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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: 073 - (27/05/03)

Croatia in from the cold
The Croatians are in the good books of the West for the moment. The economy is growing strongly after years of stagnation or worse, a free-fall for certain sectors. The IMF and the World Bank approve.
Croatia's economic results for last year and the first four months of 2003 have received a warm welcome by the International Monetary Fund officials. The strategy adopted by the incumbent government to persist on austerity measures, was also received with satisfaction by IMF, as stated by Vice Premier, Slavko Linic, whilst in Washington leading the Croatian delegation at the recent spring session of the IMF and World Bank.
The Croatian delegation visited the IMF and held talks with its officials on the results of the Croatian economy in the relevant period and on a standby arrangement, which Zagreb recently signed with the Fund. "Both sides have expressed satisfaction with last year's results and the developments in the programmes of the stand-by arrangement," Linic said.
He added that his interlocutors were surprised at seeing that the incumbent government and the ruling coalition in Croatia had not exceeded the budget in the years before the next parliamentary election.
The Fund insists on cuts in Croatia's public deficit, restriction of the public spending and better control over investments as well as over costs of the local authorities.
"All the indicators show that there has been no over expenditure in any of those items. On the other hand, revenues have been on the increase and therefore negative trends of the deficit and debt are smaller than expected," the Croatian vice premier added.
In the course of meeting with WB officials, the Croatian delegates assured them of the government's determination to carry out programmes, the implementation of which was a condition for receiving the second part of a loan for the country's structural adjustments. Besides, Croatian representatives said they were expecting the World Bank to help strengthen the country's private sector.


EU and NATO beckon
The government of Premier Ivica Racan has made Croatian membership of the EU its number one priority. This is not so much because it expects great immediate benefits from it, but that it would confer legitimacy on the policy it has been pursuing with difficulty and much popular disapproval. It needs the blessing of the West to convince the population that its way is veritably the only way for Croatia.
NATO membership is another 'must' for Croatia. A key development here, and indeed in EU negotiations was a visit to Zagreb by Lord George Robertson, Secretary-General of NATO, which is based in Brussels and naturally is a regular interlocutor of the Brussels commission in the Berlaymont.
"Croatia's prospects of entering NATO are very good if it persists with reforms, and other potential candidates will not slow it down on that road." Robertson, said in Zagreb. Upon completion of his meeting with Vice President of the Croatian parliament and Chairman of its Foreign Affairs committee, Zdravko Tomac, Robertson noted that Croatia's prospects were very good if "you keep up with challenges."
Robertson dismissed the possibility of Croatia becoming "hostage" to its neighbours, as suggested by Anto Djapic of the Croatian Party of Rights. As for 2006 as the year by which Croatia might be ready for full NATO membership, its secretary general said it was an interesting date but clarified that he could not yet specify the timetable.
Stating that Croatia had made "impressive" progress over the past year, Robertson pointed to the need of resuming reforms and meeting international commitments, including cooperation with the UN war crimes tribunal at The Hague. As key requirements, Robertson mentioned the reform of the judiciary, combating crime and corruption, security of data secrecy, the reform of the armed forces and refugee returns. Robertson stressed the need for regional cooperation, saying Croatia's role in it was crucial. He commented on the assistance given Bosnia and Herzegovina and the settlement of the Prevlaka peninsula border issue with Serbia and Montenegro. "NATO will follow these developments and will share experiences to help," he said.

Economy recovers
The Croatian economy is bucking the trend in the EU and is growing at a healthy pace. GDP rose by 5.2% in 2002. This achievement was based upon a 6.6% growth in consumer spending and a 10.1% increase in gross investments. The trade sector rose by 12.7% and construction by 13.9%.
These figures could be questioned as somewhat exaggerated. Indeed they probably are. But the feel of local economists is that Croatia is doing better than before. The wide-ranging reforms of the Racan years from the beginning of 2000 are bearing fruit. Coupled with prospects of EU and NATO membership, the outlook is positive, despite massive unemployment of over 20% (more like 30%, say the unions) and much hardship among the poor.

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AVIATION

Croatian transport minister backs aircraft conversion project with Israel

Roland Zuvanic, Croatia's minister for maritime affairs, transport and communications, said on 9th May that he supported the conversion of passenger aircraft at Pula airport to be used for cargo transport, in which an Israeli company was interested, HINA News Agency has reported. 
This is an excellent project important not only for Istria but the whole Croatia "simply because it involves new and high technology, guarantees new jobs and the acquisition of new knowledge," Zuvanic told reporters in Pula after talks with Istria County prefect, Ivan Jakovcic.
"On behalf of the ministry I endorse this project. I also refute allegations in the media to the effect that the military industry is a behind-the-scenes industry," said the minister.

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ENERGY

Croatian ministry starts talks with potential buyers of oil company shares

Economy Ministry officials on 28th April held a meeting with representatives of Austria's OMV [oil] company, with potential buyers of the Croatian oil company INA, HINA News Agency has reported quoting a ministry spokesman.
The representatives of INA's potential strategic partners, the ministry and governmental advisers for INA's privatisation - Deutsche Bank and PricewaterhouseCoopers - will during the talks specify their offers for the purchase of 25 per cent plus one share of the Croatian oil company.
The government commenced INA's privatisation process late last April when an international tender was issued for the privatisation of INA's aforementioned shares. The process is expected to end this June. Binding offers for buying 25 per cent plus one share of INA were submitted by OMV, MOL and Rosneft. The offers were opened on 17th January 2003.

Power supply company, US agency sign memorandum of understanding

The Croatian power supply company (HEP) and the US Agency for International Development (USAID) on 6th May signed a memorandum of understanding on technical cooperation which will determine means of technical assistance in creating an open, efficient, sustainable and secure power market in Croatia, in accordance with the Croatian Strategy for Energy Supply Development, FoNet News Agency has reported. 
HEP and USAID also signed an annex to a memorandum of understanding from 2001, setting up a new deadline for the completion of reconstruction projects in power distribution networks in areas of special state concern. The networks were destroyed during the Homeland War. The deadline to complete 35 projects in the war-torn areas has been moved from late April to October 30th. The projects will secure a regular supply of electricity to 11 municipalities, i.e. 80 villages with a total of 26,000 residents.
The annex extends the validity of the 2001 memorandum so that extensive reconstruction projects in Sisak-Moslavina and Karlovac Counties could be completed.
Apart from these two counties, USAID has so far co-financed reconstruction projects in Lika-Senj, Zadar and Sibenik-Knin counties with US$6m.

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FINANCIAL NEWS

Croatian government sources say foreign debt used for investments

Croatia's increased foreign debt is being spent on investments and the building of infrastructure, and projects in road-building, installation of gas pipe-lines. Energy supply and railways are profitable and will pay back the invested funds, so paying off the foreign debt will not burden the budget, government sources say, HINA News Agency has reported..
A government official said that at the moment, foreign debt was not that much of a concern because of the question on what the funds were being spent. The funds are used for investments and infrastructure projects, and data indicate that these investments will yield returns, says the official.
Officials of the Croatian National Bank have warned about the problems of foreign debt and deficit in the balance of payments current account. They believe that a wider discussion should be held in Croatia on the issue.
Croatia's overall debt at the end of last year slightly exceeded US$15.2bn and its share in GDP rose to 68.1 per cent in 2002, while at the end of February foreign debt was as much as US$16.5bn.
Government sources say that the new foreign debt is not used for spending, but investments. Every investment into oil, gas, the transmission of electricity and road construction is economically justified and their future returns will be sufficient to pay back the loans. One should not fear that the investments will be paid from the government budget, they say.

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FOREIGN ECONOMIC RELATIONS

Croatian and German business delegations meet in Zagreb

Croatia and Germany are developing good economic relations, but there is room for their improvement, particularly in industry and joint ventures in the markets of Southeast European countries, said participants in a 12th May meeting of Croatian and German business people in Zagreb, HINA News Agency has reported. 
The event, organized by the Zagreb Chamber of Commerce in cooperation with the economy ministry of German's Rheinland-Pfalz Land, pooled managers of a score of Croatian companies and a dozen German companies in the sectors of construction, tourism, trade and information technology.
In 2002, trade between Croatia and Germany came to US$2.35bn with Croatia's exports totalling US$611m and imports US$1.7bn.
The German business delegation will visit Sisak and Slavonski Brod on 13th and 14th May respectively.

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FOREIGN INVESTMENT

Central bank says FDI reached US$980.51m in 2002

According to data released by the National Bank of Croatia the country saw US$980.51m in foreign direct investments last year, representing 63% of the overall foreign investments, reported Bluebull. 
Between 1993 and the beginning of 2002, total investments in Croatia stood at US$7.4744bn, out of which about US$5.2bn were direct ownership investments, the bank said. The bulk of foreign investments in 2002 was provided by the sales of Dubrovacka Bank to the Charlemagne Capital Fund, Rijecka Bank to Erste Bank and the final privatisation of Privredna Bank, whose shares were purchased by the European Bank for Reconstruction and Development and the bank's majority shareholder, IntesaBci. 
A total of 63.75$ of the direct foreign investments last year were in the banking sector and in the monetary mediation sector, 9.62% in hotels and motels, 3.47% in the retail sector and 2.73% in business consulting. For the current year, analysts are forecasting up to US$1.5bn in investments, conditional on the privatisation of 25% +1 share in the oil and gas company INA is not postponed.

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SHIPPING 

Croatian government earmarks funds to support shipbuilding industry

The government will take steps to help the shipbuilding industry with 915 million kuna (EUR121 million) worth of guarantees for long-term loans for the rescheduling of shipyards' old debts and loans for the upgrading of shipyard technology and severance pays. The government will also provide 1.1 billion kuna worth of guarantees for loans for the needs of current production, HINA News Agency has reported. 
The government on 30th April analysed the situation in the shipbuilding industry and adopted financial measures to help the industry...
After last year's financial rehabilitation and recent measures, the shipyards are expected to make profit this year. The planned results are to be achieved with the help of government subsidies worth 10 per cent of a ship's value, without which no shipyard could achieve positive business results, said Economy Minister Ljubo Jurcic.
He blames inefficient management and supervisory boards for the bad situation in the shipbuilding industry.
He recalled, however, that shipbuilding was an exceptionally important branch of the economy which makes up for around 10 per cent of Croatia's overall exports.
This year, shipyards should deliver 20 ships. The planned value of the ships is US$586m, with effects in other production branches totalling some US$1.15bn.
The shipbuilding industry directly employs 12,000 people and another 5,000 in sub-contractor companies. Some 30,000 people are connected to the shipbuilding industry through domestic production.
The government endorsed the signing of an agreement on a guarantee between Croatia and the World Bank for the project of financing the reconstruction of the Rijeka highway. This project is worth a total of US$264.6m, of which US$155m would be provided by the World Bank in the form of loans...

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TRANSPORT

Croatian government proposes breaking up rail monopoly by 2005

A government-sponsored bill on railways sets the way for the transformation of the railway system, which needs to be adjusted for Croatia joining the EU and this is to be done by cancelling the monopoly, which means that as of 2005 Croatia will have several railway companies, Maritime, Transport and Communications Minister, Roland Zuvanic, said in parliament 8th May, HINA News Agency has reported. 
The law should come into force on 1st January 2005 and until Croatia joins the EU, the Maritime, Transport and Communications Ministry will regulate changes, Zuvanic said. MPs are currently debating the bill during its first reading.

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