"Attract Investment, Create Jobs"

"Jutarnji list" - December 17, 2011

Following the recent elections, Croatia’s incoming leaders will no doubt be looking afresh at what measures are necessary to ensure the country’s future prosperity and the well being of its people.  They will be doing so under challenging circumstances – a global financial crisis, turmoil in the eurozone and the prospect of anaemic recovery worldwide.  This is all against the background, moreover, of a Croatian economy that has struggled to achieve growth and generate jobs, and that is burdened with the legacies of debt, deficits and illiquidity.  Croatia’s incoming leaders have themselves acknowledged the risk to the country’s credit rating and the need both to demonstrate fiscal probity and find ways to stimulate the economy and put more Croatians to work.

This is a tall order, which will require not only will and wisdom on the part of Croatia’s leaders, but the support of Croatia’s citizens and international partners alike.  Our sense is that the incoming government is prepared to meet the challenge squarely.  We regard Croatia’s success as important to our own.  We want to work closely with Croatia’s political leaders, members of the newly elected Sabor, and other stakeholders such as trades union and business leaders as they tackle reforms and undertake measures to restore economic growth and hope for the future.  We applaud their determination to do so. 

One way we are certain our countries can be of help is in the area of investment, which, as the World Bank has noted, is the most reliable way to meet Croatia’s urgent need for job creation.  We know that there is enormous interest on the part of our companies and others around the world to invest in Croatia because of the country’s inherent natural advantages, including strategic location, well developed road infrastructure and talented workforce.  Unfortunately, however, all too often potential foreign investors consider Croatia and then decide to invest their capital elsewhere in the region or beyond—due to the many bureaucratic and other obstacles that make for a difficult business environment for all.

The good news is that key changes needed for improving the business and investment climate ought not to be too demanding.  We have listened to advice from Croatian companies and investors as well as firms from our own countries that do business in Croatia.  Their experience suggests that a few specific, targeted actions could readily make Croatia a more attractive investment destination and trading partner.  With this goal in mind, we would suggest for consideration five specific, achievable, and potentially “game-changing” steps that would increase the competitiveness of the Croatian business and investment climate.  This is not an exclusive list as there is a range of measures which could drive an improved business environment—but these five attract wide support from within the business community as likely to have significant beneficial impact.

Legally binding tax and customs opinions – Currently, Croatian and foreign companies have no sense of predictability when budgeting for customs and tax assessments, as opinions given can be overturned or dismissed.  This creates uncertainty and discourages potential investors.  A system in which opinions obtained from tax or customs authorities were legally binding would allow companies to predict tax and customs obligations.  As an example of such a reform, in early 2011 the Austrian Government introduced a formal legally binding ruling procedure.  Under the new rules, taxpayers can ask for official rulings in the fields of corporate restructurings, tax groups, and transfer pricing—which have the legal quality of enforceable decrees—from the Austrian Ministry of Finance.  Denmark also introduced similar reforms in 2005.

Public Procurement Auctions Online – E-auction systems allow bidders to watch online the lowest price currently being offered for a specific product or service and to keep submitting counter-bids in real-time until the end of the auction.  Establishing an online system for public procurement auctions, similar to that which was implemented in the United Kingdom, Austria, and at least forty other countries worldwide, would significantly reduce the costs associated with public procurements while improving transparency.  Croatia also might consider joining the Pan-European Public Procurement Online project PEPPOL, which works to expand market interoperability between e-procurement communities in Europe. 

Deadlines for Permit Decisions – A formidable barrier to investment are the difficulties that both Croatian and foreign investors encounter when attempting to obtain permits for new development projects. This is the single biggest cause of complaint from companies in our countries.  Predictability for domestic and foreign businesses would be greatly enhanced if deadlines for the review and resolution of permit applications were published and – this is crucially important - government offices were obliged to abide by them.  Several EU countries, such as the Netherlands and Finland, have successfully implemented similar measures. 

Improved Regulation – Bureaucratic obstacles to businesses could be greatly reduced by establishment of an entity with Cabinet level authority to review complaints from local businesses about regulatory and bureaucratic inefficiencies.  Such an entity could act to overcome blockages as well as propose measures or new legislation to address the concerns identified by investors. 

Reduced parafiscal fees – Reducing or eliminating parafiscal fees and other hidden administrative costs would increase Croatia’s attractiveness as an investment destination.  The parafiscal fees that might be addressed are those whose purpose is not directly related to the activity of the particular company being charged, those that are charged as a percentage of the company’s revenues instead of the profit, and those that are excessively high.

We fully recognize that these ideas are not a panacea that would solve all of Croatia’s economic problems.  However, we are convinced that Croatia would rapidly become more attractive to investors and trading partners, and better positioned to reap the benefits of EU membership, if measures of this kind were implemented.  Certainly new investment is urgently needed for the economy to grow and for new jobs for Croatians to be created.  But in a globalized world, investment capital will go somewhere else if attractive and competitive conditions do not exist in Croatia.  This need not be the case.  We are hopeful indeed that the new government and Sabor will want to seize the moment and get new arrangements in place to make Croatia a more attractive destination for investment.  Our countries and many other friends of Croatia stand ready to support them as they embark on this course, and to work closely with government, opposition and all key stakeholders to support changes aimed at an improved business and investment climate.  That is our shared challenge.

David Graeme Blunt, Ambassador of the United Kingdom of Great Britain and Northern Ireland to the Republic of Croatia
Bo Eric Weber, Ambassador of the Kingdom of Denmark to the Republic of Croatia
Edwin L. Loughlin, Ambassador of Canada to the Republic of Croatia
James B. Foley, Ambassador of the United States of America to the Republic of Croatia
Georg Diwald, Charge d’Affaires of the Republic of Austria to the Republic of Croatia