Since its independence in the early 1990s, Croatia has achieved remarkable economic growth that contributed to a successful convergence towards OECD and EU average incomes. The accession to the World Trade Organisation in 2000 and the European Union in 2013 were a pivotal juncture, which helped foster support for leveraging foreign direct investment (FDI) to enhance Croatia’s productive capacity and growth potential, drive job creation and improved living standards. These achievements have paved the way for an increase in foreign investment over the last two decades, with Croatia’s FDI stock passing from merely 13% of GDP in 2000 to 59% in 2021, above the OECD and CEE average.
Croatia’s strong performance has been supported by continuous efforts to maintain an open and enabling environment for foreign investment, with the country now ranking as one of the most open economies to FDI in the OECD area. Croatia has also demonstrated a strong commitment towards fostering a conducive business environment, as evidenced by its successful administrative and regulatory simplification programme as well as efforts to optimise business registration procedures and digitalise a range of public administration processes, among other initiatives.
These reforms alongside important progress in several aspects of its investment climate have allowed Croatia to benefit from the sustainable development potential of FDI. As demonstrated by this study, foreign-owned firms, while constituting just 5% of active economic entities, have spurred innovation and R&D in knowledge-based services sectors, supported Croatia’s export performance and delivered greener technologies that reduced the country’s carbon footprint. Their impact is further seen in the job market, where foreign-owned firms pay higher wages than their domestic counterparts and employ significantly more women in ICT services and R&D-intensive industries.
Amidst intensifying global competition for FDI, mobilising sustainable investment remains a strategic priority and a necessity for Croatia for the next decade. Although in recent years notable progress has been achieved in attracting investment in the digital and renewable energy sectors, diversifying the economy towards high-tech and knowledge-intensive activities will require enhanced efforts in upgrading firms’ capabilities, addressing labour market inefficiencies, and boosting productivity growth which remains relatively low compared to advanced EU economies. Addressing the emigration of young talent and building a skilled workforce is another important priority for Croatia that could further strengthen the country’s appeal to foreign investors. To this end, it is crucial to proactively promote and facilitate investments that align with these objectives and help build a more diversified, innovative and environmentally sustainable economy.
The need for concerted action is heightened particularly now as multinational enterprises (MNEs) adjust their supply chains amid the economic uncertainty surrounding the aftermath of the COVID-19 pandemic and Russia’s war of aggression against Ukraine. Croatia’s Recovery and Resilience Plan, along with the 2030 Development Strategy, aim to harness the benefits of FDI through the development of a strategic framework for the promotion and facilitation of private investment. The forthcoming adoption of a National Plan and Action Plan for Investment Promotion and the revision of the Investment Promotion Act could help Croatia shift its economy towards high value-added activities and advance on its path towards the twin green and digital transition. This will require increased attention to policy coherence and coordination and a whole-of-government approach to investment and business climate reform.
The FDI Qualities Review of Croatia contributes to a better understanding of what drives FDI towards Croatia and identifies reform options to strengthen its economic, social and environmental benefits. We believe that the assessment and policy considerations put forward in this report will support Croatia in the development and implementation of the new strategic framework and, ultimately, help promote and attract investment that is greener, promotes quality jobs and upskilling, improves gender equality and contributes to a more productive and innovative economy.
The Government of Croatia and the OECD are very pleased to have joined forces in the preparation of this review. We are grateful to the European Union for funding the report and for the support provided throughout the project development and implementation. We also acknowledge the assistance of the Ministry of Economy and Sustainable Development in jointly coordinating consultations with Croatian ministries, agencies, companies and other stakeholders whose experiences on Croatia’s business environment further enriched the review.
We hope that this assessment will help lay the foundations of a more sustainable and resilient economy.
Hrvoje Bujanović
State Secretary, Ministry of Economy and Sustainable Development of Croatia
Yoshiki Takeuchi
Deputy Secretary-General, OECD