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The aftermath of July 1 will come as a real shock for Croatian firms. In joining the single European market and its 500 million people, the Croatian economy will run up against much tougher competition. Economists and political leaders are not hiding the fact that this will be a major challenge to the national economy, a challenge for which some are much better prepared than others.
Most Croats believe the economic benefits will not be felt at the start, since Europe, like Croatia, is in recession.
Two difficult years
Boris Cota, financial advisor to President Ivo Josipović, believes that both Croatian exports and the GDP will fall for the first two years. Afterwards, though, our economy should begin to adapt, and after five years the positive effects of joining the EU should begin to outweigh the negatives.
The ending of Croatian state subsidies to sectors like shipbuilding and agriculture will make the situation more difficult. Croatian companies will also lose the customs privileges of the Central European Free Trade Agreement worked out with the countries of the former Yugoslavia, which buy up 40 per cent of Croatia’s exports. The costs of sending exports to Serbia, Bosnia and Herzegovina, and Macedonia will now go up 10 per cent.
On the other hand, Croatian companies will face tougher competition. Customs duties on imports will be abolished, which means that the prices of imported goods will fall about 10 per cent.
“Easier for large companies”
The telecom, pharmaceutical and financial service sectors will experience no great shocks, because they are very profitable. Most of the companies in these sectors, such as Hrvatski Telecom and Pliva (the main pharmaceutical company in Croatia), were bought up a long time ago by foreign firms [Deutsche Telekom and Teva Pharmaceutical Industries of Israel, respectively]. The less profitable companies – that is to say, most of them – will struggle to adapt. Larger ones will find that easier than their smaller counterparts.
“It will be easier for large companies,” admits Ljerka Puljic, Vice-President of Agrokor [an agri-food and distribution firm, and the largest privately-held company in Croatia]. “But even our ‘big’ companies are small at the European level. Economic necessity is pushing us to get bigger.” Emil Tedeschi, CEO of Atlantic Grup [another Croatian agri-food giant], holds that “Capital does not fly a flag, but chooses opportunities,” adding “we will soon witness a pooling of businesses and industries at the national level.”
Innovators will excel
To tackle the difficulties that may arise for a large section of the Croatian economy after July 1, Darinko Bago, CEO of Končar [electronics and computing], is calling on the government to encourage exporters. For Ivica Mudrinić [head of Hrvatski Telekom], the entry into the EU is a crucial moment, and the government must find a consensus on the economic strategy to follow – a strategy that has been practically non-existent in Croatia for the last 20 years.
The small businesses that will manage to cope will be few, unless they offer innovative products that are highly sought in all markets.
One of these small enterprises, which has developed very quickly in recent years and is now selling its products throughout Europe, comes from Rijeka: the Jadran Galenski laboratory. This year, the company has seen the largest rate of investment in the “PharmaValley” of Rijeka, which proves its success. For CEO Ivo Usmiani, nothing will change after July 1: “JGL already turns out products for many well-known pharmaceutical companies in Europe and around the world, and that’s what gives us our advantage over the others.”
View from Berlin
An economy in crisis
“Croatia has been in recession since 2009, and its GDP has fallen by 11 per cent. Public debt has almost doubled and is expected to hit 60 per cent of GDP in 2013. And two of the three major rating agencies classify the country’s bonds as junk,” writes Die Welt.
“Since the break-up of Yugoslavia, Croatian industry has shed between 300,000 and 400,000 jobs”, economist Ivo Druzic tells the German daily. “The future of the country's economy depends above all on the creation of jobs in the industrial sector.”
Fortunately, notes Die Welt,
Every year, Croatia will be eligible to apply for a European cheque of up to €2bn, a tidy sum that comes to no less than 4 per cent of the GDP of the country. Yet, a question arises: will the authorities and businesses be able to implement development projects that are interesting enough to win this funding from Europe?
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