The loud invocation for foreign (or domestic) investors in Croatia, whose arrival, as politicians and business high-rollers claim, would solve all the problems in the country, has been a daily occurrence in the economic-political circles. It’s been said over and over again that favourable conditions need to be created for investors to come, to bring their money and invest unsparingly.Mouthfuls of rhetoric such as “we need to accelerate the investment procedures, cut red tape, which chased investors away to other more flexible countries…”, ring in the ears of every city, town, village; they all wait – like a frozen figure waiting impatiently in the sun to defrost – for direct investments that would get the economy going and create new jobs.
Investors are seen as saviours that will shake up the stumbling, plummeting economy and lead the country out of the recession.
In this mad rush to see a meaningful upward turn in the economy the Croatian parliament had late last year passed the new Act on Strategic Investment that, without doubt in my mind, appears solely designed to serve large investors, many of whom will undoubtedly rush in with their long list of – potentially – white elephant projects. God knows, Croatia has had quite a few of those in the past decades via countless dubious and corrupt privatisation deals.
Specifically, the new law will give preference to investments over 150 million kunas (the equivalent of EUR 20 million) under the patronage and approval of the recently formed government’s Commission on Strategic Investment. Under the new law, approval times for large projects will be significantly speeded up.
The law allows for special ease for strategic projects when it comes to the availability of real property owned by the state. These availabilities include the sale of that real estate without public tender whose market value is determined by an authorised valuer and the release of forests from the state forest fund for sale or for formulating citizen’s rights to these forests. The “public good/use” of state owned properties has been removed and, hence, leading the way to abuse and wheeling and dealing not alien to corruption with which Croatia still struggles miserably. While the law refers to state owned property that is made available to investors it is not far-fetched to imagine that, in the euphoria of strategic investment that “will save Croatia”, the state will come up with more laws and regulations where it will seek to compulsorily acquire private property for the benefit of some strategic investment project in the pipelines. Compulsory acquisitions are usually reserved in the developed world for projects of wider public good or state importance. Indeed, the scenario of compulsory land acquisitions to benefit an aspiring “strategic investor” is very possible given the relatively low investment funds required for strategic investments in less developed areas on the mainland and on the islands. So, for example, if someone comes up with say 3 million EURO – which is not a large sum of money – and decides on establishing a farm of some sort or a fishery or say building a restaurant at a seaside spot and creating 5 new jobs an air of subservience to the investor at the expense of private property will in places, I fear,be created especially at the investor’s insistence on preferential locations. The state already has laws that enable it to acquire farming land in order to increase the size of farmland in its ownership on any particular lot surrounded by private ownership. Indeed the squabbles about rights to land ownership – and therefore transfer to a strategic investor – are likely to increase between the state and local governments even though the state has usurped the rights to absolute decision making, creating an administrative and other procedural nightmares which expose themselves to corrupt practices particularly given the land valuation process, which does not seem to have water-tight checks and re-checks.
A concerning aspect is also the creation of “new jobs” rule that applies to approved strategic investments. According to the Act there is a requirement to open the “new jobs” within three years of capital works completion and maintain/guarantee these jobs for five years in larger projects and three years in smaller and medium projects. Resulting from my personal research into the new laws and regulations so far, there is a lack of clarification as to how many of such new jobs are to be filled by Croatian citizens, locals etc., as opposed to the foreign strategic investor bringing in his/her personnel, as well as lack of clarification as to any monitoring or policing of adherence to the filling of “new jobs”.
The new Act on Strategic Investment in Croatia has as its goal the reduction of administrative procedures – or red tape, if you like – hence playing to a speedy realisation of strategic projects in Croatia. In order to declare a project “strategic,” it must meet several criteria. Beside the capital expense of at least HRK 150 million (approx. EUR 20 million) as said above, the project must be in accordance with spatial planning regulations, which one might well expect can be changed in order to appease a potential investor (?).
If it is possible to co-finance the project with EU funds, this amount can be equal to or greater than HRK 75 million (approx. EUR 9.8 million). If the project is being carried out on an island or in local or regional municipalities that have a lower than average level of development than the rest of Croatia, or the project is related to agriculture and fishery, the total amount of capital expense can be equal to or greater than HRK 20 million (approx. EUR 2.6 million).
In addition to these financial criteria, the criteria regarding the scope of activities pertaining to the strategic project must also be fulfilled. These activities include production and processing, infrastructure and energy projects, hospitality services, industrial engineering projects, logistics and distribution centres, as well as agriculture and fishery. When submitting the project, it is necessary to include an estimate of the number of new jobs and indirect employments, which are connected to the project.
After enactment of the law of Strategic Investment there have been numerous debates and public discussions and commentaries on doubtful purpose of the Act. The major opposition party HDZ has gone as far as saying that the Act provides legal basis for the Government to freely dispose of the state owned property by setting aside the influence of the public and the local governments in decision making process, seemingly empowering the State Strategic Investment Commission with “supreme” powers. Sadly, the public and oppositional debates have not made much difference.
At first glance, this system has the capacity to enable more flexible administration with the state owned assets and ease the procedures and formalities that are necessary for the implementation of projects. Digging deeper, though, bells of caution ring with deafening noise: such broad and supreme powers of few are fraught with the dangers of corruption and granting privileges in valuing and disposing of state property or valuable assets, whether temporary or for long-term, to selected individuals whose ultimate operations and reaping of profits may not be in Croatia’s interests. Certainly, a new door to almost extreme neoliberalism has been opened here and the people at large are sure to suffer in the end. Ina Vukic, Prof. (Zgb); B.A., M.A.Ps.(Syd)