Metal, shipbuilding, electro, Legal reform issues 6 mining

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1 Joint industriall European Trade Union EFFAT project: Strengthening the industrial trade unions role in South East Europe in shaping the industrial policy agenda in the light of the objectives of Europe 2020 (VS/2015/0238) Industrial Policy in Croatia SWOT Analysis Contents 1. Executive summary Privatization Methodology Industrial policy and TUs 25 Republic of Croatia facts 5 4. Industrial Sectors Analysis Population Tourism Macroeconomic environment 5 SWOT GDP 5 Metal, shipbuilding, electro, Legal reform issues 6 mining Financing 8 SWOT Enterprises Non metallic Foreign trade 12 SWOT Labour and Wages Energy FDI 16 SWOT R&D and Education Food and beverage production Business environment 20 SWOT Industrial analysis Textile Industrial production 22 SWOT 60 Radamila Grozdanic

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3 Joint industriall European Trade Union EFFAT project: Strengthening the industrial trade unions role in South East Europe in shaping the industrial policy agenda in the light of the objectives of Europe 2020 (VS/2015/0238) Industrial Policy in Croatia SWOT Analysis 3 1 Executive summary The country joined the European Union on 1 July 2013 after a convincing endorsement of the Accession Treaty in a referendum and subsequently by parliament. However, the economy is back in recession. Croatia experienced one of the most protracted recessions in the region as a result of the global financial crisis. The Croatian economy returned to growth in 2015 supported by a good tourism season, stronger external demand and lower oil prices. Tourism and shipbuilding from metal sector are seen as major industries. The economy continued to expand in the first half of 2016, underpinned by strong consumption and the pickup in investments. The EBRD forecast foresees 2.3 per cent growth in 2016 supported by recovering private consumption due to lower oil prices and continuing disinflation. Export growth is likely to remain strong on further trade integration in the EU market and higher tourist inflows due to sustained security issues in competing tourist destinations. In the 2016 country report (EU Commission) on Croatia s progress towards its national Europe 2020 targets: Croatia is experiencing excessive macroeconomic imbalances. In particular, it is essential to address vulnerabilities linked to high public, corporate and external debt in the context of high unemployment. Further weaknesses requiring specific policy action include fiscal governance the efficiency of public administration, and the resolution of non-performing loans. The Croatian current account is characterized by large merchandise and service balances that broadly offset each other. The Croatian current account can be characterized by three main features: (i) a large and persistent deficit in merchandise trade (ii) a large and persistent surplus in export of services (i.e. revenues from tourism) and (iii) broadly offsetting balances in investment income and income from remittances and frontier workers. The record performance of the tourism sector, domestic demand and the country s improved absorption of EU funds drove real GDP growth of 2.9% in It could be expected the external goods sector to improve its competitiveness and real GDP growth of 2.5% in Croatia s goods exports have suffered from lost competitiveness, adverse shocks and delayed integration in the EU. Croatia s export performance has been affected by geographic and sector-specific shocks and adverse dynamics in cost competitiveness. The sustained growth in real effective exchange rates (deflated by unit labour costs) combined with an exports structure biased towards lower quality and labour- and raw material-intensive goods Despite some improvement in business sentiment, private investments are expected to remain weak, pointing to persistent structural weaknesses. Public investments may pick up gradually along expected improvements in the absorption capacity of EU funds. Long-term growth prospects may improve if the government consistently implements major structural reforms envisaged in the National Reform Programme and focuses on resolving the high level of non-performing (corporate) loans as well as reducing household and corporate leverage. Business environment reforms are proceeding slowly and should be accelerated to attract much-needed investment. A reduction in para-fiscal charges, which amount to 2.6 per cent of GDP and add considerably to the administrative burden on companies, is welcome, but broader and faster implementation of business-friendly reforms is needed. High labour costs may be one of the factors making Croatia less attractive for new investments and negatively affecting export competitiveness. Croatia s competitiveness and business environment rankings remain low relative to EU peers. Croatia ranks 43rd (out of 190 economies) in World Bank s Doing Business 2017 report (39th in 2016). Croatia scores the lowest in dealing with construction permits (128th) and with low ratings in starting a business, getting credit and electricity, registering property, and resolving insolvency. Despite an improvement in the macroeconomic environment, Croatia s competitiveness also remains low according to the Global Competitiveness Index published by the World Economic Forum, as it ranks 74th among 138 countries (moving up three places from last year s 77th out of 140 countries). The main obstacles are weak innovation capacity, labour and goods market inefficiencies, underdeveloped financial markets and weak institutions. Regulatory instability and a perceived low quality of legislation also weigh on the business environment. With lengthy proceedings, significant backlogs and inconsistent case-law, the quality and efficiency of the judicial system and of commercial courts in particular are facing challenges. In order to speed up absorption of the EU funds, the government simplified and shortened the procedures for the drawing of EU funds. In March 2016 the smart specializa-

4 4 tion strategy, one of the prerequisites to tap the European Structural and Investment Funds, was adopted to support research and development and innovation Croatia submitted its 2016 National Reform Programme and its Convergence Programme, outlining relevant measures to improve the management of public finances, the health sector and the business environment and commits to ambitious reforms in the public administration, the pension system, social protection and the improvement of governance in state-owned enterprises. The Government expects that the headline deficit will be below 3 % of GDP, at 2,6 % of GDP, in 2016 and will fall further thereafter, reaching 1,0 % of GDP by The government debt-to- GDP ratio peaked at 86,7 % in 2015 but, according to the Convergence Programme, is projected to gradually decline to 80,0 % in Taken at face value, the debt-to-gdp projections in the Programme comply with the debt reduction benchmark. However, while the macroeconomic scenario underpinning these budgetary projections is plausible in real terms, nominal GDP growth is higher than projected in the Commission forecast, especially for Based on the Commission 2016 spring forecast, the general government deficit is projected to reach 2,7 % of GDP in Currently, the structural balance is projected to deteriorate by 0, 2 % of GDP in The problem of high inactivity is compounded by high unemployment; the low utilization of the labour potential holds back growth. Youth unemployment remains a key concern, pointing to weaknesses in the education system, and there is still room to improve the effectiveness, monitoring and evaluation of the Youth Guarantee. Long-term unemployment rates have fallen recently but are still about twice the EU average. Participation in lifelong learning remains very low, due to an underdeveloped adult education system. Provide appropriate up- and re-skilling measures to enhance the employability of the working-age population, with a focus on the low-skilled and the long-term unemployed. Public sector wages are regulated by inconsistent provisions across public institutions in the definition of job complexity, fringe benefits and wage supplements. This limits the Government s control over the wage bill and weighs on the efficiency of the public sector. Due to the relatively high proportion of total employment accounted for by the public sector, public wage developments are also relevant to the wider economy. Industrial relations in the public sector were marked by negotiations over a 6 per cent wage increase, stipulated in the 2009 agreement, which was triggered by the GDP growth in the second part of Negotiations with two different governments eventually produced the compromise with the public servants unions, providing for gradual wage increase during 2017, but no agreement was reached with the public services unions. TUs concern that there were no important developments regarding social and labour legislation, but an increase in the share of flexible forms of employment, visible since the 2014 Labour Act reform, continued. The share of temporary employees reached 24.2 per cent in the third quarter of 2016 (16.5 per cent in second quarter of 2014), compared to the EU aver-age of 14.6 per cent. The number of temporary agency workers increased by 22.2 per cent in 2015 compared to Trade unions opposed the announced reform agenda of the Oreskovic government. The International Labour Day demonstration in Zagreb, gathering around 2,000 people, was held under the slogan People before profit, denouncing the government as serving the interests of capital instead of Croatian citizens. Trade unions also criticized the changes in the income tax, arguing the measures would increase inequality, while demanding an increase of the minimum wage to 50 per cent of the average wage as a compensatory measure for low-income earners. State ownership of companies is highly present in the economy. Weaknesses in governance, including the lack of appropriate performance monitoring, continue to result in significantly lower profitability of state-owned enterprises relative to comparable private corporations, with negative impacts on public finance. In the past year, steps to open up state-owned enterprises to private ownership advanced slowly. TUs would like to be adequately involved through working groups, bipartite and tripartite forms of dialogue in future formulation and harmonization of the industrial policy in accordance with the specifics of the Croatian economy, mainly with industry sectors, with the necessary improvement of horizontal and vertical policy and measures as well as action plans for industrial sectors with the aim to modernize the industry and improve competences of industrial working force according to the template industrial policy of the EU2020. Lifting potential growth requires sustained investments in industry and deep structural reforms in labour and especially industrial and relating service product markets in view of fostering full utilization of the industrial labour force, while ensuring robust industrial productivity growth. Croatia is performing well on the employment rate, reducing greenhouse gas emissions, renewable energy except transport, early school leaving, tertiary education attainment, and reducing poverty and social exclusion, but more effort is needed in R&D investment general and especially in industry, and energy efficiency, re-launching investment, pursuing structural reforms to modernize Croatia s industry, and responsible fiscal policy.

5 Joint industriall European Trade Union EFFAT project: Strengthening the industrial trade unions role in South East Europe in shaping the industrial policy agenda in the light of the objectives of Europe 2020 (VS/2015/0238) Industrial Policy in Croatia SWOT Analysis 5 2. Methodology Republic of Croatia Name of state: Republic of Croatia Location: Europe & Central Asia Area: 56,594 km 2 Population: million Economy: Moderate Innovator GDP (PPP): $91.1 billion GDP per capita: $21,581 Unemployment: 16.1% Source: Eurostat, Horizontal industrial policy performances 2.1. Population This chapter provides the latest reported values for Croatia s GDP, enterprises, production, labor, employment, investments and business environment, plus previous releases, historical highs and lows, short-term forecasts. Croatia Population The total population in Croatia was estimated at 4.2 million people in 2015, according to the latest census figures. Looking back, in the year of 1960, Croatia had a population of 4.1 million people. The population of Croatia represents 0.06 percent of the world s total population which arguably means that one person in every 1,581 people on the planet is a resident of Croatia. Net migration rate is every year higher, especially young people from rural as well from urban regions, what has direct impact on industrial working force in metal sector, food and beverage as well as in tourism Macroeconomic performance GDP Croatia GDP The Gross Domestic Product (GDP), which measures Croatian income and output for a country s economy being equal to the total expenditures for all final goods and services produced within the country in a stipulated period of time, was worth billion US dollars in The GDP value of Croatia represents 0.08 percent of the world economy. GDP of Croatia averaged billion USD from 1990 until 2015, reaching an all-time high of billion USD in 2008 and a record low of billion USD in Croatia Population Actual Previous Highest Lowest Dates Unit Frequency Million Yearly Source: Eurostat Source: World Bank Source: Eurostat Croatia s GDP per capita , as a division of the country s gross domestic product, adjusted by inflation, by the total population was last recorded at 13, US dollars in 2015, and is equivalent to 109 percent of the world s

6 average. GDP per capita in Croatia averaged 12, USD from 1995 until 2015, reaching an all-time high of 14, USD in 2008 and a record low of 8, USD in Source: Eurostat Croatia GDP Growth Rate GDP Growth Rate in Croatia averaged 0.35 percent from 2001 until 2016, reaching an all-time high of 4.20 percent in the first quarter of 2008 and a record low of percent in the first quarter of Inflation Croatia Inflation Rate In Croatia, the most important category in the consumer price index is food and non-alcoholic beverages (27.4 percent of total weight). Housing and utilities accounts for 17.1 percent; transport for 12.3 percent; miscellaneous goods and services for 7.5 percent; clothing and footwear for 6.4 percent and recreation and culture for 6 percent. Communication, alcoholic beverages and tobacco, furniture, household goods and maintenance, restaurants and hotels, health and education account for the remaining 23.3 percent of total weight. Consumer prices in Croatia went down by 1.5 percent yearon-year in July of 2016, following a 1.6 percent decrease in the previous month. Main downward pressure came from housing and utilities (-2.5 percent) and transport (-6.6 percent), while food and non-alcoholic beverages prices stalled. On a monthly basis, consumer prices fell by 0.7 percent. Inflation rate in Croatia averaged 2.50 percent from 1999 until 2016, reaching an all-time high of 8.43 percent in July of 2008 and a record low of percent in May of According to the UNDP, Croatia has been ranked as 47th in the human development in Croatia Inflation, 2016 Croatia Prices Last Previous Highest Lowest Unit Inflation Rate percent Source: Croatian Bureau of Statistics. Inflation Rate Mom percent Consumer Price Index CPI Index Points Government Debt to GDP Croatia recorded a Government Debt to GDP of percent of the country s Gross Domestic Product in Government Debt to GDP in Croatia averaged percent from 2000 until 2015, reaching an all-time high of percent in 2015 and a record low of percent in Government debt as a percent of GDP is used by investors to measure a country s ability to make future payments on its debt, thus affecting the country borrowing costs and government bond yields Source: Croatian National Bank Croatia Government Debt to GDP Actual Previous Highest Lowest Dates Unit Frequency percent Yearly Source: Croatian National Bank Food Inflation percent Cpi Transportation Index Points Source: Croatian Bureau of Statistics Legal reform issues Judicial system. Croatia s judiciary comprises courts of general jurisdiction dealing with civil and criminal matters, as well as specialized commercial and administrative courts. The general courts are made up of 67 first instance municipal courts, appeals from which lie to one of fifteen second instance county courts. The commercial courts have seven courts at first instance, with appeals lying to the High Commercial Court. These courts have jurisdiction over any disputes between legal entities (non-natural persons), as well as over certain types of disputes, such as those relating to insolvency, intellectual property and competition. For administrative law matters, there are four specialized first instance courts, appeals from which lie to the High Administrative Court. The Supreme Court is the final instance of appeal in all matters, and has two departments, civil and criminal, with commercial appeals being heard by the civil department. The State Judicial Council is responsible for making recommendations to Parliament concerning judicial appointments and discipline. It is composed of eleven members, a majority of whom are judges. The Judicial Academy is responsible for professional development and qualification of judges,

7 7 and offers a range of subjects as part of its initial and continuous training programme. Previously there was no formal requirement for a candidate judge to undertake specialized training; however, from January 1, 2013, completion of a two-year education program at the Academy has become a prerequisite for appointment to judicial office. Numerous improvements in Croatian corporate governance have taken place - the corporate governance culture is improving, but some key challenges still remain. Croatia has made significant improvements in numerous areas of commercial legislation. Although Croatia s legislative framework is greatly compliant with the EU standards, some key challenges still remain. Access to Finance. Applicable legislation on the topic includes Law on Ownership and Other Real Rights, the Land Registry Law, the Enforcement Law, the Law on the Registry of Court and Notary Public created Security, and the Leasing Law. Improving access to finance, especially for SMEs, is an important part of the EBRD s mission. The Ministry of Finance is currently working on introducing a factoring law and the EBRD is providing them with technical assistance. In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralizing different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. Capital Markets. The basic legislation on the securities market is comprised of the Capital Market Act enacted in 2008, the Investment Funds Act and the Law on Croatian Financial Services Supervisory Agency both enacted in In terms of the legal framework of capital markets it is recommended to further harmonize the Croatian legal framework with the EU framework and clarify provisions relating to netting and close-out netting. Moreover, the draft Securitization Law shall be made available for public consultation before its adoption. Contract Enforcement and Judicial Capacity. Croatia s judiciary comprises courts of general jurisdiction dealing with civil and criminal matters, as well as specialized commercial and administrative courts. The State Judicial Council is responsible for making recommendations to Parliament concerning judicial appointments and discipline. It is composed of eleven members, a majority of whom are judges. The Judicial Academy is responsible for professional development and qualification of judges, and offers a range of subjects as part of its initial and continuous training programme. Previously there was no formal requirement for a candidate judge to undertake specialized training; however, from January 1, 2013, completion of a two-year education program at the Academy has become a prerequisite for appointment to judicial office. As in other pre-eu accession countries, the harmonization process has served as a catalyst for the upgrading and modernizing of the country s legislation. However, it also generated a degree of legal instability as new laws were introduced to reflect the acquis, which in turn affected the predictability and quality of judgments. Nevertheless, the EBRD Judicial Decisions Assessment found court judgments in commercial law matters in Croatia to be generally predictable and of reasonably good quality. Corporate Governance. The primary source of corporate governance legislation in Croatia is the Company Act, which entered into force in 1995 and has been extensively amended since then, especially for the purpose of harmonizing national legislation with the Acquis Communautaire. Corporate governance is also regulated by the Capital Market Act, issued in 2008, as amended; the Credit Institutions Act, enacted in September 2008, as amended; and the Takeover Act, which entered into force in 2007 (with the exception of some provisions to become effective after Croatia s accession to the EU). The results of EBRD s most recent assessment of the corporate governance framework in Croatia demonstrates that speed of disclosure and redress being the weakest aspects of how this framework works in practice. Numerous improvements in Croatian corporate governance have taken place mainly as a result of compliance with the Acquis Communautaire of the EU. The level of corporate governance culture is currently improving as a result of the above, but some key challenges still remain. Debt restructuring and bankruptcy. Croatia has made significant improvements in numerous areas of commercial legislation. Provisions on taking non-possessory pledge over movable assets and rights are currently part of the Croatian Enforcement Act, while the Property Law contains only provisions related to possessory pledge. This kind of fragmentation has resulted in increased and arguably unnecessary transaction costs. Facilitating factoring transactions by factoring legislation might help improve overall access to finance by making factoring services more transparent and legally certain. Broadening the scope of information covered by the credit bureau (insurance, trade credit and utilities) would improve the quality of credit referencing and costs of information asymmetry. Other measures have been realized too: providing further systematic and specialized training to judges in commercial law matters, including on the use of tools designed to promote timeliness among litigants; establishing comprehensive and up-to-date court judgment databases; further strengthening the enforcement system, including through provision of greater public information on enforcement procedures and strengthening enforcement institutions capacity; and measures to promote the use of commercial mediation. Croatia s applicable legislation for the insolvency sector is centered on The Bankruptcy Law which applies to legal entities and to individual debtors who are sole proprietors or tradesmen, subject to certain exclusions or qualifications for State or State-related entities. Croatia has the main tools of a modern insolvency law, providing both for liquidation and for reorganization of the debtor s business. Electronic Communications. The main legislation governing the electronic communications sector in Croatia includes the Croatian Electronic Communications Act (2008, amended in 2011) plus the Laws on General Administrative Procedure, Consumer Protection, Misdemeanors and related legislation. The Croatian telecommunications sector legislation is now aligned with the EU regulatory framework, including the European Union (EU) 2009 package. Croatia implemented full formal liberalization of electronic communications in 2003, with a general authorization proce-

8 8 dure for all electronic communications networks and services implemented in Croatia was the first (in 2011), and remains the only country in the southeast European region, to bring its regulatory framework fully into line with the EU 2009 framework. The country acceded to the EU in The EBRD s most recent assessment has found the Croatian framework largely in line with international practice. Energy and resource efficiency. Croatia has been undertaking considerable efforts to create a sound policy and regulatory framework for promoting energy efficiency ( EE ) across various sectors of the economy. However, the existing framework requires further efforts, in particular as it concerns adoption of sector-specific EE law and relevant implementing regulations. With updated energy policy and legislation and supporting institutions, Croatia has set the grounds for sustainable development of its energy sector. Nonetheless, the country still lacks a sectors specific energy efficiency framework compliant with the EU acquis. In particular, implementing regulations have to be adopted regarding (i) EE requirements for various stages of exploitation of energy facilities, (ii) improving energy performance of buildings, and (iii) labeling. Energy legal and regulatory reform. An Energy Community Treaty (EcT) signatory, Croatia applied for membership in the European Union (EU) in 2003, Accordingly, Croatia has accepted an obligation to harmonies its legislation, including its energy legislation, with the EU legal framework. The recent EBRD energy law reform dimensions assessment project has shown that regulatory independence and tariff structure are the key strengths of the country s electricity framework, while public service obligations and market framework are its key weaknesses. PPP/Concessions. With a comprehensive government approaches to Public Private Partnerships (PPP) development and implementation of the new Concessions Act, the Strategic Framework for the Development of Public-Private Partnerships in the Republic of Croatia and a Framework Programme for the construction, reconstruction and Modernization of Public Building using a contractual PPP Model. PPPs have potential in the near future, although some important elements necessary for the financing of PPP projects are still missing). However, these powers are almost never used. Alternative dispute resolution mechanisms are available, including in relation to commercial mediation, however, tangible results have not yet been seen; in the last three years less than 4% of commercial litigation ended in settlement. A set of modern legislation was introduced in the past few years, A number of Government endorsed documents including notably. The authorities clearly used the natural slowdown in PPP markets influenced by the current extended economic crisis and advanced the Croatian policy, legal and institutional environment lately. The legislative framework indeed seems fair and comprehensive. It has many necessary rules and contains clear procedures. Furthermore, the establishment of the PPP Agency has been a clear positive step in cementing the authorities recent efforts in promoting PPP. Public Procurement. The public procurement sector in Croatia is regulated by the Public Procurement Act (Official Gazette 90/2011 ) and Act on the State Commission for Supervision over Public Procurement Procedures, and several secondary regulations. The law has been adopted within the EU accession process and is harmonized with the 2004 EU Public Procurement Directives. On the principle of State aid & public procurement, Croatia performs above the EU average. The majority of Croatian businesses participate in public procurement, which puts the country in the third place in the EU on this individual indicator. The government has been very active in this area, and this has yielded good results. Overall, Croatia has a well-developed legal framework on public procurement, and e-procurement is increasingly used. Direct payments to subcontractors, often SMEs, are a legal obligation, but there is still a lack of protective measures in place for SMEs in case of late payments. Breaking down tenders into lots is an emerging practice. Although the Act on Public Procurement has been improved, SMEs would welcome further improvements, such as in simplifying applications. Central and joint purchasing to pool demand is developing well, but is not yet extensively used. High incidence of awards from negotiated procedures without prior publication and a high number of procedures with only one bid indicate inadequately developed competition. Corruption in public procurement is perceived to be high, especially at the local level and concerning public companies. Some recently adopted measures, mainly related to entrepreneurship, such as the Programme for Granting State Aid for the Development of SMEs (Program dodjele državnih potpora za razvoj malog i srednjeg poduzetništva), are also relevant for State aid & public procurement Financing Bearing in mind the type of money needed for different stages of development of industrial enterprises, access to financing in Croatia can be assessed as rather limited. Bank loans dominate, and there is a lack of non-traditional sources of financing for riskier stages of ventures, such as venture capital funds and business angels, which, although recognized, are still not used as an important source of financing. The characteristics of the implementation of Government s support programs in providing access to financing are: (1) inability to evaluate the effectiveness of funding programs because of the lack of detailed feedback on the contribution of existing loan programs to the creation of new jobs, retaining of existing jobs or launching of new industrial ventures; (2) non-transparency of efficiency, incoherence and lack of coordination between funding programs intended for small and medium enterprises in the industry, which are implemented by relevant ministries; (3) operational implementation of funding programs by the Ministry of Entrepreneurship and Crafts, which represents a departure from the Ministry s primary role focusing on policy and regulatory aspects of the small and medium enterprise sector. Enterprises investments. According to the national Survey (2015): 58% of enterprises claim they have invested in fixed assets in the last 2 years but the distribution of responses varies across the sector: only half of micro firms invested in fixed assets but this percentage grows for small companies to 66% and 81% for medium-sized businesses. The most prevalent type of investment is machinery and equipment (78%), followed by vehicles (28%). Only 6% of SMEs invested in RDI. Small-scale investments are the most popular: 34% of all investments in equipment and machinery were below 5,000 and 61% were in the range of microcredit cohort up to 25,000.

9 9 Croatia features all major types of financial institutions: Banks (including housing savings banks). While banking institutions are regulated and supervised by the Croatian National Bank, all other financial intermediaries are regulated and supervised by the Croatian Financial Services Supervisory Agency. HANFA is also responsible for the supervision of operations of brokerage companies, investment consulting firms, regulated stock exchanges, underwriting companies. There are 30 banks in the country: 6 considered as large banks, 3 medium-sized and 21 small banks. In addition to these there are also 7 housing savings banks and 26 credit unions, of which performance is not included in the analysis due to their insignificant contribution to the banking sector as such. 12 banks are in domestic ownership, 16 are in foreign ownership and there are two state-owned banks. The Croatian banking sector is considered to be moderately concentrated. Five largest banks in Croatia account for 72.9% of all banking sector assets, which is the seventh highest concentration in the EU. Increasing borrowing needs of government units pull resources from the banking system and the share of finance to public sector in total banks assets is on the rise. Microfinance and credit unions. One of the main objectives of the Strategy for Development of Entrepreneurship is to facilitate access to sources of financing for small and medium enterprises, with an expected increase in funding of 40% by Micro financing, in contrast to the standard models of financing, entails lending and the provision of basic financial services with terms and provisions that allow clients to overcome the shortcomings of traditional guarantees, as well as training and mentoring. Microfinance services are aimed at micro enterprises, self-employed and unemployed people, for whom limited access to financing represents a high barrier to the implementation of a business venture. In such cases, approval or disapproval of a loan in the amount of e.g. 20,000 HKN could mean new employment, on the one hand, or closure of a business entity, on the other. Providers of microfinance services are credit unions, which operate in more than 100 countries worldwide, where they provide various financial services, primarily credit and deposit services. Based on the Credit Unions Act from 2011, savings and loan cooperatives in Croatia have been replaced by credit unions. The restrictive provisions of the Act, primarily defining of the territorial principle and the reduced number of activities, have prevented a large number of financial institutions to adjust to new legislation. Also, in terms of personnel, technical and financial capacity, a certain number of cooperatives was incapable of transformation and the new way of working as a credit union. A series of restrictions brought by the 2011 Act led to a significant reduction in the number of savings and loan cooperatives that were transformed into credit unions. According to the data of the Croatian Association of Credit Unions (HUKU), Association s members have disbursed 10,252 loans in total amount of 347,519,082 HRK in 2013.The average loan amount disbursed by credit unions in Croatia in 2013, 33,898 HRK, which indicates the important role of credit unions in financing the development of micro enterprises. Insurance companies. Leasing companies. There are 23 leasing companies currently operating in Croatia and Croatian leasing market is characterized by relatively high market concentration. 5 largest lessors in gradually increase their market share measured by value of the newly concluded contracts: in2013 o accounted for 56.8% all assets leased in Croatia. Factoring enterprises. There are currently 14 factoring companies operating in the country and both, the number and amount of their operations increases. In 2011 factoring market amounted to HRK 11.4 billion and increased to HRK 17.3 in The size of factoring market now accounts for almost 5% of the country s GDP. Pension fund management companies. Investment fund management firms. According to HAN- FA in 2013 there were 111 registered open-end investment funds in Croatia. 89 of them were working under public offering regime, 15 through private offering and 7 open-end venture capital funds. They were managed by 19 managing companies. The total capitalization of these funds (annual median of net assets) was HRK 13.2 billion. There were also 4 closed-end investment funds with public offering and 3 funds with public offering in real estate with total value of their net assets HRK 1.4 billion. At the end of 2013 the total value of net assets of all investment funds was HRK 14.6 billion. Closed-end investment funds include 2 fully established private PE/ VC funds with net assets totaling HKR million and 5 FGS s with HBOR as qualified investor. The Zagreb Stock Exchange is the center point of the secondary capital market in the Republic of Croatia. Established in 1991 it is owned by banks, insurance companies and private brokerage companies. The Croatian Business Angels Network (CRANE) groups 15 individual investors in-retested in equity investment in small companies and start-ups. Since 2009 they invested 1.3 million in 13 undertakings. All individual investments are in the range 50,000 to 200,000. CRANE promotes innovative entrepreneurship and business skills and work with institutions supporting business incubation processes. They receive approx. 300 expressions of interest a year of which 5-10% meet detailed screening criteria for small equity investments. CRANE is considered to be a small organization. Financial products The use of external financing is not very popular among SMEs. Only 26% of SMEs applied for external finance in the last two years, including: 18% of micro companies, 35% of small firms and 48% of medium enterprises. Of those who applied, only 54% received financing in the full amount required. In 16% of cases finance was approved partially and 29% of applications were rejected. This percentage is considered to be high in the times of relationship banking where initial screening is exercised before the actual application. Interestingly, in most cases the reason of application rejections was not communicated to the applicant. In 2% of cases finance was approved but the SME declined loan conditions. The main reason of not applying for external funding were sufficient own resources (30%). Too high interest rates were the main reason for of not using external finance for 24% SMEs, difficult market situation for 18% and fear of rejection - for 17%. Micro enterprises more frequently than the rest of SMEs decided to avoid external financing due to saturated market conditions and interest rates considered to be high.

10 10 Loans. Revolving short-term loans, overdrafts and credit card credits dominate lending market in Croatia, accounting for 55.5% of the new loans in In terms of loan size small loans up to HRK 2 million accounts for 6.2%, loans from HRK 2 million to HRK 7.5 million - for 9.3% and loans over HRK 7.5 million - for 29% of new loans portfolio in the period concerned. Loans to Croatian enterprises make up approx. 66.1% of the total business loan portfolio. The average loan size computed as outstanding loan amount in the business sector per undertaking is approx. HRK 1.8 million and 262 million for large enterprises. Credit incentives from commercial banks were reduced in recent years and new loans became more difficult to obtain as a result of the crisis. Financing instruments combining features of debt and equity, as well as financing through business angels, are still in their early stages of development. The key measures implemented in 2016 are: The Enterprise Innovation Fund (Regionalni fond rizicnog kapitala), a regional venture capital fund worth EUR 40 million, was set up with assistance from the Croatian Agency for SMEs, Innovations and Investments, for investing in equity in the Western Balkans, A reduction of interest rates for new investment projects and the abolition of loans restrictions (Sniženje kamatnih stopa za nove investicijske projekte te Ukidanje ograničenja u kreditiranju) has been set up by the Croatian Bank for Reconstruction and Development, in the form of a removal of loan-related restrictions concerning some business activities and of temporary reduction of interest rates by 1 percentage point, Cooperation with banks on the model of the frame loan (Suradnja s bankama po modelu ugovora o okvirnom kreditu) is an initiative established by the Croatian Bank for Reconstruction and Development, introducing simpler and faster procedures for granting loans through the framework agreements with commercial banks in order to shorten the required time from the submission of a loan application to the payment of the loan, Government incentive programs and subsidized credit lines. The Government of the Republic of Croatia through promotion of investment, grants (Entrepreneurial Impulse program grants) and loan programs, implements measures aimed at promoting the development of the small and medium enterprise sector. A total of 1,761 grants in the total amount of 136,421, HRK were approved within these program areas in Microloans, first step to entrepreneurship (Mikrokreditiranje prvi korak u poduzetništvo), a programme of the Croatian Agency for SMEs, Innovations and Investments, provides microcredits to new companies, crafts and other small businesses, with the total budget of EUR , The grant programme (Program dodjele potpora male vrijednosti namijenjenih poboljšanju konkurentnosti i učinkovitosti MSP u područjima s razvojnim posebnostima kroz informacijske i komunikacijske tehnologije IKT) set up by the Ministry of Entrepreneurship and Crafts, is intended to improve the competitiveness and efficiency of SMEs through information and communication technology (ICT). It supports investment in tangible and intangible assets related to the introduction of new or improved ICT solutions to optimize business processes, Building up SME Production Capacity, Investments in Equipment, and Investment in SME Production Technology (Izgradnja proizvodnih kapaciteta MSP i ulaganje u opremu, te Ulaganje u proizvodnu tehnologiju MSP) is another measure of the Ministry of Entrepreneurship and Crafts, carried out under the Operational Programme Competitiveness and Cohesion This measure comes in the form of two grant schemes, with the support provided for expanding the production capacity, diversification of production, or a fundamental change in the overall production process. Leasing. Leasing market is in sharp decline, both in terms of the number and outstanding value of active contracts. Their value decreased between 2011 and 2013 by 25.2%. With outstanding amount of leasing contracts of 14,431 million as of end of 2013 the Croatian leasing market accounts for approx. 4.7% of the country s GDP. There is a higher demand for the lease of property and other items (not classified as cars, vehicles, vessels, aircraft or machinery) in Factoring. Bill of exchange discount operations are the most popular form of factoring transactions: their share grew from 43.9% in 2012 to 49.5% last year, outgrowing the volume of domestic and foreign factoring transactions. This indicates serious liquidity problems in enterprise sector, which is validated by more frequent than ever before use of bridging loans. These account for more than 2% of all operations by factoring companies (0.9% share in 2012). Capital market. Enterprises raise funds in the primary market in exchange for shares, bonds and other instruments. The volume of primary capital market in Croatia is represented by changes in the amount of subscribed equity in the enterprise sector. Micro and small enterprises appear to be the most effective in fundraising while medium and large enterprises either depleted their equity or its growth was insignificant when compared to the year 2008, marking first occurrence of the economic decline. However there is no clear source of verification how much of that newly subscribed capital came from individual, private and institutional investors. The Croatian equity market has never recovered. At the end of 2013 it represented only 43.3% of the capitalization recorded at the end of 2007, clearly illustrating the size of losses incurred by investors and the funding gap that emerged in the last 6 years. Croatia and the larger South East Europe region do not feature well developed venture capital and private equity market. According to the Venture Capital and Private Equity Country Attractiveness Index 2013 the country is ranked 65th most attractive destination for PE/VC. Securities (socks and bonds) are traded regularly on the stock exchange and this segment of capital market has been very popular from mid Only in the period the Zagreb Stock Exchange capitalization

11 11 grew almost ten times up till After sudden decline in 2008 the capitalization remained constant or meagerly fluctuated in recent years. the financial crisis. The Croatian Bank for Reconstruction and Development provides credit guarantee schemes and multiple specialized loan programmes. Investment gap Propensity for investment is contingent on numerous factors, aspects and their dynamics. The Croatian SMEs do not experience fixed assets shortage. On contrary, these remain in abnormally high levels in relation to the total assets, given the current level of liabilities. These assets however are frequently obsolete and enterprises need to invest in new technologies to be more competitive and efficient and smart investment strategy in new fixed assets is highly sought after. Alternatively, in order to bring SMEs to a reasonable degree of equilibrium an excess of approx. HRK 89.9 billion (approx. 12 billion) of total liabilities should be addressed. And this amount is considered to be the equity gap (amount of equity/capital missing to ensure reasonably optimal balance sheet structure). The financing gap (lending) based on average loan size as of end of 2013 was between million and million and 69.1% of the gap is made up by long-term financing (maturity over 12 months). Venture capital gap is computed as an investment opportunity in high growth SMEs being in a start-up stage (up to 2 years old only) was in the range of million. Source. SBA, 2016 Performance of Croatia in the area of access to finance has recently improved and is in line with the EU average. The percentage of respondents that had their loan applications rejected or were offered loans with unacceptable conditions decreased from 18 % in 2014 to less than 7 % in Both willingness of banks to lend money and access to public financial support including guarantees have somewhat improved, but in practice, access to finance still remains difficult. Policy-wise, in the period , national annual programmes for SME finance were integrated into an annual set of measures in order to provide access to relevant information in one place, i.e. in the annual programme called Entrepreneurial impulse. It is worth mentioning the measures focused on direct financing, financing through leasing, and measures extending the maturity of loans. However, most SMEs are financed through bank loans, therefore additional development and diversification of financial sources for SMEs is needed, such as of venture capital. Public start-up funding opportunities for SMEs as well as some microfinance initiatives are available to SMEs, but the allocated financial amounts were strongly curbed following 2.3. Enterprises SMEs make up 99.7% of all enterprises in Croatia, which contribute to 64% of employment and 54% of Value Added. In 2016 there were restarted enterprises, of which only (56, 6 percent) were active (77, 8 percent in private ownership). A snapshot of key data on the SME sector (2015) is provided in the table below. Source: Eurostat, 2015 SMEs in the non-financial business economy in Croatia are on a par with the EU average, accounting for two thirds of value added and more than half of employment. Micro firms are important especially in terms of employment, providing three out of ten jobs. SME productivity, calculated as the ratio of valued added to employment, was approximately EUR per person in 2015, which is much less than half the EU average of around EUR Wholesale and retail trade and manufacturing each contribute more than a fifth of total SME employment, and similar shares of value added. SMEs, same as the Croatian non-financial business economy as a whole, are recovering from the downturn caused by the financial crisis. In 2015, SME value added and employment were still 21 % and 11 % lower, respectively, than their 2008 values, but have resumed growth in recent years. SME value added rose by 9 % in , whereas employment, restarting to grow in 2013, increased by 5 % in In the manufacturing sector, SMEs were hit hard by the crisis. SME value added and employment in 2015 were still 16 % below the value of Due to this poor performance, several policy measures have been introduced, aimed to improve SME competitiveness, including meeting the relevant standards for export production. In the light of these measures, SME value added started to recover in 2013, rising by 8 % in Exports have been the main driver of this growth, increasing by 10 % annually in , an indication that Croatia has also benefited from access to the single market. However, the recovery has so far only affected value added, whilst SME employment has continued to fall. It seems that only the most productive firms were able to successfully export, whereas other companies were forced to further downsize or declare bankruptcy due to a lack of competitiveness. After two years of growth, the number of business registra-

12 12 tions declined by 9 % in 2014 and by 3 % in 2015 comparing to the preceding years, standing at newly registered companies in Measures such as the Small Business Development Promotion Act, aiming at simplifying and accelerating the start-up process, contributed to a marked increase in registrations in However, limited Access to finance seems to have been responsible for the slowdown of the start-up activity in De-registrations remained unchanged in 2014, and then fell by 10 % in 2015, to a total of 291 de-registered companies. 4 The resulting net effect on the number of active companies was a continued growth of 5 % per year in Of all these companies, micro firms recorded the highest growth of their number, at 10 %, whereas the number of small and medium firms declined. The outlook for SMEs in Croatia same as for the non-financial business economy as a whole is slightly optimistic. SME employment is predicted to rise by 3 % in , while the forecast for SME value added foresees an increase of 6 %. Micro firms will be the accelerator of this growth, with predicted increases of 7 % and 11 %, respectively, in employment and value added. Overall, around jobs are expected to be created in SMEs in ICroatia Exports Exports in Croatia decreased to HRK Million in July from HRK Million in June of Exports in Croatia averaged HRK Million from 1993, $13.75 billion (2014), until 2016, reaching an all-time high of HRK Million in November of 2015 and a record low of HRK Million in July of Croatia is mostly an exporter of transport equipment, machinery, textiles, chemicals, foodstuffs and fuels. Exports - partners: Italy 14.1%, Bosnia and Herzegovina 13.3%, Germany 11%, Slovenia 10.1%, Austria 6.2% and Serbia. Croatia Foreign Trade, Croatia Trade Last Previous Highest Lowest Unit Balance of Trade HRK Million Exports HRK Million Imports HRK Million Source: Croatian National Bank Source: Croatian Bureau of Statistics Croatia Imports Imports in Croatia decreased to 11, million HRK in July from 12, million HRK in June of Imports in Croatia averaged 7, million HRK from 1993 until 2016, reaching an all-time high of 14, million HRK in April of 2008 and a record low of million HRK in January of Croatia Imports Actual Previous Highest Lowest Dates Unit Frequency HRK Million Monthly Source: Croatian Bureau of Statistics Source: SBA Fact Sheet for Croatia Croatia is an importer of machinery, transport and electrical equipment, fuels and lubricants and foodstuff Foreign trade Croatia Exports Exports in Croatia decreased to 7, million HRK in July from 7, million HRK in June of Exports in Croatia averaged 4, million HRK from 1993, $13.75 billion (2014), until 2016, reaching an all-time high of 8, million HRK in November of 2015 and a record low of million HRK in July of Croatia is mostly an exporter of transport equipment, machinery, textiles, chemicals, foodstuffs and fuels. Exports partners are: Italy 14.1%, Bosnia and Herzegovina 13.3%, Germany 11%, Slovenia 10.1%, Austria 6.2% and Serbia. Croatia Balance of Trade Croatia recorded a trade deficit of 4, million HRK in July of Balance of Trade in Croatia averaged -3, million HRK from 1993 until 2016, reaching an all-time high of million HRK in August of 1993 and a record low of 8, million HRK in April of Balance of Trade in Croatia is reported by the Croatian National Bank. Source: Croatian National Bank Croatia Balance of Trade Croatia recorded a trade deficit of HRK Million in July of Balance of Trade in Croatia averaged HRK Million from 1993 until 2016, reaching an all-time high of HRK Million in August of 1993 and a record low of HRK Million in April of Balance of Trade in Croatia is reported by the Croatian National Bank.

13 13 Croatia Balance of Trade Actual Previous Highest Lowest Dates Unit Frequency HRK Million Monthly Source: Croatian National Bank After the loss of the Yugoslav and Comecon markets, trade still plays a major role in Croatia s economic output. The European Union as a whole is Croatia s most important trading partner. Croatia Labour indicators Croatia Labour Last Previous Highest Lowest Unit Employment Rate percent Full Time Employment Thousand Labor Force Participation Rate percent Part Time Employment Thousand Source: Eurostat Croatia Employed Persons The number of employed persons in Croatia decreased to 1,554 thousand in the first quarter of 2016 from 1,584 thousand in the fourth quarter of Employed persons in Croatia averaged 1, thousand from 1998 until 2016, reaching an alltime high of 1,681 thousand in the third quarter of 2008 and a record low of 1,344 thousand in the first quarter of Employed persons in Croatia is reported by the Croatian Bureau of Statistics. Source: Croatian National Bank In the area of Internationalization, the indicators show that Croatia performs above the EU average. On the policy side, there has however been limited progress over the past years. Some export-oriented measures were introduced by various ministries, mainly in the form of grants for exporters, but only moderate results were achieved. An export strategy called Croatian Export Offensive (HIO Hrvatska izvozna ofenziva) was put in place. In 2014, the Action plan for export support (Akcijski plan podrške izvozu ) was adopted, including measures and specifying activities needed to provide continuous support to Croatian exporters. Some initiatives in the tourism sector are also related to Internationalization, but an overall strategy specifically targeting exporting SMEs is still missing. Furthermore, there is a lack of specialized educational, training and advisory programmes for stimulating SMEs exports. Thus, the institutional framework for trade promotion needs to be enhanced. During 2015 and the first quarter of 2016 no significant new policy measures were adopted or implemented in this area. Croatia Employment Change Employment in Croatia decreased by 0.30 in March of Employment Change (refers to the quarterly change in the number of persons who work for pay or profit, or perform unpaid family work. Estimates include both full-time and part-time employment) in Croatia averaged 0.24 percent from 2000 until 2016, reaching an all-time high of 9.40 percent in the first quarter of 2007 and a record low of percent in the fourth quarter of Employment Change in Croatia is reported by the Eurostat Labor and Wages Croatian labor indicators concerning employed persons, employment rate, unemployment issues and employment patterns are presented below. Croatia Labour indicators Croatia Labour Last Previous Highest Lowest Unit Unemployment Rate percent Employed Persons Thousand Unemployed Persons Long Term Unemployment Rate percent Youth Unemployment Rate percent Labour Costs Index Points Job Vacancies Retirement Age Women Retirement Age Men Employment Change percent Source: Eurostat Croatia Employment Rate Employment Rate in Croatia (measuring the number of people who have a job as a percentage of the working age population) decreased to percent in the first quarter of 2016 from percent in the fourth quarter of Employment Rate in Croatia averaged percent from 2002 until 2016, reaching an all-time high of percent in the third quarter of 2008 and a record low of percent in the first quarter of 2013.

14 14 Croatia Labor Costs Labor Costs in Croatia increased to index points in the second quarter of 2016 from index points in the first quarter of Labor Costs in Croatia averaged index points from 2000 until 2016, reaching an all-time high of index points in the first quarter of 2011 and a record low of index points in the third quarter of Source: Eurostat Croatia Full Time Employment Full Time Employment in Croatia decreased to 1, thousand in the first quarter of 2016 from 1, thousand in the fourth quarter of Full Time Employment in Croatia averaged 1, thousand from 2002 until 2016, reaching an alltime high of 1,662 thousand in the third quarter of 2008 and a record low of 1, thousand in the first quarter of Croatia Job Vacancies : Job Vacancies in Croatia decreased to 8,676 in December from 11,376 in November of Job Vacancies in Croatia averaged 10, from 1996 until 2010, reaching an all-time high of 19,883 in May of 2002 and a record low of 4,760 in January of Source: Eurostat Croatia Unemployed Persons The number of unemployed persons in Croatia decreased to 217,089 in July of 2016 from 219,491 in June of Unemployed Persons in Croatia averaged 291, from 1990 until 2016, reaching an all-time high of 415,352 in March of 2002 and a record low of 147,618 in January of Unemployed Persons in Croatia is reported by the Croatian Bureau of Statistics. Source: Croatian Bureau of Statistics Croatia Activity Rate Labor Force Participation Rate in Croatia decreased to percent in the first quarter of 2016 from percent in the fourth quarter of Labor Force Participation Rate in Croatia averaged percent from 2002 until 2016, reaching an all-time high of percent in the third quarter of 2008 and a record low of percent in the second quarter of Source: Eurostat Source: Croatian Bureau of Statistics

15 15 The number of unemployed persons in Croatia decreased to 217,089 in July of 2016 from 219,491 in June of Unemployed Persons in Croatia averaged 291, from 1990 until 2016, reaching an all-time high of 415,352 in March of 2002 and a record low of 147,618 in January of Long Term Unemployment Rate (refers to the share of persons unemployed for 12 months or more in the total number of active persons (those who are either employed or unemployed) in the labor market) in Croatia decreased to 7.80 percent in the first quarter of 2016 from percent in the fourth quarter of Long Term Unemployment Rate in Croatia averaged 8.05 percent from 2002 until 2016, reaching an all-time high of percent in the fourth quarter of 2012 and a record low of 4.30 percent in the third quarter of Croatia Youth Unemployment Rate Youth Unemployment Rate in Croatia remained unchanged at percent in June from percent in May of Youth Unemployment Rate in Croatia averaged percent from 2000 until 2016, reaching an all-time high of 54 percent in January of 2013 and a record low of percent in October of Croatia Part Time Employment Part Time Employment in Croatia increased to thousand in the first quarter of 2016 from thousand in the fourth quarter of Part Time Employment in Croatia averaged thousand from 2002 until 2016, reaching an all-time high of thousand in the third quarter of 2008 and a record low of thousand in the fourth quarter of Employment promotion measures and unemployment benefits are financed by contributions on wages at 1.7 per cent and the State budget, and are paid by the Croatian Employment Service (HZZ). A worker is entitled to unemployment benefits after at least nine months of work in the last 24 months, and depending on the duration of work/years of service can receive it from 90 to 450 days (the first 90 days at 70 percent, and until 450 days at 35 percent of the wage, but not more than 70/35 percent of the average wage). A worker with more than 32 years of service and less than 5 years to retirement is entitled to unemployment benefits until new employment or until entitlement to pension. Since 2014, the same rights also apply to the self-employed. Unemployment benefits are received by a relatively small number of the unemployed (17.9 per cent in December 2015) due to the high percentage of long-term unemployed and unemployed young persons without the necessary work experience. According to the DZS data for the period VII-IX 2015 (Statistical Reports, Results of the Labour Force Survey) the average normal weekly hours of work on the worker s main job are 39.3 hours (men 40.3, women 38.0 hours). Weekly working time is legally limited to 40 hours (plus 10 hours of overtime work a week, and 180 a year, or 250 a year if so agreed by a collective agreement). Collective agreements, as a rule, do not stipulate shorter working hours than those determined by law, but workers of a certain age may be exempted from the application of provisions on the duration of work of a night worker and daily and weekly rest (provided the CA ensures this worker a replacement rest; a right the employer is obliged to ensure). An increase in the share of flexible forms of employment, visible since the 2014 Labour Act reform, continued with the share of temporary workers reaching 24.2 per cent in the third quarter of 2016 (compared to the EU average of 14.6 per cent) Source: Eurostat Wages According to the Croatian Bureau of Statistics, wages, previous releases, historical high and low values in Croatia can be presented as in the table below: Croatia Wages Croatia Wages Last Previous Highest Lowest Unit Wages HRK/Month Minimum Wages EUR/Month Source: Eurostat Source: Eurostat Croatia Average Monthly Wages Wages in Croatia decreased to 5,686 HRK/month in June from 5,706 HRK/ month in May of Wages in Croatia averaged 3, HRK/month from 1992 until 2016, reaching an all-time high of 5,855 HRK/month in November of 2015 and a record low of 13 HRK/month in January of The average net monthly wage for the period January to October 2016 was 5,658 HRK ( 756), which is a nominal increase of 1.4 per cent and a real increase of 2.7 per cent com-pared to the same period in The average gross monthly wage for the same period was 7,724 ( 1,032), which is nominally a 1.8 per cent increase and in real terms was 3.1 per cent. The gross minimum wage for 2016 was set at 3,120 HRK ( 417), 3 per cent more than in In December, the registered unemployment rate was 14.8 per cent (17.9 per cent in December 2015). According to the Labour Force Survey, the unemployment rate in the third quarter of 2016 was 10.9 per cent, the activity rate was 51.4 per cent and the employment rate was 45.8 per cent. According to DZS, the atrisk-of-poverty rate in 2015 was 20.0 per cent (19.4 percent in 2014), while the Gini-coefficient was 0.31 (0.30 in 2014).

16 16 Croatia Foreign Direct Investment Actual Previous Highest Lowest Dates Unit Frequency EUR Million Quarterly Source: Croatian National Bank Source: Eurostat Croatia Minimum Monthly Wage Minimum Wages in Croatia increased to EUR/month in the second half of 2016 from EUR/month in the previous six months. Minimum Wages in Croatia averaged EUR/ month from 2008 until 2016, reaching an all-time high of EUR/month in December of 2016 and a record low of EUR/month in June of Source: Eurostat 2.6. FDI Gross fixed capital formation fell in 2012 from 19.6 % to 18.6 %, but is still above the EU average of 17.9 %. Historically, foreign direct investment has played an important role, but has collapsed since In 2013, due to a lack of economic recovery, a high fiscal deficit and no structural reform, rating agencies downgraded Croatia s sovereign rating to the non-investment grade. In 2015, the Investment Promotion Act (Zakon o poticanju ulaganja) was adopted, implementing EU rules on declaring certain categories of aid compatible with the single market. The framework conditions have improved due to new investment incentives and a different approach towards strategic investments. The Agency for Investments and Competitiveness, together with other partners, has produced a catalogue of investment projects ready for foreign and domestic co-financing. Croatia Foreign Direct Investment Foreign direct investments in Croatia increased by million EUR in the first quarter of Foreign direct investment in Croatia averaged million EUR from 2000 until 2016, reaching an all-time high of 2, million EUR in the second quarter of 2014 and a record low of million EUR in the fourth quarter of The strong contraction in FDI also contributed to the slowdown in investment. Following a strong decrease during the recession, foreign direct investment picked up in 2014 and In 2014 the inflow of foreign direct investment was strongest since It should be noted that this figure is strongly influenced by round-tripping effects, which were not present in the period Even so, the pick-up in FDI in 2014 is evident and expected to have been somewhat lower in 2015, based on observed market activity. Sector-wise, during the recession FDI de-

17 17 creased in the financial services sector and to an extent in retail, but a shift towards the tradable sectors has overall not been very pronounced, notwithstanding a recent big outlier transaction. Analysis of sectoral import and export data provided by the United Nations Conference on Trade and Development s data center (UNCTAD stat) reveals that Croatia s export performance over the past dec ade has been poor. This suggests that its exports are not sufficiently competitive to gain market share in the EU, even though European market access has im proved for Croatian exporters. Croatia currently runs a trade deficit in nearly all major sectors. While EU membership has increased Croatia s imports, the ex porting sector has not yet benefited from increasing integration into the EU. Croatia has sig nificant scope to return to a sustainable growth path by stimulating inward FDI and exports via measures to increase its competitiveness, in particular through relative labor cost reduction. In cross-border business, there is a strong negative correlation between a country s cost-driving condi tions like labor costs and inward foreign direct in vestment. Rising labor costs in Croatia have hampered inward FDI growth, leading to unfavorable economic conditions relative to other EU countries, where de clining labor costs have been accompanied by a very sharp increase in FDI inflows. Croatia is a clear underperformer in attracting FDI: Croatia only experienced an increase of 215 percent over ( ) period (from 1,636 million to 5,158 million euros). Croatia has relatively higher labor costs, which are uncompetitive, compared to other recent EU members, and thus im pede FDI attraction: 9.20 euros per hour on average in 2008, according to Eurostat. Low labor costs in comparison to alternative FDI des tinations can be considered a core reason for foreign direct investors to enter countries. Attracted by the advantage of low production costs, foreign investors not only set up new companies to serve domestic mar-kets, but often integrate those newly built or acquired plants into their European production network, pro viding a further boost to exports. Indeed, sectoral data from the Croatian National Bank suggest that stagnating and falling FDI inflows in Croatia s manufacturing industries have been asso ciated with stagnating and weakening exports. However, the economic relationship between labor costs, FDI inflows, and exports is not unidirectional. It is characterized by an endogenous circle of eco nomic interdependencies that has been observed in most EU member countries over the past decade. Initially, a reduction in labor costs is associated with increasing FDI inflows. Subsequently, most European member countries experienced a substantial increase in labor productivity driven by capital investments originating from FDI inflows. Hence, a rise in FDI in flows can improve labor productivity and thereby sup port a lasting low labor cost environment with increas ing output. Both increasing FDI and stable labor costs with rising productivity lead to competitive exports. Finally, rising exports again have positive repercus sions on FDI inflows, labor productivity, and labor costs. It has been well substantiated in the economic literature that there is not only a selection process of relatively more productive firms into exports,1 but that exporters also become more productive over time compared to their non-exporting competitors. This increase in productivity then allows the exporting firms to pay higher wages, leading to a demand-driven boost to the domestic economy, which in turn results in additional incentives for foreign investors to in crease FDI. Once this circle is set in motion by exter nal measures (like exchange rate policy) or internal measures (like labor cost reduction), increasing FDI inflows and exports can result in sustainable GDP growth and additional employment. Several countries that have become new EU mem bers over the past decade have successfully initiated deep economic reforms to boost domestic growth and employment by taking advantage of easier ac cess to the EU markets (e.g. Slovakia and the Czech Republic). To assess the potential quantitative effects of economic reforms in Croatia, it is important to identify and compare countries that are similar to Croatia in their economic development. Using Eurostat data on hourly gross wages in 2013, it can be seen that Croatian hourly labor costs, with an average of 7.40 euros, are comparatively high rel ative to its peer countries, with the only notable ex ceptions being the Czech Republic (7.50 euros) and Slovenia (12.40 euros). Average wages are lower in Lithuania (4.40 euros), Latvia (5.00 euros), Hungary (5.60 euros), Slovakia (6.20 euros), Poland (6.40 eu ros) and Estonia (6.60 euros). Looking at wage data on the sectoral level provided by INDSTAT, a simi lar pattern holds for major industries. In many sec tors, Croatia represents the upper end of the wage distribution among its peer group, even though this peer group has been defined such that Croatia, in terms of real GDP per capita, occupies an average position. Thus, the Croatian economy is relatively uncompeti tive in terms of labor costs such that its peer group countries offer a more attractive environment for for eign direct investors. To attract additional FDI, in crease exports, and get back onto a sustainable growth path, Croatia needs to improve its competitiveness by reducing average labor costs R&D and Education Croatia is a Moderate Innovator. Innovation performance

18 18 improved until 2012 and then declined. After a decline until 2010, innovation performance improved until 2012 and then declined again. Performance relative to the EU was above 60% in 2008, but has fallen to less than 54% by Croatia is performing below the EU average in most dimensions. It only performs above the EU average in Human resources, due to above average performance in Youth with upper secondary level education. The weakest performing dimensions are Open, excellent and attractive research systems, Innovators, and Intellectual assets. Non-R&D innovation expenditures is the best performing indicator. Performance increases in dimensions are observed in Finance and support (6.8%) and Open, excellent and attractive research systems (4.3%), with the largest improvement at the indicator level for Community trademarks (29%). Performance has worsened in Linkages and entrepreneurship (-9.4%), Economic effects (-2.6%) and Innovators (-2.3%), with the indicators declining most being PCT patent applications in societal challenges (-14%), Public-private co publications (-9.4%) and PCT patent applications (-9.3%). In 2014, Croatia had the fourth lowest R&D intensity level in the EU. At 0.8 % of GDP, it was well below the 2 % EU average and the 2020 target of 1.4 %. Public R&D spending has decreased from 0.44 % of GDP in 2008 to 0.33 % of GDP in This relative decrease is even more pronounced against the background of a shrinking GDP in that period. Private R&D intensity level has decreased somewhat since 2008, but bounced back to 0.34 % of GDP in Source: European Commission Provisional CIS 2014 data show improved performance for four and worsened performance for two indicators. The overall impact on the innovation index is expected to be small with the index possibly increasing from to assuming that for the other indicators performance would not change. Source: EU Innovation Scobord, In 2014, 4 companies from Croatia entered the ranking of 50 technology companies with the fastest growth in Central Europe Infinum, Nanobit, Europa Digital and Lemax-iTravel Soware, and only Infinum ranked among 10 companies with the fastest growth, taking the 9th position in the Deloitte ranking. Before merging in May 2014 with HAMAG INVEST the Business Innovation Croatian Agency BICRO was the main hub for provision of research and development support programmes to technology and knowledge-based SMEs. One of them was Razum that aimed to provide financing to startups and established SMEs undertaking applied research leading to the introduction of new or improved products or services. Eligible projects were those in the pre-commercialization phase and financing was offered in the form of conditional grants, also known as repayable advances. Other support programmes included: Proof of Concept, IRCRO - Research and Development Programme for collaborative R&D between domestic SMEs and R&D organizations and EUREKA - being similar to IRCRO but focusing on R&D collaboration with partners from other EUREKA participating countries. Facilities previously offered by Croatian Agency for SMEs, Innovations and Investments HAMAG BICRO. were financed from domestic funds by the Ministry of Science, Education and Sport, IPA and the World Bank but funding was not available on permanent basis hence periods of inactivity in three of four programmes., and HAMAG INVEST approved 410 guarantees in The majority of guarantees in 2013 were approved under the New entrepreneurs guarantee program, followed by Growth and Liquidity programs. The amount of approved guarantees increased by 43% (from 315,000,000 HRK in 2012 to 450,962,000 HRK in 2013), and the amount of investments increased by 54% (1,423,059,000 HRK in 2013). HBOR runs a lending programme for innovators. Eligible entities are SMEs and crafts that have a positive decision by HAMAG BICRO, have a developed product (attested prototype) and/or technology and that satisfy at least one of the three following conditions: have a patent application in Croatia and/or abroad; that have started an industrial rights property procedure in Croatia and/or abroad; or operate at least 2 years with proven expenditure on R&D. To-date 20 projects to the tune of 18.4 million were financed. In 2013, when Business Innovation Center of Croatia operated independently, it encouraged the private and public sector to invest in research and development through the following programs: - POC pre-seed capital program for projects that are at the level of ideas or concepts, - prototypes, and protection of intellectual property; - RAZUM seed capital program intended for the development of ideas into products; - IRCRO program, which encourages small and medium enterprises to cooperate with - scientific and research institutions; - EUREKA program, which is a European initiative for financing market-oriented projects associated with different fields of technology aimed at encouraging the exchange of knowledge and experiences, and networking and realization of cooperation between science and economy. A total of 51 new projects in the total amount of 15,316, HRK were co-financed through BI- CRO s programs in The average amount of an individual grant was 300, HRK. Volatility of funding sources for R&D programmes and fragmented project tracking systems contribute to variegated results of the support offered and make it difficult or impossible to review sustainability of support from R&D/proof of concept phase to commercialization phase.

19 19 In 2015, Grants for innovation programmes for entrepreneurs (Potpore za inovacijske programe za poduzetnike) have been set up by the Croatian Agency for SMEs, Innovation and Investments. They support knowledge-based SMEs and collaborative research and development. The international Global Innovation Index survey, measuring the level of innovation of 141 countries of the world, has positioned Croatia in the 40th place in 2015, which represents an improvement of two places compared to Indicators of innovation and investment in research and development do not relate only to small and medium enterprises, but to all enterprises, providing an important insight into dimensions of development of competitiveness of Croatian enterprises. Croatian gross domestic expenditure for research and development decreased by 3.5% compared to The largest investment came from the business sector (48.3%), average is 2.03%. Critical scale, fragmentation, relative isolation and a mismatch between academic curricula and labour market needs continue to affect public research. Public-private cooperation remains at a relatively low level, as shown by the number of public-private co-publications or the share of public research financed by business. Croatia is classified as a moderate innovator and is performing below the EU average in most innovation dimensions. Research and innovation in Croatian enterprises is hindered by the structural orientation of the economy towards low and medium-tech sectors, the small size of knowledge intensive sectors, limited business R&D capacities, unfavorable incentive structures, lack of qualified personnel and limited internationalization of companies pursuing innovation investments. Policies in support of innovation are characterized by the lack of a coherent and integrated R&I policy framework and a lack of financing. There are weaknesses in the monitoring of research and innovation policies and the governance of public research and higher education institutions. The need to strengthen the private sector R&I capability is addressed by the Croatian Smart Specialization Strategy (2015) and by the National Innovation Strategy (adopted December 2014). Education According to the results of the 2011 Census, 16.4 per cent of the Croatian population older than 15 has completed tertiary education, 52.6 per cent secondary education and 30.8 per cent only elementary education. Improving the overall quality of education programmes, harmonizing the education system with labor market needs and increasing the share of population participating in lifelong learning remain the main challenges in the field of education. The Croatian education system operates in accordance with EU standards (the Copenhagen and Bologna processes are applied). Nevertheless, compulsory education is still among the shortest in the EU (last year of pre-school education and eight years of primary school). General government expenditure on education is slightly below the EU average (4.7 per cent of GDP in 2014, compared to 4.9 per cent for the EU28), but as a share of total government spending it decreased from 10.9 per cent in 2010 to 9.8 per cent in Croatia is underperforming on access to and the quality of the education system, an ever larger number of people choose to enter tertiary education, but many do not complete their studies, shortcomings in the education system make the transition to the labour market more difficult, and the implementation of policies to improve the labour market relevance of education is slow. Adult education and training is the most neglected and underdeveloped element of the education system, with the participation rate in adult education and training (lasting four weeks) being only 3.1 per cent in 2015, compared to the EU average of 10.7 per cent (Eurostat). Croatia still lacks a consistent framework for the development of a lifelong learning system and a clearly defined financial framework, including incentives. The new Strategy for Education, Science and Technology was adopted in October On the basis of the strategy, comprehensive curricular reform was initiated in the beginning of 2015, but has been put on hold after the change of the government in early Education for and about entrepreneurship is insufficiently represented at all formal levels of education. Entrepreneurial education as knowledge and skill required to achieve entrepreneurial competence is still not recognized and is minimally represented in the curriculum at the primary level of the Croatian education system. In secondary education, entrepreneurship is recognized as an important set of knowledge and skills only in vocational schools, and is introduced as a mandatory subject in the curriculum of economy secondary schools. In the higher education system, entrepreneurship is present on at least one level of study at five Croatian universities, and at four polytechnics and two colleges. Non-formal education for entrepreneurship is conducted primarily by business support institutions, and it is mainly focused on the topics that are suggested and co-financed by the Ministry of Entrepreneurship and Crafts through the Training programme. So, on Skills & innovation, Croatia performs below the EU average.

20 20 The progress made since 2008 in the area of Skills & innovation is moderate. A significant number of SMEs, especially those in the manufacturing industry, suffer from a lack of skilled labour force, pointing to weaknesses in the education system. Participation in lifelong learning remains very low, due to an underdeveloped adult education system. Despite the relatively poor outcomes, training is ensured through a relatively developed network of training providers that is publicly accessible online. Such educational platform is beneficial for SMEs as it offers free training for their employees, provided by both private and public educational institutions. The innovation support measures introduced over the past years were mainly focused on stimulating collaboration between business and academia, but the expected outcomes have not yet been achieved. The grants from the Croatian Agency for SMEs, Innovations and Investments are focused on commercialization of innovation. However, there is still a significant lack of specialized support for SMEs in their growth and specialization phases, including in terms of intellectual property rights management. The e-government approach has been substantially improved through the implementation of the Central Government Portal, and continuous inclusion of new e-services for SMEs. In December 2015 the Ministry of Entrepreneurship and Crafts launched public consultation on a new grant scheme for innovative start-up companies (Uputa za prijavitelje za natječaj Inovacije novoosnovanih MSP ). The measure is to be implemented as of 2016 within the ERDF Operative programme for cohesion and competitiveness for the period Source: SBA, Business environment Domestic and foreign investors, crucial for further industry development in Croatia, seek for friendly and supportive business climate and environment. Here are presented some indexes relevant for quality of the business ambient in Croatia. Croatia Business environment Competitiveness Index Points Competitiveness Rank Ease of Doing Business Corruption Index Points Corruption Rank Source: World Bank Croatia ranks 43rd (out of 190 economies) in World Bank s Doing Business 2017 report (39th in 2016) Croatia scores the lowest in dealing with construction permits (128th) and with low ratings in starting a business, getting credit and electricity, registering property, and resolving insolvency. Despite an improvement in the macroeconomic environment, Croatia s competitiveness also remains low according to the Global Competitiveness Index published by the World Economic Forum, as it ranks 74th among 138 countries (moving up three places from last year s 77th out of 140 countries). The main obstacles are weak innovation capacity, labour and goods market inefficiencies, underdeveloped financial markets and weak institutions. Croatia has started to reform the system of communal charges, presented as a step in a broader reform of immovable property taxation. Combined revenue from recurrent taxes on immovable property and communal charges is relatively low as a proportion of GDP.A high level of tax arrears, VAT fraud and the shadow economy are key challenges. Measures are being taken to improve tax compliance, including the development of a compliance risk management system. Yet, evidence on the effectiveness of the measures taken is still limited. Croatia scores the lowest in dealing with construction permits (128th) and with low ratings in starting a business, getting credit and electricity, registering property, and resolving insolvency. Despite an improvement in the macroeconomic environment, Croatia s competitiveness also remains low according to the Global Competitiveness Index published by the World Economic Forum, as it ranks 74th among 138 countries (moving up three places from last year s 77th out of 140 countries). The main obstacles are weak innovation capacity, labour and goods market inefficiencies, underdeveloped financial markets and weak institutions. Croatia s business environment continues to suffer from major shortcomings that weigh on the investment climate. Many para-fiscal charges levied on firms still hamper the business environment. The regulatory environment for service providers and regulated professions remains restrictive. There are restrictions on access to and the conduct of certain regulated professions, including legal professions and tax advisors. Croatia has been reviewing the need for and the proportionality of these restrictions, but the delivery of action has been delayed. Furthermore, regulated professions and businesses suffer from high administrative burdens. Croatia s performance regarding the area of Single market

21 21 in general is more or less in line with the EU average. On the positive side, the number of single market directives not yet transposed into national legislation is the lowest in the EU, and the number of infringement proceedings pending for presumed violations of single market rules is among the three lowest in the EU. However, the scores concerning market access for new and growing firms are among the two lowest in the EU. Since Croatia s accession to the EU, some progress has been made, mainly through transposing single market directives. The Ministry of Economy has launched the services market reform initiatives aimed at removing the remaining barriers. There are grants for exporters, implemented through the Entrepreneurial Impulse annual programmes and similar initiatives, and an export portal. SOLVIT portal and one other relevant portal (in the EU Internal Market Centre within the Ministry of Economy) have been set up. The Point of Single Contact is developed to some extent and provides information on market access, while its further development, aiming to include also the possibility to complete formalities online, is envisaged by the end of However, at this point in time comprehensive initiatives to address the area of Single market are still lacking. 2016, reaching an all-time high of 81 in 2013 and a record low of 56 in Source: World Economic ForumSource: Transparency International Croatia Competitiveness Rank Actual Previous Highest Lowest Dates Source: World Economic Forum Croatia Corruption Index Croatia scored 51 points out of 100 on the 2015 Corruption Perceptions Index reported by Transparency International. Corruption Index in Croatia averaged points from 1999 until 2015, reaching an all-time high of 51 points in 2015 and a record low of 27 points in Croatia Corruption Index Actual Previous Highest Lowest Dates Unit Frequency Points Yearly Source: Transparency International Croatian National Bank Croatia Credit Rating Standard & Poor s credit rating for Croatia stands at BB with negative outlook. Moody s credit rating for Croatia was last set at Ba2 with negative outlook. Fitch s credit rating for Croatia was last reported at BB with negative outlook. In general, a credit rating is used by sovereign wealth funds, pension funds and other investors to gauge the credit worthiness of Croatia thus having a big impact on the country s borrowing costs. Croatia Credit Rating 2016 Agency Rating Outlook Date TE 45 Stable Apr Moody s Ba2 Negative Mar Fitch BB Negative Jul S&P BB Negative Jul Source: Agencies Source: World Bank Croatia Competitiveness Index Croatia scored 4.07 points out of 7 on the Global Competitiveness Report published by the World Economic Forum. Competitiveness Index in Croatia averaged 4.11 points from 2007 until 2016, reaching an all-time high of 4.22 points in 2009 and a record low of 4.03 points in Croatia Indicators Comparison with EU average Croatia Competitiveness Rank Croatia is the 77. most competitive nation in the world out of 144 countries ranked in the edition of the Global Competitiveness Report published by the World Economic Forum. Competitiveness Rank in Croatia averaged from 2007 until Croatia Terrorism Index The Global Terrorism Index measures the direct and indirect impact of terrorism, including its effects on lives lost, injuries, property damage and the psychological aftereffects. It is a composite score that ranks countries according to the impact of terrorism from 0 (no impact) to 10 (highest impact). Terrorism Index in Croatia decreased to 0.12 in 2014 from 0.23 in Terrorism Index in Croatia averaged 0.69 from 2002 until 2014, reaching an all time high of 2.01 in 2008 and a record low of 0.06 in Croatia Terrorism Index Actual Previous Highest Lowest Dates Unit Yearly Source: Institute for Economics and Peace

22 Joint industriall European Trade Union EFFAT project: Strengthening the industrial trade unions role in South East Europe in shaping the industrial policy agenda in the light of the objectives of Europe 2020 (VS/2015/0238) Industrial Policy in Croatia SWOT Analysis Industrial analysis Vertical Industrial policy performances Croatia s main manufacturing industries include chemicals and plastics, machine tools, fabricated metal products, electronics, pig iron and rolled steel products, aluminum processing, paper and wood. Products, building materials (including cement), textiles, shipbuilding, petroleum and petroleum refining, food processing and beverages Croatian GDP composition by sector is: Industry 26.6%, agriculture, 4.5%, services: 68.9% (2015). With annual exports of over 1 billion, the industrial sector is dominated by shipbuilding, which accounts for over 10% of exported goods. Food processing and chemical industry also account for significant portions of industrial output and exports. The industrial sector is responsible for 25% of Croatia s GDP, with agriculture, forestry and fishing accounting for the remaining 5% of Croatian GDP. gain this year, as output growth slowed for manufacturing (+1.5 percent from +2.7 percent in June); mining and quarrying (+0.6 percent from +3.1 percent); and electricity, gas, steam and air conditioning supply (+6.9 percent from percent). On a monthly basis, industrial production fell 0.5 percent after rising by 0.3 percent in the previous month. Industrial Production in Croatia averaged 1.15 percent from 1999 until 2016, reaching an all-time high of percent in March of 2007 and a record low of percent in June of Industrial production Croatia Industrial Production Between the years 2000 and 2007, i.e. before the financial and economic crisis, the average annual growth of the industrial production index in the EU-28 had been approximately 1.7 %. In Croatia, the average rate of change between 2000 and 2007 was 4.5 %. The highest level of the industrial production index was only reached in June 2008 (116.2). Between April 2008 and April 2009 industrial production in the EU-28 dropped by more than 22 percentage points. Afterwards, however, a relatively dynamic recovery set in for about 2 years. Since May 2011 industrial production has again fallen. The EU s average industrial production index for the first months of 2013 is comparable to the level in In Croatia the fall in industrial production during the crisis was slower than in the EU as a whole. In the months between June 2008 and January 2009 the index dropped by 15 percentage points and then even recovered somewhat in the spring of Since then there has however been a relatively steady decline, and between 2009 and 2012 the industrial production index fell at an average annual rate of more than 2.6 %. As for the EU-28, Croatia s average industrial production index for the first months of 2013 is comparable to the level in Croatia s industrial production (measures the output of businesses integrated in industrial sector of the economy such as manufacturing, mining, and utilities) increased by 1.2 percent year-on-year in July 2016, following a 4.1 percent growth in the previous month. It was the smallest Source: Croatian Bureau of Statistics Croatia industrial production Actual Previous Highest Lowest Dates Unit Frequency percent Monthly Source: Croatian Bureau of Statistics Industrial Production in Croatia decreased 0.50 percent in July of 2016 over the previous month. Industrial Production in Croatia averaged 0.10 percent from 1998 until 2016, reaching an all-time high of 9.20 percent in April of 2005 and a record low of -8 percent in July of The volume of the industrial production in December 2016 was 14.9 per cent higher than 12 months earlier. The figure represents the biggest annual growth since 2001, when such statistics were made for the first time by the Bureau, as well as a rise of four per cent on November It was mostly stimulated by Croatia s EU membership and the recovery of some of its states to which Croatia exports the most Germany, Italy, Austria and Slovenia. Croatia s industrial producers benefited from their recovery, and the wood, pharmaceutical, food and metal industries in particular recorded a large growth in exports. The three major Croatian pharmaceutical companies Pliva (owned by Israeli company Teva), Belupo and Jadran Galenski opened big new production

23 23 facilities over 2015, which resulted in an almost 17 per cent growth in production. The wood industry production also grew by 15 per cent. The overall level of production hasn t reached the level of 2008, before the economic recession. But the growth was much healthier than before 2008 since it s not oriented towards domestic demand but towards the international market. Manufacturing Production Manufacturing Production in Croatia increased 1.50 percent in July of 2016 over the same month in the previous year. Manufacturing Production in Croatia averaged 1.30 percent from 1999 until 2016, reaching an all-time high of percent in June of 2000 and a record low of percent in January of to this classification, the share raw-material intensive decreased between 2012 and 2014, whereas the share of labour-intensive and capital-intensive exports increased. This positive trend was offset by a decrease in exports of difficultly-imitable, research-oriented goods, although this was partly driven by the fall in exports from shipyards. Net of the shipbuilding industry, aggregate data suggests a move towards less price-elastic goods and probably higher unit values although in comparative perspective they remain relatively skewed towards raw material- and labour-intensive goods. This suggests significant potential to move away from reliance mainly on labour cost competitiveness. Manufacturing Production Actual Previous Highest Lowest Dates Unit Frequency percent Monthly WDA Source: Eurostat Croatia s goods exports have suffered from lost competitiveness, adverse shocks and delayed integration in the EU. Croatia s export performance has been affected by geographic and sector-specific shocks and adverse dynamics in cost competitiveness. The sustained growth in real effective exchange rates (deflated by unit labour costs) combined with an exports structure biased towards lower quality and labour- and raw material-intensive goods. At industry level, the crisis in the shipbuilding industry continued to detract from export performance in 2014, whereas chemical products stagnated. The strong performance of exports in 2014 was essentially driven by smaller, dynamic sectors such as textiles, wood and cork and foodstuffs. Data for 2015 suggest that Croatia further increased its share of these markets, though it is still early to assess the drivers of the gains. Source: Eurostat Croatia GDP from Manufacturing GDP from Manufacturing in Croatia increased to 10,580 million HRK in the second quarter of 2016 from 9515 million HRK in the first quarter of GDP from Manufacturing in Croatia averaged 9, million HRK from 2000 until 2016, reaching an all-time high of 12,108 million HRK in the second quarter of 2008 and a record low of 8,543 million HRK in the first quarter of Source: Croatian Bureau of Statistics Croatia GDP From Manufacturing Croatia GDP Last Previous Highest Lowest Unit GDP From Manufacturing HRK Million Source: Croatian Bureau of Statistics [+] Employment, 2015 There were people employed in manufacturing in 2015 in Croatia. The structure of goods exports appears to have shifted away from more price sensitive production. Exported goods can be divided into five broad categories: raw material-intensive, labour-intensive, capital-intensive, easily-imitable, and difficultly-imitable (research-oriented). According

24 24 Croatia GDP from Services GDP from Services in Croatia increased to 15,145 million HRK in the second quarter of 2016 from 11,285 million HRK in the first quarter of GDP from Services in Croatia averaged 13, million HRK from 2000 until 2016, reaching an all-time high of 20,280 million HRK in the third quarter of 2008 and a record low of 7,653 million HRK in the first quarter of GDP from Services in Croatia is reported by the Croatian Bureau of Statistics Productivity in Croatia Actual Previous Highest Lowest Dates Unit Frequency Index Points Source: Croatian Bureau of Statistics Source: Croatian Bureau of Statistics Monthly NSA, CCPY=100 The investment, both domestic and foreign financed, was largely oriented towards the non-tradable sectors, by the end of 2008, more than 65 % of fixed assets of firms were concentrated in the sectors of utilities and energy, retail and wholesale trade and construction and real estate. The share of capital in the primary and manufacturing sectors (3 % and 12 % in Croatia) After, from the share of capital in the manufacturing sectors and in primary sectors increased. Croatia Average Monthly Wages in Manufacturing Wages in manufacturing in Croatia increased to 5,198 HRK/month in June from 5170 HRK/month in May of Wages in manufacturing in Croatia averaged 4, HRK/ month from 2008 until 2016, reaching an all-time high of 5,395 HRK/month in November of 2015 and a record low of 44,43 HRK/month in March of Source: Croatian Bureau of Statistics Source: Croatian Bureau of Statistics Croatia Average Monthly Wages in Manufacturing Actual Previous Highest Lowest Dates Unit Frequency HRK/Month Source: Croatian Bureau of Statistics 3.2. Privatization Monthly Current Prices, NSA Croatia administers a large portfolio of public enterprises. The central government is a majority owner of around 85 companies and owns minority stakes of more than 25 % in some 50 companies. The remaining 600 plus companies under general government control are owned mostly by sub-central government, at regional or municipal level. A part of the companies managed by the central government is classified as being either of special interest or of strategic interest. Companies of strategic interest are not scheduled for privatization, whereas companies of special interest are scheduled for restructuring or privatization. The state portfolio is administered by the State Administrative Office for State Property Management (DUUDI), which together with the line ministries manages 56 companies of strategic and special interest. State-owned enterprises (SOEs) play an important role in the Croatian economy. According to Commission estimates based on ORBIS database, employment in stateowned enterprises represents 12 % of overall employment, while they represent 18 % of the total turnover and 30 % of total assets. The state is heavily present in utilities and transportation, where the share of employees working for the SOEs in reached 79 % and 45 %, respectively. Other sectors with significant state presence include information and communication (14 %), construction (8 %) and manufacturing (6 %). SOEs have more debt than private companies, albeit mostly low-risk debt. The leverage ratio of public non-financial companies was around 40 % higher than private companies of comparable size, both when assessed relative to a company s ability to generate earnings and capital employed. However, only about 13 % of debt can be considered as having a high-risk profile, compared with nearly 45 % of private corporate debt. Croatian SOEs do not have well-defined profitability targets. The profitability of public corporations in terms of return on assets and return on equity is in the long term significantly lower than in private corporations. In 2014, controlling for size and field of activity, the average return on assets was barely positive in public companies, compared with an average return of 4.5 % in private companies. Moreover, the return on equity in 2014 was five times lower than in the private companies. One reason might be still high labour costs. 2014, it remains well above the 21 % share of comparable private companies. The pilot project to develop a standard framework for setting company-specific objectives has been delayed. These objectives include financial and non-commercial targets that SOE boards are expected to deliver and based on which their performance can be evaluated. Accountability and transparency in the SOE sector have somewhat improved, although their supervision remains fragmented. The new regulations formalize the selection and introduce clearer competency requirements for Supervisory and Management board candidates. The implementing regulation on the organization and establishment

25 25 of a central register of state assets was adopted recently, which is considered to be an important step. The monitoring framework currently in place allows for statistical and budgetary control of SOEs, but may not be broad enough given the role these companies play on the labour and product market. Nevertheless, the new provision in the Internal Control Act subjecting SOEs to internal audit requirements is expected to improve transparency and accountability in the public corporate sector. The listing of minority packages of shares of public companies and privatizations is advancing slowly. The successful public offering of shares in the state-owned bank HPB resulted in a capital injection that decreased state ownership, while ensuring compliance with the regulatory requirements on banks for capital adequacy. For the remaining companies, there has been less progress. In general, the number of companies in which the State has a strategic or special interest, has slightly decreased. Given the broad diversification of the state portfolio and SOEs underperformance compared to private companies (see above), it is worth reviewing which companies actually represent a true strategic interest and improving their governance so they can reach both commercial and non-commercial objectives, whereas SOEs that fall out of the strategic interest category, (partial) privatization could be considered. The results of the transformation and privatization show that, since the transformation until the revision, capital has decreased by 16%, the number of employees has been decreased by more than half (reduced by 61%), more than half of the companies have not implemented their development programmes, and more than a fifth, or 22% of them, have declared bankruptcy. These data are even more devastating if is known that 93% of socially owned companies reported no surplus of employees and 76% reported their companies are technologically obsolete Industrial policy and TUs. The lack of structural changes and rapid deindustrialization are the main reasons behind Croatia s failure in achieving its industrial potential. The process of deindustrialization that occurred in Croatia is characterized by factors different that those in developed countries. Those differences should be taken into account when considering new industrial strategies. TUs consider the proposed Croatian industrial strategy as not a suitable answer to modern economic challenges. Analysis of the Croatian industrial strategy , (An document of 343 pages, the first 84 pages constitute an introduction which is followed by a detailed analysis of industrial sectors according to NACE 2007). The Strategy defines industry as consisting of the following activities: C Manufacturing, F Construction and J Information and communication. The following variables are analyzed for manufacturing activities: profitability, employment, international trade, structure according to technological intensity, productivity, liquidity, indebtedness, and GVA, company size and selected performance indicators, for a period of three years ( ). After analyzing the manufacturing section at an aggregate level, the focus shifts to divisions (lower level of aggregation). The main Strategy objective is stated as the re-positioning of the identified strategic activities in the global value chain toward developing activities that create added value. From the secondary Strategy goals it is clear that Croatia is opting for reindustrialization (visible by target increase of industrial employment by over ). The plan is to realize this reindustrialization by directing industry to activities where a realistic possibility for strategic positioning at higher levels of added value exists. On the national level that means Croatia must determine its strategic industries which have a potential to achieve global competitiveness.the term strategic industries applies to activities and divisions that are considered strategically important. Based on a model, the following activities (ranked in order of importance) were chosen as the most perspective in terms of aggregate industrial growth and are considered as strategic industries: C21 Manufacture of basic pharmaceutical products and pharmaceutical preparations C26 Manufacture of computer, electronic and optical products C25 Manufacture of fabricated metal products, except machinery and equipment J62 Computer programming, consultancy and related activities C27 Manufacture of electrical equipment C28 Manufacture of machinery and equipment not elsewhere classified. The list also contains C10 Manufacture of food products (due to its large share in total GDP on the one hand, and food self-sufficiency on the other) and C31 Manufacture of furniture (due to Croatia s comparative advantage in this area). Therefore, the final list is the result of empirical analysis supplemented with economic intuition that takes into account the specificities of the Croatian economy (C10 and C31). TUs consider that this approach leaves room for improvement. Firstly, as for the empirical part, the problem is the fact that the analysis is based on a period of just three years ( ), which is inadequate for the analysis of industry trends, especially if the plan to use this analysis to form a long-term industrial strategy. Also, the representativeness of the data-set is hindered by the fact that three years included in the analysis were recessional. The question is how much attention in the context of Croatian economic reality should be given to information on firm market performance. Simple listening to the market in the form of EBITDA (earnings before interest, taxes, depreciation and amortization) per employee and basing the long-term industrial policy at current market performance is something that is appropriate if the market operates relatively close to perfect competition assumptions. It is obvious that Croatia is still finding its way into the world market economy. It is clear that the phenomenon of deindustrialization in Croatia took a significantly different form then it did in developed countries, i.e. that nominally identical types of economies are characterized by deep structural differences. In other words, the long term structure of the Croatian economy is affected by factors different than those in developed countries. TUs would better see an industrial strategy objectives in favor of policies tailored to the: (1) specificity of Croatian economic situation; and (2) European initiatives. As far as human resources are concerned, according to CES (Croatian Employment Service) Croatia has 4908 unemployed engineers and scientists with a university degree, 25,449 un-

26 26 employed engineers and technicians of technology, 20,332 unemployed metals workers, mechanics, and electrical technicians and 40,058 unemployed in simple mining, construction, transport and similar professions. Together, this presents over 90,000 unemployed individuals with professions roughly compatible with modern railway development, which is almost a third of total unemployment. To summarize, TUs believe that the Croatian industrial strategy devoted insufficient attention to the classic industrial sectors and activities and are considered almost irrelevant for the future of Croatian industry, together with the definition and funding of brawn industries as well as new green initiatives for new industries. Industrial relations and social dialogue Composition, competences, scope and organization of work of the Economic and Social Council are defined by the Agreement on the Establishment of the Economic and Social Council and its Rules of Procedure. The current agreement was concluded in July 2013 between the government, the Croatian Employers Federation (HUP) and four representative trade union confederations. In its work the GSV is assisted by its five thematic expert committees. Logistical support is provided by the Ministry of Labour s Service for Social Partnership, which also serves as the focal point for communication between other ministries and social partners. Based on the government s legislative programme and interest in specific laws and strategic documents expressed by the social partners, each year the annual work programme of GSV and its working bodies is compiled. However, the purpose of this document is limited, as the government is often changing its legislative plans during the year and occasionally laws are sent to Parliament bypassing the GSV (even when they were included in its work programme). On the local level, tripartite social dialogue is conducted through county level Economic and Social Councils. There are considerable differences in their level of activity and effectiveness. According to the report compiled by the Ministry of Labour, the number of meetings held by the county level GSVs in 2015 varied between 0 and 5. Tripartite social dialogue was less intensive than in previous years, due to the Government s less ambitious legislative agenda, especially in the field of labour relations. Social partners remained unsatisfied with the quality. Initial meetings by Prime Minister with trade unions and employers raised hopes of both social partners for more substantial tripartite social dialogue than with the previous government. However, during the five months that the government was in office before losing a vote of confidence, only four meetings of the Economic and Social Council (GSV) were held. As the government did not manage to initiate many reforms, or draft a substantial amount of legislation, there was not much substance in the social dialogue. Similarly as in 2015, there was a slight improvement in the social partners involvement in the European Semester process. Besides the discussion in the GSV, this year there were an additional four thematic meetings to discuss the National Reform Programme with the social partners. However, this remained more of a formal exercise than a real dialogue on the reform agenda. In April, GSV established a tripartite working group for development of industrial relations in Croatia, with the task to develop proposals for enhancement and modernization of industrial relations. Due to subsequent developments with the government, the working group never started to function. Soon after the new government took office in October, the first meeting of the GSV was held with participation of new Prime Minister Plenkovic. In spite of this promising start for social dialogue, a month later comprehensive tax reform was sent to the Parliament without proper consultations with the social partners, who were asked to provide their opinions on In February, initial talks between public sector unions and the new government were finally held. Collective bargaining. There is a growing trend of concluding more and more company CAs, and a reluctance to conclude sectoral/branch CAs. In March, the government initiated negotiations on amendments to the collective agreements for public administration and public services. The state budget, adopted in the meantime, did include financial resources for wage increases based on years or service but not for the 6 per cent increase of the basic wage, thus clearly stating the government s position in the upcoming negotiations. Negotiations proceeded at a slow pace and failed to produce any concrete results. As expiration of the Collective Agreement for Civil Servants and Employees, due in early August, was approaching, it was agreed to prolong its validity for one year, leaving negotiations on the new agreement for after the elections. It was also agreed that the wage increases for the years of service were to be paid in 2016, as well as the vacation allowance, while the Christmas bonus was to be renegotiated by the end of the year. In November, talks on the 6 per cent increase were reopened with the government. The government offered to increase wages by 3 per cent in April and a further 3 percent in December 2017, which was a compromise the unions were ready to accept. However, they were not ready to give up on increased compensation for 2016 (in which, according to the 2009 agreement, an in-crease was supposed to take place), on which government was insisting. No agreement was reached with the unions representing workers in the public services (i.e. education, healthcare etc.), but in late December a compromise was struck with the public servants unions, according to which the wages would be gradually increased during 2017 (for 2 per cent in January, August and November each). Christmas bonus for 2016 was to be paid as well. While the government announced further talks with public services unions in early 2017, the same increases are expected to be applied to their wages. In April, an Annex to the Collective Agreement for Catering was signed, providing for a 1.3 per cent increase in wages for all categories of jobs. New company level collective agreements were signed for Croatian Radio Television (HRT), national electricity company Hrvatska elektroprivreda (consisting of 13 companies) and INA Industrija nafte (national oil company, partially state-owned). The Trade Union of Banking and Financial Employees of Croatia signed collective agreements with a number of foreign-owned banks and financial institutions, such as Zagrebačka banka (UniCredit), Splitska banka (Societe Generale), Erste Bank and Intesa Sanpaolo Card. In April, Zagrebački Holding, a mega-company comprising all utility, energy, transport and other communal services of Croatia s capital and employing around 12,000 workers, cancelled its Basic Collective Agreement, which had been in force since Trade unions active in the company have subsequently initiated court proceedings in front of the County Court of Zagreb,

27 27 claiming the cancellation was illegal and citing a provision of the agreement stipulating that it remains in force until signing of a new one. In November, a bipartite Social Council for Food Industry and Agriculture was established, through an agreement signed be-tween the Trade Union of the Employed in Agriculture, Food, Tobacco and Water Indus-tries of Croatia (PPDIV) and Croatian Employers Association Food Industry and Agriculture Association. This is the 7th sectoral social council established in Croatia, out of which five are bipartite and two are tripartite. Collective bargaining in the public sector was, for the fourth year in a row, marked by the Government s attempt to limit budget spending on wages and using legislative changes to undermine the rights established by the collective agreements (CA). In August, the Government adopted the Action plan on establishing and regulating the wage system in the Republic of Croatia The plan was a reaction to the European Council 2015 Country-Specific Recommendations (CSR), advising Croatia to tackle the weaknesses in the wage-setting frame-work, in order to foster the alignment of wages with productivity and macroeconomic conditions. The plan aims at developing a system of monitoring wage developments, better coordination and harmonization of collective bargaining in public administration and services (including standardization of wages), stronger linking of wages with productivity through coordination of collective bargaining in state-owned companies and conducting an analysis of the effects of the minimum wage on productivity and social inclusion. Unions representing workers in state-owned companies opposed the plan, arguing that attempts at coordinating collective bargaining in such companies violate the freedom of collective bargaining. In April, a new CA covering workers in 14 local road maintenance companies was concluded. A new CA for Croatian seafarers on ships in international navigation was signed in June for a period of two years, covering more than 5,000 seafarers in eight Croatian seafaring companies operating in international navigation. A new CA for humanitarian demining work (the previous one expired in June 2014) was finally signed in February However, on the employers side it was not signed by the Humanitarian Mine-Clearing Association, affiliated to the Croatian Employers Association (HUP), which had been the signatory of the previous CA, but by a new sectoral employers organization, organizing only 20 per cent of the employers in the sector. Material rights remained at the same level as in the previous CA. The agreement was signed for a period of four years but provides for annual bargaining on wages and materials rights to be conducted each October. In most of the CAs signed in 2015, both on branch and company level, there was some harmonization with the 2014 Labour Act. A significant number of CAs, especially in the private sector, used the possibility offered by the new Labour Act to regulate the working time more flexibly than stipulated by legislation, such as increasing the annual or weekly limit on overtime, or introducing unequal distribution of working time. As in previous years, there were a number of strikes due to non-payment of wages, both in private and state-owned companies, most prominently in the metal industry. A Few new collective agreements make use of the greater flexibility allowed in the organization of working time. However, the renegotiation of many collective agreements including in the public sector is due over the next couple of years, so the take-up of these provisions may increase thereafter. Work through temporary agencies and part-time work has become more frequent, while the time to process collective dismissal procedures has been significantly reduced. In January, HUP and SSSH signed a Cooperation Agreement aimed at further development of bipartite social dialogue, providing for its institutionalization through establishment of the Bipartite Social and Economic Council (BiSEV). In April, a joint work programme was adopted, setting five priorities for joint initiatives in the upcoming period (public administration reform, vocational education, development of entrepreneurship, collective bar-gaining and European Framework Agreements). TUs and flexible work. The Government s report on application of the 2014 Labour Act showed an increase in the use of flexible working time arrangements and temporary agency work, as well as some other flexible provisions introduced in From January forward, the non-taxable part of wages was increased, as well as the threshold for the highest income tax rate. The resulting increase in net wages positively influenced domestic demand and GDP, but those earning above the average profited more than workers with lower wages. In August, the Ministry of Labour compiled a report on monitoring the application of the 2014 Labour Act, which showed an increase in use of flexible working time arrangements and temporary agency work, as well as some other flexible provisions introduced in 2014, but also pointed out that it was too early for more thorough evaluation of the new act. Although temporary agency workers still count for less than 1 per cent of total employment, their number increased by 12 per cent in 2014 compared to Spending on active labour market policy (ALMP) was again increased (+18 per cent), with around 50 per cent of the funding coming from EU funds. The measure occupational training without commencing employment again counted for approximately 50 per cent of the 53,700 ALMP users until the end of November. As of January, remuneration for young people using the measure was increased from 1,600 to 2,400 HRK, thus reaching the level of minimum wage. Comprehensive independent evaluation of ALMP measures is still being awaited. From January employers hiring persons

28 28 younger than 30 on open-ended contracts are exempt from contributions based on wages (health care, occupational health and safety and employment insurance) for a period of five years. Election Platform, SSSH held a series of meetings with the main parties and organized a public debate including politicians and trade unionists. Collective agreement coverage. Coverage of collective agreements in 2014 was around 53 per cent (compared to around 61 per cent in 2009, i.e. before the start of the economic crisis). In public administration and public services (education, health care, etc.) collective agreement coverage is 100 per cent, due to the Basic Collective Agreement for Civil Servants and Employees in Public Services. As most of the state-owned companies also have a collective agreement, coverage in the wider public sector is estimated to be more than 70 per cent. In the private sector, the most recent estimates are around 36 per cent. In 2014 there were around 570 collective agreements in force in Croatia (around 76 percent of them applicable to the area of one county only). As around 60 per cent of CAs are signed for a period from one to three years, it can be assumed that the majority of around 200 CAs signed each year are renewed or renegotiated CAs in companies with a tradition of regular collective bargaining. The Ministry of Labour s report on the monitoring of application of the new Labour Act states that a total of 104 CAs were concluded in the first half of 2015, but it is reasonable to assume that the vast majority of them were renewed or renegotiated CAs, thus leaving the total number of CAs at approximately the same level. At the moment in Croatia the following branch collective agreements are in force: Basic CA for Civil Servants and Employees in Public Services (Official Gazette No. 141/12 and 150/13), CA for State Civil Servants and Employees (Official Gazette No. 104/13 and 150/13), CA for the Activity of Health Care and Health Insurance (Official Gazette No. 143/13, 96/15), CA for Employees in Primary Education Institutions (Official Gazette No. 63/14), CA for Employees in Secondary Education Institutions (Official Gazette No. 72/14), CA for Social Welfare Services (Official Gazette No. 42/14), CA for Employees in Cultural Institutions Financed from the State Budget (Official Gazette No. 70/14), CA for the Wood and Paper Industry (Official Gazette No. 123/08, 55/09 and 96/13), CA for the Construction Industry (Official Gazette No.115/15,), CA for Catering (Official Gazette No. 44/15 and 121/15), CA for Travel Agencies (Official Gazette No. 94/02, 126/10 and 108/11, consolidated text 65/14), CA for Private Health Care (Official Gazette No. 150/14), CA for Croatian Seafarers on Ships in International Navigation (Official Gazette No. 94/14) and CA for Humanitarian De-Mining (not published in the Official Gazette). Two branch CAs, for the construction industry and for catering, have been extended by the labour minister s decision; they cover all employers and are applied to all workers in the activity. The minister takes a decision on the extension of a CA on the proposal of all parties to the CA and can extend its application (to persons who did not participate in its conclusion and have not joined it afterwards) if extension is in the public interest and if it is determined that the CA was concluded by trade unions with the largest number of members as well as the employers association with the largest number of workers in the field to which the CA is extended. Impact assessment is carried out by the Economic and Social Council. In Croatia the following branch collective agreements are in force: Basic CA for Civil Servants and Employees in Public Services (Official Gazette No. 141/12, 150/13 and 153/13), CA for State Civil Servants and Employees (Official Gazette No. 104/13, 150/13, 153/13 and 71/16), CA for the Activity of Health Care and Health Insurance (Official Gazette No. 143/13 and 96/15), CA for Employees in Primary Education Institutions (Official Gazette No. 63/14), CA for Employees in Secondary Education Institutions (Official Gazette No. 72/14), CA for Social Welfare Services (Official Gazette No. 42/14), CA for Employees in Cultural Institutions Financed from the State Budget (Official Gazette No. 70/14 and 51/15), CA for the Wood and Paper Industry (Official Gazette No. 123/08, 55/09 and 96/13), CA for the Construction Industry (Official Gazette No.115/15,), CA for Catering (Official Gazette No. 44/15, 121/15 and 53/16), CA for Travel Agencies (Official Gazette No. 94/02, 126/10 and 108/11, consolidated text 65/14), CA for Private Health Care (Official Gazette No. 150/14), CA for Croatian Seafarers on Ships in International Navigation (Official Gazette No. 94/15) and CA for Humanitarian De-Mining (not published in the Official Gazette). Two branch-level CAs, for the construction industry and for catering, have been extended by the labour minister s decision; they cover all employers and are applied to all workers in these activities. The minister takes a decision on the extension of a CA on the proposal of all parties to the CA and can extend its application (to persons who did not participate in its conclusion and have not joined it afterwards) if extension is in the public interest and if it is determined that the CA was concluded by trade unions with the largest number of members as well as the employers association with the largest number of workers in the field to which the CA is extended. Impact assessment is carried out by the Economic and Social Council. Most of the public companies have signed collective agreements, for example: HEP group (national electricity company, Official Gazette No. 69/16), Hrvatske autoceste d.o.o. (Croatian Motorways; Official Gazette No. 60/14), Hrvatske autoceste održavanje i naplata cestarine d.o.o. (Croatian Motorways Maintenance and Tolling, Official Gazette 85/14), Hrvatska lutrija d.o.o. (Croatian Lottery; Official Gazette No. 133/14), CA for Water Management (Official Gazette No. 88/03, 118/06, 89/09 10/11 and 6/14), ACI d.d., Janaf d.d., Odašiljači i veze d.o.o. (Official Gazette No. 13/13), companies linked to the Croatian Railways have several CAs: Passenger Transport, Cargo, Infrastructure, Train Traction, and CAs have also been negotiated for Croatian Post, Croatian Forests, Croatia Airlines, and others. In the sectors of agriculture, fisheries, food industry, energy, chemical and pharmaceutical industries, in information and communication, finance and insurance, as well as in a number of others there are no branch CAs, only company level CAs. At the same time, in the fields that have branch CAs, a number of company CAs have also been concluded (e.g. in the field of the construction industry, beside the extended branch CA there are more than 30 company CAs in force). In the activities of agriculture, fisheries, the food industry, energy, the chemical and pharmaceutical industries, in information and communication, finance and insurance, as well as in a number of others there are no branch CAs, only company level CAs. At the same time, in the fields which have branch CAs, a number of company CAs have also been concluded (e.g. in the field of the construction industry, beside the extended branch CA there are more than 30 company CAs in force).

29 Joint industriall European Trade Union EFFAT project: Strengthening the industrial trade unions role in South East Europe in shaping the industrial policy agenda in the light of the objectives of Europe 2020 (VS/2015/0238) Industrial Policy in Croatia SWOT Analysis Industrial Sectors Analysis This chapter presents main facts on manufacturing industries like: tourism, metal, non-metal: chemistry, pharmaceutics, wood product, paper and cellulose and construction materials, textile, food and drinks production and energy, - actual data, historical charts and forecasts of their production, employment, investments, foreign trade results. The picture for Croatia reflects the more close nature of its economy, but also the relative strength of its production base in some primary sectors (agriculture, fishing, forestry and extractive industries). These translate in a much larger share of exports that are not integrated in GVC. It is also interesting to note that the share of integrated exporting industries is concentrated in the intermediate stages of production. In a period of 10 years Croatia appears to have moved towards a higher degree of integration. The share of exports not featuring any integration dropped from 46 to 37% - also due to the collapse in exports of the shipping industry. The share of exports integrated in GVC increased by almost 15%, mainly due to an expansion of exports in the first stage of supply chain (especially machinery and equipment and electrical machinery and apparatus). In the intermediate stages the core of exports are represented by fabricated metal products except machinery and equipment and other non-metallic mineral products. Also pulp, paper products, and publishing remained in the final stage of the supply chain, while the industry of fabricated metal products moved up from intermediate stage towards the final stage of integration. Whereas the value of exports in the final stage of integration increased, the share decreased due to the more sustained increase of exports in other stages of integration. Croatia has realized the biggest share of value added in manufacturing food, beverages and tobacco - 26 percent, coke, chemicals, rubber - 20 percent, metal and metal products - 14 percent, computer electric goods - 8 percent, and vehicles - 6 percent. The change of GVA by manufacturing sectors from is shown in the graph blow. Source: Eurostat Source: Eurostat

30 30 Source: EU Commission Legend: Debt is distributed in risk levels. Coloured histograms represent the share of debt of private corporations and SOEs ( Non-coloured) Debt in each sector and year is normalized with respect to total debt. Industrial Sectors: A - Agriculture, forestry and fishing; B - Mining and quarrying; C Manufacturing; D - Electricity, gas, steam and air conditioning supply; E - Water supply; sewerage, waste management and remediation activities; I - Accommodation and food service activities; 4.1. Tourism Policies and programmes. Tourism is the industrial sector which is covered by specific Strategy as the main vertical sectorial industrial policy development tool. The three main goals of Croatia s National Strategic Reference Framework are to encourage faster economic growth that is based on the integration of the market and institutional reforms, to generate higher employment levels and to promote sustainable development. The Croatian Tourism Development Strategy sets out the further main priorities for Tourism: Improving the quality of accommodation and seeking diversification of the offer through themes, Developing new attractions with a potential to attract regional and international demand, Branding of the national and regional food offer, Creating modern visitor centers at key attractions, and Incentivizing the development of cultural themed routes. The Strategy seeks EUR 7 billion in new investments in tourism by 2020 with the focus on hotels that can attract tourist outside the summer months, bring more and longer employment and more income to the local economy. The Ministry has supported public infrastructure development with grants from the Tourism Development Fund allocated to public agencies/institutions. The Ministry has also provided financial support for SME development, with grants aimed at small businesses, rural homesteads and private individuals. The main aim is to increase the attractiveness and competitiveness of tourism by Croatia is also seeking to exploit off-peak spare capacity and develop the potential of interior regions based on the quality of the natural and cultural resources. Other goals for Croatian tourism policy are to improve the infrastructure and quality of accommodation, create new employment in the sector, encourage new investments and increase tourism expenditure. The main policy responses and initiatives underway or planned to achieve progress towards the above objectives are: Diversification. Various programmes are conducted by the Ministry and CNTB to support diversification of the tourism offer, including support for cultural, gastronomic and sport events, tourist attractions, innovative tourism products, thematic parks and cycling routes, Destination management. Croatia365 involves 40 destinations and involves the development of an attractive and competitive value-added destination offer in pre and post-season. The CNTB financially supported nine destination tourism agencies to develop special packages consisting of transport, accommodation and other tourist services targeted at special interest markets like eco, cultural, gastro and sports tourism, ICT. The Ministry supported free internet access in tourism destinations with the aim of improving competitiveness, stimulating tourism expenditure through better, more accessible information, stimulating e-marketing and e-sale of the Croatian tourism offer and supporting the promotion of tourism destinations, Education and skills in tourism. The Ministry co-financed 23 projects including scholarships in vocational and art schools in 2014 to promote vocational tourism careers. The programme also sought to motivate young people to consider careers in tourism and hospitality and to enhance connections between educational institutions and businesses, Combatting seasonality. The Ministry and CTNB have launched Project Croatia 365 with the aim of attracting tourists to the country all year round. Twenty two destinations were chosen for the pilot project. The project has six focal themes to attract tourists in the low season: culture, gastronomy and wine, active tourism, bike tourism, health and wellness and business tourism, Improving access. The Action Plan on Social Tourism/ Tourism for All involves activating the national hostel network, constructing a social tourism database, launching a web site with relevant offers, developing a national programme of leisure vouchers and organizing a public awareness campaign on the importance of social tourism Improving the quality of the tourism offer. The Innovative Tourism programme involves new product development and improvement of tourism and hospitality services. The Ministry has financially supported the development of visitor centers situated at key tourism locations, Economic crisis and recovery. In 2013, the Government called for expressions of interest for the establishment of the right to build and use property in the Kupari, the former military resort close to Dubrovnik. The complex consists of five hotels (1 626 beds) which have not been in use since the early 1990s, Visas. Croatia s visa policy was harmonized with that of the European Union in 2013 and efforts have been made

31 31 to ease visa procedures. Measures include allowing holders of valid Schengen documents entry and short-term stay in Croatia without obtaining an additional Croatian visa. Tourism is, according the results and growing share in GDP, a major economic activity with wide-ranging impact on economic growth, employment, and social development. It can be a powerful tool in fighting economic decline and unemployment, but the sector faces a series of challenges. The Croatian s competence in the tourism sector is still not the one to support and coordination the actions. The main challenges are: security and safety - environmental, political, and social security; safety of food and accommodation; and socio-cultural sustainability threats economic competitiveness - seasonality, regulatory and administrative burdens; tourism related taxation; difficulty of finding and keeping skilled staff technological keeping up to date with IT developments caused by the globalization of information and advances in technology (IT tools for booking holidays, social media providing advice on tourism services, etc.) markets and competition - growing demand for customized experiences, new products, growing competition from other EU destinations. Four priorities for action were identified: To stimulate competitiveness in the Croatian tourism sector To promote the development of sustainable, responsible, and high-quality tourism To consolidate Croatia s image as a collection of sustainable, high-quality destinations To maximize the potential of financial policies for developing Croatian tourism. The expansion of tourism has both a direct and indirect impact on the environment, where the Strategy plans total investment of around EUR 7 billion by 2020 and the potential to employ around people. It is estimated that eco-tourism will grow annually between 10 % and 20 %. The intrinsic link between the environment and tourism was highlighted in the Partnership Agreement for the use of European Structural and Investment Funds which included a specific objective on increasing attractiveness, educational capacity and sustainable management of natural heritage sites. TUs in the tourism sector are very interested in the involvement in the implementation of rolling plan as part of the strategy, in collaboration with public authorities, tourism associations and other public/private tourism stakeholders, focusing on the following priorities: Long term, stabile and supportive labor policies, tax and financial instruments in the sector, motivated for the young people, women, family businesses and self-employment help small businesses in the tourism sector to increase the responsiveness of education and training to labour market needs and help entrepreneurs gain the necessary skills to manage their businesses. Great sessional character of the jobs in tourism, temporality of the work in the sector for TUs role in the bargaining the most favorable working conditions for workers make new challenges, TUs in tourism sector have concluded CA for touristic agencies, and for Hospitality, so increasing CA in the sector is important task. Also, the improvement of the attractiveness of TUs membership for the employees in small businesses, young workers, and creative support of modernizing the industry through: Increasing tourism demand, from within the Croatia and beyond, Improving the range of tourism products and services on offer, Enhancing tourism quality, sustainability, accessibility, skills, and ICT use. The industry needs to continuously improve the quality and mobility of its staff in order to provide top quality, personalized services to all tourists. Enhancing the socio-economic knowledge base of the sector, and Mainstreaming tourism in other country policies. Travel & Tourism s impact on the economic and social development of a country can be enormous - opening it up for business, trade and capital investment, creating jobs and entrepreneurialism for the workforce and protecting heritage and cultural values. WTTC organization has involved new ways of measuring the impact of tourism industry and services on the wealth and GDP of a country. The tourism effects are measured according to their positive or negative impact on GDP, employment, exports. Tourism impacts directly and contributes to: GDP: Direct contribution. The direct contribution of Travel & Tourism to GDP was HRK 35,876.5 million (12.5% of total GDP) in 2014, and it is forecasted to rise by 3.7% in 2015, and to rise by 4.5% pa from , to HRK 57,924.6 million (16.8% of total GDP) in GDP: Total contribution: The total contribution of Travel & Tourism to GDP was HRK 80,982.2 million (28.3% of GDP) in 2014, and it is forecast to rise by 2.2% in 2015, and to rise by 4.2% pa to HRK 124,787.0 million (36.2% of GDP) in Employment: Direct contribution. In 2014 Travel & Tourism directly supported 139,500 jobs (13.6% of total employment). This is expected to rise by 4.0% in 2015 and rise by 1.8% pa to 173,000 jobs (16.3% of total employment) in Employment: Total contribution. In 2014, the total contribution of Travel & Tourism to employment, including indirect jobs, generated HRK 65,785.1 million (43.7% of total exports). This is forecasted to grow by 7.6% in 2015, and grow by 4.6% pa from , to HRK 111,138.0 million in 2025 (48.3% of total). Visitors Exports. Travel & Tourism investment in 2014 was HRK 6,198.1 million, or 10.2% of total investment. It should rise by 0.3% in 2015, and rise by 2.2% percent over the next ten years to HRK 7,730.6 million in 2025 (10.4% of total). Investment. Travel & Tourism investment in 2014 was HRK 6,198.1 million, or 10.2% of total investment. It should rise by 0.3% in 2015, and rise by 2.2% pa over the next ten years to HRK 7,730.6 million in 2025 (10.4% of total). The table below presents ranks of Croatia on given criteria. Relative importance of Travel & Tourism s total contribution to GDP of Croatia, 2104 Source: WTTC

32 32 Total Contribution of Travel & Tourism to GDP Source. WTTC Breakdown of Travel & Tourism s Total Contribution to GDP and Employment 2014 Direct contribution to GDP. The direct contribution of Travel & Tourism to GDP reflects the internal spending on Travel & Tourism (total spending within a particular country on Travel & Tourism by residents and non-residents, for business and leisure purposes) as well as government individual spending - spending by government on Travel & Tourism services directly linked to visitors, such as cultural (e.g. museums) or recreational (e.g. national parks). The direct contribution of Travel & Tourism to GDP is calculated to be consistent with the output, as expressed in National Accounting of tourism-characteristic sectors such as hotels, airlines, airports, travel agents and leisure and recreation services that deal directly with tourists. The direct contribution of Travel & Tourism to GDP is calculated from total internal spending by netting out the purchases made by the different tourism industries. The total contribution of Travel & Tourism includes wider impacts (i.e. the indirect and induced impacts) on the economy. The indirect contribution includes the GDP and jobs supported by: Travel & Tourism investment spending an important aspect of both current and future activity that includes investment activity such as the purchase of new aircraft and construction of new hotels. Government collective spending helps Travel & Tourism activity in many different ways as it is made on behalf of the community at large e.g. tourism marketing and promotion, aviation, administration, security services, resort area security services, resort area sanitation services, etc.; domestic purchases of goods and services by the sectors dealing directly with tourists - including, for example, purchases of food and cleaning services by hotels, of fuel and catering services by airlines, and IT services by travel agents. The induced contribution measures the GDP and jobs supported by the spending of those who are directly or indirectly employed by the Travel & Tourism sector. The direct contribution of Travel & Tourism to GDP in 2014 was HRK 35,876.5 million (12.5% of GDP). This is forecasted to rise by 3.7% to HRK 37,211.3 million in This primarily reflects the economic activity generated by industries such as hotels, travel agents, airlines and other passenger transportation services (excluding commuter services). But it also includes, for example, the activities of the restaurant and leisure industries directly supported The direct contribution of Travel & Tourism to GDP is expected to grow by 4.5% pa to HRK 57,924.6 million (16.8% of GDP) by The total contribution of Travel & Tourism to GDP (including wider effects from investment, the supply chain and induced income impacts) was HRK 80,982.2 million in 2014 (28.3% of GDP) and is expected to grow by 2.2% to HRK 82,774.3 million (28.6% of GDP) in It is forecasted to rise by 4.2% pa to HRK 124,787.0 million by 2025 (36.2% of GDP). CROATIA: DIRECT CONTRIBUTION OF TRAVEL & TOURISM TO GDP Source. WTTC Source: WTTC 2015 CROATIA: TOTAL CONTRIBUTION OF TRAVEL & TOURISM TO GDP Source: WTTC 2015 Different components of Travel & Tourism Source. WTTC

33 33 - Leisure travel spending (inbound and domestic) generated 92.6% of direct Travel & Tourism GDP in 2014 (HRK 71,107.8 million) compared with 7.4% for business travel spending (HRK 5,644.1 million); - Leisure travel spending is expected to grow by 6.7% in 2015 to HRK 75,891.8 million, and rise by 4.3% pa to HRK 115,975.0 million in 2025; - Business travel spending is expected to grow by 2.9% in 2015 to HRK 5,809.6 million, and rise by 3.6% pa to HRK 8,259.5 million in exports) is a key component of the direct contribution of Travel & Tourism. In 2014, Croatia generated HRK 65,785.1 million in visitor exports. In 2015, this is expected to grow by 7.6%, and the country is expected to attract 12,397,000 international tourist arrivals. By 2025, international tourist arrivals are forecasted to total 22,606,000, generating expenditure of HRK 111,138.0 million, an increase of 4.6% pa. Constant 2014 HRK Foreign visitor exports as % of total exports Travel & Tourism is expected to have attracted capital investment of HRK 6,198.1 million in This is expected to rise by 0.3% in 2015, and rise by 2.2% pa over the next ten years to HRK 7,730.6 million in Travel & Tourism s share of total national investment will rise from 10.2% in 2015 to 10.4% in CROATIA: VISITOR EXPORTS AND INTERNATIONAL TOURIST ARRIVALS Source. WTTC - Domestic travel spending generated 14.3% of direct Travel & Tourism GDP in 2014 compared with 85.7% for visitor exports (i.e. foreign visitor spending or international tourism receipts); - Domestic travel spending is expected to fall by 0.6% in 2015 to HRK 10,903.0 million, and rise by 1.9% pa to HRK 13,096.9 million in 2025; - Visitor exports are expected to grow by 7.6% in 2015 to HRK 70,798.4 million, and rise by 4.6% pa to HRK 111,138.0 million in Source. WTTC Country rankings: Absolute contribution, 2014 The tables below provide brief extracts from the full WTTC Country League Table Rankings, highlighting comparisons with competing destinations as well as with the world and regional average. The competing destinations selected are those that offer a similar tourism product and compete for tourists from the same set of origin markets. These tend to be, but are not exclusively, geographical neighbors. Source. WTTC Visitor Exports and Investment The total contribution of Travel & Tourism to GDP is twice as large as its direct contribution, while indirect is the sum of: a) Supply chain, 30.3% b) Investment, 7.1% c) Government collective, 8% Visitor Exports and Investment Money spent by foreign visitors to a country (or visitor

34 34 Source: WTTC & The economic contribution of Travel & Tourism: Growth Summary tables: Estimates & Forecasts Looking to the visitors exports - it can be seen, that this impact on growth of the sector and country in 2009 was negative by -17.2%, while in all other years it was positive, so in 2010 it was 11.3 percent, 2011 (0.0%), 2012 (-8.7%), in 2013 (-0.6%), 2014 (4.9%), in 2015 (7.6), and the estimated impact in 2020 is 4.6%. From the aspect of domestic expenditure, including government individual spending, the impact in 2009 was negative, by -8.8, in other years it was: in 2010 (0.4 percent), 2011 (-0.6%), in %), 2013 (-0.8%), 2014 (0.2%), in 2015 (0.6%), and the estimated impact in 2020 of 1.9%. From the aspect of internal tourism consumption, the impact in 2009 was negative by -15.8, in other years it was: in 2010 (9.3 percent), 2011 (-0.1%), in 2012 (6.5%), 2013 (-0.4%), 2014 (4.2%), in 2015 (6.4%), and the estimated impact in 2020 of 4.3%. From the aspect of purchases by tourism providers, including imported goods (supply chain) the impact was: in 2009 negative by -15.7, in other years it was: in 2010 (10.2 percent), 2011 (1.1%), in 2012 (8.7%), 2013 (-0.5%), 2014 (4.4%), in 2015 (4.5%), and the estimated impact in 2020 of 4.3%. Source: WTTC & The economic contribution of Travel & Tourism: Growth From the aspect of other final impacts, indirect and induced (domestic supply chain) the impact in 2009 was negative by -15.8%, in other years it was: in 2010 (8.4 percent), 2011 (-1.2%), in 2012 (4.2%), 2013 (-0.3%), 2014 (3.9%), in 2015 (3.7%), and it is estimated to 4.4% in 2020.

35 35 From the aspect of imported goods from indirect spending the impact in 2009 was negative by -15.8%, in other years it was: in 2010 (8.4 percent), 2011 (-1.2%), in 2012 (4.2%), 2013 (-0.3%), 2014 (3.9%), in 2015 (3.7%), and it has been estimated to 4.4% impact in There are other impacts detailed by years in the table on the: capital investment, government collective spending, imported goods from indirect spending, induced, total contribution of travel and tourism to GDP, direct contribution to employment, expenditures on outbound travel. SWOT TOURISM STRENGTHS - The natural beauty of the Croatian landscape is the main driver of its competitiveness as a tourism destination, the Croatia s natural heritage makes it a very attractive tourist destination - Increasing the share of the tourism sector in GDP in the Croatian economy shows that tourism is one of most important sectors of the Croatian economy. - With an annual average of 87,831 employed persons in 2015, the sector accounts in the total employment of the Croatian economy of 6.6 percent - The link between imports and exports is relatively high. Import elasticity with respect to domestic income and relative prices are typically used as measures of import dependence. - Imports of goods are mainly linked to export of services, i.e. Tourism - Elasticity of imports with respect to domestic consumption is relatively high only in the short term, whereas in the long run imports are not needed to satisfy domestic consumption. This implies that domestic producers are able to satisfy a permanent increase in consumption levels, whereas temporary increases and seasonal peaks generated by tourists tend to be addressed through higher imports240,000 employees in Capacities, arrivals of tourists and investments in tourism and infrastructure - Great Impact on growth of: GDP, employment, consumption, quality of life, fiscal revenues and visitors export WEAKNESSES - Croatia has been struggling to improve the quality of its tourism sector - Compared with the massive surge in the number of nights spent in tourist accommodations, the increase in tourism revenues has been relatively modest, suggesting that increases in volumes are being achieved by lowering the average price of the services and wages - Croatian tourism is luck of around workers for the touristic season 2017, who (with problems of working permits, temporal working contracts and labor legislation for the whole year are permanent challenges - the quality of services ranks poorly vis-à-vis its competitors. - The weaknesses of the tourism industry include outdated products and tourist infrastructure, leading to high seasonality and limited value added of tourism services. - The high import dependence of the Croatian economy is explained by the strong link between imports of goods and tourism. - 50,000 employees lost. - Apartmanization of hospitality industry. - Seasonal character of tourism. - A very popular new type of tourism not developed. - Human resources permanent problem. - Lack of refinancing of entrepreneurs in tourism. TUs involvement in bipartite, tripartite agreements, working groups, strategies concerning industrial policy formulation and implementation - Joint work in in Social Economic Council in 3 working groups on new legislation, strategies, policy paper. - In the preparation of the development strategy TU have been engaged. The representative TU financed the development of sectoral studies in particular stressing the need for creation of comparable labor standards that would encourage the competitiveness of Croatian tourism on the world market. - Low on flexible patterns of work in Tourism. - Branch CAs, as well as General Collective Agreement. - CA basic for catering. - CA for travel agencies. - CA for seafarers on ships in international navigation. - DUCA price for education. - Privatization (70% of employees leave after the process). - Decline in TU membership people less.

36 36 - With the government to adopt a law on financing of seasonal workers in tourism throughout the year, the contributions to wage issues. - The best SD in Croatia. - Good cooperation with the sectorial BTSDs employer. - Project Fair Hotels with Trade Unions as partners - 5,123 union members in employees in TUs secretariat OPPORTUNITIES - Grants, vertical and horizontal connections with local suppliers, clustering and networking with creative and food industries. - Croatia is a tourist destination with great potential, with also a large number of potential tourists, which should attract and meet with tourist offer (Physical indicators of tourist season through September 2016 suggest on another year of strong growth in the tourism sector of Croatia, it is expected that this year the foreign exchange revenues from Tourism could surpass the record 2015 year). A recent recessionary trends in Croatia is almost not leave mark on the tourism sector. Croatian tourism sector is followed and in year global trends increase physical and financial indicators has demonstrated the ability of faster recovery compared with the rest economy. THREATS - Under the proposed tax reform since the beginning of 2017 reduced VAT rate of 13 percent would not apply to services in the hospitality industry, but to the beginning of 2017.Since the beginning of 2018 this tax system would raise to the threshold for compulsory entry in the VAT system with the current 230 to 300 thousand. A proposed change in the system of income tax would cause important changes for small and medium entrepreneurs and farmers. The measures proposed for tourism in the area of VAT is considered inappropriate for the tourism industry by TUs and Association of restaurateurs and hoteliers. Threat is the negative result of raising rates, and possible drop in investment in tourism in the amount of about 12 billion HRK in the next three years., the closure of capacities and the loss of more than 10,000 jobs in - Hospitality and the growth of the gray zone. - Terrorism threatening s - Lack of financial resources. - Political risk. - Inferable labor legislation and fiscal policies CHALLENGES - Increase the financial results of the busineses in the sector, and attract more start up s, family and FDI investments (The main features of leading tourist companies are increase revenue and business profit. Total revenue ten leading companies in this sector in 2015 amounted to 5.2 billion and were higher by 11.1 percent compared to the previous year. - Increse the market capitalisation of the sector (The tourism sector accounts for a significant share of the total market capitalization and the total turnover on the Zagreb Stock Exchange percent market capitalization and 14.6 percent of total turnover of the Zagreb Stock Exchange in 2015). - Global and regional positive trends impact to domestic market (The tourism sector was in 2015 at the global level recorded above-average growth rates. Number of foreign tourist arrivals in year reached a figure of 1.2 billion, which represents an increase of 4.6 percent compared to 2014,a nd Tourism in the European Union (EU-28) increased with the most popular tourist destination for non-residents in Spain, amounting to 260 million foreign tourists, followed by Italy with 187 million nights and France with 131 million overnight) - Increasing the value added of the tourism sector will require significant private and public investment. - Scaling-up the quality of services will involve significant structural changes, but also a change in the target group, moving away from large-group-based, seasonal, price-conscious tourists to value-conscious smaller groups and families seeking higher quality. - Development of eco-tourism, continental, health, enology tourism, cultural, sport, medical, dental. - EU Funds. - EU Market. - Joint planed destinations with neighboring countries and regions - Cluster development and interconnections with other industries

37 4.2. The Metal, shipbuilding, electro and mining The metal sector in broader sense includes further industries: - Steel, steelworks, rolling mills Zelezara Split, Sisak and 12 small rolling mills connected to the production, ferrous metals, aluminum (TLM), metal products, shipbuilding; - Electro engineering, electro industry (large companies, (brands Koncar, ELKA, RIZ), ICT industry and services and telecommunications; and - Other transport services - shipbuilding (4 large shipyards in the course of privatization, a small shipyard was privatized, a large number of cooperative subcontractors). Metal sector passed through a very difficult period, through which the crisis closed a large number of businesses and significantly reduced the number of workers. Problems in Split and Sisak had negative spillover effects due to which many of their partner companies and subcontractors were closed. In the metal sector there were around 80 thousand employed in The next table shows permanent decrease of employment from the 90 thousand employees in In 2012, there were around 240 hindered companies in metal manufacturing (17.6% of the total industry). Croatia Number of Employed in metal sector (2000=100) No. of employed Source: DZS-RH In metal production, the key production resource is metal ore. Difficult access to resources is certainly one of the problems this sector faces, as well as the volatility of energy prices. The largest share of the employees works in the field of metal casting. In Croatia more than 3,445 (2013) companies operate in the metal industry (24 large, 120 medium size and 3630 small companies). There have been employed people in the sector in 2013, about less than Croatia produced a limited number of mineral commodities; petroleum extraction and refining are the major economic activities of the mineral industry. Production of metals is limited to aluminum alloys and steel. The production of aluminum alloys has been changing in the past few years and in 2013 there has been a decrease of 23% compared to the previous year. When looking at semi manufactures, there has been a total increase of 20%.The average gross salary is 1,151 (2014). The share of the metal industry in total exports is 3.5%. Approximately 10% of the total added value and sales of the manufacturing industry is realized in the metal industry. However, over the past few years the production of steel in Croatia has experienced a decline. There was a decline in production of 29.6% while the world average is an increase of 0.1% compared to last year. World Steel Association has 65 member countries and makes up 98% of the world s steel production. The total amount of steel produced was 131 million tons of steel. In Croatia the Krapina-Zagorje region is the leader in the production of metal. In 2012 revenues amounted to 116 million kuna and the employment rates are very high (9.7% higher than the Croatian average). 37 The most important products of engineering industry are steel pipes, rolled and drawn wire, aluminum products, castings of gray iron, ductile iron, steel, copper, aluminum and other types of irons, metal structures, radiators, steam boilers and tools. Steel Production in Croatia remained unchanged at 0.01 (thousand tons) in July from 0.01 (thousand tons) in June of Steel production in Croatia averaged 6.20 (thousand tons) from 1993 until 2016, reaching an all-time high of 23 (thousand tons) in September of 2014.Steel increased 0.60 percent in July of 2016 over the same month in the previous year. Mining production in Croatia averaged percent from 1999 until 2016, reaching an all-time high of 37 percent in June of 2002 and a record low of percent in February of Steel Production Actual Previous Highest Lowest Dates Unit Frequency Source: World Steel Association Source: World Steel Association Thousand Tonnes Monthly Volume, NSA Metal casting employs more than 50% of the workforce. Overall business activity is fragmented due to the large number of SMEs, but at the same time more flexible. Manufacture of fabricated metal products, except machinery and equipment includes: production of metal structures, tanks, reservoirs and containers, steam generators, except central heating hot water, production of arms and ammunition, forging, pressing, stamping and roll forming, powder metallurgy, treatment and coating of metals, machining of metals, manufacture of cutlery, tools and general hardware and manufacturing of other fabricated metal products. Production of metal transforms metal into intermediate or end products for the automotive industry, building industry, other, as well as for final Consumer. The largest revenue share of the activity of the production of metal from treatment and coating of metals, metal machining, the sub-sectors of which employ more than 50% of the entire sector. Sub-sectors focused on mechanical engineering, household

38 38 appliances and metal products were positively affected by the demand for the metal in the EU countries, while a drop in demand is expected in the production of cars and metal structures. The metal sector activity is capital intensive and requires expensive and complex investment, high-quality workforce, favorable access to energy and raw materials. Although a large number of companies apply modern technology in production, they still lag behind in technology. The largest relative decline in employment happened in the period and occurred in mining and excavation. Croatia Mining Production Actual Previous Highest Lowest Dates Unit Frequency percent Monthly 2010=100, WDA Source: CROSTAT Source: CROSTAT Croatia Mining Production Mining production in Croatia increased 0.60 percent in July of 2016 over the same month in the previous year. Mining production in Croatia averaged percent from 1999 until 2016, reaching an all-time high of 37 percent in June of 2002 and a record low of percent in February of Croatian manufacture of computer, electronic and optical products includes the following activities: production of electronic components and boards, computers and peripheral equipment, communications equipment, electronic devices for consumers, manufacturing of instruments and appliances for measuring, testing and navigation, watches production, manufacturing of irradiation, electro medical and electrotherapeutic equipment, manufacturing of optical instruments and photographic equipment and manufacturing of magnetic and optical media. The observed industrial activities include manufacture and assembly of electronic products used in personal, specialized and military purposes. The products are further used for other industrial activities. The sophisticated equipment and highly educated specialists form the basis for premium innovative products in this sub-sector. The manufacture of computers, electronic and optical products in 2012 employed around 6 thousands of people in 500 companies. Most of the employees 40% work in the manufacture of communication equipment, in the manufacture of computers and peripheral equipment (25%) and in the manufacture of electronic components and boards (20%). The capital in this industry is mostly local. 15 companies of the sector created 80% of revenues (Ericsson Nikola Tesla with 30% of total revenue activities (2012) and M SAN Group JSC, with a share of 23% of total revenue activities). Some business statistics would show that the profitability in this sub-sector is positive and growing, but foreign trade is unfavorable and with negative trade balance, while liquidity appears to be good. Manufacture of computers, electronic and optical products, as well as the area of information and communication is characterized by the new technologies, rapid changes in the market, continuing training, as well as organizational and production flexibility. Highly specialized products of this sub-sector have been developed in Croatia on the basis of domestic knowledge. The manufacture of electrical equipment in Croatia includes the production of: electric motors, generators, transformers and electricity distribution and control apparatus, batteries and accumulators, wires and wiring devices, electrical lighting equipment, household appliances and other electrical equipment production. The power cables segment was the leading one on the market. About 40% of the activities are done by foreign capital and by 60% local. 20 enterprises are providing 80% of total revenues. Production of electrical equipment in Croatia is characterized by high growth potential due to increasing energy consumption in the world. Production is mainly located in Croatia. Most of the raw materials for production such as copper, iron and aluminum are imported. Production of machinery and equipment includes the manufacture of: general-purpose machinery, agricultural and forestry machinery, metalworking and machine tools and production of other special purpose. The financial result of these activities is positive, where increased exports of 40% (in 2012) are most responsible for the increased revenues. The profitability of these activities was positive. Production of motor vehicles, trailers and semi-trailers in the period shows a steady decline in the number of employees. There were 80 firms (the largest- Duro Dakovic Special Vehicles Inc., Plastik Inc. and PPC Buzet Ltd.), the largest number of which was involved in production of parts and accessories for motor vehicles. The number of employees in 2012 was around 3 thousand. According to the structure of capital, 70% of it is of foreign origin. This sub-sector demonstrated high growth rate of total income and expenses, large increase in business activities and a positive net operating result. The share of exports in total income decreased, while the share of imports in total income increased. Manufacture of parts and accessories for motor vehicles accounted for around 80% of total exports and around 50% of the total import activities. Shipbuilding (industry of keen industrial interest) production of boats, railway locomotives and rail vehicles, aircraft and spacecraft and related transport equipment, production of combat vehicles contributed to the production of intermediate goods used in other industries and end products for corporate customers. Croatian shipbuilding industry has a tradition and recommendations, and shipyards are mostly focused on the production of ships for the transportation of liquid and bulk cargo ships, for the transportation of dry cargo ships, for the transportation of cars and others, while the medium-sized shipyards are mainly engaged in the construction and repair of ships coastal navigation. In companies were operating within the sub-sector (the largest ones are Brodosplit shipyard, Shipbuilding industry May 3, joint-stock company; Uljanik Shipyard Inc.). Most firms are functioning in construction of ships and boats. The number of employees in these companies amounted to around 12 thousand. There is permanent lack of employees with the specific skills and high competition for specific profiles. The Croatian maritime cluster is comprised of the traditional shipbuilding industry (large ships) and the smaller, recently emerged boatbuilding industry (small and medium size boats). The historical legacy

39 39 of a controlled economy left shipbuilding dominated by six large companies with significant in-house capacities producing mainly peripheral items. Al-though ship-repair seems to be an important part of the business, annual reports of shipbuilders show that Croatia is currently focusing on new ships and moving away from ship-repair. Nevertheless, this evolution could be due to industry cycles demand for new ships has been exceptionally strong over the last few years while demand for ship-repair may increase in the future due to the global economic downturn (OECD, 2008 II). Croatia has an order book of approximately 1.2 million Dead Weight Ton (DWT) for delivery in 2008 through 2011, comprised predominantly of oil tankers, bulkers, car-ferries and specialized gas-platforms. In addition to the domestic market, the final destinations for Croatian built ships are Singapore, Italy, Germany, Canada, China, as well as a number of international oil-shipping lines flying flags of convenience. In aiming for the market for more sophisticated vessels, Croatian ship-building is competing against other European shipbuilders. Approximately 5% 8% of the revenues of Croatian shipbuilding companies are subsidies, the government is willing to cover some of shipbuilders operational costs until the privatization so it controls the process and deals with the labor union issues. Subsidies and government financing for shipbuilding have been common historical practices, the EU has recently established rules on state interference in shipbuilding and EU rules of accession require Croatia to comply with those. This leads to substantial changes in the form of state support to the ship building industry. Therefore the question arises whether Croatian shipbuilders can achieve competitive levels of productivity while reducing dependence on state support. Suppliers: The long history of building ships has created a large and complex sector of specialized suppliers, namely: engine manufacturers; specialized painting and coatings; specialized hydraulics and fittings; electrical and electronic equipment; etc. The specialized suppliers provide roughly 6,500 jobs. Related Industries and Clusters: Croatia has 1,800 companies with some 26,000 employees in non-tourism related industries, partially supplying the shipbuilding cluster. On the supply side, the automotive and metal processing clusters provide the common ground of shared technologies used in both clusters. On the demand side, the massive tourism cluster is the main driver for the emerging boat building industry, creating a vigorous demand for smaller cross-island ferries as well as a sophisticated demand for yachts, sail boats and other pleasure craft. Government Agencies and Trade Unions: Overall, the cluster map is quite complete and includes several institutions of collaboration as well as government agencies specific to the cluster. TUs have insisted that future owners continue the activities of the shipyards and commit to retaining current employees, as well have straggled to protect workers rights, wages, the improvement of workers competences and the interest of workers in TUs membership. IFC and Universities: Access to cluster specific education in Croatia is good. There are two major institutions providing an up to date education in ship and boatbuilding, the University of Engineering and Boatbuilding in Zagreb and the University of Boatbuilding in Split. SWOT METAL STRENGTHS WEAKNESSES General for the sectorgeneral for the sector - The restructuring process in Croatia is completed - Workforce available - Resources available - The ability to manufacture to special orders - The availability of imported components at reasonable prices - High energy prices obstacle for competitive prices of metal sector (electricity) - Technological level in the industry varies from poor to very good, depending on the activity of enterprises - High dependence on imports of raw materials - Lack of respect for the provisions of the Law on the Preservation and Protection of the Environment, environmental standards implementation, customs regulations - The growing shortage of skilled workers, migrations to EU countries - Less available capital for further technological equipping, equity less available

40 40 - Small expenditures for research and development - Partly outdated technology Group 1: Steel, steelworks, rolling mills, ferrous metals-aluminum, metal products - Installed capacities efficient - Small ironworks are exclusively linked to larger companies as a complement to their production programs - Aluminum sub-sector is the biggest, but also the only one in Croatia - Metal products are present in all industrial supply chains, having a key role in the production of metal products, and are important parts of many other industries. Intermediate goods used in other industries. - Flexible production of small batches - A large percentage of highly specialized small and medium-sized enterprises privately owned - High skilled and educated workforce for current production processes - Electro sector. Good business results in this industry - Casting of metals - manufacture of machinery products which are intended for investment spending - Demand for products depends on general economic activity and investment - Net export activity is increasing from year to year with a significantly higher growth rate of exports than imports. - All sub-sectors have a comparative advantage and the constant increase in production - Very good technological level of installed equipment - The electro industry is technologically intensive and requires a high level of technological equipment. - Relatively high investment in research and development. - No significant legislative restrictions. - Dependence on suppliers and imports (e.g. the old iron ore, and other products imported) - Manufacturing machines - Application of standards and strict quality control slow implementation - Workforce inappropriate - necessary knowledge and skills improvement - Equity harder accessible - Small expenditures for research and development Group 2: Ship building and other types of transport - Boatbuilding benefited greatly from the spin-off of peripheral activities of the large state-owned shipyards. - The boatbuilding industry was able to take advantage of the economic development and the growth of the strong tourism cluster. This has created a strong and sophisticated domestic demand. - Export potential, import to export ratio significantly changed in favor of exports, and in 2012 this activity generated four times more exports than imports - Resources available - These are the end products mostly for foreign corporate customers (except in the case of boats and small vessels) - Relatively small dependence on imports. - Lack of special orders for shipbuilding - uncompetitive prices in shipbuilding - Shipbuilding subsidies, dictate prices - Cyclic production output depending on pre-investments - Luck of finance for staff training - Insufficient technological equipment - The labor supply (fitters, welders, technicians, and marine pipe workers in shipbuilding and mechanical engineering) is not satisfactory in terms of the necessary knowledge and skills, which is why companies have to invest additional funds. - Permanent luck of labour force, great migrations - there had been a strong influence of monetary and non-monetary government intervention in the business accomplishments of individual enterprises, which significantly altered the profitability of all the work due to the

41 high share of these enterprises in total assets, revenue and overall volume of production - The biggest loss is realized by sub industry: mmanufacture of railway locomotives and railroad cars 41 Group 3: Electronics and Engineering, ICT Industry (Manufacturing and services, Telecommunications - The companies have been known to the market as Croatian brands: Končar, RIZ, ELKA etc. - Mechanical engineering industry is a key driving force with a strong influence on almost all other manufacturing sectors - Some of the large multinational companies operate in the mechanical engineering sector in Croatia - Extremely concentrated ICT production in large companies and multinationals, Ericsson, Siemens and others - High-tech sector developed - Presence in export markets - Trade policy - ICT is the key advanced technology and driver of innovation and productivity in the whole economy - Increasing investments in the ICT research and development - Strong position in the production of telecommunication equipment and electronic components of high added value - Satisfactory technological equipment - Around than 2/3 of the domestic capital available - Skilled labor force of all levels of education - other resources are not the limiting factor of production because they are for the most easily accessible stock exchange goods - The entire industry is based on technological innovation with high investment in research - Rising the degree of automation enables faster production of electronic equipment by keeping pace with the constant technological development. - End products are tested and certified according to the European and Croatian standards - Highly specialized products developed in Croatia on the basis of own knowledge, competitive both in the domestic and global markets. - Underdeveloped regional markets - Allowed import of inferior products, the practice of state-owned firms - Almost no specific firms other than those depending on - production schedule within the MNC - Slow acceptance of ICT by businesses because of the constrains of traditional management methods and organization of processes - Although large international companies invest substantially in research and development, this is not the case for companies in Croatia which deal with the narrow segment of the job - Companies in Croatia are not focused enough on technological innovation - Meeting strict standards - As the largest sub industry: manufacture of computers and peripheral equipment is extremely dependent on imports, activity is import-dependent - Most of the raw materials for production are imported, and which are copper, iron and aluminum- stock exchange goods (with defined prices and quality). TUs involvement in bipartite, tripartite agreements, working groups, strategies concerning - Done SWOT analysis of SMH-IS Croatia (2012) on the characteristics and IP of metal sector - Interventions with privatization process of (Koncar), etc. with Government - Tripartite SD on national level: 3 working groups with GSV (Economic and Social Council) involvement in adoption of new lows, strategies and policy paper discussion (DZS-RH) industrial policy formulation and implementation - Industrial policy of the state not in favor of the industry development - Tripartite SD experience, one way discussion, very much without adequate feedback (DZS-RH) - Losing members in the process of privatization, restructuring and bankruptcies - Lack of respect for TU work - Hard implementation and realization of the workers

42 42 - Industrial restructuring of metals carried out in threeindustries: ferrous and nonferrous metallurgy (planned first sale, and restructuring is left to the new owner) and shipbuilding (restructuring, the sale). The program prepared Government with foreign consultants. TU had a chance to give comments to the Government Commission. - On local level through formed GSV on local (DZS-RH) - CEMECO Center for support, training, education and new knowledge for industrial workers rights from Collective Agreements - Fond for workers payments in case of dismissing, social programs, low satisfaction, 70,000 workers with the problem - Workers Councils operate with difficulties in big factories, with surplus of employees in: steel, ferrous metal firms (SISAK sold to US) not to sign the selling contract before solving the workers problems - HUP, Association of the employers, not loyal partner to TUs in social dialogue Croatia TU DZS-RH membership share of employed in metal sector, ,025 87,766 89,595 87, % 44.20% 44.10% 41.72% Source: DZS-RH OPPORTUNITIES TUs - New values, products and investments in the industry are potentials - EU funds for ID and education of workers - To turn back workers to TUs with modern programs and help THREATS TUs - Permanently losing members - New employers, especially those from the Eastern countries, Asia and Italy non tolerance for TUs work and membership or branch formation - LLL of workers ( 46% workers with skills lower than skilled workers) - Intensive flexible working patterns entering the labor market, short term working contracts increase, non-dignity work conditions General for the sector - High growth potential of the sector is according to the developments of the EU markets - The employment potential. - Global trends will require more energy efficient and environmentally friendly solutions, while Croatian producers need to prepare for the changed structure of future legislative environment. - There are significant legal restrictions. - The main forces of production of metals and metal products in the EU is based on high-quality products, innovative products, technological development, efficiency and experience. Are expected to improve by joining the EU. - State aid in some of the third world countries, while the EU does not have the similar measures. - Increasing competition from China and India. - Relatively low level of investment in capital goods. - Access to credit lines for small and medium company-state policy not tailored to SMEs needs. - All levels mismatching of skills and competences. - Globalization impacts. - Increased energy prices, problems to input costs of raw material for the production. - Energy policies and pricing policies have direct impact on competitiveness of manufacture of fabricated metal products. - Lack of orders. Group 1: Steel, steelworks, rolling mills, ferrous metals - aluminum, metal products - There is still a great potential for new products that can find application in construction, energy and transport. - The objectives of the EU in relation to the climate change will stimulate innovation and support the longterm sustainability of the sector. - Investments in: clean technologies, energy efficiency improvement, reduction of the emissions of pollutants and energy products costs would help the sector industries development. - Dependence on imports. - Unpredictable price movements of energy, especially electricity. - Decline in demand in the EU is expected in production of cars and metal structures.

43 43 - The accession to the EU and regulation harmonization would help elimination of the most of the barriers concerning the customs regulations, energy products prices leveling to an acceptable level, and eliminate most of the external negative impacts. - The new materials application is heterogeneous and covers many industrial sectors. - components of any sustainable production strategy (contribution to energy efficiency, saving materials and ability to close the manufacturing process through recycling). - Replacement of other materials in the production of aluminum (in transport equipment). - Metal products have great potential for product innovation and investments. - Export potential exists. - Good growth potential driven by opening of the European market. - Casting of metals has the most prominent growth potential. Machine export potential is high. - Existence of tradition and experience in production. Activities with potential: manufacture of general purpose, manufacture of machinery for agriculture and forestry, manufacture of other special-purpose machinery. - Furthermore, only sub-industry manufacture of metal forming machinery and machine tools had low value of net profit and the negative profitability. Export potential of manufacture of vehicles and parts is high. - The sub-industry manufacture of parts and accessories for motor vehicles has the greatest potential for growth and employment. Group 2: Shipbuilding and other types of transport - 4 large state-owned shipyards in the process of ongoing privatization. - Small shipyards privatized. - High level of hiring subcontractors. - Conducted privatization. - Today, there are some 70 boatbuilding companies in private ownership, building medium and small boats under conditions of free market competition. - The commercial success of the boatbuilding cluster is evidence of the highly competitive nature of the cluster as well as the entrepreneurial skills of the companies involved. Revenues of boatbuilding companies are typically of SME and are in the range of EUR million. - Shipbuilding is a Croatian brand both in Croatia, Europe and the world. - As a Mediterranean country, Croatia has to have shipbuilding to meet both Croatian and Mediterranean needs. - Monitoring of production lines in accordance with the financial regulations of the EU shipbuilding. - Increase in the usage of the EU funds for innovation. - Croatia s proximity to other shipbuilding centers has aggravated the brain-drain problem characteristic of developing countries. The labor migration started in the 1990s has established a pattern whereby the most skilled shipyard workers migrate to Italy. - Boatbuilding companies often lack resources for large research and development operations making them more dependent on institutions for collaboration compared to the large shipbuilders. - Shipbuilding - lack of components from domestic production. - Long production cycle (a few years) with exposure to volatile raw material market prices in contracts for construction of ships in US dollars or the local currency, so a strong euro if often a problem. - Technological shipbuilding industry is going through an extremely difficult period in the last four years. - Decline is mostly felt in ships specializing in freight transport, the orders of which fell by 48% - Currently, all key indicators (freight rates, ships and boats that go on the scrap) point to the difficult situation in the shipbuilding and slow recovery.

44 44 - Water transport as a part of sustainable development. - Developing tourism - Croatia is the maritime and tourist country. - Shipbuilding export potential is relatively high according to the expected significant changes in the structure of demand. Achieving export potential will depend on adaptation of the industry to the requirements. - Reparation ferries and equipment. - Educated and qualified personnel, experienced workforce, which is a key asset of the activities available. Most of these are improvements of services (ship repair, repair of railway lines and the like). - Technological equipment - Specifically, repair and installation of machinery and equipment is not too demanding activity as far as the technological equipment is concerned. - Related and Supporting Industries: Demand from the shipbuilding cluster has created sophisticated related and supporting industries in Croatia. This has created a regional pool of sophisticated technologies and industrial expertise available to the boatbuilding cluster. - The global shipbuilding industry is characterized by overcapacity of existing shipyards, financial market that is no longer willing to follow the needs of shipyards and extremely low levels of prices that are close to historical minimum. - Less accessible capital - Prices of construction of new ships fell - Due to the current situation and future expectations, orders of new ships are extremely rare. According to forecasts, a slight recovery - The current level of demand is significantly below production capacity, which was developed for the competition. - The contract prices for construction of new ships are often below the cost of production, while the shipyards are forced to accept such prices in order to continue with production activities. Group 3: Electronics and Engineering, ICT Industry (Manufacturing and services, Telecommunications) - Finding new markets. - Strengthening regional markets in general. - The possibility of using EU funds. - Modernization of production. - Investments in environmental programs - (energy efficiency, renewable energy and energy security) according to the EU plans. - Increasing demand for ICT services (both private and public sector). - Promotion of the market of new products and services. - Export potential exists mainly in two sub-sectors (manufacture of electronic components and circuit boards and production of communication equipment), which are the only ones that have been net exporters. - The potential for growth and employment exists in subsections manufacture of electronic components and boards, and production of communications equipment, - Intermediate and investment goods. The demand is there along with the constant development and improvement of quality. - There are no significant legal restrictions. - High concentrations recorded in assets, export, import and number of employees. - A large proportion of our own production and application of materials that do not - Croatian companies can compete with large, reputable and established manufacturers of computers, optical equipment, devices for ventilation, electro-medical equipment - Entering or cooperative working within the US market. - Increasing competitiveness. - Insufficient qualified workforce. Brain drain, primarily professional and educated people and skilled workers - Production standards and their application. - Dependence on development policy of multinationals. - high concentration in this industry - The concentration of income in the two companies - the first dealing with the production of communication equipment (Ericsson Nikola Tesla), and the other registered for production of computers and peripheral equipment - In other subsections there are no comparative advantages, - Obsolescence of machinery and equipment. - Biggest loser activities are in the sub industry - Requirements for equipment for the efficient use of energy will increase in accordance with the requirements of energy, which will further cause the growth of electricity prices and obsolesce of the infrastructure.

45 45 CHALLENGES General for the sector Group 1: Steel, steelworks, rolling mills, ferrous metals-aluminum, metal products Group 2: Ship building and other types of transport - EU the major challenge for the EU countries to reduce harmful emissions, the cost and availability of raw materials and energy, competition of other countries and the effectiveness in attracting and preserving the experienced workforce. - Increasing an unfair competition. - Restructuring and technological renewal. - Promotion of the water transport. - Professional training of staff, VET education implementation - In parallel with the existing production processes, EE, RE industry development, wind parks. - Enlarged EU market. Since the Croatian market is too small for significant metal sector production growth, companies could focus their production capacities to the EU markets - Improvement of so called old industries by specific government support measures - clustering, cooperation, and outsourcing - Geographical position and EU membership, full implementation of international standards in industrial sectors. - Markets outside the EU. - Development of new technologies for organic products. - Croatian Energy Policy. - LLL. - Development of Centers for Excellence for research and development based on strong European clusters, association of faculties and research centers with the production. - Effective protection of intellectual property rights. - Metal alloys to be registered under REACH Regulations. - Vertical integration of manufacturers of metal products, value chain creation for the market share increase of metal products - Global demand changes, energy costs will likely continue to grow, and financial institutions are increasingly associated with the market goods. Companies are no longer enough to connect to a set of metal raw material. - Ensuring other new risks and downturns. - Although the trend in the metal industry is to be closer to final customers, to diversify production and diversification into new market segments, companies remain focused on cost control and efficiency in production. - In spite of the practice that higher salaries in neighboring countries are attracting away skilled shipbuilding workers, Croatia has two universities offering degrees in shipbuilding, attaining sufficient value-added in order to attract and retain skilled labor essential to their operations would be challenge. Challenge in impending privatization of the shipbuilding industry, and many skilled workers about to be laid off from the large shipyards, providing a pool of skilled labor for the boatbuilding cluster (1,500 job vacancies in shipbuilding in 2016). - The future success of the boatbuilding cluster depends on reaching new export markets and expanding sales beyond the domestic market. This is the case despite the increasing share of export revenues in recent years and this challenge will grow in view of the current global economic conditions. - Achieving economies of scale and scope will be crucial to enhancing Croatia s international competitiveness. The challenge implies that current boatbuilding companies will have to grow, either organically or through mergers and acquisitions, until they have attained a critical mass enabling them to successfully compete in the larger European and global markets. A second way to enhance competitiveness is to increase the effective ness of cooperation between the smaller and medium sized companies in

46 the cluster, especially in areas of research and development and cluster-wide improvements in the business environment. Further-more, FDI accompanied by management and marketing know-how as well as distribution networks could - Factor Conditions: Beginning with the factor conditions, access to the Mediterranean Sea is a crucially important endowment. A long maritime tradition and a history of shipbuilding are other valuable factor conditions. They have facilitated the emergence of a skilled pool of labor, a shipbuilding culture and institutions of education and research. The main challenge for shipbuilding will be the upgrade of Croatia s shipyards and production facilities which are outdated and will require major investments within the next few years in order to reach levels of productivity comparable to European and Asian shipyards - Boosting competitiveness of the boat-building cluster. - Promotion of the water transport. - Low levels of new orders, changes in the structure of demand financing, and (changes in requirements relating to economics and design of ships and changes in legislation 46 Group 3: Electronics and Engineering, ICT Industry (Manufacturing and services, Telecommunications) TUs involvement in bipartite, tripartite agreements, working groups, strategies concerning industrial policy formulation and implementation - Integration of electronics, software industry and services. - The need for LLL education on a permanently higher level, new digital and team methods, new technologies, curricula implementation, development of e-directory (e-business, e-health, e-training, e-mobility, e-management). - Development of technologies with digital content. - High expenditure on equipment that would enable development of higher quality of products and competitiveness. - Digitalization and automatization of production processes and methods in most of productions and services - Export potentials realization - Trend of increasing electricity consumption, transition to more efficient technology solutions for production of electricity. - The obsolescence of infrastructure and an increasing use of renewable energy sources for electricity production are the trends that characterize the world and the European market. All this represents growth factors and development activities in production of electrical equipment, which, judging by the upward trend of these factors, has a great potential for future growth. - To turn the credibility of TUs among workers, and Employers and decision bodies in the countries - Improvement of the communication with formed institutions of tripartite SD at all levels. - Developing the basis for social strategic partnership with government on main issues, policies concerning workers rights protection, conditions, of working force competences development and quality of life of workers. - To train young new workers on TU culture and values, as well as on motivation to join TUs - The modernization of the methods, context and organization of TUs activities 4.3. Non-metallic sector Industrial metals and building materials sector covers exploration, exploitation, refining, production and processing of non-metallic mineral raw materials. Due to the geological structure and the formation of non-metallic materials, Croatia has a wide base of non-metallic mineral resources. The exploitation of the deposits of quartz sand, cement, ceramic and brick clay, gypsum, tuff, marl, dolomite, limestone, volcanic material and gravel used for building materials and architectural stone, and sea salt. There are big resources, but the deposits of quartzite, barite, graphs, and some architectural stone are not exploited. There are a total of 664 reservoirs in Croatia, divided into groups of metallic, non-metallic and energy minerals. In order to prevent the same sort of exploitation of mineral raw materials, it is necessary to undergo a series of procedures and approvals. Mineral resources are important for the Croatian economy and they have to be exploited properly and effectively. Croatian metallic mineral resources have exploitable potential. 63 deposits belong to the metallic mineral raw mate-

47 47 rials, of which 54 bauxite deposits, while other metals are present in negligible quantities. Taking into account the 10 existing bauxite horizons on Croatian territory, there is a possibility that a significant number of deposits have not yet been detected. Croatia FDI ( In mill KN) in Non-metal sector Total FDI ,3 manufacture of other non-metallic products 3.109,8 During the period from ,109.8 million KN was invested in the manufacture sector of non-metallic product. Total amount of FDI inflow in the same period was 132,647.3 million KN. Non-metallic minerals are the most common. As many as 534 registered deposits are already being exploited. There is a potential for development of the non-metallic sector on the basis of the investigated non-metallic resources in Croatia for manufacture of glass, building materials, insulation materials, ceramics and architectural stone. There is a significant number of dimension stone quarries. There are large quantities of proven reserves in the whole territory. Croatian technical construction materials per capita is higher than of some EU countries. The possible problem for the exploitation of this material could be a relatively low utilization of the total rock mass (around 20%), while the rest can be used as a backup technical construction stone or carbonate raw material. Suppliers from the brick industry have a long tradition of using clay and gypsum as the raw materials for brick clay. Most brick clays belong to Quaternary loess deposits, some of them are from Dalmatia. Industrial processing of gypsum in Croatia is carried out near large reservoirs. With development of the processing technology and significant margin products industry for processing of non-metallic mineral raw materials should become an important export product. In Croatia there are large quantities of proven reserves of quartz sand for development of the glass industry potential. The current amount of reserves is estimated of around 40 million tons (Croatian Industry Strategy). Chemical and Pharmaceutical products The chemical industry in the broad sense includes the manufacture of chemicals and chemical products (section 20), production of rubber and plastics (Section C22) and manufacture of basic pharmaceutical products and pharmaceutical compositions (section C 21). Among existing products of the chemical industry and the industry of plastics and rubber in Croatia leads the production of technical gases, polymer products rubber and plastics, detergents and paints and varnishes. Manufacture of rubber and plastic recorded positive rates growth for three consecutive years. The increase in the production of chemicals and chemical products has made little impact on employment (in January 2017, the industry has employed 25.2 percent workers less than in 2010), the level of employment recorded a slight increase. Most of the companies of the chemical industry are focused on international exchange. Exports of industrial chemicals and chemical products in 2016 were higher by 0.6 percent in relation to 2010 and imports by 14.1 percent. Manufacture of rubber and plastics, on the other hand, marked by significantly higher growth in exports, in 2016 the export was higher by percent compared to 2010, and imports by 45.8 percent. C20 Chemical industry indicators, C20 Chemical industry Production 11.7% 12.9% Employment - 8.4% 3.6% Wages (gross) 2.3% 1.9% C22 Rubber industry and plastics Production 11.4% 10.1% Employment 6.2% -4.1% Source: National Statistics Wages (gross) 0.2% 2.0% The share of the chemical industry in GVA of the manufacturing industry in 2014 amounted to 7.4 percent, while the share of industrial chemicals, chemical products and manmade fibers accounted for 3.1 percent and the share of industry rubber and plastic products by 4.3 percent. The total number of employees in the sector of chemical industry in January 2017 was 13,854 or 6.8 percent of the total employment of the processing industry. According to National statistics, businesses in the chemical industry make up 7 percent of Croatian manufacturing industry. There are 300 registered business entities active in the chemical industry. what makes 1.7 percent of companies in the manufacturing industry. In the rubber and plastics are active more than 1,000 registered business entities (of which 644 companies and 416 crafts), which is 5.2 percent of companies in the manufacturing industry. The share of the chemical industry in the gross domestic product (GDP) in 2014 amounted to 0.9 percent. The ten largest companies of the chemical industry in 2015 had the cumulative operating profit of HRK 22.2 million. At the same time, ten leading companies in the production of plastics and rubber generated a cumulative profit of million HRK. At the Zagreb Stock Exchange in 2015 have been listed two companies from chemical sector: Petrochemical and Saponia. In 2015, the production of basic pharmaceutical products and compositions decreased by 0.1 percent. The industry in 2015 as in previous years, was hampered by high accumulated costs of health care, long deadlines to pay the costs drugs, unclear policy medications and cutting price. Total industrial production increase by 2.6 percent in 2015, the production of basic pharmaceutical product compositions has decreased by 0.1 percent. In 2016 (first seven months) the total industry recorded a growth of 4.6 percent compared to the same period last years. Industrial growth in 2016 was accompanied by a gradual recovery of domestic economy in the second quarter of 2016 continued with the growth of GDP. Total number of employees in the pharmaceutical industry recorded a growth of 5.5 percent. From a total of 4,357 employees in the pharmaceutical industry, more than 85 percent make employees of the three largest companies in the sector. Production growth was higher than the growth of employees resulting in increased labor productivity in the pharmaceutical industry by 9.2 percent in 2016 (first seven months).

48 48 Pharmaceutical products and preparations industry indicators, Production 11,9% 1 9.7% No. of employees 4,153 4,313 Wages (gross) (HRK) 13,180 15,790 Exports (in mil.) 3, ,932.5 Imports (in mil.) 5, ,655. Source. National statistics The total cost of drugs in the global market reached billion dollars in In comparison with 2010, when the drug consumption amounted to 887 billion dollars, the market grew by 21 percent. The ten largest Croatian pharmaceutical producers achieved in 2015 more than 90 percent of the total income of the sector and employed more than 90 percent of employees. Domestic manufacturers are oriented towards foreign markets and can be expected that the results of operations in foreign markets in in the next period will be positive Wood products, paper and cellulose In Croatia, 48% of the territory is covered by forests. A 75% share is owned by the state and administered by the Croatian Forests Ltd., while the remaining minority share is owned by private forest owners. It became essential to have a reliable supplier and a constant source of raw materials. The wood industry in Croatia has a long tradition, high potential of domestic raw materials. It is a labor intensive and export-oriented industrial activity with the share of exports in total revenue of around 50% (for 2012). In the manufacture of wood products and manufacture of articles of straw and plaiting materials there were around 12 thousand employees in There was a sharp increase in business volume and in total revenues by as much as 20.03% in 2012, comparing with three years ago. Added value of million was created, exports and imports increased in the period , as did the sales of products and services abroad. The export potential of this sector is high, but primarily due to the relatively large availability of raw materials. Manufacture of paper and paper products includes the manufacture of pulp, paper and paperboard. This sub-sector, according to the Croatian Statistical Bureau, employs around 3,500 people (2012). 20% of the capital is of foreign origin. Less than 20 largest companies make around 80% of total revenues. Balance of trade activities decreased, import dependency and import penetration in the activity increased. At the same time a decline in the total value of exports and a decline in the share of exports in total revenue is visible. Comparative advantages have decreased from year to year. Printing industry and reproduction of recorded media used to be among the fastest growing industries, operating through more of 850 companies. Profitability activities in last years was positive according to the indicators of return. Trade balance of activities was negative although the comparative advantages in foreign trade improved. Raw materials are not available in Croatia and all raw materials (mainly paper, printing inks and printing plates) are imported. The activity of printing and reproduction of recorded media in Croatia is characterized by low growth potential of the growing number of competitors printed publications in the form of electronic books and other electronic publications. SWOT NON METAL STRENGTHS Chemical Industry - Manufacture of rubber and plastic recorded positive rates growth for three consecutive years. - The share of the chemical industry in GVA of the manufacturing industry in 2014 amounted to 7.4 percent, while the share of industrial chemicals, chemical products and man-made fibers accounted for 3.1 percent, the share of industry rubber and plastic products by 4.3 percent. Businesses in the chemical industry make up 7 percent of Croatian manufacturing industry. - chemical Industry recorded an increase in labor productivity of 9.5 percent, and plastic and rubber industry os 5.7 percent - Most of the companies of the chemical industry is focused on international exchange - Increase coverage of imports by exports in the industry of rubber and plastic, gradual reduction of import dependency on raw materials as well as redirection of the industry to foreign market. Non-metallic mineral products - Non-metallic mineral products comprise of the production of cement, ceramics, glass, and lime. These manufacturing sectors are characterized by the transforma WEAKNESSES Chemical Industry - Croatian market is small and with low purchasing power - The increase in the production of chemicals and chemical products has made little impact on employment - Chemical industry and rubber and plastic are dependent on imported raw materials, (recorded foreign trade deficit.) Pharmaceutical industry - Croatian pharmaceutical industry is oriented mainly to the production of generic drugs that are losing their market position (Generics make up 43 percent of total revenue generated by Croatian pharmaceutical producers, 2014) - The domestic pharmaceutical industry has been hindered by the high accumulated costs of health care, long deadlines to pay the expenses of medicals, unclear policy medications and cutting price. - The continued trend of slowdown in investments in research and development Wood Production, Paper, Cellulose - Workforce and other natural resources are of good quality and available.

49 49 tion of naturally occurring minerals such as limestone, silica, and clays through an energy intensive process. The end products range from bricks and tiles to glass and tableware. - Diverse products output ranges from construction products such cement, bricks and tiles, sanitary ware, and glass to consumer products such as tableware and decorative goods. - Manufacturers companies range from global players (in the cement, flat glass, and bricks industries) to small and medium-sized companies (in the ceramics industry and parts of the lime industry). Pharmaceutical industry - Croatian companies in the pharmaceutical industry employ 0.8 per cent of total in the pharmaceutical industry of EU (EU has employees in this sector, of which 46 per cent employ pharmaceutical companies from Germany, France, UK and Italy) - Croatian manufacturers are oriented towards foreign markets. - Production growth is higher than the growth of employees, and has resulted in increased labor productivity of the industry by 9.2 per cent (2016) Wood Production, Paper, Cellulose - The Croatian forest-based industries consist of four major sectors: woodworking, pulp and paper manufacturing and converting, and printing. The TU s objective is to facilitate the legislative and policy framework within which the industry operates to help maintain their competitiveness. This could be achieved through stimulating growth and innovation, facilitating access to key inputs, ensuring a business friendly environment in the Croatia, and a fair level playing field on regional markets. - Rural areas the industries help maintain employment and wealth generation in rural areas. - Low-carbon bio-economy the industries have expertise in wood and wood fiber, which is a natural renewable bio-based resource with carbon storage properties. It is currently at the forefront of developing a low-carbon bio-economy. - The pulp and paper manufacturing sector is energy and raw materials intensive, with high capital costs and long investment cycles. The industry has an excellent track record in resource efficiency and innovation. Environment thanks to improved process efficiency, the industry has become more energy self-sufficient and less CO2-intensive by generating more than half of its primary energy from biomass. - Recycling voluntary industry-led initiatives in addition to legislative measures, have resulted in a paper recycling rate exceeding 70% in Europe. Raw materials used in the production and converting of paper and board come from sustainable sources. - Innovation - the high level of expertise and continuous research and innovation allow these industries to exploit new business models, develop novel products and technologies, and progress toward a low-carbon bio economy. - Majority of intermediate goods are used in other industries. - Demand for products is relatively high, but it s mostly foreign. - Production of furniture - small expenditure on research and development. - Some of the major limiting factors of the industry in its growth are the lack of availability of raw materials in Croatia and the whole material (primarily paper) is imported and overcapacity of Croatian printing houses, especially in the production of corrugated transport packaging. - Capital less accessible. - Low expenditures on research and development. - Greatest losses realized in manufacture of pulp. - Lack of technological equipment.

50 50 - The printing industry has a long tradition in Croatia. The sector is interconnected with other forest-based industries such as wood-working, pulp, and paper. It is an important employer, providing jobs for highly skilled and qualified staffworkforce and other natural resources are of good quality and available. - Majority of intermediate goods are used in other industries. - Demand for products is relatively high, but it s mostly foreign. - Small dependence on imports. - The growth potential is quite high, in wood production of, cork, and straw and plaiting materials. - Expenditures for research and development. - No special legal restrictions. - Products are used in other industries. - Demand for products is dependent on other activities (especially the food, pharmaceutical and chemical). - Technological equipment is very good. TUs involvement in bipartite, tripartite agreements, working groups, papers, strategies concerning Wood Production, Paper, Cellulose - Basic CS for Wood and paper industry Industrial policy formulation and implementation OPPORTUNITIES Pharmaceutical industry - Further acceleration of drug market in the next five years (in 2020 is accounted to have the value of and billion dollars) - The grow of drugs consumption in emerging markets by 2020 as a result of increasing population and improving access to health care. The growing market will generate 35 percent of the total growth of the pharmaceutical market in the period from 2015th to 2020th Wood Production, Paper, Cellulose - FD investors can use the appropriate workforce. - Production of mainly intermediate goods - export potential is high - Production - growth potential in wood products industry, paper rand cellulose production in the domestic market is possible through the growth in other manufacturing industries, especially food and pharmaceutical. - Growth potential on international market is relatively high - the greatest potential is stated in manufacture of paper and paperboard - Resource efficiency - continuous technological improvements can further reduce environmental impacts and optimize the use of resources such as raw materials, water, and energy. New processes can offer innovative ways to develop new products and applications based on cellulose fiber that generate more added value. Breakthrough technologies, such as that reducing heat use in paper production through reduced water THREATS Chemical Industry - The stagnation production of chemical products in EU. Total production did not rich the level of Pharmaceutical industry - High cost of health care, cutting prices and wages. - Rising the competition of producers form developed markets, stronger competitive pressures from emerging markets (In 2015, the Brazilian market grew by 14 percent, while growth at the Chinese market reached 7 percent Wood Production, Paper, Cellulose - Limited access to capital. - Insufficient availability of local raw materials for production. - Labor intensive activities and poor technological equipment (outdated equipment). - Insufficient expenditure on research and development.

51 51 consumption, are needed to achieve the sector s objectives for the 2050 Roadmap towards a low-carbon bio-economy. - Bio economy - the EU pulp and paper sector is taking advantage of the opportunities offered by the bio economy. New business concepts will allow it to use the entire potential of wood and wood fibre to produce products and novel materials for the textile, cosmetics, food, and pharmaceutical industries; bio-based fuels and chemicals; and traditional wood-based products. CHALLENGES - Acceleration of the growth of pharmaceutical world market in the next five years - About 60 percent of the total consumption of drugs in 2020 will be supplied by most developed world markets (the US, EU and Japan), while the leading emerging markets comprise 17 percent of total consumption of drugs. - Original branded drugs will represent more than half of the total consumption of drugs in 2020, while one-fifth of the market of drugs fall to non-native branded medicines. - The consumption of drugs in the next five years in developed markets will be more shifted towards specialized drugs and they generate.of the total of specialist drugs that will be 2020 spending in developed markets, it is expected to be 40 percent of the original medical branded, while in emerging markets, their share would be at 15 percent. - New materials, new products design in chemical and pharmaceutical industry - Own brands developing - Lower consumption - graphic paper consumption in Croatia continues to decrease due to digitalization. This is counter-balanced by growth in packaging and hygiene papers however. The creation novel bio-based products create vast opportunities for the sector. - Trade barriers - the sector is increasing its share of exports outside the EU but tariff barriers and protectionist subsidies for rival goods create an uneven playing field. Taxes and export duties imposed by non-eu countries on wood exports raise concerns. For example, fiber raw material represents the highest share of production costs, and so its availability at affordable prices is crucial for the sector. - Raw material supply - the demand for domestic wood supplies by end-users such as bioenergy firms is rising. Increasing the mobilization of wood in a sustainable way and developing new, innovative ways to further optimize the added value from raw materials through the cascading use of wood, would help to match wood supply and demand. - Recycling - the paper recycling rate in Croatia is low. Improvements in separate collection systems and innovation in sorting and recycling technology can further increase the quality and availability of secondary raw materials. The supply may also be challenged by the increasing amount of recovered paper exports to non-eu countries. - Energy prices - rising energy prices in Croatia and EU, combined with increasing gas prices compared to North America, place the sector at a global competitive disadvantage. - The Croatian environmental, energy, and transport policies have a major influence on the future of the sector. A good regulatory framework would be is essential to supporting sustainable growth, investor certainty, and a level playing field. - The European Commission promotes the competitiveness of all these sectors and encourages them to improve their resource and energy efficiency. - Because the sectors are energy intensive, the key policy areas are energy and environment. They are within the scope of the EU Emissions Trading Scheme, the Directive on Industrial Emissions (IED), and REACH. - Cement and lime production is very important to the Croatia s economy. Cement products are essential for construction and civil engineering, while lime is irreplaceable for the steel industry, as well as for construction materials, paints, plastics, and rubber. - The Croatian ceramic industry is a leader in producing uniquely designed high quality products. Most manufacturers are innovative small and medium-sized enterprises (SMEs). - The glass industry is known for the quality of its products, its capacity for technological innovation, and its skilled labour force

52 4.4. Energy This part analyzes electricity, gas, oil, coal production, value added, exports and imports values, and energy sector characteristics for Croatia. Energy raw materials are defined as the strategic raw materials because of their potential for aiding economic development of the country. Oil, natural gas and coal cover up to 90% of all energy needs of Croatia. The geological conditions are favorable for creation of rich coal deposits. In Croatia, the exploitation of coal was stopped 30 years ago. There is a great potential for use of coal in energy terms at Neogene Dinaric lake system, to which Sinj basin belongs. The price movements of energy and energy raw materials urge for consideration of the exploitation. In Croatia, the largest source for energy are raw materials imported for generation of electricity in thermal power plants Plomin. Croatia has potential hydrocarbon reserves to explore. Croatia belongs to the group of countries which cover a part of their needs for hydrocarbons from own production. Until a few years ago oil and gas exploitation was profitable only in the Pannonian Basin, but recently deposits with huge potential were discovered in the Adriatic Sea. Hydrocarbon production in the Pannonian Basin started in fifties. There are 40 oil and 25 gas fields. Annual production is around 700,000 tons of crude oil, which is further processed into oil derivatives and used for energy production. 52 The main geothermal resources are located in the Pannonian area where there are great opportunities for their exploitation. Although these resources have been poorly researched, the resource in Dinara has a great potential for finding new gas and oil base. High energy prices would push further investments in research in these areas. Currently, Croatia production is not sufficient, as its energy needs are not satisfied from the existing energy mineral resources. In order to gain energy independence and reduce the import of energy resources, further investments in research would be indicated or granting of concessions to explore the existing potential. Further investments would be provided in production of energy from renewable sources. Given the large number of geothermal gradients, the potential of Croatia in geothermal resources is huge. The economic efficiency of use of natural resources leads to the metallic mineral resources on Croatian territory. Bauxite is important, but it not used as raw material to manufacture metal. It is mostly used in the production of cement and pigments for the paint industry. Crude oil production in Croatia decreased to 12 BBL/D/1K in October from 13 BBL/D/1K in September of Crude oil production in Croatia averaged BBL/D/1K from 1994 until 2015, reaching an all-time high of BBL/D/1K in February of 1994 and a record low of 10 BBL/D/1K in July of Croatia Crude Oil Production Actual Previous Highest Lowest Dates Unit Frequency BBL/D/1K Monthly Sources: U.S. Energy Information Administration Source: U.S. Energy Information Administration Source: Petrol Gasoline prices in Croatia increased to 1.35 USD/liter in August from 1.31 USD/liter in July of Gasoline prices in Croatia averaged 1.40 USD/liter from 1995 until 2016, reaching an all-time high of 1.99 USD/liter in September of 2014 and a record low of 0.67 USD/liter in December of Croatia Gasoline Prices Actual Previous Highest Lowest Dates Unit Frequency USD/Liter Monthly Sources: Petrol Croatia satisfies a large part of its electricity needs through import. There is no exploitation of coal, the trend is to reduce oil and gas imports by around 4% annually. Potential production of thermal energy from geothermal sources in Croatia is around 500 MW, and it may also be used for electricity production. Electricity production in Croatia increased to 960 Gigawatt hours in June from 909 Gigawatt hours in May of Electricity Production in Croatia averaged 1, Gigawatt hours from 2008 until 2016, reaching an all-time high of 1,647 Gigawatt hours in December of 2010 and a record low of 513 Gigawatt hours in June of Croatia Electricity Production Actual Previous Highest Lowest Dates Unit Frequency Gigawatt-hour Monthly Source: Eurostat Source: Eurostat Volume, NSA