Croatia For Sale!

Croatia For Sale

 

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)

Pan-Croatian Economic Forum: A Step Forward Or Just A Lot Of Hot Air?

Pan-Croatian Economic Forum 2013 Front row right: Tomislav Karamarko, President of HDZ Photo: Goran Mehkek/Cropix

Pan-Croatian Economic Forum 2013
Front row right: Tomislav Karamarko, President of HDZ
Photo: Goran Mehkek/Cropix

In both Western and Eastern folk superstitions Friday the 13th is a day of bad luck! But, there are exceptions as, for instance, in Croatia an old folktale says that a Friday the 13th is the most desirable date in the year to have one’s fortune told, whether it be through coffee-cup readings, tarot cards or a clairvoyant’s knowhow. So, Friday 13th can cut either way – good or bad – if one is to believe in the superstitious side of human nature. We’ll see how the one from December 2013 will pan out for the Croatian Democratic Union as it gets closer to general elections.

On Friday, 13th December 2013, there was a “Pan-Croatian Economic Forum” held at Zagreb’s Westin Hotel and organised by the Croatian Democratic Union’s (HDZ’s/the largest party in parliamentary opposition) “Croatian Statehood Foundation”. This, the first Pan-Croatian Economic Forum had its sub-title: Croatia and the world, new model of economic growth. The aim of the Forum was to present the Croatian economic potentials with a special emphasis on the current economic situation and perspectives of Croatian economy. The Forum gathered some 800 participants and guests, bringing together Croats who live and work in Croatia, those who live in the diaspora as well as representatives of other countries’ emigrants and economy specialists and scientists from Croatia and the world. The Forum was to discuss and debate Croatian economic future and to formulate proposals for the revitalisation of Croatian economy, putting forth economic models which Croatia can offer to the European and World economy.

In summary, regardless of the powerful and mighty statements made at the Forum about the economic salvation, equally powerful and mighty concrete or specific measures were not heard. The Forum ended on the note that everything that had been put forward, debated, suggested, proposed…and there was a great deal that transpired through the four working-groups the Forum split into, will be collated, grouped etc. and concrete proposal or directions that HDZ would take as the next general elections draw near (in 2015) would be formulated and presented to the voting public.

This kind of brainstorming is, in essence – good. It’s good because it draws upon the opinion and the know-how of many stakeholders. Brainstorming of this sort often occurs when the current situation, in whatever we do, is at a crisis point or at crossroads, which demand activation of positive stages towards drawing a Strategic plan that would, through steps of a related Action plan usher in a better future. And Croatian economy (as many in the world) is at such a crisis point.

The one thing about this Forum I feel uneasy about is the fact that threads of pure politics, distanced from the actual economic measures, are tangled up with this Pan-Croatian Economic Forum. In his statement to the Forum, Tomislav Karamarko, president of HDZ, said that Croatia was in a similar state as that of the 1990’s and emphasised HDZ, with its coalition partners, will win the second war for Croatia – “the war for a qualitative Croatia in which the Croatian person and all other citizens will live from the dignity of their own work”.

Let’s raise our heads and fight for our Croatia, because Croatia deserves it,” Karamarko emphasised and said that the togetherness of the diaspora and domestic Croatia will be stronger than ever and that this will be one of the fundamental premises HDZ would promote.

Karamarko articulated his doubts about the current government’s ability to do anything useful for Croatia, because, he said, it has the same mental pattern and structures that called HDZ a party of dangerous intentions only because it wanted to create an independent Croatia.

Their forerunners had, on 25 June 1991, when voting for an independent Croatia was afoot, courageously walked out of the Croatian parliament and, by this move, said everything they thought about the Croatian state”, Karamarko emphasised while stating that HDZ was then and is now, for reconciliation and that it will not allow that reconciliation means a loss of Croatian identity. “They’re attempting to change the substance of Croatian people through ideological attacks.”

It’s disappointing that Karamarko spoke about reconciliation at this economic forum. Reconciliation between the WWII opposing ideologies in Croatia is an important issue that should not be thrown into brainstorming of pan-Croatian economic recovery. The state of the economy affects everyone, equally. But since he did bring up the reconciliation, it’s disappointing that while speaking about reconciliation and ideological attacks in this Forum Karamarko actually omitted to be specific and to to articulate the absolute need to eradicate the increasingly antagonistic moves by the current government and their supporters to label people as fascists or Nazi’s just because they express love for Croatia. It’s disappointing that Karamarko did not articulate a resolve to pursue with the condemnation and processing of communist crimes as part of the reconciliation he supposedly holds high on his political platform or agenda.

But be that as it may, an economically prosperous Croatia is the goal to be achieved for all Croatians, regardless of their political affiliations and any past political transgressions as far as independent Croatia is concerned (the WWII one and the modern one). When it comes to actual economic reform and economic maneuvering out of the crisis then all citizens are affected and as many as possible need to be involved with the process. When it comes to economy of the country, political past and how it spreads its tattered remaining threads today do not bring bread on the table today, do not create jobs – but they do create diversions from tackling the real issues such as bringing bread to the table, creating new jobs, stopping job losses, sifting through incompetent or politically wired people in important positions…

And associated to that line I particularly like the message given by Robin Harris, former adviser to British Prime Minister Margaret Thatcher, who was a guest at this Forum. The message is that pessimism is pulling Croatia down, and the Socialists do not understand that the economy must be dynamic. That Croatia can reduce its deficit by the reduction of tax burdens and by stimulating business…Margaret Thatcher refused to accept that Britain was on its knees, that is associated with patriotism!

Stimulating small to medium business in Croatia has been the subject of several of my posts and published interviews. So, of course I agree with what Robin Harris has to say on the matter. It’s a shame though, that he is not “preaching to the converted” – much, much has been missed and ignored when it comes to actual steps undertaken in Croatia to achieve the goal of business entrepreneurship.  Little effort has been invested in transitioning from communism on this platform.

Karamarko, in no uncertain words pointed to the view that Croatia is once again on its knees – just as it was in 1990’s. He calls upon a fight for a prosperous Croatia! Nothing new – a prosperous Croatia was one of the main goals HDZ had in 1990’s, when it set out to create an independent Croatia with overwhelming support from the people. Between then (late 1990’s when the last patch of Serb-occupied Croatian territory was peacefully reintegrated into Croatia) and today Croatia has had both HDZ and Social Democrat led governments. Prosperity as defined through a solid culture change in all public service and government funded business as part of transitioning from totalitarian communism has failed miserably.

And now, from this Forum, it transpires that HDZ has its eye on taking burdens off the tax, doing away with dividend tax and on a reduction of PDV (goods and services tax; VAT etc). They also seem to be looking at putting a stop on all excises with which public companies are financed.

It seems that all this, including the Forum, is tinkering at the edges of an economy at its breaking point, delivering little in the way of the constructive reform required for Croatian economy, which is still heavily polluted with stale, unproductive, badly regulated government-dependent funds injections.  The tinkering at this Forum has in no way provided any concrete measures which would declutter the economy from the stifling administrative processes working against rather than for an economic progress.

European Union is edging closer to the introduction of a financial transaction tax. The way things are going Europe’s debts can never be repaid. And Croatia is a member of the EU, placing much of its future economic development on EU funds – still! It has it seems achieved little in the way of stimulating business – particularly small to medium business – even though its Reconstruction and Development bank has seen billions flush through it over the past twenty years!

The current Croatian government has energetically delved into tax reform over the past two years and the fact remains that these reforms have been experienced as widely punitive and all about raking in of the tax income into the government coffers; the coffers that continue feeding an unsustainable large public administration. Hence, the aforementioned proposals by HDZ could in fact find their way to stimulating business and investments, but I am not about to hold my breath on that one. Especially not when brainstorming on ways to economic recovery and growth gets to play second fiddle amidst the rhetoric of political ideologies; amidst the blaming games each plays against the other.  It may take the doubling of national debt (and its unsustainable as we speak) before the ideological opponents stop blaming each other at every turn and both roll up their sleeves and put matters into their due perspective.
The failure of politicians in Croatia (whether governing or in opposition) to widely debate Croatia’s tax structures is to my view one of the most gripping indictments of today. A proper tax structure that rewards growth and stimulates productivity will result in a fairer economy – in prosperity that was part and parcel of Croatia’s path to independence and secession from communist Yugoslavia. Failing to come to terms with the consequences of its tax system, which fails to stimulate growth and investment, in a mature and honest way condemns Croatian economy to a tax system which is unfairly structured and ensures that the economy never reaches its true potential. An example can be given in the current discriminatory practices of taxing foreign pensions in Croatia.

The Economic Forum in Zagreb, on Friday 13th December has had quite a bit of political rhetoric on the way Croatian diaspora is treated and how valuable it in fact is when it comes to the money it brings into Croatia every year.  I am yet to hear a concrete measure from HDZ that would tackle this increasingly serious problem of unfair and discriminatory taxation rules.

Having said all this, let’s for the moment give HDZ a chance to demonstrate whether this Forum has emitted hot air only or whether in fact it is a start of a more productive set of “Action plans” that will see Croatia out of the economic nightmare and the public administrative swamp cluttered with stale, inflexible, politically charged barriers to progress – decluttered. Ina Vukic, Prof. (Zgb); B.A., M.A.Ps. (Syd)

Croatian Economy: The Gangrene Must Out

Porto Portugal Cartoon: www.incartoons.wordpress.com

Porto Portugal Cartoon: www.incartoons.wordpress.com

The beginning of 2013 was marked by stagnating movements in economic activities. Significant drop in exports came as well, coupled, though, with concurrent strengthening of domestic demand under the influence of increased government’s investment activities,” said the Croatian National Bank’s (HNB) analysis of the economic movements in Croatia on 8 May. “In such conditions, the administrative rate of unemployment stayed at high levels, which had already been reached. The fiscal politics were expressly expansive during the first three and a half months, however, sustaining such a trend for the remained of the year will only be possible if there is significant review of the fiscal goals for the whole of the year”, the HNB analysis continued.

In this clearly dark prognosis HNB emphasised that there had been significant fall in exports – up to 14.4 % in comparison to the same quarter of 2012, the industrial production had stagnated and so did small trade. Small movements in the building industry have been noted, as well as in job markets due to the temporary reduction in the number of unemployed associated with seasonal employment.

Consolidated central government expenditure has increased by 7.5% between January and February 2013, while government income had decreased by 1.2% in comparison with the same period last year.

“Total deficit in the consolidated central government for January and February was 60% of the planned amount for 2013. Central government debt in that period had increased by 3.9 billion Kuna, thus reaching 179.4 billion Kuna by the end of February…”

To remind oneself in the Budget for 2013-2015 the Croatian government had stated that Government Budget deficit for 2013 would be 10.9 billion Kuna or 3.1% of GDP. It forecasted revenue or income of 113.65 billion Kuna and expenditure of 124.52 billion Kuna.

The Croatian National Bank’s analysis talks about the need for the government to undertake a significant review of fiscal goals for 2013 if anything worthwhile is to happen in the economy. This could mean that the Croatian government must change its budget mid-year and that perhaps they did not know what they were doing when they picked up power in 2012.

Certainly, the Social Democrat led government seems to be floundering clumsily and helplessly through the economic nightmare that Croatia has been in for years. Successive governments (since the early nineteen nineties – secession from Yugoslavia) have done likewise, dragging their feet on administrative and legislative reforms that were and are absolutely essential for economic survival with the milieu of free and economically competitive nations.

Evidently none have made a point of fully taking up dr Franjo Tudjman’s advice and forecast that if Croatia was to become a truly prosperous democracy then it must learn from those who have succeeded in it, bring in the knowledge and the expertise from abroad, etc. But to do that, corruption and personal enrichment through privatisation of public companies would not have been entirely possible – the die-hard Communist political elite made sure that advancement of widespread entrepreneurship made only cosmetic appearances.

There is no doubt in my mind that the over-sized state is the culprit for the desperate situation Croatia is in economically. Too many people live off the state budget. It’s like a gangrene that must be cut out. All governments in Croatia – HDZ and SDP led ones equally – have done very little in cutting the public administration and in assisting the development of private enterprise. Indeed if the wealth of privatised public assets and companies did not go into the pockets of many individuals, either in hard currency or political favours, Croatia would now be in a much better place economically. It had and it has ample natural resources, it had and it has a nation of people among whom most are hard working in pursuits of a better life.
A serious and urgent reform is needed. Indeed, a reform that would see deep cuts in the public sector employment, but I fear no major political party will dare to bring this on in fear of losing votes.

The reality is that someone needs to cut out the gangrene (the huge surplus of public servants), otherwise all will fall.

The above mentioned analysis by the Croatian National Bank tells in no uncertain terms that the government is spending more and more, that the state revenue is less and less and that state debts are greater and greater.

It’s like the government politicians (and the opposition, for that matter) have fastened their seat-belts, shut their eyes, charging in a frenzy towards the “saviour” EU, hoping to wear the turbulent journey unscathed. Nope, that isn’t likely to happen, as majority have not made any serious progress away from the communist mind frame even though many almost swear they have.

Once in EU (from 1 July) Croatia will enter into a market of 500 million people, majority of which have established economically and political assertive practices while the Croatian lot still fail to assert their own political, professional and historical values on the international scene. They’ve kept tight with the markets within borders of former Yugoslavia – Serbia, Bosnia and Herzegovina, Macedonia, Montenegro … and come July 1 they will lose the freedom of trade they’ve had with these countries – they’ve done little if anything that truly counts to plug into the EU countries’ markets in preparation for entry into the EU.

And, at the end of the day, all we seem to hear from the Croatian government and the opposition is how they want foreign investments in Croatia, how they want domestic investments, how they want investments from the Croatian diaspora … but they’re doing almost nothing that would significantly make the state administration and red tape conductive to a strong investment climate. While acknowledging the fact that investments generally are on a slump worldwide, the Croatian government and the opposition nevertheless seem full of air and bubbles and someone needs to pop that balloon of political elitism before it takes the people into the dungeons of and economic gutter from which there is no return. Yep, the time has come when hitting the fist on the table, when determined measures regardless of the EU must be brought forward by Croatian, for Croatians. Ina Vukic, Prof. (Zgb); B.A., M.A.Ps. (Syd)

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