OECD Investment Policy Reviews: Croatia 2019

Chapter 3. Croatia’s competitiveness: Challenges and opportunities

Abstract

This chapter examines Croatia’s integration into the global economy and the structure of foreign trade. It looks at various indicators which, taken together, determine the nation’s ability to compete in global markets. It also summarizes various measures that can be taken to improve productivity and competitiveness, notably by promoting linkages, addressing skills shortages, enhancing market functioning, and facilitating trade.

While Paul Krugman was certainly right in observing that firms, and not countries, compete in the global marketplace, policy-makers are justifiably concerned with the notion of national competitiveness – to the point of being “obsessed”, as the American economist wrote in 1994 in a celebrated Foreign Affairs essay (Krugman, 1994). This chapter first examines some structural features of Croatia’s trade, such as product composition and geographical destination, and then reviews a broad set of policy and institutional factors that concur to determine competitiveness, i.e. the level of productivity and the ability to achieve sustainable and inclusive growth.

Trade patterns and integration into regional and global value chains

National economies have structural characteristics that reflect long-term underlying forces and it is therefore useful to compare the three largest and most advanced countries that were established from the former Yugoslavia. The comparison shows important differences in the structure of merchandise trade. One quarter of Croatian exports are intermediate products – more than in Slovenia and Serbia – while the share of consumer goods is the lowest. On the import side, the opposite is true: Croatia has the lowest share of the three countries for intermediate and capital goods and the highest for consumer goods.

From a geographical standpoint, similar to Slovenia there is a concentration of exports to the European market, although for Croatia the weight of non-EU countries (including the Russian Federation ) is higher (and so is, somehow surprisingly, that of the Eurozone). Countries of the former Yugoslavia concentrate the largest share of Croatian exports (in fact, the highest incidence among the three countries), although Italy was the single largest partner in 2016, as it was for Serbia (whereas Germany tops the list for Slovenia). On the import side, Germany, Italy, and Austria head the rankings, as they do in Slovenia (in Serbia, China is now the third-largest supplier). More generally, Croatia sources 8% only of its foreign needs outside of Europe, much less than Slovenia (22%) and Serbia (25%).

Manufacturing dominates in the export basket

The 2017 export basket of Croatia is predominantly composed of manufactured goods, although the incidence of agricultural products (albeit minimal) is larger than for Slovenia. Among manufacturing exports, more sophisticated goods (“heavy manufacturing”) account for a much lower share in Croatia (and Serbia) than in Slovenia; conversely, “light manufacturing” is much more relevant in Croatia (and Serbia). Patterns are roughly similar on the import side. It is noteworthy that Croatia runs a deficit across all merchandise classifications, whereas Slovenia has a surplus for “heavy manufacturing” and Serbia one for “light manufacturing”.

In the 2012-16 period, against the background of an unexpected trade slowdown, Croatia has managed to increase its global export share, albeit marginally (+0.03%). The improvement has been higher in the mega-sectors (raw materials and intermediate goods) for which global import demand has shrunk the most. Correspondingly, Croatian exports have barely made any inroads in the capital goods industry, global demand for which has dropped the least (and in fact, it lost market shares in transport equipment, which at the aggregate level is the only sector recording an increase). Hides and skins and wood are the best-performing industries, where gains in global market shares are connected to the ability of Croatian firms to intercept the demand by global lead firms. These sectors had a positive growth of world imports in the period 2008-12 associated to an increase of Croatia’s share of world exports over the same period of time.

Table 3.1. Trade structure by geographical destinations

EXPORTS		1999			2008			2016
		HRV	SVN	SER	HRV	SVN	SER	HRV	SVN	SER
EU		67.68	81.62	48.17	62.68	77.56	58.20	69.62	76.57	66.13
Eurozone		61.57	63.59	39.01	52.01	53.08	40.61	55.54	53.57	43.43
Rest of EU		6.11	18.03	9.16	10.67	24.48	17.59	14.08	23.00	22.70
Non-EU Europe		20.48	10.37	34.29	26.96	14.36	21.07	20.99	12.89	16.03
Rest of the world		11.84	8.01	17.54	10.36	8.09	20.73	9.39	10.54	17.84
Former Yugoslavia		25.51	15.16	35.18	31.04	17.25	36.96	28.55	14.79	23.77
Italy		18.05	13.76	10.50	19.08	12.09	10.28	13.66	11.23	14.60
Germany		15.73	30.74	11.13	10.75	18.89	10.40	11.78	20.64	13.06
Austria		6.18	7.28	2.11	5.78	7.84	4.18	6.40	8.29	2.53
China		0.08	0.15	0.62	0.25	0.35	0.05	0.61	0.62	0.17
IMPORTS		1999			2008			2016
		HRV	SVN	SER	HRV	SVN	SER	HRV	SVN	SER
EU		74.01	81.71	58.31	67.17	72.06	54.41	83.46	70.54	61.69
Eurozone		61.87	64.37	38.76	52.01	57.19	36.37	60.91	53.18	40.25
Rest of EU		12.13	17.34	19.54	15.17	14.87	18.04	22.55	17.36	21.43
Non-EU Europe		14.19	5.28	19.49	18.37	6.64	22.35	8.64	7.34	13.34
Rest of the world		11.81	13.02	22.20	14.46	21.30	23.24	7.90	22.12	24.97
Former Yugoslavia		10.41	5.67	10.66	10.56	7.11	10.47	16.82	8.69	9.22
Italy		15.87	16.72	10.11	17.11	16.47	9.50	12.62	14.66	10.32
Germany		18.51	20.55	12.27	13.40	16.98	11.76	16.11	17.21	12.86
Austria		7.06	7.95	3.44	4.91	8.31	2.49	7.97	8.60	3.04
China		0.97	1.34	2.34	6.14	4.29	7.95	2.96	6.45	8.34

Source: OECD elaboration based on World Integrated Trade Solution database

Table 3.2. Export structure by number of HS6 digit products

	1999			2008			2016
	HRV	SVN	SER	HRV	SVN	SER	HRV	SVN	SER
World	3 454	3 945	2 825	3 699	4 063	3 809	3 932	4 053	3 864
Selected partner regions
Europe & Central Asia	3 143	3 663	2 807	3 678	4 047	3 784	3 912	4 033	3 843
Middle East & North Africa	265	576	166	622	1 056	609	950	1 342	943
North America	335	592	98	601	1 056	508	845	1 342	778
East Asia & Pacific	200	437	96	525	1 076	909	827	1 365	711
Sub-Saharan Africa	88	186	92	256	525	498	621	693	549
Selected partner countries
Bosnia & Herzegovina	2 558	2 553	2 342	3 027	3 080	2 979	3 176	2 876	3 013
Slovenia	1 774	n.a.	341	2 249	n.a.	1 304	2 995	n.a.	1 689
Serbia	403	1 209	n.a.	2 364	3 088	n.a.	2 595	3 004	n.a.
Italy	971	1 775	489	1 874	2 293	1 283	1 985	2 577	1 493
Germany	1 080	2 049	583	2 249	2 368	1 486	1 952	2 544	1 774
Austria	767	1 714	230	1 377	2 184	858	1 719	2 426	1 155
Republic of North Macedonia	799	1 564	1 404	1 474	2 087	2 210	1 557	1 950	2 445
Croatia	n.a.	2 779	182	n.a.	3 449	1 815	n.a.	3 364	2 110

Source: OECD elaboration based on World Integrated Trade Solution database

Table 3.3. Product structure of merchandise trade

	EXPORT			IMPORT			ISIC (3) Codes
	HRV	SVN	SER	HRV	SVN	SER
Agriculture	4.85	2.24	5.98	3.29	2.50	3.65	1, 2, 5
Mining	0.66	0.67	0.51	6.40	1.53	10.23	10-11, 13, 14
Manufacturing	91.42	95.64	92.94	87.32	94.54	85.59
Light manufacturing	25.86	11.28	25.96	23.81	16.11	17.27	15-22
Industrial commodities	31.01	33.48	29.88	28.21	36.62	33.47	23-27
Heavy manufacturing	34.55	50.88	37.10	35.30	41.81	34.85	28-36
Others	3.07	1.44	0.56	2.99	1.42	0.52	37, 40

Source: OECD elaboration based on World Integrated Trade Solution database

Croatia’s Economic Complexity Index (ECI) increased from 0.63 in 2001 to 0.83 in 2016, although at the global level it lost one position (from 29^th to 30^th).1 In Central and Eastern Europe, Croatia stands below Slovenia, as well as the Czech Republic, Hungary, Slovakia, Poland, Estonia, and Romania. While not spectacular, this performance is an unquestionable improvement with respect to the earlier period (Aprahamian and Correa, 2015). Between 2008 and 2012 Croatia expanded its market share in world exports in sectors whose world import demand growth increased at a relatively low rate (“winners in declining sectors”). In addition, Croatia had several important sectors (in terms of overall export value) which both lost market share in world exports and faced lower import demand (“losers in declining sectors”). On the other hand, expansion was very limited for products whose import demand between 2008 and 2012 increased strongly (“winners in growing sectors”). There were also a few products with growing world demand and declining world market export shares (“losers in growing sectors”). Out of 3,407 products at the HS-6 digit level that Croatia exported in 2012, only four were winners in growing sectors (i.e. medicaments and antibiotics, cane of beet sugar in solid form, articles of leather or of composition leather, and revolvers and pistols).

The list of Croatia’s largest exporters is topped by state-owned INA, followed by foreign-owned Pliva and Boxmark Leather, an Austrian multinational enterprise which produces car seat covers and upholstered interior parts. Other companies in the top 10 include Valamar Riviera (hospitality, controlled by the Austrian investment firm EPIC), Petrokemija (petrochemicals, state-owned), Končar Energetski Transformatori (a joint venture of Siemens and the local Končar Group), Ericsson Nikola Tesla, Uljanik (Box 3.1), Croatia Airlines, and HEP.2 The Balkans’ largest private company and regional multinational, Agrokor, used to feature prominently in this ranking, thanks to an integrated farm-to-retail supply chain in food processing, developed through in-house innovation, large investments in farms, and tie-ups with overseas research institutions. The company, which employs 52 000 people, collapsed in early 2017, was placed under state administration in April that year, and reached a debt settlement deal with creditors (led by Russian banks Sberbank and VTB) in July 2018. The effects of the crisis on the economy have been limited and the impact of this event on the yields on Croatian government bonds was marginal and only temporary (Croatian National Bank, 2018).

Table 3.4. The structure of Croatian exports

Product Group	Percentage of 2016 exports	growth rate 2012-16
		Export	World import	Market share
All Products	100.00	10.34	-18.29	0.03
Capital goods	21.77	-2.80	-5.99	0.01
Consumer goods	44.39	8.39	-15.68	0.04
Intermediate goods	24.61	33.22	-17.12	0.05
Raw materials	9.02	2.29	-44.90	0.05
Machinery and Electronics	18.05	11.43	-7.40	0.02
Chemicals	11.77	33.41	-12.27	0.05
Fuels	9.49	-23.39	-57.13	0.07
Wood	8.06	29.00	-10.90	0.12
Food Products	7.85	13.46	-7.60	0.06
Metals	7.18	-8.94	-27.15	0.03
Textiles and Clothing	6.50	46.57	-8.41	0.06
Transportation	5.79	-30.51	0.13	-0.01
Vegetable	3.49	32.09	-11.66	0.04
Plastic or Rubber	3.31	68.16	-14.77	0.04
Stone and Glass	2.84	-31.00	-3.71	0.00
Animal	2.82	33.69	-8.53	0.05
Footwear	1.85	21.67	3.54	0.05
Hides and Skins	1.80	41.08	-9.24	0.12
Minerals	1.44	14.86	-35.17	0.05
Miscellaneous	7.76	71.69	-5.10	0.03

Source: OECD elaboration based on World Integrated Trade Solution database.

Box 3.1. The arduous restructuring of shipyards

Shipbuilding has always been an important industrial sector in Croatia, especially in Istarska, Primorsko-goranska and Splitsko-dalmatinska counties. The Croatian shipbuilding industry was one of the largest in Europe in the 1970s, and ranked third worldwide in 1988 by the size of the outstanding orderbook. Given its specialisation in relatively unsophisticated tankers and car carriers, it was then hit hard by the fall of the Berlin wall, the Balkans wars, and the rise of new competitors in Asia. In the 2002 Stabilisation Agreement with the EU, Croatia committed to restructure the shipyards within four years, but failed to fulfil the obligation. By 2012, just ahead of EU membership, only the largest of the five state-owned shipyards (Uljanik) was making a profit, while Kraljevica was subject to bankruptcy procedure.

Uljanik, as well as Brodosplit, Brodotrogir and 3.Maj, were privatized in 2013, with the expectation that the new owners (all of them Croatian investors) would turn them around by the end of 2017. Following privatisation, production capacity has indeed been trimmed, payroll reduced, and activity gradually oriented towards non-shipbuilding products. Ten ships were built in 2017, for 80,500 compensated gross tonnage; at the end of the year, Croatia had the fifth-largest orderbook in the EU and the 11th worldwide.

Nonetheless, in early 2018 the government was compelled to rescue Uljanik, which employs 2,200 people, through a EUR96 m loan that was cleared by the European Commission on the condition that the shipyard work out a sound restructuring programme. Kermas Energija, that already runs the Brodotrogir shipyard, was chosen as strategic partner in the HRK 180-302 million (EUR 24-40 million) recapitalisation. At mid-year, however, it seemed that Uljanik could enter bankruptcy proceedings and in September the EC returned the government's restructuring plan for revision. The total fiscal burden of Croatian shipyards’ rehabilitation and restructuring programmes is estimated at HRK 30 billion since 1992.

Source: “Croatia’s shipyards: clock is ticking,” Financial Times, 2 May 2012; Ostojić (2015); Bajo et al. (2016); Bajo et al. (2018); European Commission (2018), “State aid: Commission clears rescue aid for Croatian shipbuilder Uljanik,” press release, 22 January 2018.

Trade in commercial services is in surplus

While these data hint at the still unexploited potential of Croatia as a trading nation in merchandise, the situation is rosier in commercial services. The USD 9.6 billion surplus more than offset the merchandise trade deficit and is due in great part to the income generated by the tourism sector (which accounts for 76% of trade in commercial services, well above Slovenia at 36% and Serbia at 23%). In 2017, travel and tourism was estimated to directly contribute 10.9% of GDP and to support 10.1% of total employment (WTTC, 2018). Total international arrivals have grown fast, from USD 47.2 million in 2012 to USD 57.6 million in 2016, although there are numerous pending policy and business issues to ensure the sustainability of the current model (Box 3.2).

Participation in GVCs is modest

Croatia’s relatively low openness level is also reflected in its TiVA (trade in value added) and GVC (global value chain) statistics (WTO, 2017). The comparison with Slovenia reveals that the foreign value added share of exports and the domestic value added sent to third countries are lower in Croatia, whereas the domestic value added sent to consumer economy is much higher. The GVC participation rate is correspondingly much lower – 34% of total gross exports, versus 59% in Slovenia: the difference is similar for backward and forward linkages.

WTO data, however, only cover the period until 2011, before Croatia joined the EU. More recent analysis by Croatian National Bank suggests that Croatia’s integration in GVCs did not essentially change from 2000 until 2014 (Vidaković Peruško et al., 2018). The share of domestic value added in gross exports in 2014 was highest in the production of food, beverages and tobacco, pharmaceutical products (the only industry showing a significant increase since 2000), and computers and electronics. In line with previously mentioned evidence, results indicate that Croatia is strongly integrated in GVC trade only with a few trading partners (Germany, Italy, Austria and Slovenia).

Box 3.2. The role of tourism

In the years before the global financial crisis, Croatia’s imports grew more rapidly than its exports. A sharp trade adjustment process followed the bursting of the financial bubble and Croatia now has a persistent current account surplus to ensure the sustainability of the external liabilities it accrued in the previous decade. Exports of services (mainly tourism) are particularly important, while exports of goods and investment play only a secondary role.

Croatia has an advantageous location and is endowed with natural beauty, making it an important tourist destination even in socialist times. In the past 20 years tourism has been on the rise, also pulled by pilgrimages to Medjugorje, one of the most renowned shrines to the Virgin Mary in the world, and the filming of a highly-broadcasted TV series, Game of Thrones, in Dubrovnik. In 2016, tourism employed 93 000 persons (7% of the overall workforce) and international tourists’ expenditure in Croatia amounts to almost 20% of GDP – by far the largest share in the EU. Nonetheless, a tourism strategy based on an ever-growing number of arrivals – without a fundamental diversification of the current offer – presents limitations. In addition, there is econometric evidence that a country’s dependence on tourism increases its vulnerability to exogenous shocks.

Tourism policy should aim to broaden the offer of tourism services and move away from the current, highly seasonal pattern (“sea and sun” tourism model with stays concentrated in coastal areas in the summer months) in order to reduce congestion and environmental costs. To this end, the accommodation offer must be diversified away from relatively cheap structures (such as private vacation houses and camping grounds) and average tourist spending should be increased. This calls for renewed and coordinated efforts by policymakers at all government levels to address the existing shortcomings and support the development of the tourism sector in terms of scope and quality of the offer.

Source: Orsini (2017); Orsini and Ostojić (2018); Tkalec (2017); and Zdravko et al. (2018).

Enterprise reform

SOEs reform has lost momentum

In line with other transition economies, in the 1990s and 2000s Croatia launched successive privatisation waves (Table 3.5). Major foreign direct investment deals included the purchase of 51% of Hrvatski Telekom by Deutsche Telekom, of 49.1% of INA by Hungary’s MOL, and the awarding of a 30-year concession for Zagreb International Airport to a consortium led by Aeroports de Paris. The ambition of the reform programme diminished after the crisis and nowadays there remain more than 1,100 SOEs, with the number in fact increasing over time (Bajo et al., 2018).

Estimates differ regarding their economic weight. Based on Orbis data, Tabak and Zildzovic (2018) conclude that SOEs control assets equal to almost 80% of GDP and employ 73 000 workers, or 5% of the total workforce. A careful analysis of 2012 accounting documents reveals that 1 061 companies fully or predominantly owned by the state have assets worth over EUR 40 billion, generate more than EUR 10 billion in revenues and employ about 140 000 workers (Bajo and Primorac, 2016).3 These are, in general, higher figures than in Central Europe and closer to the situation prevailing in the Western Balkan countries – in Serbia, for instance, 166 SOEs (including some of the largest strategic companies) remain in the privatisation portfolio and employ 52 000 workers (EC, 2017a).

Table 3.5. Waves of privatisation

Period	Main features
1991-94	Transformation of all companies in either joint stock or limited liability companies under the Conversion Act.
1994-98	Creation of the Croatian Privatisation Fund to control companies that had not been converted by the Act deadline (except for most of the flagship SOEs).
1998-2000	Mass privatisation based on the free allocation of shares to certain categories of the population (war veterans, families of killed, imprisoned or missing Croatian soldiers and civilians, Croatian soldiers etc.).
2000-12	Consolidation of state assets in the Croatian Privatisation Fund under the Ministry of the Economy.
2012-	Termination of the Croatian Privatisation Fund Establishment of the Agency for the Administration of Government Property (later renamed State Office for the Management of Government Property, DUUDI) Adoption of the Strategy for the Management of Government Assets and of the Law on the Management and Disposal of State-owned Assets. From 2014, annual plans for state-owned asset management. Transformation of DUUDI into the Ministry for State Assets. Creation of the Central State Assets Register and amendments to the Law on the Lease and Sale of Commercial Properties to enable more efficient management of state-owned properties.

Source: OECD elaboration.

Among enterprises controlled and majority-owned by the state, 35 are considered “of special state interest” (and four more legal entities are not incorporated).4 The “Leviathan reach” is pervasive in public utilities and transportation, where SOEs accounted for 79% and 45% of the respective 2012-13 payrolls. The World Bank estimates that out of HRK 20.6 billion infrastructure investment in 2014, HRK 12 billion was carried out by SOEs (of which some are part of the general government coverage), while the remaining HRK 8.6 billion was shared among central and local governments (World Bank, 2016b).

Table 3.6. The “Leviathan reach” in Croatia and its peers

(government-held equity stake in parentheses)

Sector	Situation in
	Croatia	Slovenia	Serbia
Electricity	Hrvatska elektroprivreda (HEP Group) (100%)	Elektro-Slovenija (ELES) (100%)	Elektropriveda Srbije (EPS) (100%)
Natural gas		Geoplin (54%)	Srbijagas (100%)
Oil	INA (44.8%)	Petrol Group (38%)	Naftna Industrija Srbije (NIS) (29.9%)
Telecoms	Hrvatski Telekom (9.6%) *	Telekom Slovenije (75%)	Telekom Srbija (100%)
Water management	Croatian Waters (100%)	73 local utilities, of which 66 are state-owned	Beogradvode, Vode Vojvodine, and Srbijavode (100%)
Air transport	Croatia Airlines (97%)	Adria Airways (96%)	Air Serbia (51%)
Airport (capital)	Zagreb Airport International Company (30-year concession since 2012)	Aerodrom Ljubljana (72%)	Aerodrom Nikola Tesla Beograd (100%)
Railways	HŽ Putnicki prijevoz (100%)	Slovenske železnice (100%)	SrbRail (100%)
Post office	Hrvatska pošta (100%)	Posta Slovenije (100%)	Pošta Srbije (100%)
Fertilizers	Petrokemija		HIP Azotara (100%)

* refers to stakes held by the War Veterans’ Fund and the Restructuring and Sale Center.

Source: Petkovšek and Pevcin (2017); Svetoslava and Riquelme (2013); and OECD elaborations.

It can be argued that the institutional infrastructure for managing state-owned assets in the public interest is finally in place. The SOE portfolio that was until recently administered by the State Property Management Administration (DUUDI) has been transferred to the Ministry of State Assetsor the Restructuring and Sale Center (CERP) (390 companies, of which 29 are majority-owned by the central government).5 In August 2017, the government hired an adviser for restructuring INA (through the possible purchase of the remaining 49.08% stake held by MOL), as well as the potential coinciding sale of a 25% stake in the national utility HEP. In addition, the government has recently restarted the restructuring process of fertiliser producer Petrokemija, food company Podravka, electrical equipment producer Koncar, marina operator ACI, Croatia Banka and the port of Rijeka (see below).

Nonetheless, operating and financial indicators paint a rather disturbing picture (Tabak and Zildzovic, 2018). Profitability, with an average return on assets (ROA) of 0.7% over 2012‑14, is very low, although the six-year recession may have contributed to that to some extent. SOEs receive substantial subsidies that contribute to the high fiscal imbalances, while their transfers into the budget remain paltry (around 1% of GDP), despite the high value of state-owned assets. Some SOEs operate in competitive sectors, such mechanical engineering company Duro Daković, and it is unclear the logic of maintaining them in government hands. In sum, “no clear privatisation strategy is in place. This has resulted in companies being privatised only as a measure of last resort at times of severe financial distress or need for recapitalisation” (EC, 2019, p. 48).

In line with the OECD Guidelines on Corporate Governance of State-Owned Enterprises (SOE Guidelines) and international experience, various steps should be taken to improve SOE governance and performance and, when appropriate, prepare companies for privatisation. In particular, greater consistency is needed with regard to ownership and control of state assets; more resources should be devoted to financial oversight; efforts should continue to make SOE boards more professional; public-private competition should be promoted; and regulators should be given enhanced powers (Bower, 2017). Some corresponding measures have been implemented following the adoption of the new Code of Corporate Governance in all majority SOEs. A new selection framework has been established to improve directors’ qualifications and to allow for private-sector candidate. As discussed in chapter 8, the SOE Guidelines also recommend that SOEs observe RBC standards and publicly disclose expectations established by the government in that regard, as well as mechanisms for their implementation. Implementing RBC principles and standards in SOEs contributes to enhancing SOE governance and performance while improving the quality of the overall business environment.

Developing SMEs capacity for greater internationalisation

In Croatia like anywhere else, small and medium-sized enterprises (SMEs) are the backbone of the economy, in terms of number of enterprises, employment, turnover and exports. The recent dynamics of jobs creation and value added is also very favourable (European Commission 2017b). Productivity of SMEs, however, remains persistently low, and so is the ability of Croatian SMEs to internationalise through export and insertion in global value chains as suppliers to larger multinationals.

Results from GEM (Global Entrepreneurship Monitor), the world’s largest study of entrepreneurship in which Croatia has been involved since 2002, suggests that one factor is the relative importance of different motivations for starting a business (CEPOR, 2016). In Croatia, there is an almost perfect balance between lack of other opportunities for employment (“necessity”) and recognising a business opportunity (“motivation”) – in fact the country has the lowest motivational index of all the EU countries involved in the GEM research, and a significantly higher necessity index than the EU average. This is a problem insofar as high values of the motivational index are a proxy of potentially better preparedness for starting a business venture and of greater optimism, which is based on recognised opportunity. Significant focus should be put on promoting entrepreneurship and strengthening entrepreneurial education at all levels. Another, and possibly complementary, factor is the very heavy regulatory burden and parafiscal charges on SMEs. The May 2017 introduction of a regulatory impact assessment pilot with SMEs to measure the burden of regulatory changes on doing business and the removal of the requirement to stamp all documents are meant to make starting a business less cumbersome (IMF, 2018).

Innovative SMEs are still an exception, despite a generous tax break system and a reasonable infrastructure to support business R&D. Nonetheless, three Croatian companies are featured in the Financial Times 1000 list of the European “gazelles” – i.e. companies that have achieved the highest compound annual growth rate in revenue between 2013 and 2016 (Box 3.3).

Box 3.3. Three Croatian gazelles: Rimac, Nanobit and Infinum

Rimac Automobili, founded in 2009 in a garage, produces electric hypercars, drivetrains and high-voltage and also develops digital interfaces between man and machine battery systems (HMI Development). Its first model, the Concept One, is known as the world’s fastest production electric vehicle (eight cars have been produced). Rimac’s subsidiary Greyp Bikes, which was founded in 2013, also develops and produces e-bikes. Rimac, ranked 144th fastest-growing company in Europe, had 2016 sales of EUR 5.9 million and 164 employees. A significant part of the early financing came from angel investors and proprietary patents’ sale. In April 2017, Camel of Shenzhen, Asia’s largest battery manufacturer, signed an agreement to invest EUR27 million in Rimac and EUR3 million in Greyp Bikes. In 2018, Porsche acquired a 10% equity stake in Rimac to develop a strategic partnership.

The other two ‘gazelles’ operate in the ICT space. Zagreb-based Nanobit is a video game developer that is included among the top 200 most profitable developers on Apple store. It was created in 2008 and has opened two offices in Budapest and Bucharest. Nanobit had 2016 turnover of EUR 7.4 million and employed 67 persons. Infinum is a software company, based in Karlovac, specialised in iOS, Android and Web design. Since its establishment in 2005, it has opened subsidiaries in Slovenia and on both US coasts. Infinum had 2016 sales of EUR 2.7 million and 78 employees.

A selected range of indicators point to the relative underdevelopment of Croatian financial markets relative to other emerging economies, although not with other countries in the former Yugoslavia (Table 3.7). Indeed, firms in Croatia identify access to finance as the second-severest obstacle to business operations. This is true in particular for small firms, i.e. those having fewer than 20 employees (World Bank and International Finance Corporation, 2014). Although the situation appears to have improved recently, with access to finance no longer the major obstacle to investment, at 13% the share of firms facing finance constraints is above the EU average (EIB, 2018). Reliance on internal financing sources remains high, including among small and innovative firms that face even greater difficulties to successfully tap into external financing as they lack the requested collaterals or they find the borrowing costs too expensive.

Table 3.7. The financial sector in comparative perspective

	Croatia		Slovenia		Serbia
	2007	2016	2007	2016	2007	2016
Bank deposits to GDP (%)	59.7	63.9	47	54.6	31.5	43.4
Deposit money banks’ assets to GDP (%)	63.9	60.5	78.5	65.3	35.9	60.4
Insurance company assets to GDP (%)	7.4	11.4	12.1	17.1	3.1	5.1
Mutual funds’ assets to GDP (%)	3.4	6.3	4	6.1		0.5
Pension fund assets to GDP (%)	6.8	25.6	3.8	7	0.2	0.8
Stock market capitalisation to GDP (%)	74.8	39.6	39.1	12	48.6	n.a.
Credit to government and SOEs to GDP (%)	14.8	28.3	6.3	17	1.6	18.7
Corporate bond issuance volume to GDP (‰)	0.5	5.2	11.1	7.1		4.5
Remittance inflows to GDP (%)	2.9	4.5	0.7	0.8	7.2	8.7

Source: World Bank, WDI database, accessed 17 September 2018.

Croatia has a typical bank-based financial system, with credit institutions accounting for around 71% of financial sector assets at the end of 2016 (HNB financial accounts, Table T1). Bank assets declined to 106% of GDP in 2017 (from 110% in 2016) on the back of strong government deleveraging and accelerated non-performing loan (NPL) sales (EBF, 2018). The banking industry, which comprises 26 commercial banks and five savings banks, is highly concentrated – the top six banks hold roughly 80% of market share by assets – and open – 15 foreign-owned banks control 90% of assets (Table 3.8). There are seven other systemically important institutions (SIIs), while there are no global SIIs.

Table 3.8. The banking sector in comparative perspective

	Croatia	Serbia	Slovenia
Number of banks	23	29	18
Assets	54 650	28 425	40 407
Loans	34 213	15 320	27 819
Deposits	42 096	16 717	30 598
Capital & reserves	8 027	5 615	4 849
Staff	19 764	23 342	9 844

Source: Croatia National Bank for Croatia (refers only to banks) and European Banking Federation (2018), Banking in Europe 2018 for Serbia and Slovenia.

The financial system is structurally sound, with moderate vulnerabilities stemming from the currency and interest rate structure of credit to the private sector and the high level of banking concentration (HNB, 2018). In 2015 the conversion of Swiss franc-indexed loans generated significant losses which were subsequently absorbed and bank profitability remained relatively high in following years.

Only three banks are still state-owned (6% of total assets). In addition, the Croatian Bank for Reconstruction and Development (HBOR) was established in 1992 as the country’s development and export bank. HBOR is the national counterpart for the Investment Plan for Europe, also known as the Juncker Plan. Its bonds are rated by Moody’s Investors Service (Ba2) and Standard & Poor’s (BB+). However, following the bankruptcy of Agrokor (of which HBOR was one of the largest creditors), there have been calls to improve the oversight of the bank, so as to minimise the risks of financing politically-connected businesses. Yet-to-be-unveiled results from an Asset Quality Review will provide useful information in this regard.

Mandatory pension funds established by the 1999 pension reform and insurance corporations together account for around 20% of financial sector assets (data for the end of 2014).6 Ongoing payments by second pillar members and still negligible payouts have generated a steady increase in assets of these intermediaries.

Enterprises rarely raise capital through the stock market and instead tend to rely solely on the traditional banking system to meet their needs. Only 49 companies are listed on the three markets that compose the Zagreb Stock Exchange (ZSE), established in 1991.7 In 2015, ZSE acquired the Stock Exchange of Ljubljana, in Slovenia. ZSE is also a founder of SEE link, a project started with Bulgaria and the Republic of North Macedonia to integrate south-eastern Europe equities markets without merger or corporate integration, using only technology.

Labour markets and skills

At the height of the post-2009 recession, in the 2013-14 biennium, unemployment in Croatia reached 17.3%. It has fallen ever since, and is projected to decrease further to 8.4% in 2019 (ILO, 2018). Nonetheless, so far, the rebound of economic growth has not led to a major employment increase. Low labour force participation is the main problem. It was 51.6% in 2017 (against 58.4% in Slovenia and 54% in Serbia) and as low as 45.6% for women. The share of youth not in employment, education or training (NEET) is also very high (15.4%) and so is the share of long-term unemployment in total unemployment (41.0%). As in the rest of the world, the quality of available jobs is a matter for concern: although new hiring on permanent contracts increased in 2017, the share of temporary contracts in total employment remains sizable (EC, 2018). A high share of people are considered at-risk-of poverty or social exclusion, particularly among some vulnerable groups such as the disabled and the elderly. Aging and negative net migration flows are other forces acting.

The combined rate of unemployment and potential labour force – i.e. the sum of persons in unemployment and potential labour force divided by the extended labour force – is quite high and shows that the degree of labour underutilisation is consistently above the level suggested by the unemployment rate (ILO, 2018). As the recovery strengthens and unemployment levels fall, there is considerable scope for targeted policy actions aimed at strengthening labour market participation of large sways of society, especially discouraged workers and women with family responsibilities. In 2013 and 2014, two labour market reforms facilitated the use of fixed-term contracts and flexible types of work (distance work, part-time work, seasonal work and agency work) and reduced firing costs. As noted in chapter 8 of this Review, facilitating access to the labour market by women and minorities, and pursuing efforts in the field of equal opportunities could also contribute to greater labour market participation. Implementation of RBC principles and standards by businesses could help in that regard.

Unfortunately, “active labour market policy measures for low-skilled and long-term unemployed remain largely underutilised” (EC, 2018, p. 1). The overall underdevelopment of social dialogue between the government and the social partners is one complicating factor. Trade union density is relatively high (25.8%), but representation is fragmented. There may be considerable value in reinforcing the National Economic and Social Council (Gospodarsko-socijalno vijeće, GSV) and enhancing the interaction between authorities and stakeholders behind the often formalistic provision of written feedback on some of the government-proposed measures.

Croatia, like many countries in Central and Eastern Europe, has seen educational attainment – such as years of education and level of education completed – expand since the start of the political and economic transition. The level of educational attainment, however, is not necessarily a proxy for measuring actual skills, as proven by performance in international student assessments that measure cognitive skills, such as PISA. Scores reveal that Croatian youth accumulate poor cognitive foundation skills, which leaves them ill-equipped for the demands of a competitive, innovation-driven economy. The gap is the widest in mathematics, where 15-year-olds in Croatia score 464 points compared to an average of 490 points in OECD countries. But it is disturbingly large also in science literacy, the main topic of PISA 2015 (475 points compared to 493), and in reading (487 points compared to 493).

At the same time, there are wide variations in education outcomes, high NEET rates among youth, and the share of workers participating in lifelong learning activities is one of the lowest in the EU. Despite recent education reforms, the World Bank recommends to place increasing emphasis on improving the quality of general education, lifelong learning programs, and adult education to ensure a competitive and adaptive workforce (World Bank, 2016b). The brain drain, i.e. the departure of highly-skilled nationals, is another problem plaguing Croatia. In fact, while overall outward migration flows have decreased from the very high levels of the 1990s and the 2000s, the share of the highly-skilled among Croatians migrating to 20 OECD countries has increased from 16% in 2000 to 26% in 2010 (IAB Brain Drain Data figures cited in Fabritz and Falck, 2016).

Table 3.9. Croatian education at a comparative glance

	Educational attainment *		Total spending on educational institutions		Student performance (PISA 2015)
					Reading		Mathematics		Science
	2006	2016	2005	2014	2006	2015	2006	2015	2006	2015
Croatia	N/A	94	4.0 **	4.7	477	487	467	464	477	487
Slovenia	82	94	5.3	4.6	494	505	504	510	494	505
Visegrad	85	92	3.4	3.2	485	479	497	487	485	479
EU ***	69	85	4.7	4.8	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.

* percentage among 25-34 year-olds with at least upper secondary or post-secondary non-tertiary education

** 2007

*** EU 19 for 2006 and EU22 for 2016

Source: OECD (2006 and 2015), Program for International Student Assessment (PISA), Reading, Mathematics and Science Assessments; EC (2017), Education and Training Monitor 2017: Croatia.

The innovation system

As the OECD noted in 2014, “Croatia does not yet have a mature innovation system with a core of highly innovative businesses as a driver” (OECD, 2014). According to the European Innovation Scoreboard 2018, Croatia is a Moderate Innovator, with its performance deteriorating relative to that of the EU. While no summary metrics is sufficient to gauge the state of a nation’s innovation efforts and performance, some indicators provide useful information to policy-makers and should raise their attention to weak spots.

As far as R&D spending as percentage of GDP is concerned, Croatia has the eighth-lowest level in the EU, one of ten countries with intensity below 1% (Table 3.9). Despite an increase in R&D intensity from 0.74% in 2006 to 0.84% in 2016, the distance from the EU average has widened (from -1.02% to -1.19%). In fact, Croatia has recorded the tenth-smallest improvement in this indicator among the EU countries (and this includes Sweden and Finland that have experienced a fall from levels well above 3% in 2006). The composition of R&D spending remains relatively unusual in comparison with the rest of the EU (but also Slovenia and the four Visegrad countries), in that the business sector contributes for a much lower level of the total outlays. Croatia BERD has continually underperformed both the EU28 average and Slovenia. Correspondingly, the contribution of government and higher education institutions is unusually high.

The OECD Guidelines for Multinational Enterprises contain recommendations that aim to promote the diffusion by businesses of the fruits of research and development activities among the countries in which they operate. Businesses are notably encouraged to perform science and technology development work, develop ties with local universities, public research institutions, and participate in cooperative projects with local industry or industry associations. The Government has an opportunity to leverage the Guidelines to involve businesses in the development of innovative capacities through implementation of RBC principles and standards.

Table 3.10. R&D spending – Croatia in comparative perspective

	R&D intensity (R&D spending as % of GDP)		R&D spending by performing sector
			Business		Government		Higher education		Private non-profit
	2006	2016	2006	2016	2006	2016	2006	2016	2006	2016
Croatia	0.74	0.84	37	45	27	22	37	33	0	0
Slovenia	1.53	2.00	60	76	25	13	15	11	0	0
Visegrad	0.81	1.16	46	63	29	14	25	23	0	0
EU	1.76	2.03	63	65	13	11	22	23	1	1

Source: Eurostat (2017), “R&D expenditure in the EU remained stable in 2016 at just over 2% of GDP”, newsrelease, No. 183/2017.

Table 3.11. Innovation performance – Croatia in comparative perspective

	Applications						Share of innovative enterprises		Number of FT Europe 1000 fastest-growing companies
	Patent		Trademark		Industrial design
	2006	2015	2006	2015	2006	2015	2008	2014	2017
Croatia	183	186	2 091	2 905	..	281	44.2	39.7	3
Slovenia	228	481	1 606	1 179	..	62	50.3	45.9	0
Serbia	..	191	1 022	6 024	..	335	51.7 **		n.a.

* 2010

** 2011

Source: ec.europa.eu/eurostat/web/science-technology-innovation/data/database.

Innovation performance relative to the EU, as measured by the EU Innovation Scoreboard, reached a peak of 59% in 2009 and dropped to less than 56% in 2013. Croatia is performing below the EU average in most dimensions, except human resources (due to above average performance in new doctorate graduates and youth with upper secondary level education). Overall, Croatia has shown a more encouraging performance in scientific publishing, in particular in science & engineering: the number of articles has grown by 30% in the 2006-16 period, slightly more than for EU28 (28%), although less than for Slovenia (42%) and Serbia (78%) (National Science Board, 2018, Appendix table 5-27).

Lack of innovation within SMEs is a main explanatory factor of the disappointing aggregate features. The R&D intensity of small firms in Croatia is at 0.34% (16^th place in the EU) and the one of medium-sized firms stands at a substandard 0.16% (21^st place in the EU). In fact, business investment in R&D is concentrated within a few multinational companies, almost exclusively from Europe, which appear to also have relatively high research intensity (1.98%) (EC, 2017c). Leading MNEs from developed countries play an important role in transferring the most advanced and new technologies to emerging or developing countries. Empirical analyses of technology transfer from MNEs to Croatian firms and of the feedback loop on domestic firm performance are still scarce. The most recent one, based on a sample of 145 firms, suggest that the innovation activities in subsidiaries have a positive influence toward technology transfer from multinational corporations (Cho et al., 2017).

The state of infrastructures

As a new state in the late 1990s, Croatia invested in the development of key physical infrastructure as a fundamental element of national integration. This effort was particularly important in road transport, with the length of the highway network more than doubling between 1996 (394 kms) and 2004 (943 kms) and reaching 1,251 kms in 2012. The quality of the roads is indeed acknowledged by the Global Competitiveness Report (WEF, 2017, index 2.02). Nonetheless, Croatia still suffers from a poor state of infrastructure, as revealed by its 46^th position in the 2018 World Bank global ranking, the sixth-lowest among EU 28 members. Unfortunately, its relative performance in international shipments and logistics competence is even worse, resulting in a disappointing 49^th LPI ranking, the fourth-lowest in Europe.

Moreover, the three major state-owned road and motorway companies – HAC (Croatian Motorways), ARZ (Rijeka-Zagreb Motorway), and BINA-ISTRA – amassed significant debt, most of which of maturity shorter than five years.8 By 2014, their debt was consolidated into the general government debt. These liabilities amounted to approximately 11% of GDP in 2015, and could not be supported by the revenue generated by the companies. The combined outstanding debt of public road companies at the end of 2016 was the equivalent of EUR 5.2 billion.

As most infrastructure investment has gone into roads, there is also a huge gap in railways quality (WEF, 2017, index 2.02). The bulk of the network is composed of single-track, non-electrified ways (Bajo and Primorac, 2017). In terms of extension, there are insufficient East-West connections. In terms of speed, as President Kolinda Grabar-Kitarović recently observed, traveling by train from Vienna to Zagreb today takes just as long as it did under the Austro-Hungarian Empire.9 Similarly, it takes six hours to go by train from Zagreb to Split (400 kms), almost twice as many as by car. In terms of inter-modality, the lack of freight capacity stymies the potential of building up the seaport infrastructure to attract big vessels. In the meanwhile, the railroad share of passenger and cargo traffic is constantly eroding.

The Digital Economy and Society Index (DESI) is a composite index that summarises some 30 relevant indicators on Europe’s digital performance. Croatia is ranked 22^nd, with a good performance along two dimensions (Use of Internet and Integration of Digital Technology) and a gap in the other three (Connectivity. Human Capital, and Digital Public Services). As the Commission makes clear in the Digital Progress Report (EC, 2017d), Croatia scores below the EU average in terms of fixed broadband network coverage (especially in rural areas), of next generation access (NGA) network coverage (> 30Mbps) and of 4G coverage. Mobile operators do not use the 900 and 2100 MHz bands for long-term evolution (LTE). Moreover, Croatia has the most expensive standalone fixed broadband subscription in the EU: it costs 2.9% of the average gross income, compared to the EU average of 1.2%. These figures are consistent with the market configuration of fixed broadband, which sees the incumbent’s share significantly above the EU average (49% compared to 40.7%).

Ramping up investment in Croatia’s infrastructure networks is therefore crucial, not only to sustain robust rates of economic growth and integrate more fully the country into regional and global value chains but also to ensure greater social inclusion. As the economy continues to grow, donor-financing will likely decline, underlining the need to mobilise domestic and public and private resources as well as attracting foreign capital for infrastructure investment. So far, private involvement in infrastructure has been rather limited, confined to the strategic partnership signed in 2011 between Luka Rijeka (operator of the Port of Rijeka) and International Container Terminal Services Inc. (ICTSI) and the 30-year concession for Zagreb International Airport.10 ICTSI, a global port management company with headquarters in the Philippines, acquired a 51% share in the Adriatic Gate Container Terminal (Jadranska vrata) which holds a concession until 2041. Annual capacity has been increased to 600 000 TEUs and the objective is to make Adriatic Gate Container Terminal the largest in the Adriatic. The Port of Rijeka development master plan specifies further expansion of port facilities by 2030, including the construction of a large container terminal in Omišalj on Krk Island, which would increase capacity by 2.5 million TEUs, and requires construction of a high-performance railway to Zagreb.

For Croatia to attract more private investment to infrastructure, it is necessary to clarify national regulations and guidelines, improve project screening, use formalized appraisal tools, and promote independent reviews (World Bank, 2016a). Gaps must also be filled in terms of formalising the requirements for project management and monitoring, especially for state budget funded projects. The government has developed a comprehensive regulation on Public Private Partnerships (PPP), while as of July 2018 the so-called Juncker plan, under the European Fund for Strategic Investments (EFSI), had backed six infrastructure and innovation projects, for approximately EUR 123 million in total financing set to trigger EUR 548 million in total investment.

The investments required to improve Croatia’s infrastructures is also an opportunity for the government to promote quality infrastructure investment projects which can have direct positive impacts on Croatia’s economy and society, including higher economic efficiency, increased safety, decreased environmental impact, more effective delivery of public goods and services, and improved well-being of the local population. Certain infrastructure projects may have negative impacts, which can range from conflicts with communities over land, water, and resettlement, to unsafe working conditions during construction or significant environmental (including climate change) impacts during operation. In line with the Guidelines for Multinational Enterprises, enterprises should conduct due diligence with a view to identify, prevent, mitigate and account for how they address their actual and potential adverse impacts. The OECD Due Diligence Guidance for Responsible Business Conduct provides practical support to enterprises on the implementation of the Guidelines by providing explanations of its due diligence recommendations. In addition, the Policy Framework for Investment and the Principles for Private Sector Participation in Infrastructure (OECD, 2007) encourage governments to clearly communicate responsible business conduct expectations to their private partners.

Box 3.4. Chinese investments in Croatia

The Republic of Croatia and the People’s Republic of China have concluded no fewer than 55 bilateral acts since establishing diplomatic relations on 13 May 1994. The pace of political cooperation has accelerated recently, also in the broader context of the so-called 16+1 initiative of annual high-level meetings between China and countries in Central-Eastern Europe and the Balkans. Three acts were signed in 2016, five in 2017 and two in the first half of 2018. Of particular pertinence are the 2016 Memorandum of Understanding (MOU) on Port and Harbour Industrial Park Cooperation and the 2017 MOU on cooperation within the framework of the Silk Road Economic Belt and the 21st Century Maritime Silk Road Initiative.

The most important Chinese investment project so far is the Pelješac Bridge which connects the mainland with Croatia‘s southernmost region, the Dubrovnik–Neretva County, thereby ensuring territorial continuity and avoiding crossing Bosnia and Herzegovina at the Neum Corridor. Construction of the 2,404 metres-long bridge started in 2007 and was halted in 2012, amid political controversies and financial difficulties. In 2017, the European Commission agreed to earmark EUR 357 million, equal to 85% of the total construction costs, from EU Cohesion Policy grants. Three international contractors submitted proposals and in January 2018 state-owned China Road and Bridge Corporation (CRBC) was selected, on account of offering the lowest price (HRK 2.08 billion, compared to HRK 2.55 billion for the next bidder) and committing to complete the project six months faster than required. Construction works were officially launched in July 2018. The deal has raised eyebrows in various circles. The defeated consortia submitted two appeals against the decision, at the DKOM (State Commission for Supervision of Public Procurement Procedures) and the Zagreb Administrative Court, which were both rejected. Bosnian authorities have reiterated concerns that the bridge would impede, or at least worsen, the country’s access to the Adriatic.

Another area of bilateral cooperation is tourism, as Croatia expects 220 000 visitors from China in 2018. Chinese investors are primarily interested in health and medical tourism and USD 36 million have been committed to modernise Krapinske Toplice, the Northern spa town. There are also still unconfirmed rumours that a Chinese company (Jiangxiong Hua) may buy a stake in the Port of Zadar (Luka Zadar) and other Chinese firms lease a freight terminal in the Port of Rijeka.

At the seventh 16+1 meeting in Sofia in 2018, Premier Li Keqiang and Prime Minister Andrej Plenković also agreed to support the participation of small and medium-sized enterprises in projects within both countries. Croatia hosted the 2019 meeting in April.

Outlook and policy recommendations

Sixteen year after applying for EU membership and six years after entering as the 28^th member, Croatia faces a complex outlook. On the one hand, having access to the world’s largest trading bloc opens up new and promising opportunities to firms and people, as Europe continues its economic integration journey, both within its borders and vis-à-vis the rest of the world. On the other hand, there are serious headwinds in the global economy that militate against small emerging economies – from protectionism to exchange rate tensions and financial volatility, to say nothing of the challenges of the digitalisation of production and the untamed emergence of new corporate Titans.

In order to overcome such considerable challenges and kick-start a process of inclusive growth, Croatia has to activate many specific policies while maintaining appropriate policy coherence. Two interrelated priorities seem clear. It is necessary to enhance and improve investment in infrastructures, be they tangible like railroads and broadband, or intangible like education, training and R&D. Outcomes on this front will depend on the quality of the business environment, and from this viewpoint there is considerable scope for improvement by reducing the anti-competitive reach of widespread state presence in the economy (see Chapter 7), relieving the administrative burden (Chapter 6), reducing parafiscal charges (Chapter 6) and backlogs in the judicial system (Chapter 5).

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Notes

← 1.  See https://atlas.media.mit.edu/en/rankings/country/eci/.

← 2.  See www.total-croatia-news.com/business/20417-new-companies-enter-the-ranks-of-croatia-top-exporters, accessed 25 July 2018.

← 3.  See, however, www.ebrd.com/cs/Satellite?c=Content&cid=1395254574766&d=Mobile&pagename=EBRD%2FContent%2FContentLayout: “according to European Commission estimates employment in state-owned enterprises represents 12% of overall employment”. Still another source refers to “more than eighty thousand staff employed by public enterprises”, equivalent to 5% of total employment (World Bank, 2016a).

← 4.  See Official Gazette No 2/2018 for the list of companies “of special interest” or “of strategic interest”, and ibid. No 71/2018, for the list of companies “of special interest”.

← 5.  The June 2018 Law on State Property Management has assigned management of the Central State Assets Register to the Central Office for the Development of a Digital Society.

← 6. Three pillars make up the Croatian pension system: the public part (first pillar – intergenerational solidarity), the second pillar of individual capitalised savings, and the third pillar of voluntary capitalised savings.

← 7.  The first exchange of the Habsburg Monarchy was established in Rijeka for the purpose of trading in different sorts of sugar sold by the Rijeka refinery between 1750 and 1803.

← 8.  A fourth operator is AZM (Zagreb-Macelj Motorway), where Pyhrn Concession Holding GmbH has 51% of shares alongside the government.

← 9.  See https://glashrvatske.hrt.hr/en/news/economy/croatian-austrian-business-forum-focuses-on-railway-infrastructure. In reality the journey takes 7 hours and 40 minutes nowadays (although with four changes), while in June 1918 it took 12 hours and 10 minutes, with one change.

← 10.  The concession contract involves a total investment of around EUR 324 million: EUR 236 million for the design and construction of the new terminal (inaugurated in 2017) and EUR 88 million for operating the airport infrastructure.