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| Why to enter this market? |
- EU candidate state
- Well developed transport infrastructure
- Long time industrial traditions
- Skilled, well educated workforce
- Favourable geographical location
- Simple aid criteria
- Ranked among world top 10 reformers by the World Bank in 2006
- Legislation harmonized with the one of EU
- Connected with the Western economies even during communist times
- Available pool of working force
- Existing domestic market
- PPP projects
- Interesting location for innovative industries
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Economical and Business Environment
Since the 1990s, the Croatian economy has been growing steadily, experiencing a 4% growth rate on average. According to the World Bank Doing Business Report Croatia is ranked 97 out of 178 economies in terms of ease of doing business, 93 out of 178 when taking into account starting a business. Paying taxes and getting credit seems to be relatively easy, while Croatia is ranked 43 and 48 respectively. On the other hand when taking into consideration protecting investors and employing workers performs badly when compared with other world economies. Dealing with licences poses biggest problem when starting a business in Croatia since it is ranked 162 out of 178.
It has to be recognised as a big success and good indicator for future investors that Croatia was ranked as the second reformer in the world that are making it easier to do business. According to World Bank’s report Croatia reformed in four of the 10 areas studies. Registering property in Croatia used to be a long and troublesome process which took roughly 1,000 days, now it takes around 175 which is a massive progression of accelerating it 6 times. Moreover credit became more accessible and company start-up became significantly easier. Egypt is the only country I the world which made more improvements and facilitated the process of going business to a greater extent.
EU pre-accession funds, along with World Bank and EBRD financing, will enable significant infrastructure improvements, focusing strongly on transportation and education. Croatia offers a solid macroeconomic framework and infrastructure, which in the eyes of investors is crucial. However, an inefficient public administration and judiciary are seen as notable barriers to doing business efficiently and quickly. The Croatian economy is primarily service based with the service sector accounting for 61.2% of total GDP. Foreign Direct Investment (FDI) combined with private consumption contributed mainly to the stable growth. Increasing numbers of companies are selecting Croatia’s capital Zagreb as a sales and marketing hub
In 2007 GDP growth rate was recorded at the level of 5.5%, then in 2008 it decreased by 3.1 p.p. reaching the level of 2.4%. It is expected that in 2009 the growth is going to achieve negative value reaching -3.7% and then in 2010 will be close to zero, however, positive. The GDP per capita recorded at EUR 10,500 in 2008 is forecasted to reach the level of EUR 9,860 in 2009. As the majority of the GDP is generated by services with tourism playing a significant part and industry taking second place.
The inflation was recorded at the level of 2.9% in 2007 and in the next year its growth pace has increased to 6.1%. In 2009 and 2010 inflation rate is forecasted to decrease to 2.1% and 2.5% respectively as a result of major cool down of the Croatian economy. According to the International Monetary Fund the inflation rate should maintain in the area of 3% until 2014.
Unemployment rate has reached 8.6% in 2008, however it faced decrease over the previous years from 11.2% in 2006 and 9.6% in 2007. Current forecasts assume this trend to reverse and the amount of jobless Croatians in the total amount of working age population will increase to 10.5% in 2009 and 11% in 2010. Significant social inequality remains in Croatia, with GDP per head in Zagreb – the richest region – being much higher than regional, particularly war-affected, areas.
The tourism and banking sector are two most popular sectors by FDI with their value in 2008 recorded at EUR 2.8 bn (down from EUR 3.5 bn in 2007). Three countries that invest most are Austria, Belgium and the Netherlands.
The country suffers from a high export deficit. Since 2005 import has at least doubled export. And Italy is the main export and import partner. Right after follows Germany and Slovenia.
The main industrial production sectors are: electrical engineering, pharmaceuticals, textiles, food processing, chemicals, manufacture of machines and devices, shipbuilding and telecommunications equipment. The restructuring of the ship-building sector will be the main priority for the Croatian government in the next few years. Industrial export makes up more than 95% of Croatia’s total commodity export. Main industrial enterprises are located around such urban centres as Zagreb, Zadar, Rijeka, Split, Osijek, Karlovac, Sisak and Varazdin.
Croatia is located in a southern-central part of Europe. It lies at the crossroads between the Pannonian Plain and the Mediterranean Sea. Croatia borders with Slovenia and Hungary to the north, Serbia to the northeast, Bosnia and Herzegovina to the east, and Montenegro to the far southeast. The country borders the Adriatic Sea in the South and West. It shares a sea border with Italy in the Gulf of Trieste.
Social environment
The country has faced in recent times a strong migration due to unbalanced economical development of particular regions. Most of migrants chose areas of growth such as the capital city Zagreb, which more than doubled its population, reaching now approximately one million inhabitants. Parallel to this rapid urbanization was a drastic decrease in the birth rate, from 22.2 births per 1,000 populations in 1947 to 9.3 per 1,000 in 2007. Now Croatia is inhabited by 4,5mn people and this figure has been unchanged since 2004. Net migration accounted for approximately 12,000 in 2007. The male female ration has been recorded at 0.93 in 2008.
Political environment
Croatia has emerged as one of the most successful successor countries of the former Yugoslav Republic. Since adopting the 1990 constitution, Croatia has been a parliamentary democracy. All citizens of Croatia are guaranteed freedom, equality and human rights. When comparing Croatia to its European neighbours, the political risk associated with doing business is relatively low. Political stability is often encouraging to foreign investors. Croatia is a member of the United Nations, the OSCE (Organization for Security and Co-operation in Europe) and the Council of Europe. The country is currently negotiating its membership in the European Union, its most important trading partner, and has received an invitation to join NATO in April 2008.
The President of Croatia, the head of the state, is elected by general election and serves for a period of five years. Additionally the President is Commander in Chief of the Armed Forces and is strongly engaged in decision-making with regards to foreign and national security policies. The Croatian Parliament is a unicameral legislative body of 152 representatives (one seat was added in the November 2003 parliamentary elections), all elected by popular vote to serve four-year terms. In 2005 Stjepan Mesic was re-elected as president, thus Croatia’s pro-European and pro-Western orientation will be maintained in the next few years. Croatian Prime Minister Ivo Sander, backed by the Croatian Parliament, made EU and NATO accession a top priority. Economic growth and stability, with emphasis on agriculture and tourism, are country’s internal priorities.
The EU expresses its deep concerns about the judiciary and high level of corruption, which in its view have the potential of significantly undermining the economic development of the country. Croatia is expected to develop more efficient administrative capacity, which is essential in implementing the acquis communautaire. The EU is expected to conclude its membership negotiations with Croatia in 2009 (one of the issues keeping the process at bay is a border dispute with neighbouring Slovenia).
The government has launched several important reforms to improve the investment climate, including the introduction of stop shops for business registration, taxes and customs. These reforms were highly successful: Croatia’s efforts were recognized by the World Bank’s Doing Business 2008 report, in which Croatia was ranked as the number one reformer in Europe, and number two worldwide.
Infrastructure and technological environment
Croatia is located at the crossroads of the most important highways in Europe. When judging by Eastern European standards Croatia has a comparatively developed infrastructure. Throughout the last decade the transport network has been developing significantly, it has to be noted that construction of the roads has been of chief importance. High level development of the motorway network does not correspond to the condition of state, county and local roads. In 2004 the Croatian government adopted the Public Roads Construction and Maintenance Programme for the period 2005-2008. The government is investing substantial funds in national infrastructure in order to attract investors who consider developed infrastructure a key factor in opening businesses. Croatia wants to become a key transit and economic hub in the region. The existing network of roads, motorways and airways along with sea ports provides good area coverage; however government recognises that there is still room for improvement and therefore various measures and initiatives are being taken.
Accordingly to the World Bank Croatia’s transport system comprises about 27,000 km of classified interurban roads and 22,000 km of local roads. It is worth mentioning that after a few years of continuous development of the road network the total length of motorways in Croatia has reached 1163 km in the end of 2007.
There is a 2,664 km railway network, of which about 250 km are double track and 1,000 km electrified. What is interesting the length of railway in Croatia exceeds the European average by almost 40%; Croatia has more than 60 km of rail track per 100,000 inhabitants. The main sea ports of Rijeka and Ploce and five secondary sea ports, plus numerous river ports on the 918 km of the Sava and Drava rivers.
The internet penetration rate has reached 44% in mid 2008 while the same ration for the mobile telephony has been recorded to break the 100% barrier in 2nd quarter of 2007.
General data
Area: 56,594 km2
Population: 4.4 mln (2008)
Capital city: Zagreb
Language: Croatian
Ethnic groups: Croats
Land boundaries: Bosnia and Herzegovina (932 km), Hungary (329 km), Serbia (241 km), Montenegro (25 km), Slovenia (455 km)
Major economic indicators
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2006
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2007
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2008
|
2009f
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2010f
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| GDP (EUR bn) |
39.0
|
42.9
|
46.4
|
43.7
|
45.8
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| Population (mn) |
4.4
|
4.4
|
4.4
|
4.4
|
4.4
|
| GDP per capita (EUR) |
8,774
|
9,662
|
10,462
|
9,856
|
10,322
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| GDP (constant prices y-o-y %) |
4.7
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5.5
|
2.4
|
-3.7
|
0.2
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| Exports, real, y-o-y (%) |
6.5
|
4.3
|
1.7
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-4.0
|
0
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| Imports, real, y-o-y (%) |
7.4
|
6.5
|
3.6
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-5.0
|
0.3
|
| CPI (average, y-o-y %) |
3.2
|
2.9
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6.1
|
2.7
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2.5
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| Monthly wage, nominal (EUR) |
906
|
961
|
1,044
|
1,021
|
1,048
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| Unemployment rate (%) |
11.2
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9.6
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8.6
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10.5
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11.0
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| Net FDI (EUR bn) |
2.6
|
3.5
|
2.8
|
1.5
|
1.7
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| FDI % GDP |
6.6
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8.1
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6.1
|
3.4
|
3.7
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| FX reserves (EUR bn) |
8.7
|
9.3
|
9.1
|
7.8
|
8.5
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| (Cur.Acc-FDI)/GDP (%) |
-0.3
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0.5
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-3.5
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-2.7
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-1.7
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| Exchange rate to USD AVG |
5.83
|
5.35
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4.91
|
5.78
|
5.71
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| Exchange rate to EUR AVG |
7.33
|
7.34
|
7.22
|
7.50
|
7.50
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Last update: Q2 2009
Useful data
Currency: Kuna (HRK)
Exchange rate: HRK 1 = EUR 0.1385 (2008)
Time zone: GMT +1
Area code: +385
If you would like to find out more on the Croatian market opportunities please do not hesitate to contact us directly:
phone: (48 12) 292 22 50
faks (48 12) 292 22 99
e-mail: info@pmrconsulting.com
PMR Business Solutions in Croatia
Market reports Croatia
To purchase or find detailed information on PMR Publications reports covering the general economy, construction, retail, pharmaceutical, and ICT sectors in Croatia.
If you are looking for greater detail trust our research and consulting divisions to carry out projects tailored to your business needs.
Consulting in Croatia
PMR Consulting offers a wide range of consulting services in Central and Eastern Europe for foreign companies interested in the region. The typical projects include: competitive intelligence, sourcing, strategic advisory, consulting at foreign direct investments and mergers & acquisitions.
Market research in Croatia
PMR Research offers a full array of qualitative and quantitative research methodologies, providing services such as customer satisfaction studies, brand awareness and brand image research, distribution and competition studies, segmentation and sector analyses.
Case studies for Croatia
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