Croatia WT/TPR/S/227 
 Page 1 
 
 
I. ECONOMIC ENVIRONMENT 
(1) MAJOR FEATURES OF THE ECONOMY  
1. After its independence in 1991, the Republic of Croatia began the repair of large-scale war 
damage and revived its transformation from a central ly planned to a market economy within a very 
difficult economic, social, and political context.1  Croatia's stabilization programme proceeded in 
three overlapping phases:  the first phase was ai med at lowering inflation and inflationary 
expectations through a restrictive monetary polic y, introducing a new foreign exchange regime, and 
fiscal restraint and tight incomes policies;  the sec ond phase was mainly directed at restructuring the 
economy (i.e. restructuring large loss-making en terprises and bank rehabilitation), changing the 
monetary policy framework, building up financial infrastructure, increasing financial discipline, and 
accelerating the privatization process;  and the third phase was aimed at laying foundations for the reconstruction of the economy and the acceleration of economic growth. 
2. Croatia has a landmass, including lakes, of 56,594 km
2 (about 30% is arable); around 60% of 
its 4.5 million people live in urban areas.  The mo st populated city is the capital Zagreb (about 
1 million).  Croatia's population is young (15.6% in the 0-14 age group, and 67.5% between 15-64).  
It is a lower-middle income country, with a GDP per capita estimated at €10,682 for 20082, although 
about 11% of the population lives on less than US$10 per day, and some 1% of the population faces 
severe deprivation.3  Croatia has taken steps to reduce its informal sector through, inter alia , improved 
labour relations within a st ronger regulatory framework.4  It ranks 45th out of 177 countries in terms of 
UNDP Human Development Indicators.5 
3. Croatia's economic reforms (supported by the World Bank, the European Bank for 
Reconstruction and Development, and Stand-By Arrangements with the IMF6), have been largely 
successful in stabilizing its economy.  Nonetheles s, Croatia still faces key problems, including 
external vulnerability due to its high external current  account deficit and large stock of external debt 
(section (2) below).  Recent reforms have also been aimed at bringing Croatia closer to its goal of EU 
accession.7   
                                                      
1 The drive toward a market economy, including privatization, had barely begun when war broke out in 
1991.  The economic infrastructure sustained massive damage due to the war. GDP is estimated to have fallen 
40.5% during 1989-93.  With the end of the war in 1 995, Croatia's economy recovered moderately but it not was 
until 2000 when its economy turned the corner as tourism rebounded stimulated by a credit boom led by, 
inter alia , newly privatized and foreign-capitalized banks and some capital investment (most importantly in road 
construction).  US Department of State online information.  Viewed at:  http://www.state.gov/r/pa/ei/bgn/ 3166.htm. 
2 Croatia main development objective is to reach 75% of the EU's average per capita income by 2013.  
It is currently at around 63% of the EU's GDP in purchasing power standards.  World Bank online information.  Viewed at:  http://www.worldbank.hr/WBSITE/ EXTERNAL/COUNTRIES/E CAEXT/CROATIAEXTN/0, 
contentMDK:20150212~menuPK:301252~pagePK:141137~piPK:141127~theSitePK:301245,00.html. 
3 US$1 a day in purchasing power parity terms.  Wo rld Bank online information.  Viewed at:  http://site 
esources.worldbank.org/CROATIAEXTN/Resources/Croatia_cps_country_context.pdf. 
4 The informal sector reached 9.54% of GDP in 19 96;  it fell to an average of 7.3% of GDP during 
2003-05.  Croatian Bureau of Statistics online informa tion.  Viewed at:  http://www.dzs.hr/default_e.htm. 
5 UNDP online information.  Viewed at:  http://hdrstats.undp.org/2008/countries/country_fact_sheets/ 
ty_fs_HRV.html. 
6 Croatia had three short-term arrangements with the IMF over 2001-06, the last arrangement ended in 
November 2006.  Since then, Croatia has been subject to Article IV consultations. 
7 On 1 December 2009, the Treaty of Lisbon amendi ng the Treaty on European  Union and the Treaty 
establishing the European Community (done at Lisbon, 13 December 2007) entered into force.  On WT/TPR/S/227 Trade Policy Review 
Page 2 
 
 
4. Croatia has a relatively diversified economy, with services being the most important sector in 
terms of contribution to GDP (over 60%) and empl oyment (over half of Cr oatia's labour force);  
tourism is a major net foreign exchange earne r.  Manufacturing (led by food-processing, wood 
products, chemicals, and shipbuilding) accounts for around one fifth of GDP and almost 70% of the 
total value of merchandise exports (Table AI.1).  Agriculture, hunting, forestry and fishing contribute 
around 7% to GDP, 10% to employment and 13% to merchandise exports.  The mining, quarrying, and energy sector account for around 1% of GDP and 17% of merchandise exports (section (3)(i) 
below).  
5. Croatia's domestic hydrocarbon and large hy dropower production (accounting for 51% of 
electricity supply) keep energy and import depend ence at levels well below other countries in the 
region.  While import dependence is growing for hy drocarbons, Croatia plays a significant role in 
regional electricity trade, notably due to its significant peak generation and large cross-border 
transmission capacities.  Since July 2008, the electri city market has been opened for all customers.  
However, in practice, the electricity company, Hrvatska elektroprivreda (HEP), remains the only 
supplier.  The gas market also has a single supplie r in the oil and gas company, Industrija nafte 
(INA).
8 
6. The national currency is the kuna (HRK).9  As from 1 January 2009, Croatia's de facto  
exchange rate arrangement is classified as "other managed arrangement".10  Croatia accepted the 
obligations of Article VIII of the IMF Agreement on 29 May 199511, and maintains an exchange 
system that is free of restrictions on payments an d transfers for current international transactions.  
Preparations for Croatia's participation in the Economic and Monetary Union and for the introduction 
of the euro have already started.12 
(2) RECENT ECONOMIC DEVELOPMENTS  
7. Croatia's economic reform programme has centred  on trade liberalization, deregulation, and 
privatization (Chapter III(3)(iii)).  The progra mme has resulted in a positive economic performance 
over the last few years, with relatively high econo mic growth, low inflation, and declining public 
deficit.  Croatia's annual average real GDP growth  rate was 4.2% during 2004-08, spurred by strong 
domestic demand and productivity ga ins due to economic restructuring.  Robust economic growth 
resulted in a downward trend in the unem ployment rate up to 2008 (Table I.1).13  Nevertheless, for 
2009 real GDP growth is estimated at -5.2% la rgely as a result of the global economic downturn14, 
with an administrative unemployment rate of 14.2% by August 2009.15 
                                                                                                                                                                     
29 November 2009, the WTO received a Verbal Note (WT /L/779) from the Council of the Eu ropean Union and 
the Commission of the European Communities stating that, by virtue of the Treaty of Lisbon, as of 1 December 
2009, the European Union replaces an d succeeds the European Community. 
8 OECD/IEA (2008). 
9 In December 1991, Croatia left the Yugoslav dina r area and adopted the Croatian dinar as its sole 
legal tender.  The Croatian dinar was replaced by the Croatian kuna on 30 May 1994, (IMF, 2009).   
10 IMF (2009).  
11 WTO document WT/ACC/HRV/59, 29 June 2000. 
12 Croatia plans to adopt the euro  quickly after accession to the EU  (Government of Croatia, 2006). 
13 The average survey unemployment rate went from 13.8% in 2004 to around 8% in 2008, while the 
average administrative unemployment rate declined from 18.0% to 13.2% during the period. 
14 IMF (2009b). 
15 Croatian Bureau of Statistics online information.   Viewed at:  http://www.dzs.hr/default_e.htm. Croatia WT/TPR/S/227 
 Page 3 
 
 
Table I.1 
Selected economic indicators, 2004-09 
 2004 2005 2006 2007 2008 2009a 
Miscellaneous       
GDP (HRK billion, current pr ices) 245.6 264.4 286.3 314.2 342.2 .. 
GDP (€ million, current pr ices) 32,759 35,725 39,102 42,833 47,370 .. 
GDP per capita (€ million, current prices) 7,380 8,043 8,807 9,656 10,682 .. 
Real GDP (% change) 4.2 4.2 4.7 5.5 2.4 -5.2 
Consumer price index (average, % change) 2.0 3.3 3.2 2.9 6.1 2.8 
Unemployment rate (%) 13.8 12.7 11.1 9.6 8.4 11.0 
Monetary sector       
Broad money (end of period, % change) 8.6 10.5 18.0 18.3 4.3 0.7 
Kuna deposit rate (unindexed, average, %) 1.9 1.7 1.7 2.3 2.8 .. 
Kuna credit rate (unindexed, average, %) 11.7 11.2 9.9 9.3 10.1 .. 
Share of gross value added (%)       
Agriculture, forestry and fishing 7.5 7.3 7.1 6.8 6.9 .. 
Industry  22.6 22.3 22.1 22.1 21.8 .. 
Construction 6.4 6.8 6.9 6.8 7.2 .. 
Services 63.3 63.4 63.5 63.8 63.5 .. 
Public finances (% of GDP)       
General government balanceb -3.2 -2.5 -1.6 -1.2 -0.9 -2.9 
General government revenue 39.2 39.0 39.2 40.3 39.4 38.2 
General government expenditure 38.5 38.0 37.6 37.8 38.1 39.3 
General government debt 37.8 38.3 35.7 33.1 29.1 32.7 
External sector       
Exchange rate (HRK per €;  end of period) 7.67 7.38 7.35 7.33 7.32 7.37 
Real effective exchange rate (2001=100)c 90.85 90.98 87.95 83.09 82.11 .. 
Current account (% of GDP) -4.4 -5.5 -6.9 -7.6 -9.3 -6.1 
Exports of goods and services (% of GDP) 43.5 42.8 43.5 42.8 42.0 36.2 
Imports of goods and services (% of GDP) 49.4 48.9 50.2 50.2 50.1 41.1 
Gross international reserves (€ million) 6,436 7,438 8,725 9,307 9,121 9,630 
Gross international reserves (months of imports) 4.8 5.1 5.3 5.2 4.6 6.2 
External debt (€ million, end of  period) 22,933 25,748 29,274 32,929 39,125 42,032 
External debt (% of GDP) 70.0 72.1 74.9 76.9 82.6 93.3 
 
.. Not available. 
 a Projected or preliminary. 
b Excludes pensioners' debt repaymen ts.  Minus sign indicates deficit. 
c Using the consumer price index.  December of each ye ar.  An increase in the index reflects appreciation. 
 
Source:  IMF (2009), Republic of Croatia:  Staff Report for the 2009 Article IV Consultation , Washington, D.C.;  IMF 
 (2009), World Economic Outlook , October, Washington, D.C.;  Eurostat (2009), Pocketbook on candidate and 
 potential candidate countries , Luxembourg;  and information provi ded by the Croatian authorities.  
8. The annual average inflation rate in Croatia, as measured by the consumer price index (CPI), 
was 3.5% during 2004-08, peaking at 6.1% in 2008 reflecting soaring food and energy prices.  The 
Croatian National Bank's (CNB) mone tary and foreign exchange syst em of a tightly managed float 
with a very limited degree of exchange rate fl exibility, has served the economy well:  it has lent 
stability and credibility to the investment environmen t, provided a credible anchor for price stability 
given Croatia's experien ce with hyperinflation16, and has helped mitigate potential exchange-rate-
induced credit risk in a highly "euroized" economy.17  The CNB has recently tightened its monetary 
                                                      
16 In 1993, for example, Croatia experienced monthly inflation rates of 30%. 
17 European Commission (2009). WT/TPR/S/227 Trade Policy Review 
Page 4 
 
 
policy to contain inflationary pressures.18  The IMF estimates inflation of 2.8% for 2009, in view of 
the fall in energy and other prices19;  the authorities expect rate of 2.6%. 
9. Over the last few years, Croatia has achieved an important improvement in its fiscal position, 
a main source of macroeconomic imbalances in the past.  The general government deficit was reduced 
from 3.2% of GDP in 2004 to 0.9% in 2008, and was an estimated 2.9% for 2009.  The fiscal improvement has been largely the result of expenditu re reform and restraint (e.g. the recent health 
sector reform), and despite a recent decline in VAT and excise revenues.
20  The fiscal deterioration in 
2009 was a consequence of a sharp fall in tax reve nues due to the real contraction of economic 
activity.  To cope with the revenue shortfall, the Government has recently implemented additional 
expenditure cuts, such as wage growth restrain t throughout the economy, and has increased taxes 
(e.g. the VAT general rate went from 22% to 23%  on 1 August 2009 (Chapter III(1)(iv)(d)).  The 
Government aims to reduce the budget deficit after 2009.  To achieve this, a dditional fiscal measures 
are envisaged, such as curtailing subsidies and advancing the restructuring of loss-making state-
owned enterprises (SOEs), better targeting of soci al benefits, and improving tax administration and 
enforcement.  Import duties represented, on average,  2.4% of total tax revenue collected in Croatia 
during 2005-07.21 
10. Croatia's large stock of external debt rema ins a source of potential vulnerability, increasing 
the speed and magnitude with which adverse external  financial shocks may be transmitted.  External 
debt as percentage of GDP rose from 70% in 2004 to 82.6% in 2008 on the back of strong private sector borrowing, and notwithstanding efforts at fi scal consolidation, a shift by the public sector 
towards domestic financing, and measures by th e CNB to discourage bank external borrowing.  
According to the authorities, for 2009, external debt  is estimated to exceed 90% of GDP, although 
half of the increase resulting from a fall in nominal GDP. 
(3) T
RADE PERFORMANCE AND INVESTMENT  
(i) Trade in goods and services  
11. Croatia has traditionally recorded an external current account deficit.  As a percentage of 
GDP, it went from 4.4% in 2004 to a peak of 9.3 in 2008, due mainly to strong merchandise import 
growth:  the trade deficit jumped from €6, 724 million to €10,794 m illion during the period 
(Table I.2).  In recent years, the current account de ficit has been financed by FDI and other long-term 
capital inflows, with gross official internationa l reserves increasing from €6,436 million (4.8 months 
of imports) in 2004 to €9,630 million (6.2 months of  imports) in 2009.  For 2009, import contraction 
outpaced the fall in exports, therefore the external  current account deficit is estimated to have 
narrowed to 6.1% of GDP.22  
12. Croatia's economy is highly depe ndent on international trade:  the ratio of trade in goods and 
services (exports and imports) to GDP averaged 92. 6% during 2004-08, although it fell to 77.3% in 
2009 (Table I.1).  In 2007, Croatia ranked 54th among world merchandise exporters (considering the 
                                                      
18 IMF (2009a), Concluding Statement . 
19 IMF (2009b). 
20 According to the authorities, VAT revenues declined 16% in the first half of 2009 compared with the 
same period of 2008, while excise revenues fell by 25.2%. 
21 WTO online information.  Viewed at:  http://stat.wto.org/CountryProfile/WSDBCountryPFView. 
aspx?Language=E&Country=HR. 
22 IMF (2009b). Croatia WT/TPR/S/227 
 Page 5 
 
 
countries of the EU together and excluding intra-EU trade), and 41st among importers.  In commercial 
services trade, Croatia ranked 25th among exporters and 47th among importers.23 
Table I.2 
Balance of payments, 2004-08 
(€ million) 
 2004 2005 2006 2007 2008a 
A. CURRENT ACCOUNT -1,433.7 -1 ,975.6 -2,715.2 -3 ,239.2 -4,835.1 
 Goods, services, and income -2,625.5 -3,159.5 -3,822.6 -4,282.2 -5,419.9 
  Credit  14,952.8 15,990.2 17,884.8 19,610.4 21,256.5 
  Debit -17,578.3 -19,149.7 -21,707.3 -23,892.5 -26,676.4 
 Goods and services -1,955.3 -2,200.2 -2,639.6 -3,168.1 -3,835.9 
  Goods  -6,724.2 -7,518.0 -8,344.2 -9,434.0 -10,793.8 
   Credit 6,606.8 7,220.3 8,463.6 9,192.5 9,814.0 
    Exports (f.o.b.) 6,453.8 7,069.4 8,251.6 9,072.8 9,652.3 
    Adjustments for coverage 153.0 150.9 212.0 71.2 67.2 
   Debit  -13,330.9 -14,738.3 -16,807.8 -18,626.5 -20,607.8 
     Imports (c.i.f.) -13,354.4 -14,949.5 -17,104.7 -18,515.1 -20,458.5 
     Adjustments for coverage  -474.7 -346.4 -341.1 -259.0 -272.1 
     Adjustments for classification 498.1 557.6 638.0 570.4 630.8 
  Services  4,768.9 5,317.7 5,704.6 6,265.9 6,957.9 
   Transportation 299.3 376.1 443.5 487.6 508.5 
     Credit  791.3 880.3 1,006.7 1,122.4 1,209.4 
     Debit  -492.0 -504.2 -563.2 -634.8 -700.9 
   Travel 4,822.3 5,394.9 5,708.7 6,035.2 6,694.0 
     Credit 5,505.6 5,998.9 6,293.3 6,752.6 7,459.4 
     Debit  -683.3 -604.1 -584.6 -717.3 -765.5 
   Other services  -352.7 -453.3 -447.6 -256.9 -244.6 
     Credit 1,339.8 1,173.4 1,228.5 1,249.8 1,421.8 
     Debit  -1,692.5 -1,626.6 -1,676.0 -1,506.7 -1,666.4 
 Income  -670.2 -959.2 -1182.9 -1,114.1 -1,584.0 
  Credit 709.2 717.2 892.7 1,293.0 1,351.9 
  Debit  -1,379.6 -1,676.6 -2,075.7 -2,407.1 -2,935.9 
 Current transfers  1,191.8 1,183.8 1,107.4 1,043.0 1,034.8 
  Credit 1,584.6 1,628.4 1,639.5 1,576.1 1,683.7 
  Debit  -392.8 -444.5 -532.1 -533.1 -649.0 
B. CAPITAL AND FINANCIAL ACCOUNT  2,560.4 3,013.5 3, 670.4 4,146. 7 5,962.4 
 Capital account  31.4 53.8 -133.8 34.5 29.2 
 Financial account, excl. reserves  2,572.0 3,781.6 5,216.4 4,833.8 5,602.8 
   Direct investment 670.8 1,276.1 2,556.6 3,490.0 3,219.1 
    Abroad  -278.8 -191.8 -208.2 -180.2 -134.0 
    In Croatia  949.6 1,467.9 2,764.8 3,670.2 3,353.1 
   Portfolio investment  287.1 -1,177.9 -542.3 -2.9 -627.2 
    Assets  -736.1 -571.2 -472.5 -413.7 -273.3 
    Liabilities 1,023.2 -606.7 -69.8 410.8 -353.9 
   Financial derivative s  0.0 -88.4 0.0 0.0 0.0 
   Other investment  1,614.1 3,771.8 3,202.1 1,346.7 3,010.9 
    Assets  -498.3 982.0 -692.3 -1,653.4 -1,617.9 
    Liabilities 2,112.4 2, 789.7 3,894.4 3, 000.1 4,628.8 
  Reserve asset -43.0 -821.8 -1,412.2 -721.6 330.4 
C. NET ERRORS AND OMISSIONS -1,126.7 -1,037.9 -955.2 -907.5 -1,577.3 
 
a Preliminary data. 
 
Source:  Croatian National Bank (2009), Annual Report 2008 , Zagreb . 
                                                      
23 WTO online information.  Viewed at:  http://stat.wto.org/CountryProfile/WSDBCountryPFView. 
aspx?Language=E&Country=HR. WT/TPR/S/227 Trade Policy Review 
Page 6 
 
 
13. Croatia has a relatively diversified export b ase, with manufactures accounting for about 70% 
of total merchandise exports, on average, during 2 003-08 (Chart I.1 and Table AI.1).  In 2008, 
machinery and transport equipment, led by shipbui lding, was the main export with 33.5% of total 
merchandise exports (up from 29.5% in 2003).  Th e contribution of food products declined from 
12.2% in 2003 to 9.8% in 2008, while the share of mining products (mostly fuels) increased from 
11.9% to 17.2% over the same period. 
14. Croatia's imports increased in line with the significant economic growth up to 2008.  Total 
merchandise imports grew from US$14,209 mi llion in 2003 to US$30,728 million in 2008 
(Table AI.2).  Around 70% of total merchandise imports are manufactures, led by machinery and 
transport equipment (32.5% in 2008) and chemicals ( 10.6%) (Chart I.1).  Fuels represented 17.6% of 
total merchandise imports in 2008 (up from 10.9% in 2003), whereas the share of food imports 
remained stable at about 8% throughout the period. 
15. Around 80% of Croatia's exports go to Europe (about 60% to the EU);  Italy is still the major 
single export market with 19.1% of total mercha ndise exports in 2008 (down from 26.7% in 2003), 
followed by Bosnia and Herzegovina (15.4%), Ge rmany (10.8%), and Slovenia (7.8%).  Croatia's 
goods exports to the United States averaged 2.8%  of total merchandise exports during 2003-08, 
whereas the share exported to Asian countries rose from 1.9% in 2003 to 3.2% in 2008 (Chart I.2 and 
Table AI.2). 
16. Croatia's goods imports also originate larg ely in Europe, mostly from the EU which 
accounted for 64.1% of total merchandise imports in  2008 (down from 73.2% in 2003).  Italy remains 
the leading source, supplying 17.1% of total merchandise imports in 2008 (down from 18.2% in 
2003), followed by Germany (13.4%), and the Russian  Federation (10.4%).  Goods imports from the 
United States went from 2.6% in 2003 to 2.1% in 2008;  Asian countries' share, led by China, 
increased from 8.4% to 10.7% during the period (Chart I.2 and Table AI.4). 
17. Balance of payments data indicate that Croatia is a net exporter of services, with a surplus 
averaging €5,803 million per year during 2004-08 (Table I.2).  The surplus of travel services rose from €4,822 million in 2004 to €6,694 m illion in 2008, while that of transport services increased from 
€299 million to €508.5 million. 
  Croatia WT/TPR/S/227 
 Page 7 
 
 
0%10%20%30%40%50%60%70%80%90%100%
2003 2004 2005 2006 2007 2008
0%20%40%60%80%100%
2003 2004 2005 2006 2007 2008Chart I.1
Structure of merchandise trade, 2003-08
(a) Exports
(b) Imports
Source: WTO Secretariat estimates, based on UNSD, Comtrade database SITC Rev3 data.Non-electrical machinery Other Other primary products
Iron and steel Electrical machinesFuels Other semi-manufactures Textiles and clothingFood Chemicals Transport equipmentChemicals Transport equipmentElectrical machines Other primary productsTextiles and clothing Food Other semi-manufactures
Fuels Non-electrical machinery Other
 WT/TPR/S/227 Trade Policy Review 
Page 8 
 
 
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%200320042005200620072008Chart I.2
Direction of merchandise trade, 2003-08
0% 20% 40% 60% 80% 100%200320042005200620072008(a) Exports
(b) Imports
Source: WTO Secretariat estimates, based on UNSD, Comtrade database SITC Rev3 data.Slovenia Other EuropeRussian Federation Austria America
China Italy France
Germany Other EU(27) OtherSlovenia Other EuropeAsia Austria America
Other Italy Other EU(27)
Germany Bosnia and Herzegovina
 Croatia WT/TPR/S/227 
 Page 9 
 
 
(ii) Foreign direct investment 
18. Croatia's annual inflows of foreign direct i nvestment (FDI) jumped from an average of  
US$447 million during 1990-00 to US$1,079 million in  2004 and to US$4, 798 million in 2008 
(Table I.3).  This was largely the result of the positive developments in the economy and some 
privatizations (Chapter III(3)(ii)).  Among new EU  members and other south-east European countries, 
Croatia had the sixth largest FDI stock (US$45,970 million), in 2007, and the fifth-highest FDI per 
capita.24  On the basis of UNCTAD's Inward FD I Performance Index,  Croatia ranked 22nd out of 
141 economies during 2005-07 (up from 43rd over 2004-06).25 
Table I.3 
Foreign direct investment, 2004-08 
(US$ million) 
 2004 2005 2006 2007 2008 
FDI inflows 1,079 1,788 3,457 4,987 4,798 
FDI inward stock 12,403 14,592 27,364 45,970 31,017 
FDI inward stock (% of GDP) 35.2 32.8 55.8 76.8 44.7 
FDI outflows 346 237 263 241 194 
FDI outward stock 2,128 2,047 2,414 3,470 3,765 
FDI outward stock (% of GDP) 5.2 4.6 4.9 5.9 5.4 
 
Source:  Information provided by the Croatian authorities.  
19. FDI outflows have been very low, as has b een the case for most countries in the region, 
averaging US$256 million during 2004-08.  A ccording to UNCTAD's Outward FDI Performance 
Index, Croatia ranked 64th out of 141 economies in 2007 (53rd in 2006).26 
20. Croatia's was 56th in UNCTAD's Inward FDI Po tential Index in 2006 (the same as in 2005).27  
FDI in Croatia has been inhibited by several f actors, notably long-standing competitiveness issues, 
such as relatively high labour costs, while the business environment is affected by difficulties in obtaining necessary licences, corruption, an d an inefficient public administration.
28  As a result, 
Croatia ranks 106th (out of 181 economies) in the World Bank's Ease of Doing Business 2009 Index.29  
Nonetheless, the authorities have recently been  implementing measures to improve Croatia's 
investment climate, including the entry into for ce of the Investment Promotion Act (OG 138/06) and 
the establishment of the Trade and Investment  Promotion Agency (APIU) (Chapter II(4)). 
21. The EU remains, by far, the largest investor in  Croatia, accounting for more than two thirds of 
FDI stock.  Individually, Austria is the largest in vestor, with 27.9% of Croatia's total FDI inflows 
                                                      
24 F o r  s o m e  y e a r s ,  C r o a t i a  w a s  n o t  c o n s i d e r e d  a n  attractive FDI location comp ared with its central 
European neighbours, mainly due to the war and the disintegration of the former Yugoslavia (OECD, 2007).  
25 UNCTAD's Inward FDI Performance Index measures  the extent to which host countries receive 
inward FDI, and ranks countries by the amount of FDI they receive relative to th eir economic size.  It is 
calculated as the ratio of a country's share in global FDI inflows to its share in global GDP  (UNCTAD, 2009).  
26 UNCTAD (2009). 
27 UNCTAD's Inward FDI Potential Index measures the extent to which host countries receive inward 
FDI, and ranks countries by the amount of FDI they receive relative to their potential.  It is calculated on the basis of structural variables, su ch as country risk, and trade-rela ted measures (UNCTAD, 2009).  
28 European Commission (2009). 
29 The index is based on ten topics (in parenthesis is Croatia's ranking out of 181 economies), i.e. 
starting a business (117);  dealing with licences (163);  employing workers (146);  registering property (109);  
getting credit (68);  protecting investors (126);  paying taxes (33);  trading across borders (97);  enforcing 
contracts (44);  and closing a business (79).  See World Bank online information.  Viewed at:  http://www.doingbusiness.org/EconomyRankings. WT/TPR/S/227 Trade Policy Review 
Page 10 
 
 
during 2004-08 (Table I.4), followed by the Nether lands (23%), Hungary ( 13.4%), Germany (7.3%), 
and Slovenia (5.3%).  Services account for about two th irds of Croatia's total FDI inward stock, led by 
financial services with 41% of total FDI inflows over 2004-08.  The share of manufacturing in Croatia's total FDI inflows during the period dropped to 11.7%
30, with the majority being allocated 
into the chemicals industry.  Croatia's attractivenes s as a destination for "greenfield" FDI is key to 
increasing its overall growth potential in a sustainable manner.31  FDI inflows into agriculture and 
related activities have been minimal.  
Table I.4 
FDI inflows by origin and economic activity, 2004-08 
(€ million) 
 2004 2005 2006 2007 2008 2004-08 
Country of origin :        
Austria 248.6 543.6 -505.4 2,058.8 1,057.9 3,403.5 
Netherlands 71.1 173.9 1,953.9 319.5 288.5 2,807.5 
Hungary 43.5 329.0 51.9 257.1 958.4 1,639.9 
Germany 190.5 -132.1 228.7 170.9 428.8 886.8 
Slovenia 43.1 119.3 80.6 215.7 183.4 642.1 
Luxembourg 64.4 104.1 298.8 9.6 108.7 585.6 
Italy 150.3 177.9 187.5 -81.7 46.8 480.8 
Other 138.1 152.2 468.8 720.3 280.6 1,759.4 
Economic activity :        
Financial intermediation, except insurance and pension funds 229.7 778.0 1,037.7 1,813.7 1.154.3 5,013.4 
Manufacture of coke, refined petroleu m products 27.6 46.4 38.3 20.1 923.3 1,055.9 
Real estate activities 106.8 84.4 254.9 309.6 -16.5 739.2 
Wholesale trade and commission trade 84.9 96.7 117.1 162.0 213.8 674.5 
Extraction of crude petroleum and na tural gas 62.3 121.4 111.1 167.5 144.0 606.3 
Manufacture of chemicals and chemical products -15.3 -52.4 521.0 -33.7 -47.5 372.1 
Agriculture, hunting and related activities 15.0 11.8 2.1 0.0 10.5 39.4 
Other 438.6 381.6 682.6 1,231.0 971.2 3,704.8 
Total 949.6 1,467.9 2,764.8 3,670.2 3,353.1 12,205.6 
 
Source:  CNB online information.  Viewed at:  http://www.hnb.hr/statisti ka/estatistika.htm. 
(4) OUTLOOK  
22. The key policy goal for the Government in the medium-term is to preserve macroeconomic 
stability and create the conditions for recovery and stable economic growth.  In the coming years, 
Croatia is also to continue its strategic developm ent programme with a view to building a competitive 
market economy capable of withstanding the pressures of EU integration, through an acceleration of 
structural reforms, including restructuring and priva tization of loss-making SOEs.  To achieve this, on 
4 August 2006, Croatia adopted its Strategic Development Framework for 2006-13 (Chapter II(1)).  It 
aims, inter alia , to achieve sustained and regionally balanced GDP growth32, maintain a low inflation 
                                                      
30 With the exception of 2006 and 2008 when foreign investors bought some Croatian companies in the 
chemicals industry and in the manufacturing of coke and refined petroleum products. 
31 A "greenfield" investment is investment in a manufacturing, office, or other physical company-
related structure in an area where no facilities exist.  The name relates to the idea of building a facility on a 
"green" field, such as farmland or a forest.  Greenfield investment is usually offered as an alternative to other forms of investment, such as mergers and acquisitions, and joint ventures. 
32 The impact of the 1991-95 war together with diff erences in educational attainment and human capital 
account for the disparate living standard s across regions.  For example, GDP per capita in Zagreb is 3.4 times 
higher than in the Slavonski Brod-Posavina County.  World Bank online information.  Viewed at:  Croatia WT/TPR/S/227 
 Page 11 
 
 
rate, and decrease the unemployment rate to below 9%  immediately after EU accession.  For 2010, the 
IMF expects Croatia's GDP growth rate to be 0.4%, while the inflation rate and the external current 
account deficit (as a percentage of GDP) are estimated at 2.8% and 5.4%, respectively.33 
23. Croatia is expected to benefit from its accession to the EU:34  economic growth, once it 
becomes member, is anticipated to be further promoted by, inter alia , a more efficient allocation of 
resources;  strong boosts to FDI resulting from increased business opportunities;  as well as higher productivity due to increased trade and competition with other member states.  Moreover, the empirical literature supports the view that trade lib eralization among countries that trade extensively 
with one another contributes to income convergence.
35 
24. The Government regards exports as a major for ce underlying Croatia's future GDP growth;  it 
is implementing the Croatian Export Offensive Strategy 2007-10 as part  of its Strategic Development 
Framework (Chapter II(1)).  Moreover, Croatia's EU membership is expected to strengthen its strong 
export platform built over the last few years.  However, its export performance will depend on 
recovery in the world economy and in particular in the euro-zone, on which its trade increasingly 
depends. 
 
                                                                                                                                                                     
http://www.worldbank.hr/WBSITE/EXTERNAL/COUNT RIES/ECAEXT/CROATIAEX TN/0,,contentMDK:20
150212~menuPK:301252~pagePK:141137~piPK:141127~theSitePK:301245,00.html. 
33 IMF (2009b). 
34 World Bank online information.  Viewed at:  http://www.worldbank.hr/WBSITE/EXTERNAL/ 
COUNTRIES/ECAEXT/CROATIAEXTN/0,contentMDK:20150212~menuPK:301252~pagePK:141137~piPK:
141127~theSitePK:301245,00.html. 
35 Ben-David et al (1999).