Special edition Business expectations in 2011 Comments, views and analyses from a cross-section of Croatian businesspeople ple
Gorazd Nikić, Privredni vjesnik award Ljubo Jurčić – economic analyst 2010 0
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Croatian Business & Finance Weekly Established in 1953 Monday / 20th December / 2010 Year IV / No 0135 www.privredni.hr
S U P P O R T E D
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pvinternational pv international C R O A T I A N
C H A M B E R
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E C O N O M Y
BUSINESS EXPECTATIONS 2011
The patient is alive, has proven resistant, but is in need of urgent investment injections Croatian businessmen have ranked their priorities for overcoming the crisis – the first being considerable cuts and simplification in state administration, followed by the need to deal with illiquidity, attract foreign investment, taxation and workforce contribution cuts and more appealing entrepreneurial development loans Darko Buković Vlado Smud ompiling a business forecast is becoming increasingly difficult. Privredni vjesnik has followed its tradition this year and decided to make a full examination of the patient (the Croatian economy) with the help of leading business people and to present its concise X-ray analysis for economic doctor consultation. It shows that the patient is alive, not on artificial life support, but in order to overcome this passive state and condition is in need of urgent investment injections. However, plans and expectations for 2011 are, according to this research results, optimistic and entrepreneurs suggest that the crisis may be overcome by dealing with a large format page of priorities which need to be implemented without delay. There will be a slight increase in total income this year, according to the estimate of 61% business leaders employing 38,225 staff. Some 25% of companies’ forecast results which will approximate to those achieved this year. Never-
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Privredni vjesnik Year IV No 0135
On a scale of 1 -5 how do you evaluate the general state of the economy in 2010? 80,09
Average
1,99 10,67 1
8,89 2
3
0,28
0,07
4
5
2011 total economic growth when compared with 2010, will be:51,41 theless, nett profit is expected to remain stable or slightly decrease. According to the estimate of 39% of companies with 25,122 employees, numbers employed in 2011 should remain stable, whilst 41% of companies forecast a slight drop compared with the current 26,398 they employ.
29,06 14,68 4,73
0,12 much larger
slightly approximately the same larger
slightly smaller
much smaller
The effects of the crisis on your company in 2011 will be:60.98
IMPRESSUM:
21.80 9.12 try to easily & more or less successfully overcome overcome overcome
Representative sample This year, 437 companies agreed to participate in this survey. These comprise 12.7% of the Croatian economy (with over €10.27 billion in total revenue) and having 12.33% of employees (over 106,000). Survey participants have, according to the final reports for the business year 2009, achieved 13% nett profit. Their share of investment is 10.8%, and reserves and capital account for 7.46%. Imports were 13.21% and their total economic exports totalled 17.27% in 2009. Data have been processed by weighing the financial strength of each company.
6.54 barely overcome
1.56 extremely hard to overcome
Privredni vjesnik Kačićeva 9 10000 Zagreb +385 1 5600020 uprava@privredni.hr www.privredni-vjesnik.hr/ subscription
Analysis of companies by siz large
97 136 medium
Averaged evaluation of the economy - three years of downgrades The averaged evaluation indicates a further downgrade. This year the averaged economic evaluation shows a continuous worsening when compared with last year’s average evaluation of 2.24 and the year before of 2.82. Retailers, small businesses and building construction have given the harshest economic rating with scores from 1.78 to 1.89. Mid-sized and large companies
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INTERNATIONAL OPERATIONS Ray Fletcher fletcher@privredni.hr
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3 Investment & doing business circumstances in 2011:83.14
0.18 much improved
10.78
5.36 slightly improved
0.54
about the same
slightly worse
much worse
In 2011, your company will deal with the crisis:47.50
ze
Analysis of companies by location small
N.W. CROATIA (including Zagreb)
04
232
437 total as well as the processing industry have given the economy a higher grading (2). Companies in the services sector have given an average grade of 2.10 whilst central Croatia and Eastern (Pannonian) Croatia have given the highest average of 2.11. The crisis will pass Overall economic growth in 2011 will be slightly higher than in 2010 as has been suggested by larger companies which have made a significant impact on the overall attitude. There are 167 companies anticipating similar growth to this year and they represent 29.6%, whilst the remainder have made an even less significant impact. The question regarding remedies for overcoming the crisis was answered by 409 of the 437 companies. The majority, 60.98%, will mainly overcome the impact
MIDDLE AND EASTERN CROATIA
91
19.45
18.20
10.82
114
4.03
ADRIATIC CROATIA
of the crisis which represents, in particular, job security for their 32,856 employees. Some 9.12% of companies are prepared to overcome the crisis successfully and 21.8% of companies employing 21,575 staff will attempt to overcome the negative impact of the crisis. A low percentage (1.56%) anticipates having serious difficulties in overcoming the crisis. A regional analysis of expectations also suggests success in overcoming the impact of the crisis on their business activities in 2011. Only 15.8% of companies within the Adriatic region expect to be faced with slight difficulties. Slight worsening of business conditions Investment and business activity conditions will remain stable according to 413 companies
reduce reduce reorganise change increase production/ production business expenditure operating expenses processes methods sales
Negative influences on your business in 2011:62.15
25.27 6.80 very large remarkable acceptable
5.30 small
0.48 minimal
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Privredni vjesnik Year IV No 0135
Priority ranking of decisions imperative for solving the crisis in 2011 22.88 17.89
19.67
18.86
12.61 8.08
cheaper lending to entrepreneurs
reduced taxation significant and mandatory reduction payments in state administration
with 43,426 employees and their 83.1% weighted answers. 5.4% of companies expect a slight improvement and 10.8% anticipate a slight worsening. Small companies, accounting for 48.5% of companies surveyed, do not expect any changes, although 26.9% opined that conditions will show a slight improvement. Nevertheless, 15.8% of small companies expect a significant worsening of investment and business conditions. The majority of companies surveyed, (47.5% of 409 companies) when asked about what combination of measures they will use in resisting the crisis, suggested a lowering of production costs. Production reorganisation will be made by 19.4% of companies and 18.2% of them will increase market positioning. Reducing labour costs will be implemented by 10.8% whilst only 4% of companies are prepared for production programme reform. Large companies, with their percentage of 58.9% and the 400 largest companies’ club members with 55.9% have the deepest conviction in lowering production costs as the way to most efficiently resist the impact of the crisis on their business activities. Taxation and business results There is a universal attitude amongst surveyed companies, irrespective of sector or grouping, in defining the anticipated trends
improve liquidity
with respect to taxation and contributions in 2011. The majority of companies (79.4% of 293) answering the question, expect taxation and contributions in 2011 to remain stable. There have been similar expectations concerning liquidity. A stable situation is expected by 42.8% of companies,
more rapid liquidation processes
attract foreign investment
panies intending to preserve the present employment situation (7, 835 employees).
Funding in 2011 Some 42.5% of companies use d owner equity in 2010 in approximately equal amounts and slightly more owner equity was used by 46.1% of companies. EU funds were used in about the same proportion (89.9%), whilst 49.7% of companies used bank loans. The use of owner equity in business financial planning in 2011 will increase slightly, according to over 48.4% of companies, whilst 46.4% will use this method in the same proportion as for 2010. EU funds, according to 79% of companies, will be increasingly utilised in most businesses in roughly equal proportions. Bank loans will be used (31.7% of companies), albeit with a reduced tendency in 30% of companies. Bonds and shares will be used slightly more by 62.1% of companies. Other financial sources will be used mainly in the same proportion as 2010 in 90.6% of companies.
Stagnating investment The investment atmosphere in 2011 will be less turbulent, according to 405 company assessments. Capacity modernisation will see slightly less investment (72% of companies), financial support provided for research and development will be the same as in 2010 (86%), as well as for training and development (81.2%). However a slight increase in investment is expected in terms of takeovers and acquisitions according to 75.4% of companies. A similar approach and with similar percentage figures has been announced by
Increase in export expectations The export-import activity outlook for 2011 is deemed positive, as exports should increase slightly, according to 79.3% of companies, whilst similar export results are anticipated by 13.4% of them. Consequently, the export/import ratio should improve slightly, as expected by 62.2%, whilst 34.2% are planning to achieve approximately similar proportions of export/import coverage as 2010. In accordance with these anticipations, export revenue should also see a slight increase, as expected by 81.2% of companies.
slightly lower, as 54% of companies anticipate a slight drop in the number of employees compared with their current level of 19,840 employees, even though 13.5% of companies anticipate slight employment growth compared with the current level of 4,960 employees and with 21.3% com-
Breakdown of the representative sample “437” No. companies Toral income (bn) No. employees Imports (bn) Exports (bn) Investment (bn) Capital & Reserves (bn) with 34.5% having optimistic expectations. A slight worsening is expected by 15.3%. Business results in 2010 compared with 2009 and the forthcoming year will be stable according to 412 of the surveyed participants, with the possibility of a slight deviation in both positive and negative directions. According to 51.2% of companies having 24,819 employees, there should be a slight increase in total revenue, yet 23.6% of companies with 20,509 employees expect a slight decrease. Whilst 9.3% of companies anticipate results to remain stable, 10.7% of them are likely to achieve considerably lower total revenue than in 2009. The number of employees is also expected to be
companies in industrial production, whilst civil engineers will invest considerably less in training and development (34.2% of companies) as well as for takeovers and acquisitions (51%). In the commercial branch there is a slightly higher level of intention to invest into capacity modernisation (82%) and training and development (85%), whilst research and development should be provided with financial support at the same level as in 2010 (72% of companies intend to retain the level of this area of investment). Takeover and acquisition investment in 2011 will either be the same as in 2010 (73%) or will face a considerable drop (26.3%).
numbers 84410 € 80.82 860478 € 15.3 € 7.5 € 6.85 € 67.5
sample response % 0,52 12,71 12,33 13,21 17,27 10,83 7,46
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5 Your estimation of company investment in 2011 compared with 2010
In 2011 your company plans to achieve:-
UPGRADING CAPACITIES
TOTAL INCOME
72.24
61.04
23.57 7.18 much higher
11.02
7.09 slightly higher
about the same
slightly less
1.11
3.09
much less
much higher
NUMBER OF EMPLOYEES 39.01
11.10
2.56 slightly higher
about the same
slightly less
much less
IMPORTS 40.99
39.96 30.42
26.86
14.29 2.92 much higher
slightly higher
about the same
slightly less
2.79
1.33
much less
much higher
1.42 slightly higher
about the same
slightly less
much less
2.94
0.64
slightly less
much less
EXPORTS
NETT PROFIT
79.28
35.74 30.44 25.88
4.70 much higher
slightly higher
about the same
slightly less
13.14
3.24
4.00
much less
much higher
slightly higher
about the same
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Privredni vjesnik Year IV No 0135
efforts and measures undertaken, the economy is still “ Despite burdened by growing illiquidity. ”
Nadan Vidošević, President, Croatian Chamber Of Economy
NADAN VIDOŠEVIĆ, PRESIDENT, CROATIAN CHAMBER OF ECONOMY
DAMIR KUŠTRAK, EXECUTIVE B
We have finally realised we need to change our economic model
No help fo
If we approach these reforms seriously, urgently implement the Economic Recovery Programme and achieve social consensus regarding the country’s long-term development strategy, we might have a chance for a new development cycle his year has passed waiting for recessionary movements to halt and end the crisis, without undertaking many reforms. The hint, in developed countries, of an exit to the crisis and the resulting movements within the remainder of the global economy, with a relatively solid tourist season, has resulted in a mild recovery of export demand and local consumption, which brings hope for the rest of the economy in the last quarter.
T
Lower foreign debt However, notwithstanding a reduction in the economic fall-off and initial signs of recovery, this year will be marked as a year of a considerably difficult economic situation and missed opportunities for making crucial moves; more precisely for implementing the necessary structural reforms. Despite efforts and measures undertaken, the economy is still burdened by growing illiquidity, expensive and almost unobtainable loans, an unfavourable exchange rate and a high tax burden. A fall in the rate of employment (70,800 fewer employees in September over 2009; 151,000 down compared with two years ago), growth of unemployment (16.9% of registered employees in September, 2.1% up on the previous year), a rapid increase in the number of pensioners (the employed/retired ratio deteriorated to an unsustainable 1:1.2, from 1:1.3 in 2009), limit any possibilities of boosting consumption and economic growth in the
Igor Vukić nvestment preparation as well as its encouragement and attraction are some of the fields of interest inviting government action in the forthcoming elections, opined Damir Kuštrak, Croatian Employers’ Association Executive Board Director. Kuštrak gave his review of events in 2010 and his assessment of trends over the next year for the Business Expectations Survey conducted by Privredni vjesnik
I
Towards the end of 2009 several analysts anticipated the beginning of a stronger economic recovery in Croatia to begin by the middle of this year. Why haven’t these anticipations been fulfilled? Personal consumption could have contributed to short term growth, yet it recorded a significant slump over that period. It did not recover by mid-year mainly due to personal fear of the future
MATO TOPIĆ, PRESIDENT, CRO medium term. Business results deteriorated. During the first six months, entrepreneurial gross profit plummeted by 54%, total income decreased by 7.3%, and total expenditure by 5.2%. Stronger positive signals However, macroeconomic stability maintained in such circumstances, with a decrease in the deficit of the current account of balance of payments; the level of foreign indebtedness also slowed. It is obvious that we finally became aware of the need to change our development model and re-orientate the economy from import and consumer to export. Stronger positive signals should be expected in the forthcoming
year, since foreign demand will continue and local consumption will slowly recover. Growth will be fragile but slow, although it will bring a degree of optimism necessary for the future boosting of economic activity. Therefore, I believe next year will be extremely difficult, since the anticipated 1.5% growth in GDP is not sufficient to stabilise economic affairs under the current level of budget deficit and foreign debt. Notwithstanding, if we approach these reforms seriously, urgently implement the Economic Recovery Programme and achieve social consensus regarding the country’s long-term development strategy, we might have a chance to start a new development cycle in 2011.
Craftspeop he negative trend has continued in 2010. There are more craft companies shutting down than those opening. Therefore, the number of craftspeople, crafts and those employed in crafts is decreasing, but the drop is not as great as in 2009. There are currently 90,000 active crafts, compared with 97,000 in late 2008. The problem of payment proved to be unsolvable for many. This serious situation is also reflected by the number of insolvent private individuals - the blocked accounts of craftspeople. The trend is also negative regarding this issue, and the number of insolvent private individuals exceeds 40,000, and
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consumption did not recover by mid-year mainly due to “ Personal personal fear of the future. ”
Damir Kuštrak, Executive Board Director Croatian Employers’ Association
BOARD DIRECTOR CROATIAN EMPLOYERS’ ASSOCIATION
r entrepreneurs and possible job losses. Considerable unemployment growth by the end of 2009 and the beginning of 2010 caused fear and personal consumption was naturally postponed, waiting for the situation to evolve in the future. Those with surplus income concentrated on saving, which could be seen in the growth of bank deposits. Customer loyalty was shaken. Despite being a psychological category, customer loyalty always has tangible effects. There were problems in our sector at the time, for instance in the building and construction sector. The slump in investment was followed by a significant inventory build-up of unsold apartments. Apartment purchase slowed also due to banking system awareness, which resulted in a decrease in lending. Risk premium and capital price increased. There was no strong incentive, primarily in shape of government economic policy, to initiate any change and so the circle closed.
underperformance in the outcome. It appears as though both government and banks kept too many fingers crossed. The banks focused on spreading risk and having it assumed by the government. The government was not overly enthusiastic about it. Therefore, a compromise was created and some was transferred into economy, lessening its impact on the whole situation.
In the first part of the year there was an attempt by governmental measures to direct additional bank liquidity towards the real sector. How do you consider these measures and their outcome? It was a good idea and it needs to be praised. However, there was
A minor tax reform was carried out, intending to allocate part of the funds to consumers. What was the outcome? Here we are here about minimum incentives and it reflected in the outcome. We have been constantly discussing ‘shock therapy’, which was introduced by Professor Ivo Bičanić. Nevertheless, the term to describe it is of lesser importance. In my view, the time of more significant change is approaching. Some will adapt to it and profit from it, whilst some will lose. Yet, change is inevitable.
Prolific investment in food production In which sectors do you expect the greatest interest for new investment? In my opinion, there are four sectors which are attractive and have a significant indirect impact on the economy. First is agriculture and food production, although not export sector, it can considerably improve the balance of trade. Secondly , tourism. There is no real construction growth due to the absence of a defined strategy. Thirdly, energy production. The fourth sector can be named “transport-logistics”. EU accession will considerably increase potential. I hope we manage to exploit it in co-operation with foreign investors. I expect the private sector to restructure itself in 2011 and realise it is the only exit and not to rely upon anyone else.
ATIAN CHAMBER OF TRADES AND CRAFTS
ple will be offered various services their total outstanding debt stood at over €0.82 billion Solution on hold It is difficult to predict business for the forthcoming year, since the economic crisis is still with us. I should stress that the Croatian Chamber of Trades and Crafts (HOK), sensing an even deeper crisis, suggested some 30 anti-recession measures in 2008. One related to measures for controlling the grey economy. Some of our suggested measures have been adopted and implemented in the meantime: new regulations regarding work on Sundays, different regulations
regarding the smoking ban in catering facilities, retained amount of budget funding for craft aid programmes, and the elimination of the crisis tax and decreasing other public contributions in certain cities and municipalities. However, many issues remain unsolved. They cover a reduction of interest on entrepreneurial loans and reprogramming existing loans together with a greater tax discharge, which would considerably improve working conditions of craftspeople and the entire economy. Our activities in 2011 will mainly focus on expertise and offering quality consulting services. We
will maintain co-operation with the government and ministries, requesting the implementation of our measures for overcoming the economic crisis. Adjustment to a new market Considering the adopted reform of the Chamber system, we will focus on implementing various services for our members, increasing professional development and quality, and giving upto-date information. We will also keep track of EU accession talks, in the sense of harmonising craftspeople with business conditions within the European market.
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Privredni vjesnik Year IV No 0135
BRANKO ROGLIĆ, OWNER AND DIRECTOR ORBICO GROUP:
LEADING BUSINESS PEOPLE WERE ASKED THE FOLLOWING QUESTIONS:
1.
How would you review business during 2010?
What are your plans and expectations in the forthcoming year in terms of economic policy, governmental measures, employment policy, liquidity etc.?
2.
What, specifically, are your company plans for 2011?
3.
Those who have not invested too he through It is ignored that a good worker is an asset to the company
Our crisis is not only the result of the global financial crisis. There are far too many business failures, a scarcity of new projects, general indebtedness, illiquidity, fiscal and parafiscal pressure and investment with only long-term effects. Entrepreneurs who have not invested too heavily have pulled through. Rather, they sustained their companies through a rational business approach and saving. This approach should be used in small markets in such dire times. I must admit I do not expect much from 2011. The adopted budget, which raises debt for an already over-indebted country, will be rebalanced at least once, since it is based on 1.5% growth, but I be-
lieve that the fall will range again between 2% and 3%. The situation will improve only if the state balances out real economic and public consumption, decreases its administration, the number of counties and municipalities, thereby reducing an onerous tax burden. The labour law should introduce more flexible relations between employers and workers. It is wholly ignored that a good worker is the most important asset to an employer, and the possibility to fire idlers is important for employers as well as diligent workers, who represent a majority. The state will motivate development, investing €0.55 billion in infrastructure, but a return
SAŠA KRBAVAC, BOARD PRESIDENT UNIQA INSURANCE:
Our plan is to create more stable and business non-life insurance, whilst Uniqa is achieving growth in both segments despite difficult business conditions. We continued with
Structural reforms will be postponed rather than implement
Read their answers here
We knew this year would be strenuous and more demanding than the difficult 2009. We were prepared for this and have been satisfied with our results thus far. According to data for October, the insurance market is in decline concerning both life and
our business strategy this year. Despite the crisis, we continued to employ, open new branches, and invest in training, IT and marketing. We are constantly working on developing new products, increasing efficiency, and pay great attention to risk management. We will remember this year by our
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9 EMIL TEDESCHI, ATLANTIC GROUP BOARD PRESIDENT:
eavily have pulled
Investment climate provided by the government an imperative Croatia is in serious need of painful cuts - valid - yet no one has been seriously dealing with this issue
on investment is a slow process. SME’s, new ideas and new projects should enable development, growth and new brands. I am not sure that the present administration is capable of providing quality services in such circumstances. Orbico Group will continue to expand towards the East, encircling the entire region. We aim to invest in tourism and the development of new brands. I consider the Dalmatian coast as the greatest comparative advantage for Croatia. Therefore a greater share of investment will be directed there. Last year, hotel and charter activities experienced growth, so I will continue in that direction.
The economic situation in Croatia and the trends witnessed in 2010 do not leave much room for optimism in 2011 when considering macroeconomic indicator movements. Statistics show consumption, industrial production and employment all slumping. The forthcoming annual budget presents realistic income planning, yet with considerably higher expenditure which has not been modified compared with 2010. Nevertheless, the budget deficit and a lack of a more significant development component in expenditure planning are issues of deepest concern. In my opinion, new state borrowing can only be developmentally directed. Croatia is in serious
need of painful cuts –valid - yet no one has been seriously dealing with this issue. It is of vital importance to raise awareness of the fact that cuts alone will not be sufficient. Solutions to issues such as reducing staffing levels in public administration, companies unable to deal with their liabilities going bankrupt and a growing number of unemployed, can only be achieved by employment in new projects and new investment. The major source of growth will definitely be foreign investment due to the limited potential of the state. Croatia has satisfactory logistic and geographical preconditions, yet it is an imperative for government to provide an appealing business setting, climate and infrastructure which will invite big investors. The state manages significant resources which are not economically functioning and which should be used, not necessarily primarily by privatisation, in order to create added value. The Atlantic Group results obviously are prominent in the depressing economic setting. Natu-
rally, it is impossible to avoid the impact of the crisis completely. Even though our investors have so far been more used to significant Atlantic Group growth rates, it has to be stressed that we have managed to achieve growth even in 2010 notwithstanding this unfavourable economic setting. The Atlantic Group has become one of the leading companies in the food industry regionally with the Droga Kolinska acquisition in 2010, with â‚Ź640 million consolidated income, 20% of which is achieved in Western and Northern Europe and Russia. Yet growth would have been achieved even without this acquisition. Issues of the highest importance have been our timely restructuring processes and carefully developed business strategy which makes use of our production portfolio advantages and our developed distribution technology, which implies flexibility under various conditions. We, as a considerably expanded company, certainly do anticipate the synergies implied by the Droga Kolinska integration into the Atlantic Group.
DAMIR SKENDER, SAPONIA BOARD PRESIDENT:
profitable awards. We received the Zlatna kuna in 2009 for our achieved results, an award given by the CCE and obtained Superbrand status, which puts Uniqa amongst leading market brands in Croatia. We are anticipating a mild recovery in 2011, with GDP growth of 1.5%. We expect Croatia will conclude EU talks in the first half of 2011. However, 2011 is also a year of elections. Therefore, we believe structural reforms will not be implemented, but rather be postponed for 2012. Our plan for 2011 is to have a stable and profitable business, maintaining high level of capital adequacy, and continuing the trend of rapid market development.
Increasing employment levels essential for macroeconomic growth When considering the slump in retail business, the increase in unemployment, considerable growth in insolvency, the significant retail price decreases in our field, then every achievement, every improvement, is a satisfactory result. We expect financial growth of some 4% by the end of the year, as a consequence of our considerable investment in marketing. I believe that several macroeconomic indicators will start moving in a positive direction in 2011. However it will not be an easy year as events that have happened over the last two years must have made some impact on purchasing power and
purchasing habits of the population. The state should provide a setting for competitive domestic production with the remainder being done by business leaders. The totality of positive company achievements will enable overall macroeconomic growth and an increase in employment which are of crucial importance for such growth. Despite the fact that macroeconomic growth will not achieve any significant improvement in 2011, we still hope for growth. We are aware of the difficulties. We hope to strengthen our products market positions and open potential new markets. Therefore, new investment in mar-
keting will be an imperative, as well as further savings in order to achieve satisfactory business results. We need further improvements and have been dealing with the process for years. I am certain we will deal with these issues again in 2011.
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Privredni vjesnik Year IV No 0135
ĐURO HORVAT, BOARD PRESIDENT, TEHNIX:
We must develop an industrial Croatia Knowledge directed towards production and exports is vital
The precipitous drop in investment and economic activity on all levels has affected our company Tehnix in terms of fewer orders and contracts on the local market. However, we made precise plans on how to adjust. We reduced all unnecessary expenditure, increased sales capacity (particularly exports), we invested in the development of new products and technology, increased marketing globally and motivated our people through training and selection of quality. Furthermore,
we replaced short-term financial obligations with those of a longer-term nature and invested in modern technology for machine processing. All this provided us with business stability during the second half of the year. We increased sales capacity by 20%, with the same business expenditure and investment in new markets, for example Romania and Serbia, where sales are performing well. Croatian policy and government are in deep crisis due to their extensive ignorance of economic policy management. This is one of the crucial factors behind the Croatian crisis, which the world crisis made even deeper. Ignorance, avoiding truth, wrong moves, spending too much without achieving results, purloining in all public sectors, the expensive services of public companies, inefficient management of the state and its institutions, have caused the downfall of the
economy. Workers and officers of these companies are not to blame; the guilt is due to management and policy that has been recklessly spending what we do not have. All this threatens the economy, which should be the focal point of any government that wishes good for both itself and its people. We can only be motivated by functional know-how directed towards production and exports, investment into production, exports as a substitute for imports, restructuring of local authority, state institutions and public companies, as well as EU accession and co-operation with neighbouring countries. We need to develop an industrial Croatia on the foundations of the market economy and invest in industrial innovation and new products. There are three sectors that need investment - processing, agriculture and the tourist industry.
DARKO BELIĆ, DIRECTOR, ELKA KABELI:
IVAN MILOLOŽA, BOARD PRESIDENT, MUNJA:
We have great investment potential
Another wasted year
This year, the freeze in investment activities of the local public sector reflected on the entire real sector, especially in companies relying on investing in energy, road construction, telecommunications and railways. Foreign investors became discouraged by the lack of legal regulations and clarity, which created an impenetrable investment barrier. Illiquidity, as the commonest issue, is not an exclusive generator of problems. A more significant problem is rather lack of investment. We implemented stringent measures for reducing business expenditure and to optimise the product line in 2009. In 2010, we put all our efforts into opening new markets and obtaining certificates for our new products in these markets, since we opened a new plant in Zagreb this year for the production of medium and high voltage energy cables,
This is another wasted year for the Croatian economy. We failed to implement reforms, a foundation for at least a slightly better business climate, since the situation is difficult enough due to the global recession. Governmental announcements that it would finally do “something” did not materialise. unique in their technology and capacity. This year we will produce roughly 14,500 tonnes, which is 8% more than in 2009. Croatia still has high investment potential in the sector. We can use this opportunity to invite all interested parties, above all the government and finance sector, to join the finalisation of all necessary projects and develop acceptable financing models, which will generate rapid economic growth and preserve jobs.
Nothing valuable materialised
I do not expect much good to come from the announced measures During the past 15 years, all governments have wished to appeal to as wide a public audience as possible. It did not matter how much it cost or where such spending would take us.
Not even the peak of the crisis made us take a more rational turn. For these reasons, I do not expect much good to come from the announced measures of economic policy. We are approaching a year of elections, when moves, authorities and opposition are mostly the same and again try to compete for the electorate. The situation will not significantly change whatever the outcome.
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VESNA PAVLETIĆ, DIRECTOR, PAVLETIĆ COMPANY :
GRACIANO RUDAN, RUDAN BOARD PRESIDENT:
Good ideas more important than state incentives
We have turned the crisis into our advantage - we are hoping it will not repeat
Reducing bureaucracy is an imperative
We are considerably satisfied with our business results in 2010 as we not only have not had to lay off employees due to recession, but on the contrary, have hired 60 new staff. We felt the burden of the crisis when we experienced a drop in turnover, yet we compensated for this by finding a new sales channel. It decreased our profit and increased expenses, yet we managed to discharge all our liabilities creating a very satisfactory general impression. We did not decrease salaries as we decided the company would take on the overall burden of the crisis. Expansion of our Biocrystal® product line (the first sleeping pad with crystals), which has been widely accepted, is in our business plan for 2011. We have already started with the development of our new production
lines - Biocrystal® Home, Biocrystal® Professional and Biocrystal® Beauty&Wellness. We have been testing Biocrystal® Canine, the first dog pad with a crystal structure. We have also been negotiating with the sport line Biocrystal® Sport signed by a famous sportsman. We are currently starting co-operation with a factory in Nova Gradiška, which is of particular concern due to the generation of new jobs. Export is a significant opportunity and we are planning to strengthen our presence in Europe and, if results are satisfactory, even further. We are currently exporting to America, Germany, Austria, Belgium and the Netherlands. In my opinion, it is of extreme importance to urgently provide a working environment for everyone willing to work, without much red tape, with simplicity as an imperative. When considering EU accession, it is of vital importance to clarify the fact that work needs to be done, regardless of accession. We have to modify our way of thinking and “roll up our sleeves”. Every state incentive is welcome, yet a good idea is vital and crucial. The state needs to become aware of it and recognise it.
As far as our company is concerned, I would say we have had a satisfactory business year. We are among those few companies that have turned the crisis into an advantage. The company deals with energy saving sources, particularly water, according to the ESCO model. It is only in a period of crisis that companies start to consider savings and then it is our turn to help. Naturally, we do not wish the crisis to last, yet we are certain that even after the recession companies will continue to have a different attitude towards business expenditure, where energy sources are an item of increasing significance. Economics Basics states that increased income can be generated either by increased revenue or by decreased expenditure. Croatia needs to move in both directions. Private investment needs encouragement on the one hand and public sector expenditure need cutting on the other. Entrepreneurial development has a significant rôle and all fiscal and parafiscal duties need to be decreased urgently. In my opinion the time of neoliberal economics has been irrevocably terminated and we are looking at a time when the state has to define its strategic goals clearly and then enable entrepreneurial development in that direction.Our plans for 2011 are
related to regional expansion and to strengthening our leading market position in Croatia. Croatia cannot be compared with the countries like Brazil, Russia, India and China in terms of product prices and workforce; nevertheless the situation is different in terms of products with a significant valueadded share and intellectual capital. Leading people in state-owned and public companies have had a change of consciousness and that is of particular importance for us. There are several excellent examples in new boards in the Croatian electric-power industry (HEP) and Croatian Railways infrastructure (HŽ) and I am convinced there will be increasingly more similar cases. Only when everyone has adopted this way of thinking will there be the necessary preconditions for economic recovery and a way out of the blind alley we are in at the moment will be found.
ERNEST TOLJ, EUROCABLE GROUP BOARD PRESIDENT AND SAINT HILLS WINERY OWNER:
Export orientation
Eurocable Group business activities in the first half of 2010 remained at the 2009 level. However, better export results have been achieved in the second half
of 2010. We are satisfied with overall business activities, particularly in view of the fact that all markets are still recovering from economic crisis. The first Saint Hills winery business results will be analysed in the near future as we have only just entered the Croatian and international market with the first commercial harvest of Nevina, a malmsey and chardonnay coupage and Dingač. Eurocable Group will increase production capacity by 100%, hire 100 more employees in 2011 and will be primarily export oriented.
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IVAN TOLIĆ, BOARD PRESIDENT, TŽV GREDELJ:
IVANA VUKELIĆ, DIRECTOR, HANGAR 7:
Big projects only with the help of State with its head in the sand diplomacy Measures are cosmetic and too late
We can evaluate 2010 as having been successful, primarily since new production plants opened, which completely modernised our factory, increasing productivity and production capacity. This increases competitiveness, which means new contracts and new projects. We simultaneously reduced expenditure, primarily since we have been working on two locations. Although our transfer partly affected the volume of production, and thus business results in 2010, it was inevitable. It actually helped us create the conditions for successful business in the future and position TŽV Gredelj as the leader in planning, production and modernisation of all types of rail vehicles in this part of Europe and wider. The market for our branch is expanding; more countries are starting to construct new railways or are modernising old ones; new corridors are opening and the railway system is gaining advantage over road and air traffic. This is where we see our opportunity and expect more work for Gredelj. We consider ourselves as leaders in planning, production and the repair of rail-
way vehicles in this part of Europe. Around 25% of our orders relate to foreign companies. We are expanding in foreign markets and we find all of them interesting. We are currently working in B&H, Serbia, Kosovo, Montenegro, Macedonia, Slovenia, Italy, Hungary, Czech Republic and Bulgaria amongst others. We are becoming increasingly present in Eastern markets, where we expect to work on big projects (Malaysia, Libya, Syria, and Thailand). We need more help from the state in the form of economic diplomacy. For example, investment in railway modernisation in Malaysia, Egypt, Syria and Libya is worth $10 billion, and it is well known that these projects can be obtained only with the help of the state diplomacy.
It is obvious that 2010 will be remembered for nothing good. Within the service segment, the state failed entrepreneurs, putting its head in the sand, hiding from problems and the crisis. The taken measures are mostly “cosmetic” and arrive too late. Everyone within the private sector, which relied on their on strength, survived and it is obvious they are built on strong foundations. Notwithstanding, it seems there are only a few. We consolidated our business on time, and managed to achieve a mild 5% increase using rigorous cuts in expenditure. Even though this sounds good, we must not forget what we failed to achieve. However, we remain optimistic and hope 2011 will bring improvements. Regrettably, it has been proved that economic pol-
We do not have much faith in this, since progress will not occur unless there is a change in the heads of the politicians icy in Croatia is primarily a pathetic and cheap policy, which regards the economy as a topic for arguing with unlike minds. The government remains in its bubble of self-denial, although we would like to go forward in 2011. State measures need to result in increased competitiveness, the production and industrial sector need to be relieved and painful cuts need to be made. Unfortunately, we do not have much faith in this, since progress will not occur unless there is a change in the heads of the politicians. Our goal is to achieve 10% growth in 2011. Our products, concerning publishing and high technology, which are in their final stage, will be available to our clients at the beginning of 2011. We believe they will provide us with the needed competitiveness.
GORAN PRGIN, OWNER AND PRESIDENT, NCP GROUP, ŠIBENIK:
We are expecting a calmer year Due to poorly set criteria, we failed to obtain government funding for assistance to companies in distress, which resulted in illiquidity and a fight to preserve employees. Due to a larger volume of work in the second half of 2010, we successfully accomplished our plan, some 35% less than our
2008 achievements, as well as 15% down compared with 2009. With great efforts, we completed the overhaul of a mega-yacht for a Greek owner, a residential construction on Brijuni, catamarans for the Norwegian market and work on over 130 vessels. This year has shown we can compete with all
European shipyards, not merely on price since we are not the cheapest, but with quality of service and meeting deadlines for the completion of scheduled work. We are planning to continue producing catamarans for the Norwegian market and contract new projects regarding yachts and mega-yachts.
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BORIS POPOVIĆ, BOARD PRESIDENT, ALARM AUTOMATICS:
2011 will be even more difficult I anticipate more difficulties in the forthcoming year We started a serious internal restructuring process and have organised our business activities so as to enhance maximum financial discipline, anticipating the size and duration of the global and national economic crises at the end of 2009 and throughout 2010. Nevertheless, due to cost reduction measures and not closing deals due to the lack of satisfactory assurances, it was difficult to retain the same proportion of business activity as in the precrisis period. However, it is important to stress that no staff were
laid off; to the contrary, we hired several new quality employees. In my opinion, nothing has been done to significantly enhance economic growth and to promote business activity in 2011 and therefore I anticipate more difficulties in the forthcoming year. Even in case of the state taking more significant measures to encourage economic growth, particularly in encouraging investment cycles which would engage the local construction industry and drastically lower public expenditure, it will take several years for
companies of our size to feel any positive impact. Our company was born out of and raised under market conditions. Our com-
petitive advantage is the software ABSistemDCi developed through our own efforts. It is software that enables all the technical protection systems full integration into a unique control and operating interface which numerous clients have found interesting. If Croatian GDP growth reaches 1.5% in the forthcoming year, we plan organic growth of over 20% on the domestic market and over 50% regionally, on the whole, in part organic, in part through acquisition and in part through mergers with companies in the region.
BARBARA CERINSKI, EOS MATRIX DIRECTOR:
I am not anticipating considerable positive changes in 2011 Nothing positive for 2011 tives for small and medium-sized entrepreneurs, have not been fulfilled as expected and have had no significant impact on the
Many business people are going to need professional help for receivables collection The economic crisis showed its real face and touched all the pores of the economic sector as well as the general public in 2010. Unfortunately governmental promises made in 2010, such as incentives for companies faced with difficulties, job preservation and new job generation, incen-
general situation. Therefore, I am not anticipating considerable positive changes in 2011. Measures and effects which would make an impact in 2011 should have already been taken, yet it has not happened thus far. Governing structures will be focussing on the forthcom-
ing elections, whilst economic programme accomplishments and projects will remain of minor importance also in 2011. Assuming election enthusiasm lasts far too long, we should be satisfied to see more significant positive changes only in the second half of 2012. Anything positive happening before that date would be nothing short of miraculous. Every successful business person who has achieved both their personal and corporate objectives is well acquainted with the amount of time, effort, wisdom and knowledge necessary to obtain results. I believe that many business people would agree with me, with the pro-
MATEO TRAMONTANA, BOARD PRESIDENT, BRODOTROGIR:
Learning from previous mistakes The forthcoming year is the year of negative trend prevention in Croatia and of a consciousness developed through learning from the macroeconomic mistakes of the past. A critical mass of society has emerged, conscious of the necessity to restart production, primarily for export. In order to achieve a positive breakthrough,
we need to reach the world market level of competitiveness and it can be accomplished only with encouraging macroeconomic policy oriented towards production and new investment. All these problems notwithstanding, successful shipyard privatisation is also an urgent issue as well as restructuring which is to
be made with a strategic partner. The fact is we are not left with much choice. We need long-term and continuous work based on analytical insights into the new industrial policy of the EU, on following trends on the world market and on the regulatory activities of the Croatian government.
posal that governing structures are too far from taking action which would be essential for overcoming this deep crisis. The forthcoming business year significantly depends on the kuna exchange rate, which is having a considerable impact on liquidity of people in business and their outstanding debt settlement ability. Many business people are going to need professional help for receivables collection in such a business environment, so that EOS will continue opening new jobs of all profiles in the forthcoming year. In this way, we are going to make a slight contribution to the positive changes we are hoping for and wishing for all entrepreneurs in 2011.
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GORDANA PUHELEK, DIRECTOR, NOTEBOOK MIKRONIS CENTRE:
Companies must be freed from burdens Regardless of the demanding business opportunities, we are extremely pleased we will conclude 2010 successfully, with approximately 10% better results compared with 2009. According to present indicators in our economy, in 2011 we expect similar results to 2010. However, we are hoping for concrete changes in society which would benefit economic development and recovery, and thus business. Changes need to be made in the public sector and education. Companies are burdened
development, whilst favourable financing sources need to made accessible to them. The issue of
We are hoping for concrete changes in society which would benefit economic development and recovery with too many duties, and they must be relieved of them in order to be able to invest more in their
illiquidity is everyone’s problem. The culture of not paying is present everywhere and it needs
to stop. Furthermore, it is frustrating that the law allows people to open companies, create huge debts, and then shut them down, and without any consequences or responsibility open a new one. By the end of the year, we will start a project of opening an HP brand store in Arena Centre, the first HP store in Croatia, and we intend to open a second. Therefore, we will remain focused on notebooks and additional equipment as our main product, recognised by our customers.
IVE MUSTAĆ, BOARD PRESIDENT, TANKERSKA PLOVIDBA ZADAR:
Nothing will change: we have been present in Europe for many years Our Maritime Law is harmonised with the EU The recession made business difficult during this year Despite the crisis, we will finish the year with a positive result, rather than the anticipated loss, which we regard as successful. This year we took over four new ships for transporting dry cargo, two in China and two in South Korea, with a total capacity of 144,700 tonnes. This refreshed our fleet and made it more competitive.
Concerning EU accession, I can say that business will remain unchanged. We have been present in Europe for many years, incorporating global standards similar or equal to those applying to EU ship owners. Our Maritime Law is harmonised with the EU, which means we are equal and have the same working criteria. Our long-term plans relate to the strengthening and modernisation
of our fleet, as well as other activities that we defined in the period of trade prosperity. Despite
Our goal is to continue investing into the maritime market thus preserving our present high position the crisis, which will endure in the maritime market until the end of 2012, plans are successfully accomplished. In 2011, we are expecting a delivery of two new product carriers (52,000 tonnes capacity) from Rijeka, and our order includes two similar tankers that will arrive from South Korea. This is where the cycle of contracted new construction closes, and our goal for con-
structing a young and modern fleet which will satisfy the needs of the global market, is achieved. The main activity of our company is transport of liquid and dry cargo in l seas throughout the world. We are successfully working for the biggest global companies – charterers, and our goal is to continue investing into the maritime market thus preserving our present high position.
SAŠA JURKOVIĆ, DIRECTOR, POSAO.HR PORTAL:
New projects for employers and employees This year has been strenuous, but it is still better than the previous and the business of the portal has been more successful, especially now at the end of the year. The crisis has significantly slowed the labour market, decreasing the quantity of offered jobs, dismissals caused higher demand for workers, and this difference reflected on posao.hr.
The deficit of available jobs leads to fewer advertisements from which posao.hr makes its profit. If we add that the crisis caused budget cuts in marketing, which contributed to less advertising, we can say the crisis affected us in two areas. However, we started this year targeting the acquisitions of new clients, representing new servic-
es and packages adjusted to market conditions and client needs, whose business affairs have been equally affected by the crisis. We are extremely pleased that we are one of the companies that managed to develop and improve business despite a realistic anticipation of a decline. This will be a great advantage in the postmarket stabilisation period.
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DRAGICA KRPAN, DIRECTOR, UNDERGROUND GAS WAREHOUSE :
Legal system improvement is a positive signal to investors The business year 2010 has been a considerable challenge overall for the Croatian economy due to the consequences of the economic crisis, the complete adjustment of Croatian society and transformation on its way towards full EU membership. Our company, Underground gas warehouse (PSP), has achieved very satisfactory business results, the difficult economic situation notwithstanding and we have managed to prove, over a period of a year and a half, that state owned companies can operate successfully. We
have been oriented towards the implementation of a four year development plan, which first, anticipates modernisation and upgrading of the current under-
ground gas warehouse in Okoli by 2012, and the construction of a new high-level warehouse in Grubišno Polje by 2014. The development plan after 2015 anticipates the construction of a new, seasonal gas warehouse in Slavonija, which would enable Croatian energy self-reliance in the regulation of domestic market natural gas supply. Croatian EU accession will create the framework for economic advancement achievement, yet whether we make the most of it will depend on ourselves. We can expect legal system improve-
ments as the moment of EU accession is approaching, which will be a positive signal for investors. We will be oriented towards the implementation of our business development plan, which anticipates the continuing reconstruction and plant system PSP Okoli upgrade that would increase the output capacity of the warehouse to a maximum of 280,000 m3 per hour. We will also attempt to discharge all liabilities in order to win the government concession for warehouse construction in Grubišno Polje in 2011.
ANTE DUVNJAK, OWNER AND DIRECTOR, VODICE:
MARIJAN KAVRAN, DIRECTOR OF THE WOOD CLUSTER:
Saved by the olive
2010 needs to be forgotten
The underachievement has been most prominent in plant construction
2011 will be the ‘year of truth’
We have managed to operative positively for the business year 2010, which has been an extremely difficult year and in spite of the fact that some of our olive oil factory capacity has not been used and construction aspects have not taken place. The construction, which is our core activity, has underperformed significantly. The underachievement has been most
However, a good olive year improved the overall depressing situation. The olive crop in 2010 was about 80% higher than in 2009. This has considerably increased our level of
Virgin olive oil production up 80% over 2009
prominent in plant construction. This section was faced with decreased demand, which as a consequence, lowered prices almost to the level of ‘dumping’. Clearly, we could not even meet core expenditure, not even to mention making any profit.
satisfaction, as we reprocessed over 1,400 tonnes of olives and produced 210,000 litres of extra virgin olive oil, which is up 80% over 2009. We are anticipating a slight increase in orders in construction sector in 2011. This is what our expectation is from the state, as construction activity is largely dependent upon state level activities, such as public and large infrastructure projects.
The forthcoming year will neither be easier nor better than 2010. We have not reached the bottom of the crisis and 2011 will be the ‘year of truth’ for a number of Croatian companies, primarily producers.
As wood processing exports over 60% of its production, it will be faced with a merciless struggle on foreign markets Wood industry growth in 2011 and partly in 2012 will be modest and insufficient to compensate for the lost 8,500 jobs in the two year long economic crisis. The impact of measures undertaken to overcome the crisis has been notable in 2010, but generated a feeling of late action particularly with producers. The wood industry proposes additional fiscal incentives oriented towards direct new job generation and production capacity encouragement with sustainable programmes and an export orientation. As wood
processing exports over 60% of its production, it will be faced with a merciless struggle on foreign markets as competitiveness grows with every crisis. We need to forget 2010 as we tried to improve the failed projects from a catastrophic 2009, which almost devastated wood processing. The agony of producers deepened on the domestic market where furniture sales amounted to almost 70% of imported products in 2010. The state should provide assistance in terms of green and socially responsible public procurement, yet it does not.
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Privredni vjesnik Year IV No 0135
GORAZD NIKIĆ, PRIVREDNI VJESNIK AWARD
Ljubo Jurčić – economic analyst 2010
he economic analyst for 2010 is Ljubo Jurčić, according to the full results from 397 Croatian companies, based on a survey conducted for the first time by the oldest Croatian economic-financial weekly magazine, Privredni vjesnik. The first Gorazd Nikić award for the economic analyst of 2010, given to Ljubo Jurčić (president of the Croatian Association of Economists, professor at the Faculty of Economy and president of Podravka supervisory board) was presented on December 13, during a special ceremony in Zagreb, by Boris Cota, personal delegate of Croatian President Ivo Josipović, and economic consultant. Marking 15 years of conducting economic activity tests in Croatia, and the fifth anniversary of the death of Gorazd Nikić, the founder of economic activity surveys, Privredni vjesnik decided to introduce the award “Economic Analyst of the Year”. The selection was sponsored by the Croatian Chamber of Economy, the Croatian Employers’ Agency and the Croatian Association of Economists, supported by the Agrokor consortium, Croatian Postal Bank and the Institute for Lexicography Miroslav Krleža.
T
The council prepared a list of 38 renowned Croatian analysts, listed alphabetically. Companies included in the survey of economic activity selected 5 of the 38 candidates. All analysts included in the listing possess exceptional know-how qualities and prepare extremely valuable analyses. However, we wanted more. We
wanted to see which analysts in their operations, were conspicuous over the year, according to the opinion of Croatian entrepreneurs. In times when every timely and credible analysis offers potential direction to the economy, warns of the (un)expected and offers possible solutions, we feel that entrepreneurs are those
Who is Gorazd Nikić? Many in Croatia remember Gorazd Nikić as a renowned economist and jurist, and few know that he also graduated at the Music Academy. It is interesting that between 1966 and 1968 he studied at Yale University in USA, where he obtained an MA in economics. When he returned to Zagreb he continued his research work at the Institute of Economy. He was a professor at the Faculty of Economy, professor of Economic politics at the Faculty of Law in Zagreb and from 1984, the head of the department for international economic relations at the Institute of Economy, where he remained working until his death. For a short period he was the government advisor for economic affairs and one of the creators of the stabilisation programme, which ended Croatia’s hyperinflation spiral. He was a member of the Croatian National Bank Council from 1996 to 2000 and he worked on the supervisory board of the Croatian Bank for Reconstruction and Development. He published over 130 scientific articles and wrote four books.
best placed to evaluate which Croatian economic analyst is the most trusted, whose analyses and estimations can be relied upon, opined Darko Buković, Editorin-Chief of Privredni vjesnik. The results were processed by the Business Research Centre of Privredni vjesnik, headed by Mirjana Čižmešija, from the Statistics Department at the Faculty of Economy in Zagreb. Five analysts, with the highest scores, entered the final round and were, in alphabetical order: JURČIĆ, Ljubo; KULIĆ, Slavko; LOVRINČEVIĆ, Željko; NOVOTNY, Damir and SANTINI, Guste. The award is a sculpture, the work of academic sculptor Dražen Grubišić, based on the design of Tihomir Turčinović, designer with Privredni vjesnik, as well as an 11 volume set of the Croatian Encyclopaedia, donated by Vlaho Bogišić, director of Miroslav Krleža Institute of Lexicography.