COUNTRY ESSENTIALS. The Coface Country Essentials offer a concise and clearly structured overview of country economic facts.

Transcription

1 COUNTRY ESSENTIALS CROATIA Summer 2015 TABLE OF CONTENTS Overview / 02 General Information / 03 Risk Assessment The Coface Country Essentials offer a concise and clearly structured overview of country economic facts. / 05 Foreign Trade / 05 Economic Key Data / 06 Insolvency / 07 Checklist for Business Operations / 08 Contacts Coface / 09 References The most important facts for 18 countries in Central and Eastern Europe include the most recent risk overview and our Coface country risk assessment. You receive a general information on the country ranging from major cities to natural resources and most important sectors. This is followed by our risk assessment giving a general overview on the economic and political situation and the strength and weaknesses of the country. The next chapter focuses on the key facts: top trading partners and economic data like GDP growth, inflation or public debt. The insolvency part shows you the top and flop sectors, information on the development of insolvencies and the procedure. Last but not least we provide you with a checklist for business operations and the latest corruption and doing business index data. If you need further information your will find a list of our contacts in the region.

2 GENERAL INFORMATION Croatia is a republic, which is located in South-Eastern Europe and borders on Slovenia, Hungary, Serbia, Bosnia-Herzegovina and Montenegro. In June 1991, it seceded from the Confederation of Yugoslavia. The following war with Serbia ended in 1995, with the signature of the Dayton Agreement on 14 December. A large part of Croatian territory borders on the Adriatic Sea. The country is divided into 20 regions, with Zagreb as the economic and cultural centre. Croatia has been a member of NATO since April 2009 and has joined the European Union on 1 July Form of government: Administrative organisation: Area: Democratic Rebublic 20 regions 56,542 km² Population: 4,486,881; density: 79 inhabitants/km² Official language: Croatian Local currency: 1 Kuna (HRK) = 100 Lipa Capital: Zagreb: 793,000 inhabitants Major cities and population: Split Rijeka Osijek Zadar Pula Karlovac 189,000 inhabitants 144,000 inhabitants 115,000 inhabitants 73,000 inhabitants 59,000 inhabitants 59,000 inhabitants Ethnic groups: Religion: Natural resources: 90% Croatians, 4% Serbs, 6% minorities of Hungarians, Italians, Czechs, Albanians 88% Roman Catholic, 4% Serbian Orthodox, 1% Muslim, 1% Protestants, 6% others Salt, silicia, clay, tourism, processing industry, agricultural production, forestry Most important sectors: Processing industry, shipbuilding, tourism Membership in international organisations: UNESCO, UNIDO, UNCTAD, UNICEF, ILO, WHO, FAO, IAEA, ITU, BIS, UNWTO, ICAO, ISO, EPO, ICSID, CEI, Carnet-ATA-Agreement including Istanbul Convention, OTIF (the Convention on International Carriage by Rail), Danube Commission, ADR-Agreement, EU / 2

3 RISK ASSESSMENT Coface Country Assessment B The recession has continued in 2014 After a sixth successive year of recession, Croatia is expected to return to positive growth in Activities linked to tourism (restaurants, hotels, transport 20% of GDP) will remain the most dynamic in 2015, even though there were fewer tourists from abroad (particularly Russia) in Domestic demand remains constrained: consumption contracted in 2014 because of high unemployment and wage stagnation. However, household spending is expected to recover in 2015 with the expected improvements on the labour market. At present, the unemployment rate is still high (18.7% in October 2014), in particular for the young (14.8% for the yearolds), which underlines structural problems and questions the country s competitiveness. In 2015, the main positive contribution to growth is expected to come from exports of services (reflecting the importance of tourism) and from the manufacturing industry, which will help prevent a bigger contraction. The economy was marked by low inflation in 2014 due to weak domestic demand. The country experienced a period of deflation between February and July 2014, prices having fallen by 0.3% relative to the previous year. Inflation is expected to become positive again in Fiscal consolidation demanded by Brussels The successive recessions were behind a significant worsening of the public finances. The consolidation efforts in recent years have been less marked than in the other Central and East European countries. In this context, the State has started to privatize the subsidised energy and transport sectors a total of more than 500 businesses. Despite these measures, the public debt continues to grow and is currently nearing 70% of GDP. The excessive deficit procedure (EDP) initiated by the European Commission in January 2014 obliged the country to introduce new measures. The recession having led to a revenue deficit, and the structural reforms having been delayed, government spending was only slightly down in 2014, which has caused the country to miss the EDP objectives with the deficit still close to 5% of GDP. Nevertheless, the government is expected to apply further measures enabling a reduction of the budget deficit in In 2014, the current account balance generated a surplus concomitant with the weakening of domestic demand. The country has benefitted from its accession to the European Union with an 11.5% increase in its exports to EU member countries between January and September However, it is not sufficiently directed towards the dynamic economies and has been hit by the Eurozone downturn. Its main partners are Italy and the Balkans. In 2015, the current account balance should be in surplus, driven by exports of services. As for the banking sector, though robust, it suffers from the presence of doubtful loans and a high degree of euro-isation. The exchange rate is strictly controlled by the Central Bank which aims to ensure the kuna s stability against the euro. This means the government s room to manoeuvre is limited. However, the country s reserves are still more than three months of imports and are expected to increase in European Union membership - still waiting for the effects to set in The country became the 28 th EU member state as of 1 July Membership brought an alignment of the country s legislation with the common standards leading to a more conducive climate for business and investment. But the conditions for entry to the Union have also had a negative impact. The need to comply with European austerity has impacted on certain industries. These have thus seen Strengths Growth potential reinforced by EU membership Advanced degree of economic convergence with the EU High-quality infrastructures Attractive to tourists Weaknesses Low savings rate High level of private external debt Dependence on foreign capital High unemployment level / 3

4 RISK ASSESSMENT their output badly affected by the restructuring process and privatisation with the ending of state subsidies, most notably in the shipbuilding sector. The governing coalition, which is in trouble, has lost six seats in Parliament as a result of defections. Moreover, the Minister of Finance was dismissed over a corruption scandal in May The centre-right opposition came out on top in the May 2014 European elections. Finally, the greens of the Sustainable Development of Croatia Party (ORaH) are emerging as a new political force alongside the two big traditional parties and could play a role in the course of the December 2015 parliamentary elections. / 4

5 FOREIGN TRADE & ECONOMIC KEY DATA Croatia s Top Trading Partners Imports in MEUR EU 28 5,735 * 5,601 * 5,927 * 6,597 Italy 1,511 1,472 1,395 1,435 Bosnia-Herzegovina 1,174 1,228 1,173 1,224 Slovenia ,000 1,173 Germany ,129 1,154 Exports in MEUR EU 28 10,064 * 10,134 * 12,220 * 13,056 Germany 2,049 2,084 2,319 2,586 Italy 2,676 2,707 2,167 2,438 Slovenia 1, ,897 1,851 Austria ,489 1,482 Source: HGK, HBOR, Statistical institute of Croatia, Official pages of the Government of the Republic of Croatia, Eurostat. * EU 27 Economic Key Data Key Data (e) 2015 (f) GDP growth (%) Inflation (yearly average) (%) Budget balance (in % of GDP) Current account (in % of GDP) (e) estimate (f) forecast Source: Coface / 5

6 INSOLVENCY Top 5 sectors Utilities and public services Financial services Miscellaneous Mineral products, chemicals, petroleum, plastics, pharmaceuticals and glass Mechanics and precision Flop 5 sectors Textiles, leather and clothing Wood and furniture Non specialised trade Agriculture, meat, agro food and wines Construction Insolvencies in 2014 Against the economic backdrop, insolvency statistics are generating a much more positive outlook. In 2014, company insolvencies in Croatia dropped by 14.3% compared to the previous year. However these good statistics are mainly caused by the high number of insolvencies in A new legal act was introduced at the end of 2012, called the pre-insolvency settlement procedure. This act is a judicial composition which aims to achieve creditor agreements with companies regarding settlement of their receivables was thus a peak year in statistics resulting from the new regulations, whereas relative stabilisation was recorded in The law introduced an obligation for entrepreneurs to pay their due monies within 60 days. If the deadline is not adhered to, an administrative procedure of another 60 days is opened and the company s bank accounts are blocked which usually leads to a triggering of pre-bankruptcy agreements. Additionally, the insolvency procedure can be initiated in line with fast bankruptcy procedures based on official duty in the case of lack of assets or employees, or not providing financial statements to the authorized body for two consecutive years. Nevertheless, the above law changes are not the only reasons for insolvencies in Croatia. The high indebtedness of local companies, as well as bad management and liquidity problems, are also causes of bankruptcies. The construction sector recorded an improvement. Construction company insolvencies decreased by 14% compared to the previous year, although they still have the largest representation in insolvency statistics and constitute one quarter of all bankruptcies in Croatia. The challenging situation of metals in worldwide markets has also been mirrored in Croatia, where insolvencies jumped by 47% in one year. Croatia s Biggest Insolvencies in 2014 Company Name Sector Total liabilities in Euro Town 1. SPORTSKI GRAD TPN Construction 78,668,211 Split 2. ZDRAVSTVENO REKREACIJSKI CENTAR LIPIK Business and personal services 60,491,245 Lipik 3. TEMPO Construction 48,802,798 Zagreb 4. EUROYACHTING Non specialised trade 42,619,549 Zagreb 5. MD PROFIL Construction 25,303,043 Đakovo / 6

7 CHECKLIST FOR BUSINESS OPERATIONS The following table summarizes relevant information for investors and exporters. Corporate law Minimum capital stock company: HRK 200,000 Minimum capital limited liability company: HRK 20,000 Minimum capital for simple limited liability company: minimum 10 HRK Tax law 25% VAT 12%, 25% and 40% progressive income tax for natural persons 20% corporate tax Double taxation treaty with Austria Investments Investments up to 100% generally possible Exceptions for strategic reasons Equal status accorded to foreigners Foreign exchange Foreign currency accounts allowed Unlimited transfer of profits and capital Labour law Average wage approx. HRK 5,613/month (net) Problems with business-related termination High non-wage labour costs Corruption Doing Business Croatia was 61 st in the International Corruption Perceptions Index In comparison, Germany was ranked 12 th and Austria was ranked 23 rd. The Corruption Perceptions Index is issued by Transparency International, and lists countries according to the perceived level of public sector corruption. This perception is based on surveys of managers and experts, and related solely to the public sector. The Doing Business Index issued by the World Bank ( expresses the ease of doing business in a particular country. In this ranking, Croatia was ranked 65 th in 2015 rising two ranks compared to the previous year. Germany and Austria were rated 14 th and 21 st, respectively. This index consists of ten different sub-indexes that determine whether laws or other regulations exist in certain areas and whether or how they are applied. For example, the subcategories deal with the payment of taxes, hiring of staff and the founding and closing of companies. / 7

8 CONTACTS COFACE Coface Austria & Coface Central Europe Stubenring Vienna T. +43 (1) F. +43 (1) Coface Lithuania Vilniaus str Vilnius T (5) F (5) Coface Albania serviced by Coface Croatia Avenija Dubrovnik 46/III Zagreb T (1) F (1) Coface Macedonia serviced by Coface Croatia Avenija Dubrovnik 46/III Zagreb T (1) F (1) Coface Belarus serviced by Coface Russia 1st Tverskaya-Yamskaya str., 23, bld Moscow T. +7 (495) F. +7 (495) Coface Moldova serviced by Coface Romania 39 Calea Floreasca - Et District Bucharest T. +40 (21) F. +40 (21) Coface Bosnia & Herzegovina serviced by Coface Croatia Avenija Dubrovnik 46/III Zagreb T (1) F (1) Coface Montenegro serviced by Coface Serbia Bulevar Oslobodjenja Belgrade T (11) F (11) Coface Bulgaria 42 Petar Parchevich str Sofia T (2) F (2) Coface Poland Al. Jerozolimskie Warsaw T. +48 (22) F. +48 (22) Coface Croatia Avenija Dubrovnik 46/III Zagreb T (1) F (1) Coface Romania 39 Calea Floreasca - Et District Bucharest T. +40 (21) F. +40 (21) Coface Czech I.P. Pavlova Prague T F Coface Serbia Bulevar Oslobodenja Belgrade T (11) F (11) Coface Estonia serviced by Coface Latvia Berzaunes iela 11a Riga T (6) F (6) Coface Slovakia Soltésovej Bratislava T (2) F (2) Coface Hungary Tüzoltó utca Budapest T. +36 (1) F. +36 (1) Coface Slovenia Slovenceva ulica Ljubljana T (1) F (1) Coface Latvia Berzaunes iela 11a Riga T (6) F (6) Coface Ukraine 4 B. Gmyri Str., of Kyiv T (44) F (44) / 8

9 REFERENCES Internet >> Country Risk and Economic Research, CEE Insolvencies Panorama 2014, Coface, Niederlassung Austria, Vienna Print Handbuch Länderrisiken 2015, Coface, Niederlassung Austria, Vienna Imprint Media owner and production: Coface, Niederlassung Austria, Stubenring 24, 1010 Vienna, Austria; Editorial office: Susanne Krönes. Copyright and Liability Coface, Niederlassung Austria (Stubenring 24, 1010 Vienna, Austria) copyright, conditions of use: you may copy and publish the information on this site provided that you do not make commercial use of it and clearly indicate that it originates from Coface, Niederlassung Austria. This information is provided without guarantee and does not bind Coface, Niederlassung Austria in any way. The Coface Country Assessment was included in this country report as of May Coface, Niederlassung Austria cannot accept responsibility for changes made at a later date. / 9