ECONOMY

EBRD to raise investment in Croatia to help private sector

ZAGREB (Reuters) – The European Bank for Reconstruction and Development (EBRD) plans to boost investments in Croatia in hope of seeing a more dynamic private sector in the coming years, an EBRD representative said yesterday. «This year we expect to sign six or seven projects in which we will invest some 200 million euros. Until 2010, we plan to invest between 100 and 200 million euros a year,» the EBRD’s resident representative in Zagreb, Charlotte Ruhe, told Reuters. She cited tourism as one sector to receive support. EBRD has been active in Croatia since 1994 and during that period it has participated in around 70 projects for which it has disbursed some 1.3 billion euros. Croatia started EU accession talks last October, after which foreign investors started to look more closely at business opportunities in the former Yugoslav republic, but their interest has yet to turn into concrete action. The state accounts for some 40 percent of Croatia’s gross domestic product and analysts say private sector activity is lagging considerably compared with most other European countries in transition. Some 60 percent of EBRD investments in Croatia go to the private sector, while others mostly include infrastructural investments on both the national and municipal level. «We would now like to invest even more in equities and boost small and medium-sized businesses. We also want to support regional expansion of Croatian companies, thus contributing to the regional economic integration,» Ruhe said. EBRD recently approved a loan to Somboled, the Serbian subsidiary of Croat dairy firm Lura. Many observers argue that Croat firms should increase their focus on the Balkans, where they are well known and more competitive, than on the tough EU market. More efforts needed Ruhe said that for a stronger private sector, the state must speed up privatization and improve the investment climate. «There is still a number of companies not vital to national security that need to be privatized, like the steel sector, shipyards or assets in tourism. It would certainly make the economy more dynamic,» she said. She warned that, despite recent improvements, opening and closing of businesses still took too long and companies still faced many legal obstacles. «Less red tape, stronger bankruptcy legal framework and more flexible labor law would certainly be beneficial for small and medium-sized companies but also for foreign direct investment. The government is aware of that but it requires even more attention,» she said. Ruhe said that many firms continued to operate in the gray economy and were unwilling to employ people legally because they found it difficult to lay them off due to rigid labor market rules and high social benefits. Croatia had 1.3 billion euros of foreign direct investment in 2005, but EBRD thinks there is room for more. «It is evident that investors’ interest in Croatia is rising. Many of them are looking into tourism, but the country can offer more,» Ruhe said.