OECD Investment Policy Reviews: Croatia 2019

Preface

Jasmin Devlić

Greg Medcraft

Croatia has recorded considerable economic and social progress since the start of the post-independence reforms in the late 1990s. GDP per capita increased by an average annual rate of 2.5% between 2000 and 2018 (in PPP, at constant 2011 international USD). Due to this strong economic growth and improvements in labour market conditions, the share of the population living below the poverty line (at USD 5.5/day PPP) has continued trending downwards to 4.6%, from 7.3% in 2013. In addition to its expanding tourist sector, Croatia’s strong performance has been supported by major policy reforms, including continuous efforts to open the economy to investment which have helped spur capital inflows.

This performance has been impressive but Croatia still faces challenges going forward. Growth has slowed down since the global financial and economic crisis (that in fact took a particularly heavy and prolonged toll on Croatia) and convergence in living standards with the rest of the European Union has stalled. Inequalities in income and wealth, both at functional and territorial levels, have increased. Against this background, more remains to be done to fulfil the target set by the umbrella strategy EU 2020 of Croatia having a GDP per capita equal to 68% of the EU average (it was 61% in 2017). The government recognises these challenges and as part of its commitment, is engaged in ambitious reforms to improve the business environment, attract foreign investors, and further reap the benefits of openness and globalisation.

Drawing on OECD investment instruments, in particular the OECD Declaration on International Investment and Multinational Enterprises, as well as the OECD Policy Framework for Investment, a policy tool to help governments mobilise private investment that supports steady economic growth and sustainable development, this OECD Investment Policy Review of Croatia looks at how improvement in the overall investment climate can promote competiveness, diversification, inclusive growth and sustainable development. It offers recommendations across a broad range of policy areas in order to make the most of investment as an engine to boost the economy and the well-being of its citizens. In particular, the government will need to increase domestic entrepreneurship, strengthen competitiveness, clarify its strategies for attracting investments that can support economic diversification, further promote responsible business conduct, and prove to investors that the institutional and regulatory system is transparent and accountable. The government is aware of these challenges and is addressing them.

This Review is the result of close co-operation between the Ministry of Foreign and European Affairs (MVEP) and the OECD. While the OECD brought its deep, inter-disciplinary expertise, MVEP drove the cross-agency process, involving the private sector and civil society and providing critical inputs to the Review. The Review precedes the first Croatian semester of EU Presidency: we are confident it will prove of guidance to all stakeholders interested in peace, prosperity and inclusive growth.

We would like to express our gratitude to the European Union for funding the Review. We hope this report will contribute to creating a favourable investment environment in Croatia.

Jasmin Devlić

Director, Sector for Economic Relations,

Ministry of Foreign and European Affairs, Republic of Croatia

Greg Medcraft

Director, OECD Directorate for Financial and Enterprise Affairs