For Diplomacy & Commerce magazine, we have asked Croatian officials for their opinion on political and economic challenges that awaits Croatia in 2020 and the key challenges on a global scale.
Luka Burilović, President of the Croatian Chamber of Economy for Diplomacy&Commerce says:
- What political and economic challenges await Croatia in 2020?
The most important challenge in 2020 will be the one with which we have been coping with for several years now – emigration / demographic challenges. There has been a pronounced brain drain going on in Croatia for many years – not only since we entered the EU, but realistically speaking, since the beginning of this decade, mostly because of the economic crisis which was still rather present up until 2015. Large-scale emigration led to the change of scenery in the job market from the position in which companies could pick and choose workers, without having to be mindful of competitiveness regarding remuneration, to the position in which every major industry lacks workers and are paying pure gold for top quality, and only a little bit less for average workers. If we want to stay competitive, not to say to improve our competitiveness, we have to make it easier for companies to do business and hire, and for people to stay, return or immigrate to Croatia. As things are at the moment, this will be the biggest political and economic challenge next year.
Following that is the second challenge – educating and preparing the workforce for the future, namely how to balance the needs of traditional industries in Croatia with the realities of low wages and the unwillingness of local people to work in those sectors. We have to define what are the appropriate jobs for our people, and what are the jobs in Croatia that would be easily filled with immigration. This is a common practice in most EU countries, but we still lag in it. Also, we need to make our education system and our job market attractive to foreigners as well. We know what the playing field is and how others are attracting a quality workforce and students to their countries. Croatia has a lot to offer, and in 2020, we have to put ourselves on the map. Our qualities and upsides, of which there are many, have to be presented outside of Croatia.
The presidency of the Council of the EU. This is a clear-cut case of a challenge being an opportunity. Croatia takes over of the presidency on January 1st, and for the next 6 months, it’s up to us to use this position to present Croatia more thoroughly and efficiently throughout the EU. Furthermore, during these 6 months, a budget will be drafted and negotiated for the 2021-27 period, and we have a chance to be more involved in it with our interests and goals. Without undermining common EU goals, our task is to be more involved and proactive in the preparation of the next budgetary framework than we were the last time. To learn from our previous mistakes, and success, and to assist in preparing the budget that will lead to the real cohesion and balanced and equal economic development of all EU members.
Internally, we are politically stable and mature, which does not mean that we are devoid of challenges. The biggest political challenge next year, if we can call it that, is the parliamentary election. We are used to having a “downtime” in the public sector in the election year, but that is becoming less prominent as we get more mature in terms of democracy and public governance. There are several crucial reforms underway, and it is of utmost importance to keep it going without hiccups related to potential political changes and turmoil.
Economic development on a global scale is slowing down, with emphasis on Europe and Croatia’s main trade and economic partners. This could lead to the slowdown of Croatia’s economy as well, which would come in the most unfavourable time. We are preparing for that case and are turning our, almost one-track focus of the last 20 years, towards the EU, to other markets and partners as well. Asia is still a powerhouse that keeps growing, and we are focusing on those markets for some time now. Africa is rising and developing strongly and we feel that the challenge is in how to approach that market. With this shift in focus, we could eliminate the potential downturn of the EU economy and its impact on Croatia, and yield even higher growth through the opening of the new, for us still untapped, markets.
Structure of our economy, and the need to change it, to restructure it, is still a top priority regarding our long-term goals. To secure sustainable economic growth and robust economy that is resilient to cyclical downturns, we need to build an export-oriented economy reliant on high added value products, services and workplaces. On one side we need to keep the tourism developing, but with a rise in its quality and decrease of its share in our GDP. On the other side, we need to put the much higher focus, I would even say the most of the focus, on sectors and industries that we did not deal with very much so far. Here I’m talking about higher added-value products and services – IT, gaming, creative industries, high-tech R&D and production, modern added value agriculture, etc.
Private sector financing. There is a strong growth of loans in Croatia, but most of that growth is focused on personal loans that produce no added value or new long term capacity. The loans in the private sector linger on the same levels for some time, with a major part of those loans going to tourism. We enjoy lower interest rates, better credit rating, but the economy is not feeling it in its most important parts. This could lead to the creation of the bubbles on some markets (for instance housing and real estate), and to crowding out of the export-oriented part of the economy from the finance sources. The challenge is how to make our companies more prepared to grow in market and competitiveness and in making it feasible for our banking sector to invest in them more willingly. Besides the banking sector, to support the private sector better, we finally need to introduce other ways of financing much stronger.
2. What will be the key challenges on a global scale?
Trade wars and new protectionism will be the major challenges in the year to come. The unpredictability of the relations on a global scale will make 2020 another interesting and exciting year. We don’t have a large influence on these trends and relationships, but we are getting more and more competent in adapting to almost daily changes.
The slowdown in global economic growth is a challenge that everyone expects in 2020. Media is somewhat exaggerating its potential, as we don’t expect the potential downturn to be on the level of the crisis in 2008. But, money is already cheap, economic easing is maybe not officially in force, but the interest rates act as it is – if that is not enough for spurring growth it is not easy to imagine how are we going to tackle and fight expected fall. Combined with global political turmoil it could be an explosive mixture.
Climate issues – they are already separating people and companies in two camps – both politically and economically. It will get even fiercer in the year to come, especially in the EU, North America zone. During the scrabbles in this region, Asia, Africa and parts of South America will go on with their development without minding these issues. This will maybe be good for them in the short term, but not so good for everyone in the long term.