Although the government cannot be criticized for not changing things for the better, the overload of the economy, latently weakening the results of the labour market and structural problems in the education, health and pension system, slow us down and make us less attractive than the new EU member states.
The greatest difference in work and competitiveness between Croatian and foreign entrepreneurs lies in the environment or in the country. “We offer government proposals for amending the law and introducing incentives that would strengthen our competitiveness, become more attractive in attracting investment and preventing the departure of youngsters,” says Davor Majetic, chief executive of the Croatian Employers’ Association.
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How do your members rate the business environment in the Republic of Croatia? What are the conditions for increasing the volume of business?
The Croatian Employers’ Association (HUP) has developed just for such analysis, special tools – HUP Skor, Reform Measurement Tool and Business Expectations Exiting at the end of each year – a poll where employers express their satisfaction with the current business climate and provide forecasts for the future. The business environment is still unfavourable, and entrepreneurship is entered mostly out of necessity and less from personal motivation and recognition of business opportunities. The biggest lag according to HUP Skor has been recorded in three areas: excessive economic burden, latently weak labour market outcomes and structural problems in the education, health and pension system. Entrepreneurship in the Republic of Croatia is demanding because of the large volume of regulations that are subject to permanent changes that the average entrepreneur, and especially the small one, can hardly follow (new regulations are made on a daily basis) and for various imposition, fiscal and parafiscal, which are often unjustified and suffocate the business of entrepreneurs. In the traditional research of business expectations that the HUP conducts among its members, the general economic situation in 2017 was rated at 2.69 (from 5.0). For this year, employers have estimated that the economy will remain the same (48.3 percent) or be slightly better (46.6 percent). For business terms and investment, most believe it will remain the same (62.9 percent), and improvement is predicted by only a third of respondents. As main obstacles to business, employers continue to point out high taxes and contributions, inefficient public administration and bad judiciary. HUP is actively working to improve the business climate in the Republic of Croatia with its proposals and observations on regulations as a member of the Economic Social Council (GSV) and one of the social partners of the Government of the Republic of Croatia. Increasing the volume of work would certainly be desirable, but it is impossible without an adequate labour force that is still lacking in the Republic of Croatia. Investing available funds of employers in raising wages for workers is not yet sufficient to compensate for the lack of workers in the market.
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In you were in the Government, what steps would you take for the first time to accelerate economic growth?
First of all, it is necessary to raise the competitiveness of the Croatian economy, primarily by reducing the burden on entrepreneurs through the implementation of real structural reforms that are still absent, despite the announcements of the Government of Croatia, except the tax reform we see as a good initiative that started last year and that is still in progress. I would like to point out that parallel work on redesigning of Croatia needs to be done through each Minister and ministry. Such activities will lead to new investments and, consequently, greater competitiveness of domestic companies and growth of the economy, employment, salaries, income of the country, i.e. to sum it up – a better life for all citizens.
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How competitive Croatian companies are compared to their European counterparts? What are the key obstacles to private sector development?
Some companies, which we can call the crown of the Croatian economy, are on the demanding European Union market to achieve excellent results, but in general, we need to be more competitive. Countries of the so-called new Europe we are confronted with has, at some point in time, undertaken profound reforms, attracting many investors and entrepreneurs today. HUP Skor, which is comparatively measured by Croatia from 11 EU member states, this year was slightly higher and increased to 36 points, however, we are still at the bottom. The range of results for the other new EU members ranges from 46 points in Slovakia to 65 in the best of them Estonia, so our score of 36 points is by no means satisfactory. Key obstacles are lack of workforce, high tax and parafiscal burden, e.g. Croatia has the highest VAT in tourism from all countries in the region to deal with it, that makes us uncompetitive. Unfortunately, the biggest difference in work and competitiveness between Croatian and foreign entrepreneurs lies in the environment that is in the state. But it must be said that employers themselves through investments and digitization can significantly raise their competitiveness. And here we come again to the investments we do not have because in an uncompetitive state, after all that we pay, one can hardly make money for investments, and the loans and capital are still relatively more expensive than with our competitors.
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What is the quality of dialogue with all the factors in society that are part of your dialogue to improve the business climate?
As part of the Economic Social Council, which is also HUP a member of, we conduct social dialogue with the Government of the Republic of Croatia and trade unions. The quality of the dialogue can be assessed as positive but too dependent on certain situations and regulations and in this area we see room for significant changes. HUP is a voluntary association that joins more than 6,000 members in its membership, accounting for more than 60% of GDP and employing more than 500,000 employees. On the daily basis of our members we receive inquiries for all key economic issues and we are trying to pay all of them equal care and employers’ demands to communicate to the Government of the Republic of Croatia through the work of the aforementioned GSV.
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How much in workflow can be felt the leave of workforce into European countries? What staffs are most lacking?
Certainly, a lack of workforce can be felt, which the HUP has repeatedly warned about, and we responded to the Government of the Republic of Croatia to increase the number of foreign workers. The government this year, we can boast it, reacted quite quickly and made a decision on additional quotas for the import of workers. But as we are constantly pointing out, the quota system and permit system is actually only a firearm measure, but it is still necessary to find ways to keep Croatia’s workforce in Croatia and to prepare future staff for the labour market through the education system in a better way than it has been done so far. Employers are prepared to raise salaries and raise the standard to their employees, but the above mentioned business breakdown relief is needed – certainly no employer is happy with the fact that workers are leaving and that he must import workforce from abroad, the goal for all is to keep workers in Croatia but here also we are expecting from the state to reduce the amount of imposition in order to increase the space for the salary raise. At present, there is a great shortage of workers in the trade sector, continuously there are about 3000 retailers, especially in the area of Dubrovnik and Istria, missing for the needs of tourist season. In other industries, also there is still a shortage of workforce – for example, there are currently 110 workers missing in the metal industry, 321 in shipbuilding, 280 in the wood industry, and 120 workers in the electronics industry.
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In relation to that, what are your suggestions to the government of the Republic of Croatia?
Actually conduct of Reforms. In addition to these horizontal measures that I have mentioned earlier and for which implementation requires deeper structural reforms, we consider that even smaller concrete measures could significantly facilitate business in the Republic of Croatia, such as treating the workers accommodation and meal allowance as an non-taxable expense, to raise the threshold of the non-taxable part of the salary in order to pay the 13th salary to the workers, to consider the possibility of recruiting retired people and to reduce VAT on accommodation and catering. Such and other changes and incentives would strengthen our own competitiveness, become more attractive in attracting and preventing young people from leaving and responding more strongly to market opportunities.
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As someone who is at the helm of an employers’ association, what would be the good moves of this government, and what should be done more in order to improve the business environment?
We can praise the Government’s rapid response to the increase in labour force import quotas, which saved this season for many employers, and certainly the beginning of tax reform and education reform, as well as the delay in introducing property taxes, according to the current proposal. We hope that the Government will not stop on these moves and that other, more thorough reform, such as public administration, health care and other departments will be expected from autumn. Every step in the direction of entrepreneurship business relief can be considered as a good move and we hope to see more and more of them in the future.
8. Can you feel in Croatia optimism regarding a slight recovery of the European economy?
In the second quarter, the Croatian GDP grew by 2.9%, and every such positive move HUP welcomes, especially considering the increase in exports and personal consumption as a result of wage growth in Croatia. But employers are still not overoptimistic and have been communicate via HUP that there is room for further growth, with the greatest limitation factor being the lack of workforce.