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
|TI Corruption Perceptions Index||2018||60 of 176||https://www.transparency.org/cpi2018#results|
|World Bank’s Doing Business Report||2019||58 of 190||http://www.doingbusiness.org/en/data/exploreeconomies/croatia/|
|Global Innovation Index||2018||41 of 128||https://www.globalinnovationindex.org/gii-2018-report|
|U.S. FDI in partner country ($M USD, stock positions)||2016||$199||Host government, Croatian National Bank http://www.hnb.hr/en/statistics/statistical-data/|
|World Bank GNI per capita||2018||60 of 176||https://www.transparency.org/cpi2018#results|
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Croatia is generally open to foreign investment and the Croatian government continues to make efforts, such as financial incentives, to attract foreign investors. All investors, both foreign and domestic, are guaranteed equal treatment by law, with a handful of exceptions described below. However, bureaucratic and political barriers remain. Investors agree that an unpredictable regulatory framework, lack of transparency, excessive duration of administrative procedures, lack of structural reforms, and unresolved property ownership issues weigh heavily upon the investment climate.
The Agency for Investment and Competitiveness (AIK) — previously a stand-alone Croatian government agency providing investors with various services intended to help with implementation of investment projects — became part of the Ministry of Economy, Entrepreneurship and Crafts at the start of 2019. The Ministry’s Directorate for Investment, Industry and Innovation has assumed the assistance role previously offered by AIK. For more information, see: investcroatia.gov.hr. The Strategic Investment Act helps investors streamline large projects by gathering all necessary information the investor needs to implement the project and then fast-tracking the necessary procedures for implementation of the project, including acquiring permits and help with location. Various business groups, including the American Chamber of Commerce, Foreign Investors’ Council, and the Croatian Employers’ Association, are in dialogue with the government about ways to make doing business easier and to keep investment retention as a priority.
Limits on Foreign Control and Right to Private Ownership and Establishment
Croatian law allows for all entities, both foreign and domestic, to establish and own businesses and to engage in all forms of remunerative activities. Article 49 of the Constitution states all entrepreneurs have equal legal status. However, the Croatian government restricts foreign ownership or control of services for a handful of national security-sensitive sectors: inland waterways transport, maritime transport, rail transport, air ground-handling, freight-forwarding, publishing, education, and ski instruction. Apart from these, the only blocks to market access involve routine professional requirements (architect, auditor, engineer, lawyer, and veterinarian). Over 90 percent of the banking sector is foreign-owned.
Other Investment Policy Reviews
The Organization for Economic Cooperation and Development (OECD) published an investment climate review for Croatia in June 2019:
The World Bank Group published a “Doing Business” Economic Profile of Croatia in 2018: http://www.doingbusiness.org/en/data/exploreeconomies/croatia
The Croatian e-government initiative “Hitro.hr” ( ) provides for 24-hour access to on-line business registration. Additionally, Hitro.hr offices are located in more than 60 Croatian cities and towns. In order to begin business activities, a company needs to register with the State Statistics Bureau to obtain a company identification number, then with a Notary Public, the Commercial Court, Tax Administration, and Health and Pension agencies. This process can take from one to three days, depending on the efficiency of the local Commercial court, which processes the registration. Private sector participants have complained that the process can take as long as 60 days.
In 2018, the Global Enterprise Agency rated Croatia’s business registration process 4 out of 10, while the World Bank Ease of Doing Business report ranks Croatia as 123 out of 190 countries. The government has pledged to improve conditions for business registration. Croatia’s business facilitation mechanism provides for equitable treatment to all interested in registering a business, regardless of gender or ethnicity.
Croatians have invested some USD 4 million in the United States. Croatia has no restrictions on domestic investors who wish to invest abroad.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Table 3: Sources and Destination of FDI
|Direct Investment From/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||$39,675||100%||Total Outward||$7,722||100%|
|The Netherlands||$6,856||20.4%||The Netherlands||$3,212||41.6%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Table 4: Sources of Portfolio Investment
Data not available.