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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: 070 - (21/02/03)

Croatia applied to join the EU in February. Contrary to the scepticism of many observers, there is a distinct possibility that Croatia can join the EU before the end of the decade.

Professionalism of EU bid
The Croats are well aware that the Brussels officials are weary of their long negotiations with EU applicant countries and, in particular, at being fobbed off with a stooge of the party in power as their interlocutor, unskilled in the art of give and take.
Negotiation is in fact like such activities as say writing history which is neither pure art, nor pure science, but something of each and something else besides. The Croatian government has chosen a foreign-trade expert, Neven Mimica, long versed in negotiating major commercial agreements for Croatia, as its emissary in the Brussels talks.
It is worth considering the pluses and minuses in his negotiating task.

Pluses of Croatia
Croatia would vie for the leadership of the Western Balkans with Serbia (defined as the former Yugoslavia minus Slovenia plus Albania). It is a member of the Cental European Free Trade Agreement (CEFTA), seen as the natural gateway to the Balkans for Central European countries.
The reasons for foreign investors, whether from Central Europe or elsewhere to be interested in Croatia are not hard to seek. With much cheaper wages (kept in check by near 30% unemployment) than in neighbouring and far richer Slovenia, it has a educated work force, multilingual and numerate, more so on international comparisons than Germany and France.

Minuses of Croatia
So what are the drawbacks? Well, these are legion too, a hangover from the communist past far more serious than Slovenia's, a legacy of two awful wars in the 1990s and of Franjo Tudjman, Croatia's hardline equivalent to Milosevic, who conveniently died in December 1999, allowing his long-suffering countrymen to start the millennium with a clean slate.
The government of Ivica Racan has had to grapple with a corrupt and cumbersome bureaucracy, a medley of vested interests and a large proportion of the population sunk, for understandable reasons, in sullen disaffection. Times are hard for so many that it is a miracle that they have stuck to the reformers; but anything else would have been worse, the people must feel. 

IMF to the rescue
The IMF has agreed to Croatia's request for a 14-month stand-by agreement worth US$105.9m of SDR's (about US$146m). The aim is to support the 2003 economic programme until April 2004.
Western approval is the key to progress. Hard choices on the public budget, which is in deficit, lie ahead. The usual raft of reforms in a transition economy are being implemented and more vigorously than elsewhere. But the benefits are unlikely to accrue for several years, towards the end of the decade. The pluses should outweigh the minuses eventually, especially once EU entry lights the way forward. 

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ENERGY

Croatia, Romania in favour of construction of regional oil pipeline


Croatia and Romania support the implementation of a project of an oil-pipeline from Constanta to Omisalj, which is important for both countries and the region, and in the project Croatia will make every efforts to ensure that the Adriatic Sea is protected, Croatian Premier Ivica Racan and his guest, Romania's Premier Adrian Nastase, said at a news conference in Zagreb on 29th January, HINA News Agency has reported. 
The Romanian premier said his country wanted the oil-pipeline to be put into operation very soon. He pointed to the importance of the terminal in the Croatian port of Omisalj which can accept 500,000-tonne tankers.
Racan added that the project required the enhancement of the protection of the Adriatic, which he said would be possible if all other countries with access to the sea - Italy, Slovenia, Bosnia-Herzegovina, Montenegro and Albania - reached agreement on the matter.
"The project does not compete with the Druzba Adria project but they are complementary," the Croatian premier said. The Romanian official added that the United States was making considerable contributions to the Constanta-Omisalj project.
Racan and Nastase described the bilateral relations as friendly and full of understanding. The two countries support each other in their bids to join Euro- Atlantic integration processes and would like to promote economic cooperation in the fields of the pharmaceutical industry, shipbuilding, power and metal industries and tourism.

Croatian power company to invest 307m euros in 2003

The Croatian power company HEP will this year make investments worth around 2.3 billion kunas (around 307 million euros), with a significant part of the investments being made in four important transmission network projects. The projects include the reconstruction of the transformer station Ernestinovo, the construction of the transformer station Zerjavinec and the construction of facilities from the Split and Rijeka programmes.
Presenting the projects at a news conference on 29th January, HEP director, Ivo Covic, said investments in the transmission grid were important for increasing the security and stability of the power supply.
Other investments refer to the reconstruction of the distribution network in the entire country and investments in production facilities as well as the modernization of existing facilities and preparations for the construction of new ones. This includes the reconstruction of the Peruca and Zakucac water power plants (worth around 90 million kunas), reconstruction works in a number of thermal power plants and preparations for the reconstruction of the water power plants Senj and Dubrovnik.
Many of these investments are important for the operation of the power market in South-East Europe.

OMV, MOL and Rosneft get shortlisted for INA sale

The privatisation of Croatia's state-controlled oil and gas concerns INA has drawn the interest of three foreign investors: Austrian OMV, Hungarian MOL and Russian Rosneft, according to Bluebull. The three companies were short-listed last year, after 10 companies submitted bids for the 25% stake, Economy Minister, Ljubo Jurcic, was quoted as saying. Despite the fact that Italian Edison Gas was initially short-listed, it was later removed because it set up with Greek Hellenic petroleum, which had failed to make the list. 
INA is the number one state-owned company in Croatia. Reports suggest that it will secure a strategic partner by the end of March. Although the offers are binding, they are not written in stone. The state is currently in talks with the three foreign investors, which submitted positive financial terms and sound business schemes for INA. PricewaterhouseCoopers and Deutsche Bank are the advisors for the sale, and estimated the value of the Croatian company at approximately €1.2-1.8bn. INA has a staff of about 17,000 workers.

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FOREIGN LOANS

IMF approves US$146m stand-by arrangement for Croatia

The International Monetary Fund's executive committee on 3rd February gave the green light to Croatia's request for a 14-month stand-by arrangement, worth 105.9m of special drawing rights (approximately US$146m), the purpose of which is to support the Croatian economic and financial programme until April 2004, HINA News Agency has reported. 
The Croatian government plans to treat this arrangement as a precautionary measure and does not intend to use funds from the loan.
The IMF director's first deputy, Anne Krueger, commended Zagreb for the adoption of the 2003 economic programme, which is focused on the fiscal consolidation and structural reform with an emphasis put on the stabilization of the ratio between the public debt and gross domestic product, a flexible labour market and progress in privatisation.
The programme has laid foundations for fiscal viability and viable high rates of the economic growth, but fiscal adjustments and structural reforms should be carried out in the coming years, Krueger said.
She advised Croatian authorities to cut the deficit in public spending and prevent a rise in the amount of all collateral the government gave for debts so that the ratio between the public debt and GDP might stabilize.
The planned cut in the public deficit considerably depends on the implementation of the wage policy and cuts in the number of employees in the defence sector, the IMF official said.
Krueger added that the new criteria for the extension of the state guarantees for debts in 2003 should be strictly implemented. She said the Croatian National Bank should allow greater flexibility in the exchange rate of the national currency, and continue supervising the banking system so that decisions on loans could be sound.

EBRD promotes mortgage lending in Croatia

Croatian residents will gain access to long-term financing to buy, build or refurbish residential properties following a €15 million loan from the European Bank for Reconstruction and Development to HVB Bank Croatia d.d (HVBC), a press release from EBRD stated 
The 12-year EBRD loan, the first of its kind to HVBC, will enable the subsidiary of Vienna-based Bank Austria Group to extend long-term mortgage financing. As well as generating competition in the country's mortgage lending, the loan will help meet the growing demands of residents wishing to purchase or develop real estate. 
Kurt Geiger, Business Group Director for Financial Institutions at the EBRD, said the loan will help the bank provide its clients with the opportunity to become homeowners. It will support Croatia's growing mortgage market, making it more competitive, which will benefit local residents. 
The EBRD loan to HVBC builds on previous successful cooperation between the two institutions. In 1996, the Bank purchased a 20 per cent stake in HVBC to support its establishment, and in 2000 the EBRD provided HVBC with a €10 million loan to provide medium-term financing to small and medium-sized enterprises. 
HVB Bank Croatia d.d is a universal bank with special emphasis on local export-oriented companies and high-income private customers. The bank, which employs more than 170, has 28,000 customers and branch offices in Zagreb, Dubrovnik, Split, Zadar and Rijeka. 
Following its acquisition of Splitska banka - one of the largest banks in Croatia - in 2002, Bank Austria Group expects to merge HVBC with Splitska banka by the middle of this year. The new bank will have a market share of around 10 per cent, with some 220,000 clients in 75 branches, giving it a wide reach among the country's population of over 4.4 million. 
The EBRD is the largest investor in Croatia, with more than €1.2 billion invested in 56 projects, and has helped mobilise more than €2 billion in foreign investment. 
For further information contact: Axel Reiserer, EBRD, tel: +44 20 7338 7753; e-mail: ReisereA@ebrd.com

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PHARMACEUTICALS

Croatian pharmaceutical giant buys Spanish company

Croatia's drugs company Pliva said on 31st January that it had bought the Spanish pharmaceutical company, Edigen, which is based in Madrid, HINA News Agency has reported. 
The previous owners - Farmadis.Alcala SL and Espariola de Desarrollo e Impulso Farmaceutico SA - sold the entire stock in Edigen for 9.3 million euros. The purchase did not include the production facilities.
Edigen's manufacturing portfolio includes some of the most requested generic medicines in Spain. Pliva's goal is to become one of the principal manufacturers of such medicines in Spain, while Edigen will become richer for numerous generics Pliva makes on its own. In order to increase Pliva's profile in Spain, all Edigen products, as well as those currently being patented, will bear Pliva's logo.
Edigen was established in 1997 and is one of the initiators of generic medicine business in Spain. Currently it is ranked 12th on the Spanish market of such medicines, with 260 million Euro generated in 2002.

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TOURISM

Croatia welcomes 8m tourists in January-November 2002

Croatia welcomed more than 8m tourists in the first 11 months of last year, HINA News Agency reported, quoting figures published by the Central Bureau of Statistics. The number of visits climbed 6% from the same period of 2001. The number of overnight stays increased by 3% to 44.42m, the statistics bureau said.
In the January to November period, the EU candidate country opened its doors to nearly 7m foreign tourists, up by 6% from the same period in the previous year. Of this total, 39.6m stayed overnight, up by 3%, representing 89%of all overnight stays in the period.
The statistics bureau said there were 1.31m Croatian guests, a jump of 5%, with a one per cent drop in the number of overnight stays, which totalled 4.8m. In the 11-month period Germans travelled and visited Croatia most, with 1.47m arrivals and 10.7m overnight stays, followed by Italians with 1.08m arrivals and 4.8m overnight stays, and Slovenians with 864.2 thousand and five million overnight stays. 

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