HomeReportsBureau of Economic and Business Affairs2019 Investment Climate Statements…Croatia

# 					2019 Investment Climate Statements: Croatia			

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													Executive Summary											

                -  Executive Summary 
                -  1. Openness To, and Restrictions Upon, Foreign Investment   
                -  2. Bilateral Investment Agreements and Taxation Treaties   
                -  3. Legal Regime   
                -  4. Industrial Policies   
                -  5. Protection of Property Rights   
                -  6. Financial Sector   
                -  7. State-Owned Enterprises   
                -  8. Responsible Business Conduct   
                -  9. Corruption   
                -  10. Political and Security Environment   
                -  11. Labor Policies and Practices   
                -  12. OPIC and Other Investment Insurance Programs   
                -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                -  14. Contact for More Information   

## Executive Summary

Croatia became a member of the EU in 2013, which enhanced its economic stability and provided some new opportunities for trade and investment. Croatia is slowly accessing a substantial amount of available EU funds, but many direct benefits of EU entry are still to come.  The Croatian government pledged to take legislative and administrative steps to reduce barriers to investment, streamline bureaucracy and public administration, and program EU funds more efficiently but promised reforms in some areas, to date, have been halting in the face of opposition from vested interest groups.  

The government is willing to meet at senior levels with interested investors and to assist in resolving problems.  Prime Minister Andrej Plenkovic is a former member of the European Parliament and has signaled his commitment to wide-ranging structural reforms in line with recommendations from the EU and global financial institutions.  Relative strengths in the Croatian economy include low inflation, a stable exchange rate, and developed infrastructure. Historically, the most promising sectors for investment in Croatia have been tourism, telecommunications, pharmaceuticals, and banking.

However, the Croatian economy continues to be defined by a large government bureaucracy, underperforming state-owned enterprises, and low regulatory transparency, all of which contributes to poor performance and relatively low levels of foreign investment.  Following a decade of growth from the end of the war in 1995, investment activity in Croatia slowed substantially in 2008 and remained under historic levels despite the economy’s emergence from recession at the end of 2015, relatively robust growth in 2016, and continued growth in 2017.  The banking system weathered the global financial crisis well but was saddled with financial costs related to the government-mandated conversion of Swiss Franc loans into euros in 2015.

In the last two years, the government implemented a number of financial incentives and measures designed to attract investment and support entrepreneurship.  However, these incentives are no corrective for profound deficiencies in the investment climate which include difficulty in establishing property ownership owing to incomplete public property records and an inefficient, sometimes unpredictable, judicial system that contributes to slow resolution of legal disputes.  Investors continue to face high “para-fiscal” fees, rigid labor laws, and slow and complex permitting procedures for most investments.  

The government maintains a budget deficit well within EU-recommended levels.  In January 2019, the government announced the fourth economic reform package of PM Plenkovic’s tenure.  This package aims to cut red tape, decrease the administrative burden on start-ups and established businesses, and generally stimulate economic growth.  Although the government continues to make incremental improvements to the business environment, its primary focus remains on preventing job losses from state-owned enterprises and “strategic” sectors.  In the last year, the government privatized a formerly state-owned fertilizer company by providing state guarantees equivalent to the total amount of private capital invested and is attempting to shore up the financial viability of two major shipbuilding companies. 

*Table 1: Key Metrics and Rankings*