Challenges of Doing Business in Croatia
The World Bank and the International Finance Corporation ranks Croatia 84th out of 185 economies in the overall “Ease of Doing Business” ranking.
In comparison, Croatia’s neighboring countries, Slovenia ranks 35th, Hungary ranks 54th, while Bosnia and Herzegovina ranks 126th. The United States ranks 4th. [RF 13]
Some challenges of doing business in Croatia include over-regulation, a complex and non-transparent bureaucracy, confusing regulations on investment, an inefficient judiciary system, corruption, and a rigid labor market.The business and investment climate is considered difficult and requires caution and patience. [RF 38]
To enter the Croatian market a U.S. firm would face a mature market with well established mostly European completion. Croatia has a trade
agreement with the European Union that allows European goods to enter Croatia at lower rates than U.S. products. [RF 38]
Judicial System
The Judicial system in Croatia is very inefficient. There is currently a backlog of 810,000 pending cases. This means that even simple cases could take
years to resolve. Protecting intellectual property rights or resolving a dispute with customs can be very expensive and time-consuming for a U.S. company. This inefficiency in the judicial system causes Croatia to have trouble protecting contract and property rights. Croatian courts have also
shown questionable transparency in the past. The backlog has also lead to problems with land registry. There can sometimes be multiple claims to
property. A U.S. firm should verify that the seller has clear title to both land and buildings. [RF 38]
Labor
Compared to other countries in Central and Eastern Europe, Croatia has high labor costs. The Minimum Wage Act requires the minimum wage to be increased by a percent equal to real GDP growth in the previous year. Croatia’s labor-force participation rate of around 45% is well below the European Union average of 64%. In addition, Croatia is one of the most heavily unionized countries of Central and Eastern Europe with 90% of the workforce in a union. The labor market also tends to be rigid with not much movement. It can be expensive and time-consuming to hire or fire employees because the government sets both strict rules and high levels of severance payments. [RF 38] [RF 37]
In comparison, Croatia’s neighboring countries, Slovenia ranks 35th, Hungary ranks 54th, while Bosnia and Herzegovina ranks 126th. The United States ranks 4th. [RF 13]
Some challenges of doing business in Croatia include over-regulation, a complex and non-transparent bureaucracy, confusing regulations on investment, an inefficient judiciary system, corruption, and a rigid labor market.The business and investment climate is considered difficult and requires caution and patience. [RF 38]
To enter the Croatian market a U.S. firm would face a mature market with well established mostly European completion. Croatia has a trade
agreement with the European Union that allows European goods to enter Croatia at lower rates than U.S. products. [RF 38]
Judicial System
The Judicial system in Croatia is very inefficient. There is currently a backlog of 810,000 pending cases. This means that even simple cases could take
years to resolve. Protecting intellectual property rights or resolving a dispute with customs can be very expensive and time-consuming for a U.S. company. This inefficiency in the judicial system causes Croatia to have trouble protecting contract and property rights. Croatian courts have also
shown questionable transparency in the past. The backlog has also lead to problems with land registry. There can sometimes be multiple claims to
property. A U.S. firm should verify that the seller has clear title to both land and buildings. [RF 38]
Labor
Compared to other countries in Central and Eastern Europe, Croatia has high labor costs. The Minimum Wage Act requires the minimum wage to be increased by a percent equal to real GDP growth in the previous year. Croatia’s labor-force participation rate of around 45% is well below the European Union average of 64%. In addition, Croatia is one of the most heavily unionized countries of Central and Eastern Europe with 90% of the workforce in a union. The labor market also tends to be rigid with not much movement. It can be expensive and time-consuming to hire or fire employees because the government sets both strict rules and high levels of severance payments. [RF 38] [RF 37]
Corruption
Ivo Sanader
Foreign investors have expressed concerns that corruption is a barrier to investment in Croatia. Corruption is perceived to be a problem in major public companies, health care, universities, public procurement systems, construction, land registry offices, and in the in privatization of state-owned property. Transparency International rated Croatia a 4 out of 10 on its corruption perceptions index for 2011. In comparison the United States received a score of 7.1 while Croatia’s neighboring country of Slovenia received a score of 5.9. Other nearby countries include Hungary with a score of 4.6 and Bosnia and Herzegovina with a score of 3.2. [RF 14]
Croatia recognizes that corruption is a problem and is working towards stopping it. The State Prosecutor’s Office for Suppression of Corruption and Organized Crime directs police investigations and prosecutes corruption cases. The National Police Office for Suppression of Corruption and Organized crime also conducts investigations into corruption. In 2009, the Criminal Procedure Act was revised to give corruption prosecutors more authority. These prosecutors launched investigations that targeted high level officials in the Croatian government and state owned companies. This act along with reforms in the criminal code has lead to an increase in the number of high level corruption investigations. [RF 38]
The biggest corruption case involves former Prime Minister Ivo Sanader. Sanader won the 2003 election to become prime minister and was reelected in 2007. In July of 2009, he resigned with no explanation. Then in December of 2010, Sanader was arrested in Austria on charges of corruption. He has since then been indicted five times on corruption charges. The most recent indictment came on September 3, 2012. These new charges involve the illegal sale of a building to the Croatian government at an inflated value. This is estimated to have cost the public more than 5 million euros and Sanader allegedly took in 2.3 million euros. He is currently on trial for four other corruption indictments where he illegally gained more than 12 million euros including taking 10 million euros in bribes from the Hungarian energy giant MOL. He has pleaded not guilty to all the charges. [RF 9]
Croatia recognizes that corruption is a problem and is working towards stopping it. The State Prosecutor’s Office for Suppression of Corruption and Organized Crime directs police investigations and prosecutes corruption cases. The National Police Office for Suppression of Corruption and Organized crime also conducts investigations into corruption. In 2009, the Criminal Procedure Act was revised to give corruption prosecutors more authority. These prosecutors launched investigations that targeted high level officials in the Croatian government and state owned companies. This act along with reforms in the criminal code has lead to an increase in the number of high level corruption investigations. [RF 38]
The biggest corruption case involves former Prime Minister Ivo Sanader. Sanader won the 2003 election to become prime minister and was reelected in 2007. In July of 2009, he resigned with no explanation. Then in December of 2010, Sanader was arrested in Austria on charges of corruption. He has since then been indicted five times on corruption charges. The most recent indictment came on September 3, 2012. These new charges involve the illegal sale of a building to the Croatian government at an inflated value. This is estimated to have cost the public more than 5 million euros and Sanader allegedly took in 2.3 million euros. He is currently on trial for four other corruption indictments where he illegally gained more than 12 million euros including taking 10 million euros in bribes from the Hungarian energy giant MOL. He has pleaded not guilty to all the charges. [RF 9]