Business Dynamics Croatia: Continued Steadfast Reforms Will Further Improve Business Landscape

Euromonitor International’s Croatia Business Dynamics Country Briefing focuses on the nation that became the newest European Union (EU) member in July 2013. Since joining the EU, Croatia has received significant funding from the European Commission (EC), enabling the government to carry out major restructuring that is crucial to enhance the country’s business landscape. Red tape, difficulty in getting credit (mainly for small businesses) and rigidity in the labour market are some of the challenges the country faces. Along with continued funding and infrastructure improvements, long-term steadfast reforms are needed for Croatia’s doing business environment to match peer levels.

Croatia seeks to enhance regulatory quality and make it easier for businesses to operate:

  • Croatia has witnessed a substantial improvement in its Ease of Doing Business ranking, thanks to various reforms implemented by the government, following its accession to the European Union (EU) in 2013. In 2016, an electronic system was set up to deal with public sales of portable assets, making enforcement of contracts easier;
  • Foreign direct investment (FDI) is restricted in certain services sectors, including transportation, publishing and education. However, the government has pledged to reduce restrictions on FDI going forward;
  • Croatia’s ranked lower than most of its peers in the Regulatory Quality Index 2015, owing to new reforms which hampered business operations, such an increase in Croatian Chamber of Commerce fees and making the value added tax (VAT) filing process more lengthy in 2015. In May 2016, the government eliminated eight companies from its ‘strategic interest list’, to enhance private participation;
  • Croatia’s ‘Getting Credit’ category ranking drastically fell over the years and stood as the third lowest regionally in 2017, due to a lack of reforms to enhance inadequate collateral and bankruptcy laws and credit information;
  • In October 2015, the European Investment Bank (EIB), granted €17.5 million worth of funds to Croatia to support the development of Dubrovnik airport. As of August 2016, according to trade sources, the EU is planning on investing US$1.5 billion in Croatia’s transport infrastructure by 2020.

More reforms need to be rolled out for Croatia’s business environment to match peer levels

After four prolonged years of sluggish economic growth over 2009-2014, Croatia has set itself on a new path of business reforms since July 2014 that have helped the country jump 45 notches, to rank 43 rd globally in World Bank’s Ease of Doing Business Index 2017. In the 2014 and 2015 timeframe, the Croatian government lowered the minimum capital constraints for businesses, reduced notary fees and made paying taxes efficient by launching an electronic system for social security contributions. In 2016, an electronic system was set up to deal with public sales of portable assets, making enforcement of contracts easier. However, despite all of these the country’s ease of doing ranking slightly deteriorated in 2017, owing to an increase in notary fees, the launch of a radio and television fee and the abolition of the discount offered to new companies on the Chamber of Economy fee. In order to keep up the progress, Croatia needs continued steadfast reforms, especially in reducing the costs associated with dealing with construction permits, to be implemented resolutely to help the country’s doing business environment to match peer levels.