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CROATIA ECONOMIC NEWS IN BRIEF CROATIA

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					                CROATIA: ECONOMIC NEWS IN BRIEF




                                     November / December 2007




                                   Economic Section
                   Embassy of the Kingdom of the Netherlands, Zagreb




Note to the reader

This is an information service of the Embassy of the Kingdom of the Netherlands. The information is based on
news items published by the Croatian media and does not reflect the opinion of the Embassy. The Embassy does
not accept any claims for damages and loss resulting from the use of the information contained in this newsletter.
Content


MACROECONOMICS & ECONOMIC POLICY DEVELOPMENTS ................................... 3
  EBRD forecasts on Croatian economy................................................................................... 3
  EC expects continuation of strong economic growth in Croatia ............................................ 3
  Croatian annual inflation rate in October 4.3% ...................................................................... 3
  Slower growth of exports to the EU ....................................................................................... 3
  October unemployment rate at 14.3% .................................................................................... 4
  Average monthly net salary 4,832 HRK ................................................................................ 4
  Charge for renewable energy sources .................................................................................... 4
  Permits for major construction projects ................................................................................. 4
  Frozen activities of the Privatisation Fund (HFP) .................................................................. 4
  Increased importance of corporate arbitration........................................................................ 5
  Expected price increases of gas and electrical power ............................................................ 5
INTERNATIONAL COOPERATION ...................................................................................... 5
  European Commission releases Croatia Progress Report ...................................................... 5
  European Commission approves 4 Croatian IPA programmes ............................................. 6
  Croatian Pre-Accession Economic Programme 2008-2010 ................................................... 6
  EBRD approves EUR 11.2 million loan for modernisation of the Port of Ploce ................... 6
  Regional Employers Associations sign common strategy for innovation and cluster policy 7
  MEP Swoboda in a debate on Ecological and Fisheries Protection Zone ............................. 7
  South-European Regional Economic Forum......................................................................... 7
SECTORS΄ DEVELOPMENTS ................................................................................................ 8
  Croatian capital market in 2007 ............................................................................................. 8
  LPG market ............................................................................................................................ 9
  Tourism sector in 2007 and plans for 2008 ............................................................................ 9
  Weak continental tourism industry ........................................................................................ 9
  Booming investments in Istrian tourism ................................................................................ 9
  City of Zagreb’s plan for building retirement homes ........................................................... 10
  Plans for 20 new waste management plants ......................................................................... 10
  First section of future A5 motorway opened ........................................................................ 10
  Turnover of the Port of Rijeka ............................................................................................. 10
  New bankruptcy plan agreed for Viktor Lenac Shipyard .................................................... 11
  Hungary’s MOL completes takeover of Croatian oil company Tifon ................................. 11
  Konzum holds largest share in Croatia’s consumer goods retail market ............................. 11
  Dukat plans to take over Macedonian Ideal Sipka ............................................................... 11
  35% increase in Germanwings passengers on the Croatian market ..................................... 12
ANALYSES, SURVEYS ........................................................................................................ 12
  Croatia ranked 57 in Global Competitiveness Report .......................................................... 12
  Eurostat: Croatian GDP 52% of the EU average ................................................................. 12
  Most trusted brands in Croatia ............................................................................................. 12
  Survey on working from home............................................................................................. 13
OTHER NEWS ........................................................................................................................ 13
  Parliamentary elections ........................................................................................................ 13
  Traditional economic symposium in Opatija ....................................................................... 13
  Conference on renewable energy sources ............................................................................ 14
  Exchange rate ....................................................................................................................... 15



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MACROECONOMICS & ECONOMIC POLICY DEVELOPMENTS
EBRD forecasts on Croatian economy
Hina, Nov 8 & Nov 13 - The European Bank for Reconstruction and Development (EBRD) puts the
real growth of the Gross Domestic Product in Croatia at 5.5 percent for this year. This represents a rise
from last year's 4.8 percent. The EBRD projects Croatia's GDP growth rate at 5.2 percent in 2008. The
inflation rate this year should amount to 2.3 percent, after last year's 3.2 percent, while in 2008 the
inflation rate should go down to 2.8 percent. The budgetary deficit is expected to drop from last year's
three percent to 2.6 percent in 2007. The balance of payments deficit is expected to amount to 8.3
percent of GDP, after last year's 7.8 percent. According to the EBRD annual report (available on:
http://www.ebrd.com/about/strategy/country/croatia/strategy.pdf), the key challenges for Croatia in the
coming period are privatisation and restructuring of the remaining state-owned assets. The
recommendations of the deregulation programme known as the "regulatory guillotine" should be
implemented to reduce state intervention in the economy and improve the business climate. Further
fiscal consolidation is also necessary. In particular, all off-budget operations need to be included in the
general government accounts and government spending should be reduced.

EC expects continuation of strong economic growth in Croatia
Hina, Nov 9 – The Croatia's economic performance in the next two years is expected to
remain strong, the European Commission said in its economic assessment report (available
on: http://www.delhrv.cec.eu.int/images/article/File/croatia_progress_reports_en.pdf). The
Commission estimates that Croatia's economic growth this year should accelerate to 6.0
percent, after last year's 4.8 percent. The inflation rate measured by consumer prices this year
is projected at 2.5 percent. According to Brussels, the inflation rate in 2008 and 2009 will
amount to 3.0 percent. Employment is expected to go up by 2.6 percent in 2007, 0.5 percent
in 2008 and one percent in 2009. The unemployment rate is expected to continue to fall and
amount to 11 percent this year, 10.8 percent next year and 10.2 percent in 2009. The
budgetary deficit this year will remain at 2.2 percent. The public debt share in GPD is
expected to go down from this year's 39.6 percent to 37.3 percent by 2009. Foreign trade
deficit is expected to remain above 24.0 percent of GDP.

Croatian annual inflation rate in October 4.3%
Hina, Nov 14 - Prices of consumer goods and services increased by an average of 0.3 per cent in
October and by 4.3 per cent on a year on year basis, according to the Central Bureau of Statistics. The
annual inflation rate of 4.3 per cent has been the highest since mid-2001 when it was 5.5 per cent.

Slower growth of exports to the EU
Hina, Nov 17 - Croatia's exports to EU members states in the first nine months of 2007 has grown
significantly slower than exports to other countries. Croatia recorded a fall in the share of the exports
to the EU in its overall trade exports from 65.2 percent in 2006 to 61 percent in 2007. This is the result
of a significantly stronger growth of exports of commodities in other countries, namely by 24.4
percent in relation to the growth of exports to the EU in the amount of 3.5 percent, according to
analysts of the Croatian Chamber of the Economy. Exports to Bosnia-Herzegovina recorded the
highest increase (1.5 billion kuna), as well as exports to Serbia and Montenegro (690 million kuna).
Exports to countries that are not Croatia's traditional export destinations - Bermuda, Gibraltar and the
Marshals Islands - also rose by a total of 1.4 billion kuna.




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October unemployment rate at 14.3%
Hina, Nov 21 - Croatia's October registered unemployment rate was 14.3 percent, down 2.5 percent
from October 2006 when it stood at 16.8 percent. The unemployment rate in September was 14.1
percent, while in August it was 13.8 percent, the lowest registered unemployment rate in the last ten
years, reported the Central Bureau of Statistics. The registered unemployment rate is calculated as a
ratio of registered job-seekers to the working-age population.

Average monthly net salary 4,832 HRK
Hina, Dec 4 – The average monthly net salary in Croatia in the July-September period amounted to
4,823 kuna, which is a nominal increase of 5.4 percent and a real increase of 2.4 percent in relation to
the same period last year, reported the Central Bureau of Statistic. Compared to the previous quarter,
the average monthly salary in the said period remained the same in nominal terms, but dropped by 0.1
percent in real terms. The highest average net salary in the third quarter of this year, amounting to
9,257 kuna, was reported in the air transport sector. The lowest salary, amounting to 2,528 kuna, was
reported in the leather processing industry.

Charge for renewable energy sources
Hina, Dec 19 – The payment charged for promoting the production of energy from renewable sources,
which is paid by all buyers of electric power, will not be increased next year and will remain at the
present HRK 0.89 per kilowatt-hour, decided the government. It amended the regulation on payments
for the promotion of production of electric power from renewable energy sources and cogeneration,
under which all buyers have to pay HRK 0.89 per kWh (exclusive of VAT or some HRK 1.1 per kWh
inclusive of VAT) for the promotion of energy production from renewable source as of 1 July this
year. The regulation provided that the payment would increase to HRK 1.98 per kWh (exclusive of
VAT) as of 1 January 2008, which would increase household electricity bills by three to four kuna
monthly. By amending the regulation, the government decided to keep the existing amount of
payment, saying that this would "ease the pressure on buyers of electric power and create a better
balance between the collecting and spending of funds for this purpose."

Permits for major construction projects
MediaScan, Nov 6 – Starting in November, the Ministry of Environmental Protection, Urban
Planning and Construction will be handling the permits for all major construction projects.
Beforehand, the Ministry only had to give permission for the location license to be granted, with the
major permits handled by the local authorities. Now, however, with new by-laws being passed, the
Government Ministry will have the final say for all major industrial and construction projects.
Environmental protection standards will therefore be of prime importance before any permits are
granted, for under the new regulations the Ministry has jurisdiction over most major industrial
projects.

Frozen activities of the Privatisation Fund (HFP)
MediaScan, Nov 9 - The State Privatization Fund (HFP) has frozen all its activities until after
the parliamentary elections. In the meantime, the Board at HFP may meet once, over the
telephone, in order to grant loans to State owned companies in desperate need of assistance in
order to pay out wages or make good on outstanding debts. The sale of one piece of
agricultural land, worth HRK 70,000 will mark the end of privatization at the HFP, at least
under the mandate of the current government. The new government will have much ground to
cover, for the dairy company KIM and Adriachem are still awaiting a new buyer after previous
attempts to sell the companies were unsuccessful.




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Increased importance of corporate arbitration
MediaScan , Nov 29 - Corporate arbitration reviewed at the Chamber of Commerce (HGK) in Zagreb
has taken off over the past year, as international business disputes arising in the region are decided
upon at the special court. It seems that businesses operating in the region, especially from the former
Yugoslavia and their partners from neighboring western European countries such as Italy and Hungary
are deciding to use arbitration at the HGK in Zagreb when forging contracts. This year the number of
cases heard has increased 35 percent compared to last year, with the number expected to grow
substantially. Some of the cases have been serious in matter, involving hundreds of millions of Kuna.
To date, the arbitration committee has handled itself well, leading to more and more contracts signed
in the region citing arbitration in Zagreb in order to solve disputes that might crop up between
businesses. The only problem the HGK faces is the logistics of expanding its operations, which means
more personnel working in the offices, including the translators required to handle so many cases.

Expected price increases of gas and electrical power
MediaScan, Dec 3 - The INA national oil and gas company has sent a notice to its two largest buyers
– the Petrokemija chemical fertilizer company and the HEP power utility – that it intends to increase
the price of natural gas significantly in the very near future. No concrete dates were given, but INA
could increase its margin by as much as 30 percent. If so, the two corporations will almost definitely
pass on the price hike to consumers, which would raise the price of gas and electricity 30 percent, too.
HEP and Petrokemija are aware that a price hike is inevitable, for they have been purchasing gas at
incredibly low prices for a long time now due to a privileged price regulated by the government, and it
seems, only the current parliamentary elections stood in the way of a price hike that could have been
introduced long ago. HEP will no doubt increase prices anyway, for they are now in a position to
behave in a more deregulated market, with buyers having the opportunity to purchase electricity on the
open market.

INTERNATIONAL COOPERATION
European Commission releases Croatia Progress Report
Hina, Nov 6 - Croatia has strengthened democracy and the rule of law and achieved strong economic
growth and macroeconomic stability, but needs to accelerate the reform of public administration and
the judiciary and step up the fight against corruption, the European Commission said in its annual
progress report on Croatia (http://www.delhrv.cec.eu.int/images/article/File/croatia_progress_reports_
en.pdf). The report, covering the period from 1 October 2006 to 3 October 2007, describes relations
between Croatia and the European Union, analyses the situation in Croatia with regard to compliance
with the political and economic criteria, its ability to assume the obligations arising from EU
membership and the level of adjustment to the acquis communautaire. Croatia continues to meet the
Copenhagen political criteria. Implementation of the strategy for judicial reform and combating
corruption continues, the European Commission said, adding that the backlog of court cases has been
reduced and that the first results in combating corruption have been achieved. Croatia has taken further
appropriate steps in dealing with minority problems and, to a lesser extent, the return of refugees. It
has continued to fully cooperate with the Hague war crimes tribunal, has ratified the Central Europe
Free Trade Agreement (CEFTA) Treaty and continued to actively participate in regional cooperation.
However, there remain considerable challenges in key areas, such as the reform of the inefficient
justice system and public administration and the fight against corruption, which remains widespread.
Closer attention should be devoted to minority rights, particularly the return of refugees. War crimes
prosecution requires further attention. Further regional cooperation is of crucial importance, as are
efforts in dealing with outstanding bilateral issues with neighbours, particularly those relating to
border demarcation, the report says. The European Commission reiterated its earlier assessment that



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Croatia has a functional market economy that should be able to cope with the competitive pressure
within the EU market provided that it resolutely implements a comprehensive reform programme to
reduce structural weaknesses. As regards the economy, the report says that Croatia has seen strong and
accelerated growth and that it has retained macroeconomic stability, including low inflation, but warns
that the macroeconomic stability might be affected by the foreign trade deficit. It also notes that
unemployment has been reduced, although the unemployment rate remains high. Croatia has improved
its ability to assume the membership obligations. In some areas a high level of adjustment to the
acquis communautaire has been achieved, but considerable effort will be needed to ensure full
adjustment, the report says.

European Commission approves 4 Croatian IPA programmes
Hina, Nov 29 – The European Commission (EC) has approved four Croatian operational programmes
within the IPA pre-accession fund relating to transport, environmental protection, promotion of
regional competitiveness, and development of human resources. The four programmes are worth EUR
180.7 million in all, of which 53.5 million is intended for railways and waterways, 53.5 million for
environmental protection, 34.9 million for promoting regional competitiveness by subsidising less
developed regions, and 38.8 million for human resources development.

Croatian Pre-Accession Economic Programme 2008-2010
Hina, Nov 29 – Croatian government adopted the Pre-Accession Economic Programme (PEP) for the
2008-2010, citing as its main targets maintaining macroeconomic stability, reducing external
imbalances, further fiscal adjustment, cutting unemployment, promoting entrepreneurship, and
completing administrative and judicial reforms. Such documents are prepared by EU membership
candidates and are sent to the European Commission for evaluation. The PEP 2008-2010 focuses on
several areas, such as frameworks and targets of economic policy, macroeconomic trends, public
finances, and structural reforms. In the given period, Croatia will aim to speed up economic growth to
7%, maintain the average inflation rate at around 2.7%, reduce registered unemployment below 7%,
increase direct foreign investment, and slow foreign debt growth, Finance Minister Suker said. Other
targets include reducing the share of public debt in GDP from 44.9% in 2007 to 37% in 2010, further
fiscal adjustment and reducing the budget deficit to have a fully balanced budget in 2010.

EBRD approves EUR 11.2 million loan for modernisation of the Port of Ploce
Hina, Nov 12 –The European Bank for Reconstruction and Development (EBRD) has approved a
EUR 11.2 million loan for the completion of construction of a new bulk cargo terminal in the southern
Croatian Adriatic port of Ploce. The loan will enable the port to eliminate existing operational
bottlenecks in handling bulk cargo and to increase its capacity to meet current and future market
demands. With annual traffic volume expected to increase from 2 million tonnes in 2004 to 7.2 million
tonnes in 2010, it has become vital to upgrade the infrastructure and operational capabilities, the
EBRD statement said. The construction of the terminal is part of the Ploce Port expansion programme
undertaken by the Croatian government, which the EBRD is co-financing jointly with the World Bank.
The loan will be guaranteed by the Republic of Croatia, while additional technical cooperation funding
of EUR 50,000 has been provided by the Dutch donor fund for project preparation and assistance with
preparation of the new concession agreement with the port operator. By financing the Ploce Port
expansion project, the EBRD and the World Bank will support the further development of trade along
the Corridor Vc, one of the three major transport corridors linking Croatia to EU markets. The purpose
of the project is to help improve the capacity, efficiency and quality of services at the southern end of
the corridor, with a particular focus on the Port of Ploce and on improving coordination among all
corridor participants in Croatia and Bosnia and Herzegovina. Project document is available on the
website: http://www.ebrd.com/projects/psd/psd2006/36127.htm.



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The EBRD has so far invested over EUR 1.8 billion in Croatia in 82 projects across all sectors of the
economy, mainly concentrating on the financial sector and infrastructure. The Bank also helped
mobilise an additional EUR 3 billion from other sources.

Regional Employers Associations sign common strategy for innovation and
cluster policy
Hina, Nov 30 – Croatian Association of Employers (HUP) stated that Croatia, 11 European regions
and 7 Central and Eastern European countries signed an agreement on a common strategy and goals of
a future innovation and cluster policy of Central and East Europe. The agreement should promote
innovation in Croatian industrial companies and industry in general and contribute to
internationalising companies’ activities and winning new export contracts. Along with the previously
secured one million kuna for cluster members in Croatia, the agreement has secured another 7.5
million kuna for the next two years. The signatories agreed on common strategic points and interests,
with emphasis on cross-border cooperation among clusters, defining a sustainable cluster policy, and
accepting the role of cluster programmes in innovation programmes. On the level of cluster
management, the agreement has united its signatories in the drawing up of a common platform of
knowledge for all cluster initiatives in the EU, in the launching of projects of cooperation between
universities, research institutions and companies, their joint access to the global market, and in the
establishment and maintenance of the quality of training for cluster managers.

MEP Swoboda in a debate on Ecological and Fisheries Protection Zone
Hina, Dec 14 – In a debate held in Zagreb, Hannes Swoboda, Member of the European
Parliament and Rapporteur on Croatia, said that Croatia should make some sacrifice and should
not activate its Ecological and Fisheries Protection Zone (EFPZ) in the Adriatic Sea before concluding
negotiations with the European Union. The chairman of the Croatian Parliament Committee on
European Integration, Neven Mimica, said that "it is European to talk" rather than "send out signals"
and that the first thing the new Croatia government should do is to "lay the groundwork for talks with
European partners." "Threats of freezing the negotiations are not realistic, because the EU wants to
conclude the negotiations with Croatia," Mimica said, adding that by signing the so-called agreed
minutes in 2004 and undertaking not to apply the EFPZ to EU members, namely Italy and Slovenia,
the former government had assumed the role of the Croatian Parliament. A question was raised during
the debate as to why Croatia was insisting on the application of the EFPZ now, a year and a half
before the conclusion of the EU membership talks, when it had allowed its neighbours to fish in its
waters for 17 years, and participants mainly agreed that there were other more important issues such as
agriculture, shipbuilding, competitiveness, sale of land, and market competition. Swoboda also
stressed the need for an effective system to deal with problems at hand, including the fight against
corruption and the reform of the judiciary and state administration. "The problem is the internal
implementation of reform in the country," he said. Swoboda called on Croatia to do its best to
complete accession negotiations by the end of 2008 or beginning of 2009 and become a full member
of the EU in 2011.

South-European Regional Economic Forum
Hina, Nov 22 –A Regional Economic Forum, held in Dubrovnik, gathered presidents of the Western
Balkan countries. While Presidents Mesic of Croatia, Vujanovic of Montenegro, Crvenkovski of
Macedonia and Topi of Albania boasted about their countries' economic progress, Zeljko Komsic of
Bosnia and Herzegovina spoke about its economy with concern and moderate optimism. "Such an
economic situation is the consequence of the political crisis present with lesser or greater intensity
since the adoption of the Dayton (peace) agreement" in 1995, he said, adding that the crisis recently
escalated with the resignation of the prime minister and the paralysis of both houses of parliament.



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Komsic said Bosnia was a country that young people were leaving and that had many poor. He voiced
serious concern that his country was ranked 104 among 127 on the World Economic Forum global
competition chart. Vujanovic said Montenegro had a 6 percent economic growth, a budgetary surplus
of EUR 182 million and an 11.8% unemployment rate. He said Montenegro was the least indebted
country in the region, attracting EUR 670 million in foreign investment last year and EUR 708 million
in this year's first nine months. Mesic said Croatia was the most developed country in the region in
terms of technology and the economy that was, according to indicators in the World Economic Forum
Report, even above some EU countries. "If we compare ourselves to other countries, we can be
satisfied with the reported results, but not in the same measure if we compare ourselves with our own
potentials," he said. Crvenkovski said a good network of cooperation was created in the region in the
last decade and that countries in Southeast Europe removed the negative stereotypes about the
Balkans. He said it remained to improve the traffic and energy infrastructure so that the Balkan
connections and corridors could become European. All presidents were agreed that the Central
European Free Trade Agreement (CEFTA) was a good framework to strengthen economic relations as
it eliminated trade barriers and created an environment for business contacts as well as a better climate
for foreign investment. On the fringes of the Dubrovnik event, Croatian President Mesic held separate
meetings with Bosnia's Komsic and Albania's Topi. Mesic and Topi underlined the need to develop
economic relations and reiterated the need to introduce a direct Zagreb-Tirana flight as well as build
an Adriatic-Ionian highway. Mesic and Komsic were agreed it was necessary to preserve Bosnia and
Herzegovina's integrity. Mesic reiterated that Bosnia's two entities "never were nor will they ever be
states". Komsic recalled outstanding issues and the status of the Croatian seaport of Ploce, and voiced
hope that an acceptable solution would be found with Croatia's next government to the contentious
construction of Peljesac bridge.

SECTORS΄ DEVELOPMENTS
Croatian capital market in 2007
Hina, Dec 23 – Croatian capital market has been marked this year by the Initial Public Offering
(IPO) "euphoria" for several companies' shares, which paved the way for mass share-holding.
According to figures released by the Croatian Central Depository Agency (SDA), every fifth Croatian
holds securities. This means that nearly 840,000 Croatian citizens are share-holders. During 2007,
296,954 new accounts of investors have been opened for this purpose and 99.3 percent of those
accounts are possessed by Croatian natural persons. During the IPO of the Croatian Telekom (HT)
shares this autumn, the agency opened 245,000 new accounts of investors. In November, a part of
28,000 current and former employees with the national oil company INA were offered a possibility to
buy INA shares under privileged conditions. This year, Croatians also participated in the IPOs of
Ingra, Magma, Veterina, Atlantic Grupa and Optima Telekom companies, though these IPOs were not
so hotly anticipated as the IPO of HT. The Croatian Financial Services Supervisory Agency (HANFA)
has played an important role of the supreme regulatory body in such transactions. HANFA adopted a
series of laws regulating the conflict of interest and manipulation on the market. 2007 started with the
merger of the Zagreb and Varazdin stock exchanges into the Zagreb Stock Exchange, and recently a
new trading system, OMX X-Stream, was introduced on the market. Although the correction in shares
has been in place over recent weeks, the Zagreb Stock Exchange will, nevertheless, wrap up this year
with record high turnovers in the trading with shares. The turnover climbed more than 50 percent
from 2006 to HRK 22 billion in 2007. The intensive trading was accompanied by a rise in the Zagreb
Stock Exchange's index Crobex. Crobex went up 55 percent from 2006, and for the first time in 10
years of its calculation, this index exceeded 5,000 points. Apart from attracting a large number of
investors, the HT share also influenced results of the Zagreb Stock Exchange. In the first 50 days of its
trading, that is until mid-December, it came in as the second most traded share. INA was the top



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traded share with the turnover of HRK 1.5 billion, followed by the HT share with HRK 1.35 billion.
However, the most traded shares have not exerted the most significant influence on the growth in
Crobex. Of 30 shares which are taken into account when measuring the share index, shares of
companies in the construction sector that has been the fastest growing sector made the greatest
contribution to the index growth. Thus, shares of the Ingra company climbed more than 300 percent,
or shares of the Hidroelektra-niskogradnja by 250 percent, the Institut građevinarstva Hrvatske (Civil
Engineering Institute of Croatia) also by 250 percent, Viadukt 200 percent, Tehnika 120 percent and
Dalekovod 100 percent.

LPG market
Hina, Nov 20 & 21 - Croatia annually produces 350,000 tonnes of liquefied petroleum gas (LPG) and
exports half of this amount, was said on a LPG conference held in the town of Sibenik. The production
of this type of gas began first in the town of Kutina 50 years ago, and today plants in Rijeka and Sisak
also produce it. Four years ago, there were only 30 LPG filling stations when 5,000 cars used it as
fuel. Currently, Croatia has 250 LPG filling stations with 50,000 cars using liquefied gas as fuel. 74
economic entities operate in the LPG sector and employ about 3,000 workers. Last year, Croatia was
declared a regional leader in the use and consumption of the liquefied gas.

Tourism sector in 2007 and plans for 2008
Hina, Dec 12 & 21 - The results of this year's tourist season in Croatia show that 2007 will be the best
tourist year ever, with the number of tourist arrivals increasing 7.5 percent and overnights 5.7 percent,
reported the Tourism Council and the National Tourist Board (HTZ). The tourism revenue might reach
EUR 7 billion, which would be an increase of 10 per cent compared to 2006. Based on the results of
this year's tourist season, a 3 percent increase in tourist trade and 5 percent higher revenue (or around
EUR 7.3 billion) are expected in 2008. In 2008, the HTZ plans to focus on increasing the occupancy
of accommodation facilities and promoting Croatia as a camping destination.

Weak continental tourism industry
MediaScan, Nov 13 - Continental tourism, as opposed to the seaside one, makes up 5 percent of total
revenues in the tourism sector. According to government officials, this figure is expected to increase
substantially in future years. Aside from the private investment in this ever more lucrative form of
tourism, the government has decided to provide financial help for its development with support also
expected from EU funds. Analysts all agree that rural tourism alongside summer seaside tourism
should be a hit in most parts of Dalmatia and the coastline. Istria is already making advances in this
important segment of the tourism market. Specially registered restaurants and family hotels operating
under the framework of rural tourism is already a growth industry in many parts of the country, and
with added support from the state, could considerably increase total revenues incurred by the industry
for the year. The Croatian Tourist Association (HTZ) is promoting rural outlets increasingly in their
advertising campaigns, as tourists discover more of what is to offer in Croatia rather than just the sun
and the sea. State subsidies are becoming more prominent in this field, for the benefits in economic
development should be substantial.

Booming investments in Istrian tourism
MediaScan, Dec 18 - While the Croatian Tourist Association (HTZ) works away on an overall
strategy for tourism in the country, the Istrian County has not only already passed a Master Plan that
will direct the sector until 2012, but has also attracted major investment for this specific strategy. As
much as EUR 3 billion is being planned for investment in tourism resources in Istria during this
period, but it seems, this figure will be surpassed well before 2012. Just this year, EUR 90 million
more was invested than originally planned by the authorities. This can be considered quite a boom for



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the industry which has high hopes of transforming the Istrian region into a four star destination whose
season will last at least nine months of the year. In 2007, the master plan envisaged investment of
EUR 280 million, though EUR 372.56 million has already been spent, of which EUR 90 million was
invested by the larger hotel chains, EUR 140 million in new projects, EUR 48 million by small and
medium sized businesses, and a further EUR 53.4 million by local municipal authorities.

City of Zagreb’s plan for building retirement homes
MediaScan, Dec 4 - The Zagreb City administration will publish a public tender for the
construction of ten retirement homes, which the City will then lease, providing the private
investors who built them a secure return on their investment. The construction and fitting of
each retirement home is expected to cost as much as EUR 12 million, and the entire project
could exceed EUR 120 million. The administration will not enter in any sort of public-private
partnership agreement, but instead will lease out the property once it is completed. Demand
for retirement homes in Zagreb is excessive, for not a singe complex has been built in the past
20 years. At the same time, the cost of housing the elderly in retirement homes has increased
significantly, making this proposal very interesting, especially for those construction
companies that already own land on the outskirts of the city.

Plans for 20 new waste management plants
MediaScan, Dec 10 - The government is planning to build at least 20 new waste management plants
by 2010. The first will probably be launched in Sibenik Knin County. These plants will function much
like a factory, where recyclable waste is separated and then undergoes the treatment necessary to glean
the full value of what remains. Most of this so-called waste will then be sold off to various factories,
such as cement producers and others that can make use of the left over product Environment Minister,
in charge of the project, is confident that classic waste dumps will cease to exist after 2010, once these
new modern recycling plants begin managing all the waste produced in the country.

First section of future A5 motorway opened
Hina, Nov 9 - The first section of a future, 89-kilometre-long A5 motorway which will be running
from the Hungarian border via Beli Manastir and Osijek to the Bosnian border has been opened. The
construction of the 23-kilometre section from Sredanci to Djakovo cost HRK 1.4 billion. The A5 will
be a part of international transport corridor 5C running from Budapest via Osijek and Sarajevo to the
southern Croatian Adriatic port of Ploce. The work, carried out by a consortium of Croatian
construction companies, lasted about a year. Twenty various structures, such as bridges, overpasses
and underpasses, were built as part of the project. Next, 32.5 kilometre-long section from Djakovo to
Osijek could be completed before the set deadline of the end of 2008, while the preparatory work on
the third section, from Osijek to Beli Manastir, would start in 2008. In 2007, more than a billion kuna
had been invested in the road infrastructure of Osijek-Baranja County.

Turnover of the Port of Rijeka
Hina, Dec 29 - The Rijeka Port company generated a record-high turnover of 5.5 million tonnes of
cargo and more than 140,000 containers in 2007, and it will be recapitalised in 2008 with the value of
warehouse in Skrljevo near Rijeka, said company management. The company's stock capital is about
HRK 301 million. An extraordinary assembly will be held in January at which the State will
recapitalise the company by giving it more than 300,000 square metres of maritime demesne in
Skrljevo. This land was taken from the company in the early 1990s, declared maritime demesne and
given to the Rijeka Port Authority for management. At the proposal of the Ministry of the Sea,
Tourism, Transport and Development, the government adopted a decision this year to exempt the
storage space in Skrljevo from maritime demesne, thus providing for its return to the Rijeka Port



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company. A new value estimate of the warehouses will be made soon. Unofficially, they are worth
tens of millions of euros.

New bankruptcy plan agreed for Viktor Lenac Shipyard
Mediacan, 7-13 December - The creditors of the Viktor Lenac shipyard have agreed to a new
bankruptcy plan that will be put to a vote on 11 January 2008. The new plan is considered fairer than
previous ones. It stipulates that all 1799 creditors will receive one tenth of what the shipyard owes
them. This will enable the shipyard to write off HRK 840 million and thus ensure the continuation of
the company, its employees and its contracts. 487 of the 1799 creditors will convert their claims into
Viktor Lenac shares, while others will receive a partial compensation. A total of HRK 19.5 million
will be paid to them over the next two or three years.

Hungary’s MOL completes takeover of Croatian oil company Tifon
Hina, Nov 1 - The Hungarian oil company MOL issued a statement on Wednesday saying it had
successfully concluded the takeover of Tifon and that on 1 November the Croatian company would
formally become part of MOL Group. The takeover, which was concluded a month after regulatory
bodies had authorised the transaction, will reinforce MOL's position in the region and is a step forward
in achieving strategic retail sale targets, the statement said. Tifon was owned by Ivan Cermak, a retired
Croatian army general who is awaiting trial at the Hague tribunal for war crimes committed in the
1995 Operation Storm. The purchase price was not immediately known, but some analysts put it at
between EUR 100 million and 140 million. The acquisition was supported by MOL's strategic partners
in Croatia - the leading oil company INA, in which the Hungarian company owns 25 per cent plus one
share, and the Croatian government. Tifon operates 36 petrol stations across Croatia and is involved in
more than 20 development projects, which are expected to be completed in the next two years.

Konzum holds largest share in Croatia’s consumer goods retail market
Hina, Nov 10 - In 2006, Konzum held the largest share in the consumer goods retail market in Croatia,
the National Competition Agency (AZTN) has recently reported. This Croatian chain of retail shops
within the Agrokor Group held a 30 percent stock in the said market. It was followed by Rewe Group
(Billla and Minaco), one of the leading companies in German and European foods trading, Kaufland
Croatia, Getro, Mercator-H, Plodine and Kerum. Last year, the total value of the consumer goods retail
market continued to rise from 2005. Two commonly used methods of measuring of market
concentration - the Concentration Ratio (CR) and the Herfindahl-Hirschman Index - have showed that
Croatia's consumer goods retail market is moderately concentrated as well as dynamic and relatively
well segmented market.

Dukat plans to take over Macedonian Ideal Sipka
Hina, Nov 27 – Croatian dairy producer Dukat signed a take over agreement with Ideal Sipka d.o.o.
from Macedonia. Dukat will take over the Bitola-based dairy factory after receiving approval from the
Macedonian Competitiveness Council. It will be Dukat's fifth production plant along with those in
Zagreb and Bjelovar in Croatia, Sombor in Serbia, and Gradacac in Bosnia and Herzegovina. The
purpose of this strategic partnership is for Dukat to expand its business operations to new markets and
strengthen its position in Southeast European markets, the company said in a statement. Dukat controls
40 per cent of the Croatian dairy market. In May this year it was taken over by France's Lactalis, the
leading European dairy group and the second largest dairy group in the world. Ideal Sipka is
Macedonia's second largest dairy, with an annual output of some 30 million litres of milk.




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35% increase in Germanwings passengers on the Croatian market
Hina, Nov 15 - The German low fare airline Germanwings flew 35% more passengers from Croatia in
this year's first 10 months than throughout 2006, reported the company. Germanwings flew about
267,000 passengers on the Croatian market last year and about 315,000 in the first 10 months of 2007.
During this year's summer season planes were filled to 90% capacity on average. Due to the high
growth potential shown in the three and a half years that the company has been present in Croatia, the
winter flight schedule will include new destinations that will be connected with Zagreb, Split,
Dubrovnik and Zadar. Germanwings will also provide flights from Zagreb and Split to Paris, London,
Zurich and Madrid with connecting flights in several German airports.

ANALYSES, SURVEYS
Croatia ranked 57 in Global Competitiveness Report
Hina, Nov 1 - Croatia is ranked 57th in this year's Global Competitiveness Report
(http://www.gcr.weforum.org), compiled by the World Economic Forum. Comparing to the last year,
Croatia's position has not significantly changed, although some mild steps forward have been
recorded, the head of the National Competitiveness Council (NCVK), Darko Marinac said on
Wednesday, presenting the WEF Global Competitiveness report. This year's report, which covers 131
countries, was drafted according to somewhat different criteria which means that Croatia's ranking at
the 51st position last year would be equivalent to the 59th position in this year’s report. Marinac said
that comparing to the countries of the region, Croatia was closer to the "new" EU member states,
notably Poland, Hungary and Slovakia. Marinac added, however, that the Czech Republic and
Slovenia were significantly ahead of Croatia and that additional efforts needed to be invested to catch
up with the two countries. According to WEF, Croatia's best competitive advantages are the quality
of math and science education (28), the number of telephone lines (31), quality of primary education
(34), the number of Internet users (35), mobile telephone subscribers (40), Internet access in schools
(42) and the number of personal computers (42). Disadvantages are agricultural policy costs (119),
strength of investor protection and cooperation in labour-employment relations (113), rigidity of
employment (91).

Eurostat: Croatian GDP 52% of the EU average
Hina, Dec 17 – Croatia’s Gross Domestic Product in 2006 has surpassed half the average GDP in
the European Union when measured by the Purchasing Power Parity (PPP) method, said Eurostat.
Croatia's GDP according to the PPP method in 2006 was 52% against 50% in 2005 and 49% in 2004.
The Croatian GDP does not include even an estimate of the share of the grey economy, which Eurostat
measured in all new European Union countries. Bulgaria and Romania have a lower GDP according to
Purchasing Power Parity than Croatia, 37% and 39% respectively, Poland has the same, namely 52%,
while Latvia and Lithuania have 54 and 56% of the European average respectively. Turkey's GDP
according to the PPP method is 31% and Macedonia's is 28%. Albania has the lowest at 21% of the
European average, followed by Bosnia and Herzegovina at 26% and Serbia and Montenegro at 33%
each. Luxembourg has the highest GDP (280%), followed by Ireland with 146%.

Most trusted brands in Croatia
Hina, Nov 24 - The Reader's Digest has for the first time conducted a survey in Croatia regarding the
Trusted Brand label which this magazine awards to products and services in 36 categories on the basis
of consumers' confidence. The survey was conducted in June and July this year and covered a random
sample of 7,000 Croatian subscribers to the magazine. About 17 percent of the subscribers sent back
filled in questionnaires, and the results show that Croatians trust 20 Croatian and 12 foreign brands the
most. The respondents pointed out tradition and quality as the most important criteria. In the category


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of food products, Croatians trust the most products of the Dukat dairy company, the Gavrilovic meat-
processing company, as well as Franck coffee and Kras chocolates and sweets. In the category of beer
and beverage, they pointed out the Ozujsko beer, Cedevita drinks, and Vindija juices. Jamnica is the
most Trusted Brand in the bottled water category. The analgesic/pain relief tablet "Voltaren" and the
cough/cold remedy Maxfly, produced by the Pliva pharmaceutical company, have won consumers'
confidence just like Pliva's Plidenta toothpaste. Some of the other Croatian companies whose products
or services have been awarded the Trusted Brand label are the Ina oil company, Zagrebacka Banka,
the Croatian Osiguranje insurance company, the AZ pension fund, the Konzum chain of stores, the
Generalturist travel agency, the Varazdinske Toplice spa, and VIP as a mobile network operator, and
T-COM as an Internet services provider. Some of the most trusted foreign brands are Opel cars, Nokia
cellular telephones, Hewlett-Pacard PCs, Sony cameras and copying machines, Gorenje household
appliances, and Nivea cosmetics.

Survey on working from home
Hina, Dec 2 – Most Croats do not think that working from home should necessarily be part of the
usual offer on the labour market, according to the results of a survey conducted by GfK agency in
November on a sample of 1,000 residents of Croatia. In the survey, working from home was defined
as a usual job in which the employee is not physically present in his or her company, but does most or
part of the work from his or her home. Only 40 percent of the respondents believe that "work in
slippers" is a necessary type of employment in the Croatian economy; 36 percent said that working
from home was acceptable only in special cases, while 12 per cent opposed such form of employment.
Working from home is most acceptable to residents of Zagreb and its environs, where 51 per cent of
respondents support this type of employment. It is relatively acceptable to people between ages 25 and
44 (about 43 per cent) and to highly educated people (44 per cent).

OTHER NEWS
Parliamentary elections
Hina, Nov 28, HRT Dec 15 – The State Election Commission (DIP) released election results,
according to which the Croatian Democratic Union (HDZ) won 66 seats in the 153-member
Parliament (61 seats in Croatia and 5 in a special electoral unit designed for expatriates), while the
Social Democratic Party (SDP) captured 56 seats. The coalition of the Peasant Party (HSS) and the
Social Liberal Party (HSLS) won 8 seats, the People's Party (HNS) 7, the regional Istrian Democratic
Party (IDS) and HDSSB party 3 each, while the Party of Rights (HSP) and the Pensioners' Party
(HSU) each won 1 seat. The new, sixth Parliament will also include 8 representatives of ethnic
minorities. After the second round of consultations with HDZ and SDP, President Stjepan Mesic has
given the HDZ leader Ivo Sanader the mandate to form the next government. Mesic said that Sanader
had proven to have the support of more than 77 deputies in the Croatian parliament (Sabor). Sanader
has now a task of rounding up talks to form a cabinet, which he will then present to the Croatian
Sabor, convened for 11 January 2008.

Traditional economic symposium in Opatija
Hina, Nov 14 – Traditional annual economic symposium, entitled "Croatian Economic Policy
in 2008", took place in the northern Adriatic resort of Opatija. It was organised by the
Croatian Association of Economists, and it gathered several hundred economists and
government officials to discuss current economic trends and policies. While opening the
symposium, Croatian President Mesic said that this year's symposium was taking place at a
time "when every day we hear news of some of the best known US and European banks
reporting losses, of oil prices going up, the value of the dollar falling, and gold prices


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increasing." Mesic said that Croatia has stronger connections with the world in the financial
and banking sector than in the manufacturing sector, recalling a warning from several
International Monetary Fund analysts that Croatia is one of the particularly vulnerable
countries in Southeast Europe. He cited warnings from IMF experts regarding Croatia's
excessive debt and risks of the excessive share of foreign banks on the Croatian market.
Noting that it was not his intention to announce a world crisis, Mesic said that Croatia should
take into account developments on world markets and serious warnings coming from there,
recalling that the Croatian Central Bank Governor had also warned of those dangers. Mesic
said it was interesting that IMF experts were now also warning of dangers, considering the
fact that the IMF had been praising Croatian economic policy and encouraging the sale of
property and banks. "The IMF now keeps silent, but lets its economists speak." Mesic
highlighted the importance of dialogue among economic experts, saying that they have to
explain their views and that it is up to politicians to choose from among proposed solutions
and take political responsibility for their implementation.
Deputy Prime Minister Polancec also gave a speech at the symposium. He said that the main
economic targets in the next four years were GDP growth of 7 per cent, cutting the
unemployment rate down to 7 per cent, maintaining the stable tax system without introducing
new taxes, reducing the government debt and eliminating the deficit of the national budget,
and the completion of the privatisation process and of public administration and judicial
reform. Also, keeping the inflation rate at 3.5 per cent was one of the goals for next year. On
the subject of privatisation, Polancec said that the idea was being considered to establish
several closed investment funds with state-owned equity and a company to manage those
funds. He also announced a plan to establish a land management fund that would take over
smallholdings, for example those owned by old people in exchange for a pension, in order to
consolidate land holdings. The government would then lease such land to producers.

Conference on renewable energy sources
Hina, Dec 12 – A conference on the financing of preparations for projects involving biomass and
small water power plants as sources of renewable energy was held in Zagreb. The conference was
organised as part of a USD 5.5 million deed of donation from the International Bank for
Reconstruction and Development (IBRD) and the Global Environment Fund (GEF), which is to be
used to finance the said projects. The main purpose of the deed of donation is to encourage the
development of an economically and ecologically sustainable market of renewable energy sources and
investments in projects involving renewable energy sources. Around three million tonnes of wood fuel
and some 1.4 million tonnes of agricultural waste are left unused in Croatia every year, said Damir
Spancic of the Economy Ministry. Croatia also has development potential in the area of solar energy,
especially in its coastal region of Dalmatia. A strategy on the use of biomass was expected to be
presented in January or February 2008.




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Exchange rate
source: Croatian National Bank

November 30: 1 EUR = 7.31 KN
December 29: 1 EUR = 7.33 KN




For further information about the Embassy of the Kingdom of the Netherlends, please refer to
our website: www.netherlandsembassy.hr

Please note that for any QUESTIONS related to economic matters, please contact us through
the EVD website www.evd.nl/mijnevd

For any matters concerning Agriculture, Nature, or Food Quality, please contact the
Agricultural Section through ZAG-LNV@minbuza.nl

For any other matters related to economics please use the familiar email addres ZAG-
EA@minbuza.nl

This Newsletter has been compiled by Rahela Jurkovic




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