CROATIA COUNTRY PROFILE

Introduction

Croatia is an attractive and sophisticated country with a population of around 4.4 million. It is bordered by Slovenia, Hungary, Bosnia and Herzegovina and Serbia and Montenegro. The country enjoys a moderately high standard of living and high standard of education. Per capita income is around US$ 5,000. With 1,778 kilometres of beautiful coastline, Croatia attracts a substantial number of tourists annually. Zagreb, the country's capital is the political, cultural and business centre. It has a population of one million.

After proclaiming independence in 1991, Croatia faced the characteristic difficulties of a country in transition but also experienced the debilitating problems associated with regional war. However, the conflict ended in 1995 and Croatia is now increasingly promising market for British investment and the supply of goods and services.

Croatia is now well on the way towards Euro-Atlantic integration. In May 2000 NATO accepted Croatia into the Partnership for Peace programme. On 1 December 2000, Croatia became a full member of the WTO. In 2001 Croatia signed a Stabilisation and Association Agreement and became a potential candidate for EU membership. Croatia applied to join the EU on 21 February 2003 with the aim to accede in 2007. Croatia also signed the Agreement of Accession to CEFTA on 5 December 2002.

Although pro-western democratic government of Ivica Racan has addressed several major political and human rights problems, which had previously caused difficulties with the West, economic problems remain.

Average gross wages are high but average net wages are relatively low. Croatia has relatively large foreign currency reserves, the Kuna is stable and inflation low (2.2% in 2002). GDP grew 5.2% in 2002. The official unemployment rate is around 21%, high due to grey economy. A better indicator of unemployment is the ILO estimate of 15%. Croatians receive a good and comprehensive education, many up to university level.

Legislation on Foreign Direct Investment (FDI), aimed at revising the flawed privatisation process and making foreign direct investment easier was passed in 2000. Although, many see this law as weak and ineffective, there have been some notable privatisation successes. The privatisation process is continuing and is expected to extend to privatisation of utilities, Croatian Electricity and INA (giant Oil and Gas exploration, distribution and retailer) 25% of INA was sold in 2003 to Hungarian MOL.

There are opportunities for FDI in the tourism sector, which generates 20% of the country's GDP and attracts over 8 million tourists per year. Croatia's beautiful coastline includes over a thousand Adriatic islands, clean sea, warm climate and hospitable people. The tourism sector suffered during the period 1991-1999, but has since recovered with receipts of US$4.7 billion in 2002. Croatia attracted 7% more tourists in the first half of 2003 season yielding higher revenues. In 1989, UK tourists visiting Croatia numbered 460,000. In 2000 they accounted for only 65,000 but the number is increasing steadily and in 2002 it exceeded 100, 000.

Industrial capacity is about half what it was in 1989. Lack of FDI (specifically strategic) and green field investment, insider privatisation and related party lending under the previous government, prevented the emergence of a healthy private sector. The government is seeking to address all these problems.

In spite of this rather gloomy assessment, the outlook for British trade and investment is positive. There has been some notable UK involvement in the banking and privatisation sectors.

Croatia's largest foreign trade partners are Italy and Germany. The UK holds thirteenth position. UK's exports to Croatia in 2002 amounted to Ł94.4 million. Croatia's exports to the UK were Ł70 million for the same period. Our German, Italian and French competitors are active in the market.

BROKER, real estate agency team.