Croatia’s best in export, technology and manufacture
21 st edition
As the newest member of the European Union, Croatia will soon mark the first anniversary of its EU membership. EU accession was a major success and encouragement for us that we are after all, generally speaking, a successful country. Not better than others, but not much worse either. This shift in the perception of our role and our position within the European family of nations was important to us – for the sake of others, and for the sake of ourselves. Accession needed to restore our self-confidence and give optimism during times that are not easy, as well as show direction for the further development of our society.
Unfortunately, there is not much reason to celebrate since Croatia has been in recession since 2009. During the five-year crisis, Croatia’s real GDP dropped by almost 12 percent, and recovery is not expected this year although there are some first modest data giving reason to assess that we are in the recovery stage. The recession heavily affected the labour market causing the unemployment rate to exceed the 17 percent mark in 2013, double the rate in 2008. The major challenge in coping with unemployment is that an excessively high number of the unemployed are amongst the young generation, as many as 50 percent in 2013.
The 2008 global financial crisis unveiled the fundamental problems of Croatia’s economy which in addition to deep structural problems also include a poorly competitive export sector, an underdeveloped labour market, substantial private debt and poor management of public finances. The impact of these factors against the backdrop of an unfavourable environment abroad slows down economic adjustment, which in turn prolongs the recession. The fall in real GDP since 2008 has been attributed to a significant decrease in domestic demand and particularly to a reduced level of investments.
Croatia is today facing external and internal macroeconomic imbalances. External imbalances are reflected in Croatia’s foreign debt which is at the level of its GDP. The poor performance of the export sector resulted from an insufficient level of specialisation in the production of certain products geared to an unfavourable geographic market orientation, as well as a negative state of international investments, which, generally speaking, does not contribute to lowering the country’s foreign debt. Internal imbalances are reflected in the large indebtedness of the private sector, a rise in bad loans, a slow and painful debt clearance process, increase in public debt as well as weaknesses in the business environment, domestic market competition, and the labour market. The significant fiscal adjustment that Croatia will have to make due to an unsustainable rise in public debt, in order to increase its credibility, will have an unfavourable impact on short-term growth.
An improved external environment and access to the substantial resources of European structural and investment funds, the effects of which will primarily depend on the quality of implementation, can, in the medium-term, substantially contribute to Croatia’s economic growth. However, it is certain that the growth dynamics will depend on our capabilities in preparing good and recognisable projects, as well as on our efficiency in removing structural restrictions that impede economic growth.
The Government has undertaken certain activities in the direction of reducing macroeconomic imbalances; a good framework has been put in place in the field of investment promotion, simplifying procedures and introducing new incentives for investors. Since a high private sector debt continues to be the major impediment to Croatia’s economic recovery, bankruptcy regulations have been changed in order to make exiting the market much easier. The introduction of a regime of personal bankruptcy that would make allowances for a fair division of the debt between the debtor and the creditor should be of assistance to a sizeable number of our citizens.
We have on a number of occasions discussed what needs to be changed in our society in order to move it forward rather than backwards. More entrepreneurship and more work is needed, as well as more social responsibility on the part of all actors in the public domain. Now that we have ensured some fundamental values underlying our society – peace, freedom and security, membership of the European family of nations – it is time to focus on new goals. In order to achieve them, one needs to find a way to encourage those who are innovative, who want to acquire new knowledge and use new technology. We need to break free from unnecessary administrative and other barriers, which are choking innovation and serve no useful purpose at all. Let us rely on our own forces, apply new knowledge, new technologies, let us follow new trends and attract new strategic partners for new initiatives. We have to go out to some new markets and find some new niches.
We cannot be present everywhere in the world but where we are present – we have to be excellent!
Ivo Josipović,
President of the Republic of Croatia
