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  CROATIA

REPUBLICAN REFERENCE

Area (sq.km)
56,400

Population
4,334,142

Capital 
Zagreb

Currency 
Kuna

President 
Stipe Mesic

Private sector
% of GDP 
55%

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Background:
In 1918, the Croats, Serbs, and Slovenes formed a kingdom known after 1929 as Yugoslavia. Following World War II, Yugoslavia became an independent communist state under the strong hand of Marshal TITO. Although Croatia declared its independence from Yugoslavia in 1991, it took four years of sporadic, but often bitter, fighting before occupying Serb armies were mostly cleared from Croatian lands. Under UN supervision the last Serb-held enclave in eastern Slavonia was returned to Croatia in 1998. 

Update No: 067 - (19/11/02)

Premier Ivaca Racan is coming up to the third anniversary of his assumption of office, as is president Stipe Mesic. They have had a tough three years.

Warming to the IMF
The country's economy is not as well advanced as Slovenia's, but more than Serbia's, having had longer to recover from war and dictatorship Franjo Tudjman, Croatia's Milosevic, died in December 1999, giving Racan and Mesic their chance.
The IMF has come to Zagreb where its first delegation is starting work. The seal of approval from the IMF is especially important and eagerly awaited. It looks likely to happen and unleash IMF funds, while encouraging foreign investors, who have been coming into the country in large numbers.
The key fact that the IMF team acknowledge is that reform is the order of the day now. The government has announced that it will conduct an enquiry into the 2001 state portfolios and assess privatisation activities since January 2001 until October 2002. One thing about starting late is that gives one the opportunity to monitor others' performances and learn from others' mistakes. The IMF are good interlocutors here with plenty of experience. In the light of the review a new phase of privatisation is due to be launched, realistically next year.

Tourism is being targeted
One industry where Croatia has almost unrivalled advantages is in tourism. With a balmy climate, magnificent natural landscape and scenery (including islands galore), historic buildings and a pleasant cuisine and viniculture, it is rising in esteem with not just Germans and Central Europeans, but British and French visitors as well.
The Croatian Tourism Board (HTZ) is embarking on a massive promotional campaign. It is increasing investments in that field by 43%. Some 40% of the effort will be directed at attracting Germans, traditional friends of Croatia. The industry is a huge one for a small country, its turn-over being US$4-4.2bn this year. It also provides jobs, not only directly, but indirectly through knock-on effects. The latter is an important matter in a country with an official rate of unemployment of 22% and an unofficial one of more like 30%.
The tourist board is to take part in 46 fairs to promote Croatia with the new motto: "Croatia-Mediterranean as it used to be." Despite 9:11 the number of tourists rose by six per cent in 2002 over 2001. The future looks rosy in at least one sector.

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ENVIRONMENT

Croatia, Russia sign US$32m mine clearing deal 

Croatia signed an agreement with a Russian firm on Thursday to help clear one million land mines left in the former Yugoslav republic after the 1991-95 war, HINA News Agency reported in mid-October.
The US$32 million agreement with state-owned Emercom Demining, which covers the period from 2003 to 2007, is an effort to clear part of the Russian government debt to Croatia, the agency said.
Croatia has more than one million land mines strewn across former battlefields and ranks among 10 countries with the highest level of mine danger in the world, it said.
The mines pose a serious problem for the restoration of vital economic facilities, the use of farmland and the return of thousands of refugees to their homes.

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FINANCIAL NEWS

Croatian government adopts package of tax laws

The Croatian government on 31st October adopted a package of tax laws envisaging a series of deductions in health care and the solution or improvement to the housing status, and the introduction of declarations of assets. These laws should come into force next yea, HINA News Agency has reported. 
Amendments to the Income Tax Law should increase the net wage in relation to the unchanged gross wage by 1 to 6 per cent, Finance Minister Mato Crkvenac said. These amendments should also increase the automatic wage deduction amount from 1,250 to 1,500 kunas on a monthly or from 15,000 to 18,000 kunas on an annual basis. 
Higher automatic wage deduction amounts, up to 3,750 kunas per month, will be retained in formerly war-struck areas. 
Crkvenac announced a series of tax deductions which citizens might enjoy from 2003. Citizens would report them in their tax returns for that year, which will be submitted in 2004. 
Citizens could enjoy tax relief on the purchase of medicines, orthopaedic aides and surgeries, where there is no amount limit. 
Tax deductions are also envisaged for the purchase or building of a flat or a house and for the renovation of flats. Citizens opting for any of the above may use a maximum annual deduction of 12,000 kunas on expenditure for any above purpose or on housing loans interest. 
There is no income census for this tax relief, said the minister. 
Another new aspect is that a five-per-cent property tax will no longer have to be paid for the purchase of one's first flat... 
Another new aspect of the tax package is the introduction of declarations of assets. Assets would be registered starting with 1 January 2003. Annual changes exceeding 75,000 kunas have to be reported. 
The proposed changes also expand the circle of persons obliged to pay income tax to include farmers who receive state incentives. 

Minister says Croatia must not depend too much on export of services 

An international conference on the stimulation of exports was held in Cavtat on 28th October, organized by the Croatian Bank for Reconstruction and Development
(HBOR), on the occasion of the bank's 10th anniversary, HINA News Agency has reported.
The conference gathered some 80 representatives of European exports-guarantee banks and agencies, international financial institutions and companies. 
Opening the conference, Croatian Finance Minister Mato Crkvenac said that the Croatian balance of current accounts deficit was not such as to cause concern, since it was within margins in highly developed countries.
According to him, contributing to the deficit are insufficient, unsuccessful and uncompetitive exports, which are several times lower than in some neighbouring countries.
For example, Croatia's exports per capita last year amounted to about US$1,000, Hungary's were US$2,700, and Slovenia's as much as US$5,500, said Crkvenac.
Croatia's export of goods will this year be a little over US$4bn, while the export of services will most probably exceed this value.
Although the export of services, primarily tourism and transport, together with several strategic branches such as the production of health food, will make the export base, one must not allow Croatia to depend solely on exports of the service sector, the minister said.
Therefore, budgetary resources intended for the financing of HBOR will next year be almost twice as high as this year's. This year HBOR has received a little more than 160m kuna (US$20.5m), and next year it will be allocated more than 280m kuna (US$36m).
HBOR has been dealing with financing exports and insuring against political and commercial risks for more than three years, and in this period more than 25 per cent of all loans were directed towards stimulating exports and supervising exporters' programmes, said the bank's management board chairman, Anton Kovacev.
The first part of the conference focused on presenting the work of exports-guarantee banks from Italy, Germany, Austria, Slovakia, the United States, Slovenia, Hungary and others, while the second part dealt with concrete experience of Croatian exporters.

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INFORMATION TECHNOLOGY

Croatia offers low prices for software outsourcing

Denis Prcic wants Americans to know that the war in Serbia is over and Belgrade is open for business, Richard Mullins of the Gannett News Service has reported. 
The 27-year-old native of Croatia is building a company in Rochester, N.Y., that will allow U.S. companies to send their software design work to programmers in Slovenia, Croatia, Bosnia and Serbia. 
"Offshore programming is already a multibillion-dollar business," says Prcic. "Sending the work to Bosnia or Belgrade can save developers 50 to 60 per cent off the cost of a project. The cities are not as damaged as everyone saw on CNN. And with Serbia, there is no threat of nuclear war, as with India or Pakistan." 
Dicey global politics are no distant matter for U.S. companies, which increasingly send programming and back office work to lower-cost cities abroad. 
General Electric Co.'s largest non-U.S. research centre is in Bangalore, India, which is also home to back office operations of American Express Co, Nokia and British Airways. And such offshore outsourcing of information technology is increasing, analysts say. 
Prcic is a native of Tuzla, Bosnia, who moved to Rochester in 1994. He leads the U.S. headquarters of IMP Global Services Inc., a Belgrade-based information technology company with 700 software engineers, including 250 Ph.D. scientists who already do work for Siemens AG, General Electric and others. 
To make projects work, Prcic places U.S. programmers at a customer's headquarters; the programmers then divide the work and send it to central Europe. 
One of Prcic's first customers is Odyssey Software Inc., another Rochester-based company. It designs software for wireless hand-held computers such as PalmPilots. 
"Our focus is on building the software and not much of the tailored work to customize it for individual systems," said Odyssey President Mark Gentile. "So it's a natural thing for us to hire other programmers to do that work." 
The stakes for such decisions are high, Gentile said, so he was attracted to Prcic's approach of splitting the work between local programmers and those abroad. 
The practice of sending software work abroad is still evolving, but interest continues to grow, said Stephen Lane, analyst with the Aberdeen Group in Boston. 

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MINERALS & METALS

Austro-Russian rescue plan for Croatian steel plant collapses

The Austrian-Russian concern Trubo Impex from Vienna has abandoned the Sisak Ironworks project, the sales contract has been terminated and Sisak Ironworks, with 1,700 workers, is once again in bankruptcy, chief commissioners of two Croatian metal workers' unions, Mato Somic and Ivica Kenda, said at a news conference on 5th November, HINA News Agency has reported. 
Representatives of both unions were informed of Trubo Impex's decision to abandon the management of Sisak Ironworks-Nova by the bankruptcy estate manager in Sisak Ironworks d.o.o [limited company], Ilija Maric. Maric met the chairman of the Sisak Ironworks-Nova supervisory committee and Trubo Impex representative, Vladimir Malinov, in Moscow.
Both unions have invited bankruptcy estate manager Maric to attend a protest rally which will be staged on Wednesday. Maric should inform the workers of the termination of the contract with Trubo Impex as well as of the Zagreb Commercial Court's bankruptcy council's plans with regard to Sisak Ironworks. The workers continue to insist on the continuation of production and the payment of August and September wages.
Ironworks employees will hold a protest rally outside the Croatian government building in downtown Zagreb on 7 November.

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POLITICAL AFFAIRS

Milos Vojnovic, ethnic Serb leader in Croatia, dies at 50 

Milos Vojnovic, a leader of ethnic Serbs in Croatia, has died of an apparent heart attack, his party said, AP news Agency has reported. He was 50. 
Vojnovic's recent application for a district court judge position was fiercely attacked by Croatia's war veterans and a judges' group. Milos Vojnovic died at his home in Vukovar, Croatia's easternmost city, located about 320 kilometres (200 miles) east of Zagreb. Efforts to revive him failed, said a physician who declined to give his name. 
Vojislav Stanimirovic, who heads Independent Democratic Serbian Party, blamed those who campaigned against Vojnovic's candidacy for his death. 
"His heart could not survive the politically motivated lynch he was exposed to in the past 10 days,'' Stanimirovic told The Associated Press. "He was a healthy man, but he was under the huge stress due to the continuous attacks, lies and slandering.'' 
Vojnovic, a Serb from Vukovar, worked as a judge in the Serb para-state the rebels proclaimed in the Vukovar area and other Croatian territories they seized in the 1991 war. The fighting erupted when Serbs took up arms to rebel against country's declaration of independence from the former, Serb-dominated Yugoslavia. 
Croatia, which re-established its rule in the area in 1995, had indicted Vojnovic with participation in the armed rebellion, but the charges were dropped in 1996 under an amnesty law that pardoned thousands of Serbs who had joined the rebels. 
Since 1995, Vojnovic had been engaged in restoring ties between local Serbs and Croats. Many Croats still see those who sided with rebels as enemies. 
Vojnovic submitted an application two weeks ago for a job as a judge in Vukovar's district court. This angered war veterans, who said they would stage mass protests if he were appointed. 

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