After six years of recession following the global financial crisis, Croatia retuned to growth with a 2.8 per cent GDP increase in 2015 and is expected to grow by 2.1 per cent in 2016 and 2017 (source: EC European Economic Forecast). In 2012, the government adopted a reform programme aiming at improving the business climate and competition. As a result, in the World Bank’s Doing Business 2016 report, Croatia ranked 40th, 44 notches higher than in 2013.
The reform package – still in the process of implementation - aims to eliminate administrative burdens to doing business in Croatia. Easing taxation and other legislative processes have had an immediate effect and resulted in the predictability of the economy. Croatia attracted FDI of USD 3.4bn in 2014 (source: World Investment Report).
Among the areas that attract investors are the creative sector, tourism, locomotive, pharmaceuticals, ICT, innovation, entertainment, food processing, agriculture and infrastructure.
With Croatia being under excessive deficit procedure as of January 2014, the government’s main goal is to severely reduce the fiscal deficit by stimulating investment and improving the business environment.
The new Prime Minister has also announced the privatisation of large state-owned companies which is expected to further attract foreign investors.
Croatia’s accession to the EU in 2013 also helped the country reform its administrative and governance structure which has brought Croatia up to the level of its neighbouring countries. It is also hoped that this will improve trading with Western economies. Within the 2014-2020 EU budget, the country will also receive more than EUR 8.5 bn from the European Investment and Structural Funds.
On the business investment side, 2015 brought about a long-awaited awakening in the mergers and acquisition (M&A) market in the Croatian private sector. British American Tobacco (BAT) took over a 100 per cent stake in TDR, the leading regional tobacco player. Odien Group purchased the Le Meridien Lav hotel and Kaufland launched a logistics centre 30 km from Zagreb and Atlantic Group invested in an energy bar production facility valued at €13 million.
As far as the financial market is concerned, local banks realised the burden of non-performing loans (NPLs). Amongst major infrastructural deals, there was a €32.5 million loan granted to Dubrovnik Airport by the European Investment Bank as part of the European Commission’s Investment Plan for Europe, also known as the Juncker Plan.
What still seems be causing challenging times ahead for the country is to complete the construction of the motorway that was put on hold in mid-2015; strengthening the effectiveness and transparency of the social protection system; pension reforms; presenting a detailed plan for public property management; strengthening the healthcare sector and undertaking a comprehensive portfolio for the Croatian financial sector.