The data on craft companies in 2018 shows that 198,350 are employed in craft firms. It is extremely important to create a positive entrepreneurial climate and an atmosphere that attracts investments. The concrete measures proposed by the Croatian Chamber of Trades and Crafts are aimed at creating an environment that will keep young people in the Republic of Croatia and allow them to create a pleasant life for themselves and establish a successful business – says Dragutin Ranogajac, President of the Croatian Chamber of Trades and Crafts (HOK)
What are the biggest obstacles for your members in achieving business success today?
Currently, owners of craft firms in Croatia are facing several challenges.
At present, the most prominent problem is the shortage of skilled workers. This is an issue that the Croatian Chamber of Trades and Crafts has been talking about for a long time, warning about the need to constantly care for one’s employees, primarily through their education. The seriousness of the problem was noticed three or four years ago, and in the last two years, the situation has escalated to the point of jeopardizing craft businesses. The sectors that are seriously lacking workforce are the hospitality and tourism sector and construction. The transport sector follows where there is a chronic shortage of drivers both in freight and passenger traffic.
These sectors are not the only ones which suffer from shortage of skilled workers. We have come across examples of craft companies who have to reject taking on manufacturing and other commercial projects, due to lack of workers.
The Croatian Chamber of Trades and Crafts’ position is that the needs of craft firms, as employers, should primarily be addressed through training available but unemployed workers in Croatia. Therefore, we are not the advocates of the „overproduction“ of workers. But, given the current situation, we had to ask for an increase in the foreign workers quotas for the past and this year. The government has partly acknowledged these requirements, particularly in catering and construction, but it is evident that even this increase is not enough.
Another long-standing problem is unfair competition from unregistered companies which, according to some estimates, make up 35% of all companies in Croatia, because they hinder the business of those craft companies that operate in a legal manner and fulfill all of their obligations. Following the initiative launched by the Croatian Chamber of Trade and Crafts, the Law on on Prohibiting and Preventing Unregistered Company Activities was adopted, which came into force in 2011, in an attempt to mitigate this negative phenomenon. However, the law has not been fully implemented in practice. Tolerating unregistered companies is protecting socially vulnerable groups only on the surface while jeopardizing those who legally operate and struggle to find their place in the market.
Conditions that make it difficult for the craft companies to do their business are also linked to inaccessible development funds and the burden from taxation and public contributions. It should be noted that the implementation of the tax reform has only partly reduced this tax burden. For example, at the proposal of the Croatian Chamber of Trades and Crafts, the threshold of revenue that makes company eligible for paying VAT has been raised and now many of craft companies pay flat-rate tax. We expect the tax reform to continue in terms of further reduction fo tax burdens.
How ready were domestic companies for Croatia’s accession into the EU?
Adapting to new conditions was easier for large companies who have developed logistics and those who have been exporters even before the accession. For small businesses and craftsmen, the adjustment has been rife with obstacles – starting with language barriers and common EU regulation, through to administrative procedures, and the fact that in the case of craft firms, a single person – the craftsman – is the sole company manager. Throughout this period, craft companies have been gradually adapting, and the Croatian Chamber of Trades and Crafts is always at disposal to its members to help with information and advice in order to meet the requirements of individual member states.
How many of your members were ready to take the advantages that come with the opening of such a large market to them?
Croatian craft companies were realistic in terms of the expected effects. The situation has been slowly changing for better over the last five years, and the growing number of craftsmen are now interested in using EU contacts and trying out their business luck in new market circumstances. Craft companies are particularly interested in providing cross-border services where they can continue their regular business and keep their headquarters in Croatia while occasionally placing their products and providing services in the member states.
In the view of your assessments of the macroeconomic situation and the business climate, what are the key moves that the government can make to help craft companies to do better?
The Croatian Chamber of Trades and Crafts aims to be more involved in the process of adopting regulations and devising economic policy measures. The partnership relationship between the Croatian Chamber of Trades and Crafts and the Government of the Republic of Croatia and its ministries is important for creating a common environment that will be more favourable for craft companies.
In terms of this burning issue of workforce shortage, we propose concrete measures with an emphasis on training for simpler professions in hospitality and construction, in order to help the unemployed. In this regard, together with the Croatian Employment Service, HOK is willing take part in employee training at the premises of craft companies, i.e. in the workplace.
As far as the shadow economy is concerned, HOK’s proposal is to amend the current Law from 2011 and to legally allow the control of private premises in a simpler way than in the past (which involved a lengthy and complex court process), so that inspectors can be more effective.
As part of the ongoing tax reform, we have sent proposals to the Ministry of Finance which stipulate that all catering services are taxed at a reduced VAT rate of 10% since the current VAT rate, which stands at 13%, and as such creates a difference in the way different business entities are taxed. For instance, the rate of 13% is applied to hotels with a bed and breakfast or board service, while for the same non-accommodation services, restaurants and other catering facilities pay a 25% rate which results in uneven market position.
We have also proposed lowering the rates of mandatory wage contributions in order to increase the workers net salary.
The Croatian Chamber of Trades and Crafts (HOK) has been implementing a dual education model for the three-year vocational schools since 1996. With such experience, how can we address the problem of the shortage of quality workforce in certain professions?
Indeed, in 1996, HOK started implementing the dual eduation system. But we have encountered great resistance from the very beginning,, both from schools and education institutions. Namely, such a way of education requires meeting certain prerequisites like a smaller number of teachers and their greater engagement. In co-operation with parents, it is necessary to establish cooperation with mentors from business world, to connect the theoretical knowledge to practical teaching, and to establish a link between what is taught at schools to what is being done in business. Additionally, there are certain businesses that still don’t realize how important it is to be actively involved in education. If we do not have sensible employers, we cannot create enough space for practical teaching. In 2003, this resistance and misunderstanding led to the creation of a unique education model, which is, in a way, modified dual model, and is being implemented in some schools. We now propose that this unique eduction model should be used as the Croatian model of dual education.
We advocate this kind of education because we are firmly convinced that, among other things, it can solve the problem of the shortage of qualified workforce, which is validated by numerous studies. This education model provides training to students so they can work independently in their chosen profession, as well as the application of professional theory in practice, a better understanding of the professional-theoretical content learned in school, the acquisition of “on-the-spot” entrepreneurial skills, the acquisition of a number of social competences and most importantly, faster employment after high school graduation, i.e. greater employability of young people.
What does the chamber system offer to its members? How does the Chamber change to suit market demands?
The Croatian Chamber of Trades and Crafts is an organization which task is to represent the interests of all craftsmen in Croatia, to get acquainted with their everyday problems and to persist in fighting to overcome business obstacles. Crafts sector is very diverse so our task is extremely complex and requires a lot of effort to harmonize everything, then coordinate it with economic policy measures and legal regulation.
It is extremely important that craftsmanship in Croatia is again recognized as an important segment of the economy and that trends in craftsmanship are finally positive.
The Croatian Chamber of Trades and Crafts members have access to a full range of services and benefits that the membership brings. They are continuously informed, and we also provide free business consultancy in the area of business regulation, taxes and contributions. The Chamber also focuses on lifelong vocational education and carries out artisan and professional qualifications examinations. It organizes joint appearances at trade fairs in the country and abroad for craft companies, plus various meetings, seminars, education and business panels. While taking into account the implementation of guild and professional rules of operation, the Chamber also provides the services of the Court of Honour, and serves as the settlement centre dealing with alternative dispute resolution.
It is important to mention the HOK – Common Procurement Department cooperates with various service providers and suppliers who provide our members with the benefits when using their products and services. By ensuring more affordable resources, depending on the business activity of a crafts company, we are enabling various cost cuts.
7. How capable is your sector of creating new jobs?
The data on crafts companies in 2018 shows that 198,350 are employed in craft firms. We should bear in mind that this number is even higher because the majority of owners of crafts companies are also company workers, so they are not included in the mentioned number. Also, family members often assist owners of crafts businesses in carrying out their activities. If we compare this data with the same data collated on 31st December 2017, when there were 176.805 documented workers in the crafts sector, this is an increase of 21,545 newly-employed persons. Part of the increase is due to the increase in the number of crafts comapnies, and part due to the increase in the number of employed persons, of which a significant part is seasonal employment. We can conclude from this data that crafts sector does create new jobs and offers the opportunity for self-employment.