or slightly better results. Therefore, 55.3% com-panies with 20,000 employees plan to import roughly the same level in 2013, while 35.5% with 12,200 employees intend to in-crease imports. A total of 30.1% of companies with 11,000 em-ployees plan to achieve roughly the same export results as in 2012, while 57.1% with 19,000 employees plan a slight increase. This should result in the same level (55.3%) or a slightly higher (31.2%) export/import ratio, as well as higher export revenue anticipated by 55.9% of compa-nies with 18,400 employees. The majority of others (29.6% with 11,000 employees) plan to keep their export revenue within the limits of 2012. Adriatic Croa-tia anticipates roughly the same import results in 2013 (62.6% companies); 45.9% the same and 34.7% slightly higher. Further-

more, the same or a slightly bet-ter import/export ratio as well as total revenue achieved by exports is also anticipated.Similar positive anticipations are shared in Continental Croa-tia. The only difference is that they predict better import results (61.5%), and consequently, im-provements in the relative share of total revenue (60.6%). Regarding imports and exports, the construction sector hopes to achieve slightly better results in relation to 2012. This is under-standable, since 2012 was one of the worst years in terms of busi-ness and work results for the en-tire construction operations. The majority of companies expressed their aimed results with the fol-lowing percentages: same level exports - 87.2%, slightly higher exports - 69.3%, slightly higher import/export ratio – 70%, and finally, slightly higher revenue than exports is anticipated by 70% of construction companies.

Business results for 2012Financial results for 2012 should show a mild increase in total revenue and nett profit, but also a decrease in the number of em-ployees. A total of 8.8% com-panies announced they intend to end the business year 2012 with considerably higher total

The majority of groups look to business reorganisation as an exit to the crisis


revenue, 31.3% with slightly higher, 27.1% with roughly the same, 28.38 slightly lower, and 4.2% considerably lower revenue. Con-cerning anticipated nett profits for 2012, it clearly shows that over 50% of companies will achieve profit - 17.9% much higher, 25.78% slightly higher, 20.2% roughly the same, 17% slightly lower, 19% considerably lower. Company CEO’s anticipate that the

final number of those employed at the end of 2012 (in their companies) will be consider-ably higher with 7.2% of companies (3,800 employees at the end of 2011); slightly high-er for 22.74% (11,800 employees), roughly the same for 26.4% (13,800 employees), slightly lower for 25.3% (13,200 employ-ees), considerably lower for 18.2% (9500 employees). As the size of the company grows, so does the percentage of those in-tending to reduce the number of employees. Therefore, SME’s, as the backbone of future activities, are positioned as those that will continue to employ since they are in need of workers. In terms of regions, the antici-pated results for 2012 for Adriatic Croatia are: slightly lower total revenue (45.4%), slightly higher nett profit (48.8%), slightly lower number of employees (42.4%). A fifth of the processing companies (20.9%) antici-pate much higher total revenue; 31.5% lower total revenue, and 28.8% will achieve rough-ly the same. Regarding nett profit, it should

be much higher for 26.7% of companies, and slightly higher for 32.9%; the number of employees will be higher for 10.5% (in rela-tion to 2,300 employees at the end of 2011 – mainly small-sized companies); the number of employees will be only slightly higher for 30.7% (6,600 employees), and 25.9% com-panies anticipate roughly the same number of employees. The same percentages are anticipated for slightly lower number of employees, while 7.1% anticipate consid-erably lower levels. According to 61.2% of construction companies, they will end the business year with roughly the same total revenue as in 2011, lower nett profit (46.7% - slightly lower; 35.2% - much lower), while 63.8% anticipate roughly the same level of employees, and finally, 24.2% of construc-tion companies expect this number will be slightly lower. The already implemented downsizing and decreased construction ac-tivity should be taken into account here. Trade companies have different opinions regarding the anticipate total revenue based on their balance sheet for 2012: 35% antici-pate slightly better results; 40.9% anticipate slightly poorer results. Gross profits should be much lower according to 41.6%. The number of employees will be slightly higher for 38.6% of companies with 4,200 employ-ees at the end of the year; roughly the same for 33.7% (with 3,700 employees), while 17.3% companies (with 1,900 employees in 2011) anticipate to end the year with signifi-cant downsizing. Companies from the service sector an-nounced poorer results for 2012 in relation to 2011. A total of 28.4% anticipate slightly

Financing structure 2012.(in relation to 2011.)

PERSONAL FUNDS

OTHER SOURCES

BONDS, STOCKS

BANK LOANS

EU FUNDS

70,20%

60,70%

19,24%

21,04%

67,47%

59,24%

41,68%21,68%

much higher6,33%

much higher9,67%

much higher

8,96%

much higher0%

much higher0,86%

slightly higher14,66%


slightly higher

slightly higher0%


about the same

about the same

about the same

about the same

about the same

slightly less6,95%

slightly less2,92%

slightly less

slightly less11,49%

slightly less6,37%

much less1,86%

much less17,74%

much less

8,44%

much less

much less12,12%

Liquidity in 2013 will not change significantly


higher total revenue, 31% the same, and 34.9% slightly lower. Nett profits for 33% of service-providing companies should stay at the same level; slightly lower for 22.3%, and much lower for 24.2%. The anticipated num-ber of employees at the end of the business year should be much lower for 44.1% com-panies that ended the last year with around 7,000 employees; slightly lower for 30.3% (with 4,900 employees) and approximately the same for 13.5% companies that had around 2,100 employees at the end of 2011.The Top 400 anticipate almost the same sce-nario, except for a considerable reduction. Therefore, 10.4% anticipate much better results than in 2011, and 34.4% anticipate slightly lower total revenue. Some 28% with around 10,900 employees anticipate roughly the same revenue. Slightly lower revenue is anticipated by 27.1% with around 6,500 employees. Much higher nett profits for their 8,200 employees will be achieved by

25.3% companies, and 33% of companies with 7,800 employees will achieve slightly lower nett profits. Roughly the same profit should be achieved by 17.6% of the Top 400 companies with 3,600 employees. Slightly lower profits are anticipated by 8.4%, and 15.4% with 2,700 employees are preparing for much lower profit.During 2012, these companies employed

and also downsized. Therefore, 10.7% will have considerably higher employment rates compared with the former 3,000 employees, while 26.7% companies with 7,500 employ-ees at the end of 2011 will have a slightly higher employment rate. A total of 13.3% with 3,800 employees will have the same employment rate. A total of 23.1% em-ploying around 6,500 workers will have a slightly lower employment rate, and 25.9% stated they would end the business year with a considerably fewer number of employees in relation to the previous 7,300.

Financing in 2012Corporate financing through personal fund-ing remained roughly at the same level for 70.2% companies in relation to 2011. The majority of 60.7% used EU funds as in 2011, only 17.7% of mainly small-sized companies used them to a considerably lesser extent. A total of 41.6% used bank financing to the same extent as the year before; 19.2% used them to a slightly greater extent and 8.9% to a much greater extent. A total of 21.6% of companies asked for loans less, and 8.4% for loans to an even lesser extent. Bonds and shares were used at roughly the same level for 67.4% of companies, while 11.4% used this financing source to a slightly lesser ex-tent. A total of 21% companies reduced this type of financing considerably.In 2012, funding from other sources re-mained at a roughly same level as in 2011, which was confirmed by 59.2%. A total of 21.4% used other sources slightly more, and 12.1% used them considerably less in rela-tion to 2011.

Financing structure 2013.(in relation to 2012.)

OTHER SOURCES

53,61%

22,86%18,65%

much higher2,12% slightly higher

about the same

slightly less2,75%

much less

BONDS, STOCKS

25,65% 71,30%

much higher0,43%


about the same

slightly less2,50%

much less

BANK LOANS

59,33%

much higher8,37%


about the same

slightly less10,67%

much less10,20%

EU FUNDS

48,02%

27,91%

much higher8,95%

slightly higher

about the same

slightly less0,48%

much less14,64%

PERSONAL FUNDS

26,87%

64,71%

much higher4,02%

slightly higher

about the same

slightly less2,75%

much less1,65%

Bank loans will play a part in the financial construction of 59.3% companies


The order of priority must shift. It is questionable whether the executive power listens to compani-es when it comes to prioritising and crucial decisions the Government must make to exit the crisis.In 2012, priority number one was to reduce labour contributions and taxes. On the other hand, 22.7% of companies regard illiquidity as the biggest problem to be faced during 2013. This implies a shortage of money, slimmer possibilities for securing cash flow and liquid funds for normal busi-ness. In second place, at 19.9%, concerns the need to cut labour taxes and contributions. For 17.9%, the third priority concerns attracting foreign investment. Considerable downsizing of the state ad-ministration is the fourth priority with 17.3%, cheaper entrepreneurial loans take is the fifth priority with 13.7% votes. Finally, limiting the duration of bankruptcy procedures concerned 8.2% of com-panies. With the majority of groups, the order of priorities and the accompanying percentages are very close to those mentioned. Only construction companies have a different opinion. Their first priority is attracting foreign investment (24.3% of companies). The second, third and fourth pla-ces are similar according to percentage shares: considerable downsizing of state administration - 18.7%, reduction of labour taxes and contributions – 18%, solving illiquidity - 17.8%. The last prio-rity of the construction sector went to limiting the duration of the bankruptcy procedures (9.1%).

First things first

Priority ranking of decisions imperative for solving the crisis in 2013

13,75%

17,35%

19,93%

22,72%

8,29%

17,96%

cheaper lendingto entrepreneurs

significantreduction

in stateadministration

reduced taxationand mandatory

payments

improveliquidity

more rapidliquidationprocesses

attract foreigninvestment

Companies from the Adriatic Croatia area used different fund-ing sources to the same extent as in 2011, although 31.2% used personal resources slightly less, and 52.3% used bank loans slightly more.Some 76% of companies from the continental Croatia region used personal resources for in-vestment at the same level as 2011, some even slightly more (13.4%). A total of 57.4% used EU funding at the same level as 2011, while 18.6% decided to reduce this type of funding. A total of 45.2% used bank loans at the same level as 2011, while 24.9% decided to reduce this type of financing. The situation is the same in the case of financ-ing with bonds and shares. The majority (65.6%) used shares and bonds at the same level as in 2011; 13.3% slightly less, and 21% much less. A total of 55.2% of companies used other sources at the same level as in 2011. Some, (24.4%) used these funds slightly more than in 2011, and a smaller num-ber, (12.1%) used them consider-ably less compared with 2011.The majority of companies from the Zagreb area (79.1%) used personal funds for financing as they did in 2011, however, the use of EU funding increased. EU funds were used considerably more by 24.4%, slightly more by 19.7%, and roughly the same by 31.7%. At the same time, 6.9% companies used EU funding to a slightly less extent in 2012, and 17.1% considerably decreased the use of these funds as a source

of financing. Some 51.3% of companies used bank loans to the same extent as in 2011, of which 17.7% were medium-sized companies who used them much more than in 2011, with 17.2% mainly small-sized companies using these funds slightly less. About 51.7% used shares and bonds at the same level as in 2011. This type of financing was used slightly less by 27.5% in

2012, and 20.7% used them con-siderably less.Even 43.5% companies that used other sources for financing con-tinued to do so in 2012, and they were joined by 35.2% of compa-nies using this type of financing slightly more.During 2012, the processing in-dustry used mainly personal fi-nancing as in 2011 (64.9%), with 10.9% using them considerably more this year compared with 2011. A total of 68.3% used EU funding at the level of 2011, but 17% used them much less, com-pared with the last year. There were changes in the use of bank loans in relation to 2011. Around 8.2% companies used them much more than in 2011, and 16.6% used them slightly more. Some 38% used bank loans at the level of 2011. Around 28.6% reduced

their use during the year, while 11.4% used them even less com-pared with 2011. Around 54.7% companies used shares and bonds at the level of 2011, however, 25.4% used them slightly less and 19.7% used them consider-ably less.A total of 69.6% of companies in the processing industry used other sources for financing at the level of 2011; 13.8% slightly re-duced this type of financing, and 14.3% used other sources consid-erably less.

Personal fun ding in the financing plans for 2013According to the results of our survey, 64.7% of companies will use personal funding at roughly the same level as during 2012, with a tendency to increase their use. Around 48% companies

should use EU funds on the same level as during 2012, where 35% of the responding companies plan to use them considerably more. Around 14.5% companies intend to decrease their use considerably during 2013. Bank loans will play a part in the financial construc-tion of 59.3% of companies; the remaining 40% will use these funds more or much more, and roughly the same percentage will try to reduce their use slightly or considerably. Shares and bonds will be used at the same level as in 2012 by 71.3% companies, and some 25.6% will reduce their use. Around 53.6% companies will use other financing sources on the same level as during 2012. Next year, 22.8% companies will use other sources slightly more, and 18.5% companies will significant-ly reduce this type of financing.

A total of 57.4% used EU funding at the same level as 2011, while 18.6% decided to reduce this type of funding

www.privredni.hrBusiness & Finance Monthly 15DAMIR NOVOTNY, PH.D, ECONOMIC ANALYST

2 012 can mainly be remem-bered as a year of great expectations for the corpo-

rate sector from economic policy measures announced during the first year of the term of office of the government of Prime Min-ister Zoran Milanović. Unfortu-nately, the announced short-term measures, specifically investment made by state-owned companies that was supposed to revive do-mestic demand (vital for a large number of Croatian private com-panies), was not implemented. Government policy focused on the preservation of liquidity of the central state, which was its princi-pal objective during this first year of term in office. Irrespective of

the fact that the contraction in ag-gregate domestic demand caused a decrease in state tax revenue, the most severe threat for the state budget was non-existent and if there was one, it could not be managed. The exhaustion of polit-ical credit granted to the govern-ment during the elections, mainly due to the preservation of liquidity

and minor savings in expenditure, whilst simultaneously increasing the base VAT rate, merely raised negative expectations in the pri-vate sector and caused a new re-cessionary wave.

Anxious ministersState-owned companies were not in a position to launch a new in-vestment cycle, due to strategic and operating (mainly human and financial) deficits. The pri-vate, household and corporate

sectors did not see sufficient op-timism in the economic policy measures implemented by the government and in the dubious behaviour of government min-isters. Risks were huge in 2012 and significant private invest-ment was a rarity, whilst on the other hand savings increased. Unemployment continued to

rise as a result of the adaptation of the private sector to newly arisen circumstances and rising insolvency. The rational myth of tourism consumption, which has been dominant in Croatian economy for decades, finally most probably dissolved in 2012. Tourism resources were explored to the maximum extent, due to a long and extremely hot summer. Summer heat is particularly ad-vantageous for Croatian tourism, based on the old-fashioned con-cept of “sun-and-sand”, yet it ad-versely affected agriculture, the second most important sector of the economy, resulting in reduced activity in the food processing in-dustry during the third quarter in 2012. The Croatian economy is re-entering a new cycle of free-fall, following short-term stabi-lisation in 2011. The optimism expressed by the government concerning the stabilisation of Croatian economy in 2013 and anticipation of positive trends in-dicating economic growth appear to be utterly unfounded.

Turning point imperativeLong-term stagnation, which would deepen economic and so-cial erosion, can be avoided pri-marily by vigorous and deep re-forms. The Croatian government and the political elites need to opt

for a new economic model, radi-cally different from the existing one. Significant economic growth over the medium-term will not be achieved unless the political elites are prepared to renounce the formerly adopted ‘doctrinal-oriented’ approach to (or perhaps confusion in) resource manage-ment of the Croatian economy, relying on state capitalism. 2013 will be the year of Croatian EU accession and the year of integra-tion with the European market, one of the two largest markets globally. The domestic private sector, with insufficient capital and political support, will in most cases not manage to integrate. A similar situation occurred in Slo-venia, which saw a breakdown of her capitalism. Private com-panies will be given the oppor-tunity to use EU fiscal stimulus instruments allocated to Croatia, which she will probably not man-age to use to its full potential, as the government is primarily fo-cused on state-owned companies. Irrespective of a ‘positive shock’ concerning Croatian EU acces-sion in mid-2013, economic un-certainty will most probably per-sist through 2013, unless there is a turning point in government policy and unless the government opts to open towards the private sector.

Croatian economy re-entering a new cycle of

free-fall, following short-term stabilisation in 2011

Vigorous and deep reforms essential to avoid long-term stagnationAny significant economic growth over the medium-term will not be achieved unless the political elites are prepared to replace the formerly adopted ‘doctrinal-oriented’ approach to (or perhaps confusion in) resource management of the Croatian economy, relying on state capitalism


ZDESLAV ŠANTIĆ, SPLITSKA BANKA

F ollowing an extremely difficult year for the local economy, to be remem-

bered primarily for a plunge in economic activity and employ-ment, as well as for a steep rise in prices, it is exceptionally de-manding to be an optimist. A lack of consistency in fiscal policy and currently a slow pace in the implementation of structural reforms are additional reasons for concern, indicating the low reforming capacity of Croatian society. Croatians need to draw several conclusions based on their experiences in 2012, nota-bly concerning the fact that cur-rent times are not the best for unfounded optimism, primar-ily within the recession condi-tions that are likely to persist throughout 2013. Moreover, sta-ble conditions on world financial markets at the end of 2012 were due primarily to unconventional

and expansive monetary policy measures, indicating the likeli-hood of positive trends to be merely short-term. The effective functioning of monetary authori-ties is notably reduced within ex-

treme variations of interest rates. Against a background of similar circumstances in the internation-al environment and being aware that there is no simple and rapid solution for the current problems

in the domestic economy, an-ticipated stagnation in domestic GDP (reaching just 0.4% growth) in 2013 can be considered as ac-ceptable.

It has to be highlighted that the current unfavourable trends in the economy will also persist during the first six months in 2013. The overall impact of Cro-atian EU accession on the local economy is uncertain thus far. Long-term benefits are certain, yet a large number of challenges in the short-term are likely to exceed benefits. Rising operat-ing costs in the medium term might be the greatest challenge for local entrepreneurs. Producer prices in Croatia have been ris-ing considerably compared with those throughout the EU over the last several years. Simulta-neously, the reduced tax burden and parafiscal taxes have been

implemented ineffectively, in order to mitigate higher produc-tion costs for entrepreneurs, as a result of the fact that relieving the private sector can occur pri-marily providing current public consumption is reduced, and the public sector is thoroughly re-structured. Consequently, unfa-vourable trends can be anticipat-ed in the domestic labour mar-ket, which will generate pressure on living standard during 2013, also due to on-going price rises at above 3%. Hence, we are fac-ing a new year during which we will need to tackle most of our misconceptions, primarily those based on the belief that Croatian EU accession will provide the solution to all our problems and subsequently Croatians will not have to implement major chang-es to their businesses, whilst being able to achieve excellent results.

2013: another arduous year for Croatian economyRising operating costs over the medium term is the greatest challenge for domestic entrepreneurs

DUBRAVKO RADOŠEVIĆ, PH.D. INSTITUTE OF ECONOMICS, ZAGREB

T he current adverse macro-economic trends in Croatia are a result of two major

adverse trends – primarily com-prising of an inappropriate devel-opment model and secondly of the sovereign debt crisis in Eu-rope. Croatian EU accession will happen against a backdrop of the second sovereign debt crisis in the European Monetary Union, with any solution to the crisis be-ing tackled with considerable un-certainty, mainly considering the structural discrepancies within the Monetary Union. Discrepancies between political integration and the level of monetary integration

among members are a fundamen-tal issue. On the other hand, sub-stantial discrepancies between the common monetary policy and na-tional fiscal policies primarily ac-count for inherent instability with-in Monetary Union. The European Central Bank is the third structural disadvantage, irrespective of the fact that the monetary strategy of the ECB has been substantially up-graded to prevent a further bank-ing crisis in the EU. The fourth major issue is the very weak level of co-ordination between macro-economic policies of the Eurozone members and the European Union, as well as an absence of effective

mechanisms for tackling the crisis. Current economic conditions are a major obstacle to a Croatian exit from the crisis, due also to the fact that Croatia has a small and very

open economy. Consequently, Croatia will need to implement thorough economic reforms, as well as anti-crisis policies that need to focus on fostering eco-nomic growth, industrial revival and reduced unemployment. Such reforms need to create room to manoeuvre for flexible macroeco-nomic policies (reflationary mon-etary policies and fiscal stimuli to foster aggregate demand) in order to enable a Croatian exit from the crisis in 2013 and achieve planned economic growth by applying the theorem of ‘the impossible trinity’ or adopting a new model of eco-nomic growth.

A good time for the application of the theorem of ‘the impossible trinity’Economic reforms are essential, as well as anti-crisis policies that need to focus on fostering economic growth, industrial revival and reduced unemployment

www.privredni.hrBusiness & Finance Weekly 17ZRINKA ŽIVKOVIĆ MATIJEVIĆ, HEAD OF ECONOMIC RESEARCH DEPARTMENTRAIFFEISENBANK AUSTRIA ZAGREB

I n 2013, we anticipate a low level of economic recov-ery and real GDP growth to

stand at 0.5%, since it is highly exposed to negative risks. Thus, Croatia may be facing another difficult year or an economic downturn for the fifth consecu-tive year. Real growth of 0.5% is based (predominantly) on a mild re-covery in (public) investment al-though such investment is simul-taneously the most insecure and a hardly predictable category. Hence, it is exceptionally diffi-cult to estimate whether any long anticipated investment will even-tually be implemented, as well as whether it will imply benefits and contribute significantly to sustainable economic develop-ment. It has to be stressed that it

most certainly cannot be a me-dium-term growth promoter, as this was previously ineffective when both investment and con-sumption were financed by large foreign capital inflows creating the illusion of rising wealth. A stimulating investment climate, which is fundamental for private investment, is created through

the abolition of a vast swathe of administrative hurdles, tax changes, labour market flexibil-ity, and the comprehensive re-form of public services that are crucial for fostering effective-ness. According to new regulations on financial operations and pre-bankruptcy agreement enforced in October 2012, B2B payment deadlines stand at 60 days, whilst payment deadlines between companies and the state will be 30 days. The implementation of these regulations will accelerate the disappearance of insolvent companies. The negative im-pacts of reduced production and employment over the short-term will significantly lower the level of economic activity, although the investment climate is antici-

pated to improve, as well as sus-tainable economic development to be promoted over the medium and long-term. Domestic demand is not expected to recover in 2013. Export growth rates are anticipated to be minimal due to exports being stifled by low levels of competitiveness, a nar-row export base and an unforgiv-ing external environment. The trend of reducing the cost of external financing begun dur-ing the third quarter of 2012, is anticipated to persist until mid-2013, or by the time of Croatian EU accession (providing the in-vestment rating is retained). Nev-ertheless, the accepted budget for 2013 anticipates rising public debt, hence further increasing the vulnerability of the state to exter-nal shocks.

Comprehensive reforms animperative for growthExport growth rates are now flat due to exports being stifled by low level of competitiveness, a narrow export base, and an unfavourable external environment

ŽELJKO LOVRINČEVIĆ, INSTITUTE OF ECONOMICS

I n 2012, the Croatian econ-omy saw a 1.9% drop over the third quarter, with a

1.8% decrease year-on-year, ir-respective of an excellent tour-ism season that did not succeed in compensating for a sharp de-cline in both industry and trade. Thus, 2013 will see stagnation, with growth will slightly above zero. The Ministry of Finance has been focusing on fiscal discipline and simultaneously slightly increasing tax pressure, irrespective of its unwillingness to admit it. In addition, 2013 will see higher taxes on gas and electricity, as well as tobacco, whilst the zero-rate of VAT will be removed. Croatia will see a similar situation as that of 2012. Tax authorities have been tack-ling the grey economy, whilst simultaneously increasing the tax burden.

Banks have stopped lending and have been increasingly with-drawing funds from Croatia as a result of the frustrating economic conditions. Demand for loans from the household sector is non-existent, due to overall economic uncertainty. 2012 saw a 5% drop in living standards, primarily as a result of soaring energy prices. 2013 will see a continuation of such trends, albeit at a slightly slower pace and standards will decrease by around 2%.Nevertheless, the corporate sector will be the most severely affected. Invoice payment and liquidity have hardly ever been more un-satisfactory. Most Croatian com-panies have been mainly focusing on the domestic market and are hence currently facing tax pres-sure and decreasing demand, hav-ing little or no exports and thus being caught in a vicious circle.

They generally opt for short-term solutions such as redundancies and 2013 is likely to see a contin-uation of such trends. Optimism

can hardly be maintained under these circumstances. The restruc-turing of public companies and the implementation of several re-forms are imperative and would substantially encourage recovery in the corporate sector.Croatian tourism has seen excel-lent results for the last several years, hence compensating for export losses. Nevertheless, 2013 will yet again see excessive ex-pectations from the public sector. Investment will foster productiv-ity in the energy sector, yet com-petitiveness will not rise signifi-cantly. Croatia might even incur substantial costs. The investment cycle in Croatian water (Hrvat-ske vode) will certainly result in rising prices in the long-term and consequently water prices will double over the next decade, which might adveresely affect general public spending.

2013. will see stagnation

Tax authorities have been tackling grey economy,

whilst simultaneously increasing tax burden


Drago Živković

Since 1993, Croatia has signed a total of 59 con-tracts on investment pro-

tection and promotion, of which 23 were signed with EU mem-bers. The majority of the con-tracts were signed between 1996

and 2001. The contracts with the following states have been termi-nated: Cuba, Indonesia, Mongo-lia, Morocco, Oman, Russia and Zimbabwe. Negotiations over contracts and bilateral agree-ments on economic co-operation, which had been subject to the jurisdiction of the Ministry of Economy, were taken over by the State Office for Trade Policy. The contracts are signed by the Government, and they mainly define dispute settlements in ar-bitration procedures by applying international rules.On the basis of the signed con-tracts on investment protection and promotion, investors insti-tuted two arbitration procedures against Croatia, and two settle-ments were reached, said Deputy State Attorney, Federica Merijer Dusman, at the 20th Croatian Ar-bitration and Conciliation Days.An investor from Canada insti-tuted a procedure before arbi-tration in Stockholm, claiming

Croatia had violated equality, which led to the expropriation of his investment. The arbitration court in Stock-holm refused his request in May 2008. An investor from Austria instituted a procedure before an arbitration court in Den Haag, and his request was also denied. The investor then referred to the regular court in Den Haag, re-questing it to overrule the verdict of the arbitration court, and this claim was denied on August 15, 2012. The appeal procedure is in progress.

Treaty of LisbonInvestors from Italy and Sweden filed requests for a peaceful dis-pute settlement. In both cases it was determined that the actions of the state bodies led to expro-priation at the cost of the inves-tor. Two settlements were then reached and the disputes settled. A further two investors from It-aly and the USA, as well as one from the Belgium-Luxembourg

Economic Union, filed requests for peaceful dispute settlement, but their requests have not been accepted for now.During the process of Croatian EU accession, one part of the contract on investment promo-tion and protection was harmo-nised with the acquis commu-nautaire. This led to signing ad-ditional protocols together with the existing agreements with Albania, Romania, Slovakia, Turkey, the Czech Republic, San Marino and Israel. Negotiations are in progress with several other

states, and the protocols will be signed soon. Other countries, on the other hand, refused to accept changes in the contract. In 2008, a contract was signed with Azer-baijan, which was fully harmo-nised under EU law. However, after the Treaty of Lisbon had come into force on December 1, 2009, it became obscure whether these contracts were valid. This primarily concerned the con-tracts signed between EU mem-bers. According to the Treaty of Lisbon, foreign direct investment falls under common trade policy, which is exclusively subject to the jurisdiction of the EU. The difference in opinions relates to whether the contracts on invest-ment promotion and protection are compatible with EU law, and whether the arbitration courts are competent for settling disputes arising from these contracts.

Commission against arbitrationIn May 2010, the European Commission proposed a draft of a directive that would solve this problem, but the directive has still not been adopted by the Eu-ropean Parliament. The directive regulates the transfer regime for roughly 1,000 contracts, signed between the EU and third coun-tries, and the replacement of old contracts with new ones, in which the EU would act as the contract party. Judging accordingly, the disputes will not be settled when Croatia joins the EU on July 1, 2013, which means it is uncertain whether the contracts on invest-ment promotion and protection Croatia has with EU members will be valid.

Foreign investment promotion and protection

Contracts are signed, but it is vague whether they will applyAfter the Treaty of Lisbon came into force, it became obscure whether the contracts on investment promotion and protection would apply. This primarily concerns contracts signed between the members of the EU

On the basis of the signed contracts,

investors instituted two arbitration procedures

against Croatia, and two settlements were agreed

(between EU members and third countries

1,000 contracts on investment protection

Total value of foreign direct in-vestment into Croatia from 1993 to the end of June 2012 is €25.85 billion, and the majority relates to financial mediation, trade, real estate, post and telecommunica-tion. Austria is the largest inve-stor, followed by the Netherlands, Germany, Hungary, Luxemburg, France and Italy.

Investment of €26 billion


CROATIAN GOVERNMENT PRESENTED INVESTMENT PLANS

(anticipated by the government in 2013

11.5% growth in investment

Igor Vukić

Investment in Croatia is an-ticipated to grow by 11.5% or almost €1.2 billion. Total in-

vestment of €9.6 billion is antici-pated, as announced by Branko Grčić, Vice-President of the Gov-ernment during the government session held in December. Irrespective of any anticipation of remarkable investment growth in several sectors, primarily in the railway sector, Grčić pointed out that the total announced in-vestment will slightly exceed in-vestment in 2010. Nevertheless, it will be substantially lower than in 2007 when it stood at €12.4 billion. The state is planning to invest €2.9 billion. Investment into pub-lic companies will slightly ex-ceed €2 billion. The government has devised an ambitious plan of investment growth of €0.6 billion in relation to 2012, when invest-ment in state-owned companies stood at around €1.4 billion. Ac-cording to Prime Minister, Zoran Milanović, 2012 was the year of “preparation of projects, whereas it is anticipated 2013 will be the year of project implementation”.

Major projectsPrimary investment is planned in HEP, the largest provider of pub-lic electricity supply services in Croatia, (€0.4 billion), as well as

in Croatian Roads (Hrvatske ces-te) worth €0.3 billion, Croatian Motorways (Hrvatske autoceste) of €0.3 billion, HŽ Infrastructure (€0.2 billion) and Croatian Water (Hrvatske vode) with an invest-ment value of €0.2 billion.

It is important to highlight pro-jects in the energy sector and primarily the construction of the Ombla Hydro Power Plant, worth around €24 million. In addition, €16.9 million is earmarked for Bloc C of the Thermal Power Plant Sisak, with €16.4 million planned for the Zakučac Hydro-electric Power Plant. €37.6 mil-lion is the planned investment value for oil terminals in Zagreb and the Krk-based Omišalj, with an initial investment of €6 mil-

lion being planned for the LNG terminal. Plans for the transport sector comprise the construction of the A5 Motorway Beli Manastir-Osijek-Svilaj that will proceed in 2013, (€74 million). Some €60 million is the planned investment of the Split-Ploče section. Work valued around €40 million is ex-pected to proceed on the Zagreb-Sisak motorway. The largest investment of €90.8 million is planned for the rail sector con-cerning primarily the renovation of Corridor X, extending from West to East of Croatia. Around €29.3 million will be invested in the renovation of the Oštarije-Knin-Split railway.

Private investmentThe government anticipates growth in private investment of €0.2 billion during 2013. Private investment in 2012 was assessed at €6.5 billion, whereas in 2013

it is anticipated to stand at €6.7 billion. Grčić also announced the continuation of reforms to enhance competitiveness, in compliance with directives from the World Bank. The state is planning to co-operate with the private sector and thus antici-pates investment implementation worth €0.4 billion. In addition, the Zagreb Airport project im-plementation will commence, as well as Bina Istra construction works, Zagreb-Macelj motorway, Port of Ploče Authority and sev-eral others. It is also anticipated that Croatian EU accession will foster the inflow of foreign in-vestment. Milanović stated that, according to estimates made by the European Commission, it is anticipated 2013 will see a slight growth of 0.4%, due to the fact that Italy and Slovenia, important export partners, have been se-verely affected by a new wave of crisis. Nevertheless, according to the European Commission, both countries will see slightly better results, which will consequently have a significant impact on a rise in Croatian exports which the government believes will foster GDP growth. According to gov-ernment estimates, growth will stand at 1.8%, providing personal consumption figures remain on par with those in 2012 and the announced investment plans are implemented.

State planning to invest €2.9 billion

The railway committee, chaired by Prime Minister Milanović, has recently decided to begin the construction of a rail link extending from the Hunga-rian border to Rijeka and running through plains and valleys. The new ra-ilway will go from the border to Skradnik near Josipdol (halfway between Zagreb and Rijeka) and another track will be constructed from that po-int to Rijeka along the existing rail link, running through the Gorski kotar valleys. Trains will operate at an average speed of 120kph, whilst the con-struction will start in 2015 and will be completed in 2018 with substanti-al inputs of EU funding.

From Hungary to Rijeka – by rail through plains and valleys

Will investment plans be implemented in 2013?

The government has devised an ambitious plan of investment growth of €0.6 billion in relation to 2012 when investment in state-owned companies stood at around €1.4 billion


(entered into official records in 2009

210 abandoned military bases at 0 84 locations

Sanja Plješa

There are a large number of abandoned military bases at attractive locations

throughout Croatia that were to be renovated and used for tour-ism purposes years ago in order to make more effective use of them. Subsequently, it was de-cided that several would become campuses, whilst the remainder would undergo tourism renova-tions and updating. Abandoned military bases in Zadar, on the island of Molat, in Pula and Umag are also to undergo a simi-lar process. Several, such as Ku-pari-Srebreno and on the Brijuni

rivijera, two large military bases will adapted to tourist resorts, are managed by local authorities. The registry of the Ministry of Defence from 2009 consisted of 210 military bases at 84 locations that were declared inadequate for

military purposes. A year ago, the Agency for State Property Man-agement (AUDIO) assumed man-agement of 85 similar facilities. According to AUDIO, 70% of these assets need to be revitalised through local authorities, whilst development projects will be de-vised for the remaining 30%.

Adapted basesViktor Koprivnjak, Assistant Minister of Defence, stated that it would be possible to use some 20 currently abandoned military bases for tourism purposes in 2013 provided they are thorough-

ly renovated. His comments pri-marily referred to the commercial building in Zagreb, the Zdenčina military base, the Petrovija es-tate, the Barbariga-based military base, the Turtijan warehouse in Istria, the military headquarters in Lošinj, Križ and JAZ I,II and III (warehouse and military base) in Zadarska County, as well as the military base near Ražanj and in the north on the island of Žirje, on the islets of Koromašna and Zlarin in Šibenik-Knin County. In Split-Dalmatia County, there are the KUK-1, the Gata estate, the Marinča, Stupišće and Nova

Pošta capes, whilst the Lastovo-based military base, the Sirena hotel, a command centre for the former Yugoslav Army and Zve-kovica near Cavtat are located in Dubrovnik-Neretva County. Koprivnjak pointed out that in the case of several abandoned mili-tary bases there are currently still unresolved legal and property is-sues that need to be overcome in order to start the renovation pro-cess for tourism and make it pos-sible for 38 similar facilities to be renovated and used as hotels, hostels or similar tourist accom-modation.

ABANDONED MILITARY BASES USED FOR TOURISM PURPOSES

From military bases to tourist resortsSome 20 abandoned military bases will be renovated and used as tourist facilities and 38 more will be used as tourist resorts by 2019

Abandoned military bases in Zadar, on

the island of Molat, in Pula and Umag will

also undergo tourism updating and renovation

The Agency for Investment and Competitiveness began operations on 1st September 2012 in order to encourage and facilitate renovation and adap-tation of abandoned military bases. Its primary goal is a systematic implementation of compe-titiveness enhancement policy within the Croa-tian economy. The Agency focuses on the prepa-

ration and promotion of similar projects, as well as on the application for public tendering in or-der to select the best investor. The Agency has thus far prepared promotional material for 13 tourism projects from the government portfolio, as well as for the Kupari-Srebreno development programme.

Agency for Investment and Competitiveness in charge of project preparation

PV International 0221

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