IBDE

CROATIA is a small Mediterranean country located in South Eastern Europe aspiring for EU membership and well known as a tourist gem. Its area is under 60 000km2 and it has a population of just under 4.5 million.

Croatia has many thousand excellent tourist attractions.  Millions of tourists have continued to visit the country repeatedly for many years, and as cheap flights are becoming more and more available and the people get to know more about the country the number of visitors will steadily increase. One of the most known places among international community is Dubrovnik, but there are many other places, not only on the coast. Many islands and beaches offer relaxation. Cultural heritage spans from Roman and Greek ages. One can try continental as well as Mediterranean food and visit mountains, caves, national parks, ride down the rivers and mountain hike.

Croatia is one of the successor republics of the former Yugoslavia. Together with Slovenia, it was economically the most advanced republic in Yugoslavia. Even though it had suffered a war during the break up, Croatia remains an advanced transitioning economy. With a small population of just under 4.5 million people, Croatia is not a large country but it is homogenous and rich in natural resources such as water and timber but not in ore.

There seem to be many reasons for investing in Croatia. In terms of stability, it is a politically stable country and it has a functioning economy with very low inflation and stable exchange rate. EU membership is to follow very soon, probably in the year 2012 or 2013, which will make Croatia an even more attractive country to invest.

Over the years most of the investments went into the banking and telecom sectors, which are nowadays very competitive and quite advanced. A lot of investments went into tourism also. However, there remains a large scope for investment in tourism, not only for building hotels, but providing new kind of activities for tourists - expanding touristic offer to a certain extent.

Investment into industry has been relatively modest, so there are plenty opportunities here. Croatia boasts a very advanced road infrastructure, and the position to other markets is very good. There is a need to modernize industry so that it can catch up. Shipbuilding industry, which used to be quite big, is now in need of modernization and rationalization. Greenfield investments are needed to boost employment and bring modern technologies. There exists local chemical, machine building and pharmaceutical industry, but it is not very large in scope.

There are big opportunities in agricultural sector, as there is plenty of fertile land. With modern technology and organization, much more eco-food could be produced. Land is ample, and population density is low and investment in this sector has so far been relatively low.

Economically speaking Croatia is a high income country with relatively high wages, above 1000 Euro gross, therefore investments which would aim for low costs only are probably not worth it. There is, however, a very educated labor force, so there is potential for investors to use that situation. Foreign languages are commonly known, having been a tourist attraction for many years.

There is also potential for investing into energy infrastructure, modernizing rail transportation, using wind power to produce electricity but not heavy and polluted industries. These investments can potentially be done with support of the EU funds in the future.

Croatia’s unique geographical location is an advantage for investors as well. The country’s market is linked very well to other markets, such as Serbian, Bosnian, Slovenian and others, offering potential investors an easy access to those markets as well as having languages that are understandable between each other. One can use transport by sea, rail, roads or rivers. Purchasing power of employed people remains relatively high among transitioning countries, so the market exists to consume more expensive and luxury goods.

Corporate tax is low at 20%, and expatriation of profit is free of interference. In some places, there are special tax regimes with even zero rates of tax and incentives exist to invest in some industrial parks. Local taxes vary from place to place, so investors have to decide what they need and where they wish to settle   Generally speaking, Zagreb and certain northern parts of country, along with Istria are the most developed areas in comparison with the East and the South. The service sector is the largest, and total exports rely heavily on such services. There is therefore scope to increase goods exports substantially.   

The challenges that lie ahead are fiscal consolidation, reforms of tax system and ensuring compliance with EU laws. There is also scope to increase the efficiency of public sector. Overall, this should increase competitiveness and make Croatia even more lucrative to investors

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