Interview: Branko Grčić I expect a turnaround in 2014, says Government Vice-President and Minister of Regional Development and EU Funds
State budget rebalance The largest income increase will be created by redirecting some of the funds from the second pension pillar
Co-operation with Russia There are opportunities in the Russian market in a wide range of economic sectors for Croatian companies
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Croatian Business & Finance Monthly Established in 1953 Monday / 3rd February/ 2014 Year VII / No 0233 www.privredni.hr
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HŽ CARGO ON THE BRINK OF DISASTER
Failure of negotiations with the Romanians means 1,100 staff facing redundancy Notwithstanding the fact that the national freight carrier is eligible for bankruptcy, Minister Siniša Hajdaš Dončić has decided to provide the company with one more lifeline – a lifeline of €30million Igor Vukić Drago Živković f the four companies into which Croatian Railways were divided seven years ago, HŽ Cargo is likely to be the first victim of the recession due to its failed privatisation. Irrespective of the fact that the national freight carrier, who merged with HŽ Train Traction in 2012, is eligible for bankruptcy following the failure of negotiations with the Romanian Grampet Group. Siniša Hajdaš Dončić, Minister of Maritime Affairs, Transport and Infrastructure, has decided to provide the company with one more chance – a lifeline of €30 million. However, HŽ Cargo needs to fulfil several conditions in order to secure assistance. Hajdaš Dončić pointed out the conditions to be met, namely laying off 1,100 staff, a 20% salary
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cut, severance pay cut, and the separation and privatisation of all activities except core business. The Minister believes the company will still have a future if it meets all the conditions within two weeks. Nevertheless, agreement with Trade Unions, which is not easily achievable, is an imperative. The sum of €30 million would suffice to cover current liabilities and severance costs, whilst the remainder would be found via the open market, which is currently open to other freight
carriers. Consequently, according to the restructuring plan, a 5% fall in revenue is anticipated, which Hajdaš Dončić sees as a conservative estimate. According to Danijel Krakić, the HŽ Cargo Management Board has already decided make redundant 800 staff and an additional 160 staff are to be laid off as a result of further reorganisation. Around 900 staff have already left the company and the company now employs 3,482 staff. In addition, it is striving to settle the receivables from Bosnia and
Grampet: We will not give up on HŽ Cargo Irrespective of their disappointment with the failed privatisation of HŽ Cargo, the Romanian Grampet Group has not entirely renounced its purchase plans in case Croatia opts for the privatisation of HŽ Cargo again, as stated by company representatives. Nevertheless, one day after calling off negotiations with the Romanian Group by the Croatian government, Croatian media released the news of the arrest of the Romanian billionaire, 45-year-old Grampet owner, Gruia Stoica, in Romania, stating that he was brought in for questioning due to alleged corruption charges.
Herzegovina Railways standing at €7 million, as well as €5 million owed by the Bulgarian Railways. The company subsidiary, AGIT, will be merged with the parent company during the sale, whilst that part of AGIT under the Marco Polo EU programme will remain a separate company employing a reduced number of staff. HŽ Cargo’s short-term liabilities stand at €32.6 million, the same as its short-term receivables. Krakić is optimistic about the future of HŽ Cargo, primarily because company revenue in December 2013 was 8% up over the same month in 2012. Moreover, Krakić is planning to improve the company balance sheet with the sale of 1,800 train carriages, whose book value stands at €19.7 million. According to the annual report for 2012, the total value of HŽ Cargo assets stood at €0.2 billion.
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Privredni vjesnik Year VII No 233
RESEARCH FINDINGS FROM THE NORWEGIAN COMPANY SPECTRUM ASA PRESENTED
( €1,12 billion
offered through pre-accession funds
BRANKO GRČIĆ, GOVERNMENT VICE-PRESIDENT AND MINI
Yes, I expec Oil and gas reserves along the entire section of the Croatian Adriatic Sea coast Jozo Vrdoljak he Norwegian company, Spectrum ASA, has completed its seismic analysis of the Croatian seabed using the 2D technique. Images were taken throughout the 14,712 kilometres of the epi-continental belt in the Adriatic Sea. Ivan Vrdoljak, Economy Minister, and Rune Eng, President of Spectrum ASA, attended the presentation of the research findings by the research ship, Seabird Northern Explorer, in the Split-based North Port. “Croatia has the potential to become one of the few European countries whose reserves of
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20 companies including Total, ENI, Exxon Mobil and Marathon Oil interested in seismic images oil and gas exceed her requirements”, according to Ivan Vrdoljak. “A concession tender is expected in April at a conference in Houston, and the final data are expected to be available by that time. Prior to that, we need to define our offer of offshore blocks for companies interested in research and exploitation of oil and gas in Croatia. Moreover, concession fees will be stated, tender documentation prepared and selection criteria defined”, highlighted the Economy Minister adding that
there is immense global interest in Croatia due to her energy potential. 20 companies including Total, ENI, Exxon Mobil and Marathon Oil are interested in the seismic data and have signed purchase pre-contract agreements. The granting of the concession is expected in 2015, and Minister Vrdoljak believes it will create employment opportunities locally on the projects and foster the involvement of local companies. Huge potential According to the contract signed with the Ministry of Economy by the end of July 2013, Spectrum is entitled to charge for the first five samples of documentation it sells in a package, whilst revenue from the sale of the remaining data will be shared with the state on a 50:50 cost-sharing ratio to cover the costs of 2D imaging. The research results show the huge potential of oil and gas reserves along the entire Croatian side of the Adriatic Sea. Irrespective of its shallow depth, the Adriatic Sea will arouse interest amongst global oil and gas giants, as its exploitation will be far more technically simple and affordable. There are proven hydrocarbon systems, moderate sea-depth, the existing infrastructure and open unexplored territories near the most important energy markets. The first processed data reveal new and unexplored hydrocarbons locations and unprecedented moves”, pointed out Rune Eng.
In 2013, we slowed the fall in GDP, we managed to reduce t are a small and open economy and we expect a positive effe development Jozo Vrdoljak rivredni vjesnik spoke with Government VicePresident Branko Grčić about this year’s outlook, new Regional Development Act, the development index, island policy and drawing the funds from the European Union.
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Your outlook for 2014 is optimistic and you anticipate GDP growth. On what do you base your optimism? I expect a turnaround in 2014. In 2013, we slowed the fall in GDP, we managed to reduce the gap, which was between 2009 and 2011 1% - 2.5% smaller in relation to the EU average, to roughly 0.5%. We are a small and open economy and we expect a positive effect from the economic re-
I expect that all projects for 2013 will be arranged by June 2014 to a total amount of €450 million covery of our European partners in addition to all of our efforts and measures for economic development. The fact that Croatian entrepreneurs expressed a higher level of expectations concerning the business climate, and growth investment in 2014 show our anticipations are realistic. Then there are also applications from entrepreneurs that may create thousands of new jobs using subsidies, as well as investor announcements, who have turned to the Agency for Investments and Competitiveness in order to remove obstacles preventing project achievement.
You announced adoption of a new Regional Development Act. What will you achieve with this Act? Our present policy management of the subsidies is based on different methods of treating special state care areas, highland areas, islands, and the City of Vukovar, will be replaced with a unique system based on a development index. Furthermore, the management of the islands and the city of Vukovar will remain in the jurisdiction of the existing special laws. The key reason for these changes is to achieve greater equality in dis-
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( €824 million has been arranged
( €309 million
arranged in less than 2 years
STER OF REGIONAL DEVELOPMENT AND EU FUNDS
ct a turnaround in 2014
the gap, which was between 2009 and 2011 1% - 2.5% smaller in relation to the EU average, to roughly 0.5%. We ect from the economic recovery of our European partners in addition to all of our efforts and measures for economic What does effective completion require? First it requires stronger administrative and financial capacity at the local administration level. Be proactive – is the message to them, which has to do its share of work, and we will help, as we are already doing, the less developed areas. We are constantly working on strengthening state administrative capacities, and it is also important for us to support the development of the private consulting sector. What level of funding is available for the forthcoming period? During the financial period 20142020 we will be able to make use of over €1 billion a year. We will have three operational programmes from the competitiveness and cohesion areas, effective human resources and one programme for technical assistance.
tributing state subsidies to the least developed areas. To what extent has Croatia used EU funds and what are your expectations for this year? Of the €1.12 billion Croatia has been offered through all pre-accession funds, over €824 million or 73.5% has been arranged, which is above the EU average. Regarding the IPA Programme, ongoing since 2007, €559 million or almost 68% has been arranged from a total of €823 million. In less than two years of the current
Government, €309 million was arranged, while former Governments arranged only €247 million during five years (20072011). This Government accelerated project completion, and as a result €238 million was paid to contractors in two years. During the previous five years, only €127 million was paid. These numbers show progress in using EU funds, and I expect that all projects for 2013 will be arranged by June 2014 to a total amount of €450 million we have been offered during the first six months of our membership in 2013.
Which larger projects are you preparing, that is, which projects have already been prepared? The implementation, public procurement and contracting of projects worth €775 million is in progress. By the end of the first quarter of 2014, the remaining tenders will be invited for large infrastructure projects, as well as public invitations for allocating funds to smaller projects worth a total of €200 million. I would like to point out the reconstruction of the railway and construction of the second track on the route Dugo-Selo – Križevci; the construction of the track Sveti Ivan Žabno – Gradec, and a series of projects covering water supply and waste water purifica-
tion in Osijek, Poreč, Vukovar, Čakovec and Županja, as well as investment into laboratory equipment of Rijeka University. Pub-
We will receive over €1 billion a year in the financial period 20142020 lic invitations for submitting the projects from the area of public entrepreneurial, science-research and tourist infrastructure have been announced, as well as projects for strengthening SME’s and preparing future infrastructure projects in the areas of science and innovation. What are your plans for this year regarding the drafting of programme documentation? This year is the year of programming in the EU. Just as with other countries, we should also define our investment priorities for the next seven years. The draft of the Partner Agreement was sent to the EC, and we have to send the final proposal by the end of March. We plan to send the operating programmes by the end of June, and wait until autumn for their approval. Then a further accreditation of institutions participating in the implementation of the programme will follow. Public invitations for allocating nonreturnable subsidies of smaller value should be announced by the end of 2014, as well as tenders for contracting the construction of new big infrastructural projects from the 2014-2020 package, which are now in the final phase of preparation.
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Privredni vjesnik Year VII No 233
( 4.5% of GDP
( €0.62 billion
size of budget deficit in 2014
budget income increase
STATE BUDGET REBALANCE BY THE END OF FEBRUARY
Beneficial pensions sa
The largest income increase will be created by redirecting some of the funds from the second pension pillar. The amo firefighters and similar state officials Igor Vukić he budget rebalance, which the Parliament will adopt by the end of February, will reduce the budget deficit to 4.5% of GDP in 2014. By the end of 2016, the deficit will be below the Maastricht limit of 3%, Finance Minister, Slavko Linić, announced last week. After consulting with the European Commission and political partners in Government, Linić announced that the forthcoming rebalancing will increase budget income by €0.62 billion, whilst expenditure will be cut by €0.47 billion. This also allows the Government to change its GDP growth outlook for this year. Now, it anticipates
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If privatisation brings income, it will not go to the budget, but will used for reducing public debt slightly lower growth of 0.2%, albeit still positive. The largest income increase will be created by redirecting a proportion of funds from the second pension pillar. The amount in question is €0.42 billion, deposited in this pillar for future users of beneficial pensions, namely army, police, firefighters and similar state officials. Linić explained the Government pays an additional sum for them for the pension service. These officials will retire soon, so they have little use for saving in the second pillar. That was an anomaly in the system and we are correcting it, Linić evaluated. Each user with the right to a beneficial service pension will have
30 days to decide whether the money may be transferred to the first pillar (state budget) or for it to remain in the second pillar. However, their representatives have already announced they will advise everyone not to be against transferring the money to the budget, from which they will receive their pension anyway. Higher concession fees The Government will gain around €0.13 billion from the profits of public companies and surplus of money that could be found in various state institutions and agencies. It will be decided subsequently from which companies profits will be taken and at what percentage, Linić said. Their investment plans will be reviewed and their activities from last year will be analysed, with efforts aimed at retaining as many investment projects as possible, Linić announced. A little over €39.5 million will be added to the budget from a profits tax on lotteries. The amendments to the law are already in progress, and it has already been announced that every profit will be 10% taxable even if the profit is only €0.10. The remainder of the increased income (around €26.3 million) should derive from higher concessionary fees. Linić says it is not acceptable for the state to save on its expenditure, whilst at the same time someone else is creating profits from state assets. Concessionaires generally pay too little for using Croatian goods. This cannot continue, and each concession agreement will be reviewed, Linić noted. He also confirmed that concession prices for oil and gas would rise, including prices for water use,
exploiting gravel and other mineral resources. On the expenditure side, the biggest cuts will come from material state expenditure (around €0.17 billion). Less money will go to healthcare (€78.9 million) and some capital investment projects (€59.2 million). Agricultural, traffic and other subsidies will be reduced by €72.4 million. The question of cheaper HBOR loans could a consequence. “We will have the money to additionally capitalise HBOR, but we cannot spend any more on interest-subsidising interest rates, just so the loan for entrepreneurs is only 1% or 2%”, opined Linić. Saving on state officials The Government intends to save around €49.3 million on the sal-
aries of state officials. However, salaries will not be reduced and there will be no dismissals. The Finance Minister explains they will save on better control of overtime work and other benefits. He also said that for the past two years, the Government has reduced a range of salaries by 7% - 8%, and there is no more room for additional cuts. Savings may be achieved by cancelling recourses and Christmas benefits, one-off 3% reductions to many salaries and cancelling service fees. The budgets for 2015 and 2016 will also be different to those the Government presented in its earlier economic policy guidelines. Income will increase by €0.5 billion in 2015; around €0.3 billion will be transferred from the second pillar –
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( €0.47 billion ( 0.2% budget expenditure cuts
anticipated GDP growth in 2014
ave the budget
ount in question is €0.42 billion deposited in this pillar for future users of beneficial pensions namely army, police, trol in 2012, and aimed to reduce it. However, public debt exploded when state warranties for the restructuring of shipyards and railways were taken over and activated. The Privatisation of the shipbuilding industry was extremely expensive; it cost almost €1.3 billion, and another €0.7 billion will be paid over the forthcoming years.
money intended for beneficial pensions. The remainder will be settled from more expensive concessions and profits from
In general, concession users pay too little for using Croatian goods. This cannot continue, notes Minister Linić public companies, and during that year, the deficit could fall to 3.6% of GDP. If privatisation brings additional income, it will not go to the budget, but it will used for reducing public debt. Linić said that he showed the European Commission that the Government kept the deficit under con-
Motorway network privatisation a reality A similar situation regards concessions for highways. Linić reminds that €750 million in foreign loans are due by Hrvatske autoceste (HAC) this year. HAC does not have this money, which means the state should activate guarantees at the expense of the public debt. Therefore, privatising motorway networks is a realistic solution. The EU membership fee of €0.5 billion is another heavy burden. It is true that money from EU funds is arriving, but every project must be co-financed to certain percentage and from the budget. The effects of this investment are still not visible, just as the abolishment of borders with the European market has not increased imports or production, as yet. There are huge problems in the private sector that we have tried to help with pre-bankruptcy settlement. Hopefully, the private sector will start to export more and achieve growth after consolidation, Linić highlighted. Even though the financial situation in the healthcare system is not satisfactory, Linić says the Government does not intend to return healthcare contributions to the former level of 15%. By 2016, funding will be
Linić: Taxes in Croatia are not excessive Based on the tax burden, Croatia is placed near the bottom of the EU average table, Linić pointed out. He also said the existing tax system does not over-burden the competitiveness of the local economy. He states this was confirmed by the European Commission. The only thing they suggest is to expand the payment base, that is, to increase the number of payers, which is already being done. This mainly refers to a property tax, where the burden would be carried by the wealthier level of the population, while companies would be additionally taxed, Minister Linić concluded. With a new rebalance and the announced future changes to the tax system, Linić wants to show these are not mere one-off moves as his critics claim. The changes should result in a balanced budget income and expenditure over a longer period. At the same time, we did not want to decrease expenditure since that would jeopardise economic growth, Linić said. Property, interest and share taxes to arrive in 2016 In 2016, budget income should increase by €0.5 billion, since property tax will be introduced, which will collect €0.2 billion. The system will also introduce a savings tax (€52.6 million). The property tax will be introduced according to the model presented in 2011, which was not adopted due to resistance in the Government and in entrepreneurial circles. Higher amounts will be paid for unused property, with an attempt to reactivate them. The tax will be used for financing healthcare, especially at a regional level. Although utility fees will be abolished at the same time, entrepreneurial groups warned the taxes could be much higher than utility fees, depending on the activity and location of the property. A public discussion will be held to decide on the tax rates for saving interests and capital profit. A percentage of income will probably be exempt from tax in order to protect smaller investors. found through better organisation and reduced expenditure in the healthcare system, until a property tax is introduced. With lower health contributions, the reinvested profits of companies will not be taxable, so that it would have a chance to increase through necessary investment. The entire rebalance and other
measures for budget cuts will be discussed with representatives of the European Commission over the next two years. Discussion will be held by the end of April when everyone will know whether or not the Government can fulfil the obligations envisaged by the three-year European Excessive Deficit Procedure.
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Privredni vjesnik Year VII No 232
( $430 million
Croatian exports to Russia in 2012 - a record
( 170 million consumer in Eurasian Union
BUSINESS COUNCIL FOR CO-OPERATION WITH THE RUSSIAN FEDERATION AT THE CROATIAN CH
Business activities with Rus
Vesna Trnokop Tanta, Vice-President at the Croatian Chamber of Economy, pointed out that there are immense oppor sectors for Croatian companies. This year is likely to be more favourable and it is anticipated it will result in the increas Igor Vukić ollowing Russian accession to the World Trade Organisation, business activities with the country have become simplified and more predictable. Import barriers are gradually being eliminated, whilst a regulatory framework is being harmonised with those in other developed markets. New opportunities for trade in goods and services throughout Eurasian Economic Union, comprised of Russia, Kazakhstan and Belarus, have recently been presented to the members of the Business Council for co-operation with the Russian Federation at the Croatian Chamber of Economy.
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Russia, Kazakhstan and Belarus have joined the Eurasian Economic Union Following the establishment of the Customs Union these countries focused on moving towards further integration striving to accelerate trade in capital, goods and workforce. “Goods imported into one of the members of the Union, will reach the consumers in other Union members without barriers, which significantly assists business activities for entrepreneurs”, emphasised Viktor Spaski, Director of Sector for Development and Integration of Eurasian Commission. Commission members are former Prime Ministers and other high-ranking officials in these countries and decisions are reached by a two-thirds majority vote. The Commission is currently preparing a list of 61 regulations and corresponding
technical standards that would be equally applicable across the entire Eurasian economic territory. Around one hundred most common business obstacles have been identified which will be gradually tackled. Free trade zone increases rating The abolition of customs and other barriers between the three countries has generated excellent results. Trade between them soared by over 30% during the first three years. In 2012 the value of trade in goods stood at almost $70 billion. The establishment of the Free trade zone increased the business rating of the three countries. Russia which was ranked 112, currently ranks 90th in the Doing Business rankings, whilst Kazakhstan is ranked 50th. Next year the Community will grow into Eurasian Economic Union, as Kyrgyzstan, Armenia and Vietnam have also shown interest in joining. The Union will co-operate with China, Ukraine and New Zealand. Nevertheless, the Eurasian Union will not introduce a single currency, stated Spaski. The Union currently attracts many external traders. According to Vesna Trnokop Tanta, Vice-President at the Croatian Chamber of Economy, there are immense opportunities in the Russian market in a wide range of economic sectors open to Croatian companies. This year is likely to be more favourable, and it is anticipated it will result in the increase of trade in goods whose value once stood at $2 billion. Energy products have the largest share of imports and Croatian companies saw record exports of $430 million
in 2012. These extraordinary results were achieved due to a contract signed by the Zagreb-based company, Ericsson Nikola Tesla, with a customer operating in the telecommunications sector. Dur-
ing the first nine months of 2013, exports to Russia plunged by 23% over 2012. Nevertheless, several sectors, such as pharmaceuticals, cosmetics, agriculture and health tourism, are still growing.
Business circumstances in Yaroslavl and Novosibirsk According to the work plan of the Business Council, Croatian entrepreneurs will be provided with opportunities for business activities in two potentially attractive Russian regions – Yaroslavl district and Novosibirsk. Yaroslavl district, located 280 kilometres from Moscow, has 1.3 million inhabitants. The district abounds with healing waters and chemical and metallurgical plants. Last year a business delegation from Yaroslavl visited the Croatian Chamber of Economy. They are interested in co-operation with Croatian companies in the areas of mechanical engineering, agriculture and information technology. On the other hand, the Novosibirsk region has around 3 million inhabitants. The region is located in the southwest of Siberia and it abounds in energy sources and is also ore-rich. According to Suzana Knežević, the new secretary at the Business Council for Co-operation with Russia, the region will be the market for Croatian agricultural products, primarily for processed turkey or beef. There is huge potential for co-operation also in the field of waste management.
www.privredni.hr w.privredni.hr Business siness & Finance Weekly
7 VIKTOR SPASKI, DIRECTOR OF SECTOR FOR DEVELOPMENT AND INTEGRATION, EURASIAN COMMISSION
rs
Croatian companies could fill a large number of commercial niches
HAMBER R OF ECONOMY
ussian accession to the World Trade Organisation has substantially enhanced mutual business activities. Viktor Spaski, Director of Sector for Development and Integration, Eurasian Commission, talked with Privredni vjesnik about the current opportunities for entrepreneurs in the huge Russian market.
ssia simplified R
rtunities in the Russian market in a wide range of economic se of trade in goods, whose value once stood at $2 billion
Demand for branded and certified goods The Vice-President at the Croatian Chamber of Economy highlighted the importance of the entry of the Russian Sberbank into the Croatian market. The agreement between Sberbank and the Croatian Bank for Reconstruction and Development (HBOR) creates huge opportunities for financing exports and other business projects in both Croatia and Russia. The Croatian Chamber of Economy provided assistance in solving the problems of Russian investors in Croatia and subsequently 2014 is likely to see progress concerning this issue. Moreover, the level of co-operation with the Moscowbased Chamber of Commerce and Industry is also continuing; information on tenders and procedures for the participation in national programmes for waste manage-
ment, as well as on the development of sustainable energy sources are constantly exchanged. Confidence in Croatia as a business partner is reflected also in the fact that this year the Russian Banking Forum will be held in Split, emphasised Vesna Trnokop Tanta. Milan Stojanović, President of the Business Council, also believes Russian accession to the WTO affected business activities positively for all interested parties. In this huge market, there is demand for branded and certified goods and hence it is fundamental to keep abreast of procedures for registering brands in compliance with the Russian GOST system of certification. The Business Council provides comprehensive information to interested Croatian entrepreneurs. Stojanović pointed out that participation in fairs is of vital importance for market entry, as well as for the presentation of products on the Russian market. As the participation in fairs is extremely expensive, good preparation and co-ordination with other Croatian exhibitors is imperative. The Business Council will also be involved in the organisation of participation in the Moscowbased MITT fair in March 2014. This is an international travel and tourism exhibition with participants globally. Moreover, there are plans concerning the organisation of an economic forum with Belarus; as yet the details concerning the venue of the forum have not been defined. New agreements on economic co-operation and investment protection will also be signed with Belarus, which is likely to upgrade business co-operation.
Croatian companies do not engage in large-scale production. How competitive can they be in the Russian market? Croatian companies certainly can be competitive and have the potential to fill a large number of commercial niches. Croatia provides top quality organic agricultural products for which there is a substantial demand in many global markets. Russian consumers are prepared to pay for high quality and authenticity. We have seen several instances of such cooperation thus far, for example, exports of tangerines from the Neretva region. In addition, Croatia produces top quality wines, olive oil, cheese and a wide range of other products which can easily penetrate the Russian market. Some Croatian entrepreneurs who have attempted to penetrate the Russian market complain of high administrative barriers. There have been considerable changes following Russian accession to the WTO. We have implemented the harmonisation of procedures concerning the exchange of goods and lowered customs duties by 7% on average, and they may be further reduced in the future. Hence, the opportunities for business activities of Croatian companies in the Russian market are substantially higher compared with several years ago. Meanwhile, the free trade zone between Russia, Kazakhstan and Belarus has been established and as a consequence, business activities have currently been developed across the entire area of 170 million people.
Can prices achieved in the Russian market satisfy foreign traders? Italian, French, Chilean, Australian and South African wines are sold in Russia and hence foreign traders certainly find the Russian market profitable. Vodka is decreasing in popularity amongst Russians who are currently opting for wine. New opportunities are arising in the Russian market for Croatian wines whose top quality is well-known, as well as for other Croatian goods which are sold in Germany, Italy or France. There are many interested customers in the Russian market. What opportunities for cooperation are there concerning the exchange of services? Croatian builders are well-known in Russia due to high quality of their work and for meeting construction deadlines. Their work has covered many facilities, as well as hotels. Croatian companies may opt to construct hotels on Lake Baikal. Moreover, the jobs created following the construction of the hotels may be allocated to Croatian tourism staff, who could transfer their longterm experience in hotel management and the provision of hotel and accommodation services. Eurasian countries are launching huge housing construction programmes and infrastructure reconstruction. There are immense opportunities for co-operation to our mutual advantage and we need to exploit them in the near future.
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Privredni vjesnik Year VII No 233
( 348,840 properties exclusively state owned
STATE PROPERTY REGISTER PUBLISHED
NPOs and church eligible for taxes All non-profit organisations (NPO) whose annual revenue exceeds HRK230,000 will be obligated to set up companies and will hence be eligible for taxes, in accordance with the new bill on accounting of NPOs recently passed by the government. The bill applies to sports clubs, church communities, youth and other civil organisations, with the exception of entities generating revenue primarily through rent or lease. ENT in Armenia Members of Armenian government and the local Foreign Financing Projects Management Centre at the Ministry of Finance have opted for Ericsson Nikola Tesla for delivery and implementation of IT system in health care (eHealthcare) throughout the country. This pilot project aims to modernise the health system by implementation of modern information communication technologies in order to enhance the quality of public health care and achieve higher satisfaction amongst the public with the health-care system. New glasshouse farming Agrokor has recently completed the construction of its new glasshouse for hydroponic production of on-the-vine tomatoes (grappolo tomatoes) in an area covering 4.5 hectares in the Baranja-based Mitrovac complex. The glasshouse is provided with a system which controls its climate, irrigation and other conditions. The investment was worth HRK78 million. In addition to on-thevine tomatoes, the Mitrovacbased glasshouse will be used for production of beef tomatoes and will hence be the first in Croatia to produce this tomato variety. During the first phase of its operation, the glasshouse will create 50 full-time jobs.
Fortune on paper, ch
The majority of state property is comprised of forests and forest land, so it is obvious that with almost 300,000 properties. Hrvatske vode follows with 41,760 properties Drago Živković t the end of 2010, the State Property Management Act prescribed the formation of a Registry on the web pages of the former State Property Management Agency. Since then this Act has been amended twice, the Agency abolished, and its role was taken over by the State Office for State Property Management (DUUDI) and the Centre for Restructuring and Sale (CERP). The new Act prescribed the Register would enter into force on 1st January 2014, and its content was finally published in midJanuary. However, the Register is incomplete since some state bodies have ignored the law that obliges them to deliver the data.
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Ministries allocated around 8,000 apartments for veterans and civilian victims of the war Head of the State Office, Mladen Pejnović, says they will be fined. The law prescribes fines up to €13,200 for companies and €1,300 for responsible individuals. Forests and water The list of property, now available to the public at www.duudi. hr, includes a total of 382,628 properties according to the presentation by Pejnović, even though this number is slightly lower in the Register and totals 382,339, of which the state is the exclusive owner of 348,840 properties. The shares of 450 companies and business shares in
240 companies should be added to the total number. It is impossible to define the value of the property since it depends on the present market situation, even though the Government VicePresident, Ranko Ostojić, thinks the value could exceed the previous Eurostat estimate of €31 billion, which puts Croatia amongst the top five richest countries in Europe. The majority of state property is comprised of forests and forest land, so it is obvious that Hrvatske šume are by far the wealthiest public company with almost 300,000 properties. Hrvatske vode follows with 41,760 properties, registered as public water good. The State Office for Reconstruction and Housing Care owns 15,198 properties, exclusively. DUUDI owns 7,804 properties, of which 5,108 are for housing and 2,681 business facilities. The Ministry of Veterans’ Affairs owns 2,407 apart-
ments, and the Defence Ministry owns 3,478 apartments and 3,226 business facilities. Of a total of 28,000 state apartments, DUUDI has already given 340 empty apartments to the Ministry of Construction for rental. However, most of these apartments are in poor shape, so Pejnović believes they will probably be sold. Apartments for Lottery Unlike many other cities, the state does not offer apartments for rent under privileged conditions, but it does offer business facilities, mainly to various associations and in compliance with the Government decision. Some of the apartments are considered official and are mainly used by officials. Others have been given to social welfare centres, mainly in areas of special state care. The Ministries of Veterans and Defence gave around 8,000 apartments to be used by veterans and civilian war victims.
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( 240 companies
PETROKEMIJA TAKEOVER
in which state has business share
haos in reality
t Hrvatske šume are by far the wealthiest public company Relations (founded in 1963 as an Institute for studying Africa) owns an apartment in Travno in addition to an office in the building of Hrvatske šume. The Ministry of Economy owns a building in Vukovarska Street in Zagreb and two garages in Heinzel Street. The Post Office owns 51 properties, three of which are apartment buildings and two are residential.
A few surprises can be found in the Register. The Croatian National Bank is the owner of pavilion number 26 at the Zagreb Fair. Hrvatska lutrija owns a total of 97 properties, including 13 apartment houses, a building on Jarun and apartments near Poreč. The Croatian Chamber
The data in the register are not final. There will be changes, especially for agricultural land of Economy owns 31 properties, mainly business facilities. The Croatian Pension Insurance Institute owns 857 properties, of which 700 are apartments and houses throughout Croatia. The Croatian Employment Service owns 114 business facilities, 42 apartment houses and 11 agricultural areas. The Institute for Development and International
€0.10 shares Of a total of 690 companies, there are a large number in which the state has very few shares, often below 1%. These will soon be sold by public tender. If an interested buyer is not found after the three rounds, the state could sell some by direct settlement, some maybe even for €0.10, Pejnović confirmed. The data in the register are not final. There will be changes, especially to agricultural land, which is why Pejnović invited both public and companies to come forward with their comments in order to improve the register. The Register will not solve all issues in the property-law relations of the state, but it is a step forward that will enable transparency, Ostojić pointed out. For him the published Register is only the beginning of introducing order in using state property, as well as increasing the responsibility of its users. In future, the Register could also include a list of concessions and maritime good, which are also state property. However, we will still not know the exact number of properties managed by the politicians, considering the fact not a single local administration published its property register.
Agrofert, Bige and Borealis in bidding race Bidders will perform their due diligence of the Kutinabased company following the first round of the tender Igor Vukić hree serious offers were submitted by the Hungarian Bige Holding, the Czech Agrofert and the Austrian Borealis companies respectively to the Ministry of Economy for the takeover of the Kutinabased Petrokemija. According to unofficial data released in the media, Agrofert stated it is prepared to invest €200 million in Petrokemija. Borealis is prepared to invest initially at least €82 million and subsequently a further €109 million. The Hungarian Bige (or its subsidiary Nitrogenmuvek) is striving to purchase 50.1% of Petrokemija for which it is prepared to offer between €50 million and €70 million. The Polish company Azoty had also submitted its bid to the Ministry, but was rejected as it did not comply with the conditions of the tender. The bidders will perform their due diligence following the first round of the tender. Binding offers are required by the end of February. Ivan Vrdoljak, Minister of Economy, stated that the most successful bidder would be selected based on financial features, the investment plan, and the intention to retain the majority of employees (the company currently employs around 2,000 staff). According to its bid, the Czech Agrofert company estimates the value of Petrokemija at €56 million; according to Borealis, Petrokemija is worth between €65 million and €108 million. The Hungarian investor estimat-
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ed the company value between €8.5 million and €10 million. State to retain partial ownership Petrokemija was capitalised in 2013 through investment by the state, pension funds and other investors. The subscribed capital was increased to €99 million. Nevertheless, new investment and modernisation are fundamental for its further development. In 2013, Borealis generated revenue of €7.5 billion with profits of €450 million. Its majority owner is an investment fund from Abu Dhabi and the company employs 5,300 staff in 120 countries. It owns petrochemical plants in Austria, Bulgaria and Belgium, amongst others. Bige Holding, named after the owner Laszlo Bige, sees annual profits of around €100 million and consists of 11 companies. One of them is Nitrogenmuvek whose annual profits stand at around €272 million. This company, a producer of mineral fertilisers, used to be state-owned. The Agrofert Group is the largest private employer in the Czech Republic, employing 27,000 staff. Its owner is billionaire businessman Andrej Babiš, who was also a successful politician last year. He entered the government with his new political party and is soon expected to become either Finance Minister or Economy Vice-President. All investors have expressed their willingness to retain partial ownership by the Croatian government and the intention of signing a shareholder agreement that would include also the current Petrokemija owners.
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Privre Privredni vjesnik VII No 233 Year V
( 650 start-up entrepreneurs
the target group for the EU Beginner guarantee programme
NEW PROGRAMME FOR SMALL ENTREPRENEURS
Guarantees covering 80% of a loan, without a mortgage Minister Maras announced an imminent launch of two incentive programmes for entrepreneurs. One will include guarantees for investment in subscribed capital and the other a programme for microcredit Drago Živković U Beginner, a new guarantee programme by HAMAG Invest, is the first programme in participation with the European Investment Fund. It is intended for businesses whose minimum period of operation is two years and the highest level of guarantee provided by HAMAG is €1.3 million for tourism and the processing industry or €0.4 million for other fields of activity. Gunnar Mai from the EIF stressed that this financial institution, whose largest shareholders are the European Investment Bank and the European Commission, is currently providing support to 275,000 small and medium-sized enterprises (SME’s) in 22 EU member states, one of which is Croatia. Total loans supported by the EIF through its counterguarantees stand at €15
E
billion and the programme will be extended following the expiry of the current phase, around mid-2014, as announced by Mai. EIF’s partner in Croatia is currently only one corporate bank and hence Gordan Maras, Minister of Entrepreneurship and Crafts, invited other banks to join t h e
programme that provides funding opportunities for small enterprises without the requirement of a mortgage. Interest subsidy Maras expects at least 650 small and medium-sized enterprises will join the EU beginner programme for whom the total value of guarantees available over the next three years is €52.6 million. EIF will provide a counter-guarantee of 50% of the loan for every guarantee provided by HAMAG Invest, which will significantly reduce the risk for HAMAG, the corporate bank and for the entrepreneur. As opposed to the previous guarantee programmes, the new programme guarantee limitation has been extended to reach 80% of the loan for all types of investment. Moreover, HAMAG will issue a letter of intent for all types of investment, whilst collateral for real estate will cease to be obligatory and only promissory notes will be
required. Darko Liović, Board President of HAMAG Invest, believes that EU Beginner will be fundamental for the future of start-up companies and will mark the start of the strengthening of the rôle of this state-owned agency that is expected to become the operating entity for the implementation of EU structural funding programmes following its merger with the agency BICRO. Maras announced the imminent launch of two new incentive programmes for entrepreneurs. One will include guarantees for investment in subscribed capital striving to enhance risk capital market and ‘business angels’ where support by EIF is expected. The other will be a programme of interest subsidies for micro loans where the interest rate can currently reach up to 10%. According to plans presented by Maras, micro loans in this programme will be for up to €26,000 at interest rates ranging from 2% to 3%, with funding available for 2,000 start-ups.
INSTITUTE OF ECONOMICS, ZAGREB
No recovery in sight in 2014 The last quarter of 2013 saw unfavourable trends in the Croatian economy, primarily in retail trade, construction and exports, whilst a drop in corporate lending also indicated increasingly adverse conditions within the economy. According to the recent estimates and projections by the Zagrebbased Institute of Economy, negative trends from 2013 will gradually subside, albeit with no stable recovery in sight in 2014. No GDP growth is anticipated throughout 2014, with an expect-
ed growth rate of 0.0%. The lack of recovery in 2014 is a result of structural weaknesses in the economy that are being tackled at a slower pace than expected, as well as the assumption of a significant drop in domestic demand caused by fiscal consolidation. Any strengthening of the European economy and the impact of fiscal and structural reforms, whose implementation is expected in 2014, are expected to gradually boost economic activity. Following a rise in imports and increasing investment, a 1% rise in GDP
may be likely in 2015. Labour market conditions in 2014 will see further negative trends. Nevertheless, 2015 is likely to bring slight relief. The principal risks of these projections concern the proportions and the time scale of the implementation of reform measures aimed at the consolidation of public finances under the excessive deficit procedure. If reforms are postponed, any decrease in consumption is likely to be lower than expected, resulting in a weakening of growth prospects.
www.privredni.hr Business & Finance Weekly
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( €181.6 million invested by Austrians
Just €530 million invested into Croatia from outside during the first three quarters of 2013
Foreign Direct Investment in decline Total results for 2013 will hardly repeat those from 2012 - around €1 billion of inward investment Igor Vukić uring the first three quarters of 2013, some €530 million of foreign direct investment came into Croatia, according to data from the Croatian National Bank. These data show that the overall results for 2013
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Almost half of last year’s investment went into the real estate sector will hardly repeat those from 2012 at around €1 billion of foreign direct investment. Austrians were the largest investors for 2013 at €181.6 million, followed by Germany (€66.4 million) and Hungary (€45 million). On a list of the overall largest foreign investors, Austria remains top in the independent Croatia (a total of €7.3 billion). Germany follows with €3.3 billion. Almost half of last year’s investment went into real estate (€227 million), followed by the produc-
tion of food and beverages (€66 million) and trade (€51 million). During the past two decades, the financial sector has attracted the highest level of foreign investment. Over €8.8 billion has been invested in banks and other credit institutions. However over time, this market became saturated, and only €30 million was invested during the first three quarters of 2013. In 2013, the construction sector also attracted foreign investors, investing €43 million or €10 million less compared with 2012.
However, this result is still better than that for 2010 and 2011 when more money flowed out of Croatia than it was invested in. Croatian companies investing abroad Foreign direct investment has brought in a total of €27.1 billion since 1993. Based on investment per person, Croatia ranks fourth in East Europe, behind Estonia, the Czech Republic and Hungary, but in front of Slovakia, which attracted big investors from the automobile industry. According
to data recently reported by the Foreign Investors Association, there are over 1,500 foreignowned companies active in Croatia, which represents a considerable share in the total economy: over 40% of employed capital and around 45% of total income of these companies. These companies are responsible for 55% of Croatian exports and 39% of investment. They employ 20% of all employees in the country. The data concerning the relatively low €530 million of foreign investment (compared with over €4 billion in 2008) will again bring attention to the obstacles to higher investment. The Foreign Investors Association highlighted among other problems, legal instability, changes in the tax system, rigid labour laws and slow justice system. Croatian companies also invested abroad. According to data reported by the Croatian National Bank, they invested €123.4 million during the first three quarters of 2013, mainly in the areas of trade and the production of food and beverages.
€0.26 BILLION CONTRACT
Trains are fashionable again The signing of a contract to purchase 44 new electric motor trains for HŽ Passenger Transport is considered the most important deal in the history of the Croatian railways. The trains will be produced by Končar – Electric Vehicles and the first is expected to be operating in 14 months. Subsequently, Končar will produce one or two new trains every month until it 32 electric motor trains (16 city – suburban trains and 16 regional trains) are completed and 12 diesel-electric trains, in accordance with the
contract. The trains have a length of 75 meters, and a maximum attainable speed of 160km/h, with passenger seating capacity of between 420 and 505. The dieselelectric trains will have a length
of 58.5 meters, a maximum speed of 120km/h and passenger seating capacity of 323. The total contract value is €0.21 billion. The HŽ Passenger train fleet, according to Dražen Ratković, Board President, HŽ Passenger Transport, has an average age of 30 years and now is the most propitious time for up-dating the fleet. The production of 44 trains is of vital importance for Končar, as it will create 3,000 jobs over the next three years, according to Darinko Bago, Board President. There are not many companies
globally with the capacity to produce their own trains and hence this project proves the vitality of this area of Croatian industry. Siniša Hajdaš Dončić, Minister of Maritime Affairs, Transport and Infrastructure, stated that the development of the railways will comprise of not only the purchase of new trains but also announced the signing of a contract for IT system development, aiming to provide passengers of HŽ Passenger Transport with the potential to purchase tickets via the Internet and by mobile phone. (D.Ž.)
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Privredni vjesnik Year VII No 233
(
5%
state deficit
( 60% of GDP public debt
RAIFFEISEN BANK ANALYSIS
GDP growth – another lost year In the third quarter of 2013, the greatest single contribution to the decrease in GDP was made by nett exports of goods and services. The market position of companies having a considerable proportion of income from exports was negatively influenced by new business conditions after EU accession. tive exporting companies is still in progress, which is why RBA analysts do not anticipate either production or exports to grow in the forthcoming period. With the anticipated contraction of public spending after entering the excessive budget procedure, the negative influence on GDP growth achieved by exports will be hardly neutralised by local components. In addition to restructuring in the corporate sector, spending by the private sector in 2014 is additionally aggravated by the process of reducing household debt, unfavourable demographic movement as well as low activity rate and employment.
eal GDP decreased by 0.6% in the third quarter of 2013, and RBA analysts estimate in their first edition of RBAnalysis for 2014 that real GDP decreased by 1%. In the third quarter of 2013, the greatest single contribution to the reduction in GDP was accounted for by nett export of goods and services. The market position of companies having a considerable proportion income from exports was negatively influenced by new business conditions after EU accession. However, anticipated income growth from exports was achieved during the summer tourism season, together with slightly higher income from exports. The largest exporting companies from sectors such as shipbuild-
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RBA analysts do not anticipate either production or the export of goods will increase in the forthcoming period ing and petro-chemicals are restructuring after losing substantial state subsidies. On the other hand, the privileged position on the CEFTA market was lost, which reduced the level of competitiveness of exports from the food industry. At the same time, the potential of goods and services from EU member countries to the local market was increased, limiting the possibility of any sales increase by local companies. An additional negative influence for local production resulted from growing instability
through changes in the regulatory framework that aggravated business conditions. Damage neutralisation With the aim of organising the collection of debts in the corporate sector, debtors can institute the process of pre-bankruptcy settlement with creditors in order to decrease their debt using the instruments of claim write-offs or transformation of claims into ownership share. By the end of 2013, entrepreneurs – debtors instituted 5,830 pre-bankruptcy proceedings with registered claims where the total amount of debt exceeds 15% of GDP, which includes a much higher number of companies with the status of creditors. Those entrepreneurs affected by
these procedures redirected their activities from improving production and sales to neutralising the anticipated damage to lost short-term assets. The basic measures used by effected creditors include both strengthening of liquidity and decreasing business costs. The effect of these measures to the economy is pro-recessional since it causes employment and investment reductions. The corporate sector is oriented towards the measures of the internal economy, which spreads pessimism through sectors of spenders through any further decrease in the numbers employed and a fall in real salaries. The process of pre-bankruptcy settlement as well as the restructuring of insufficiently competi-
Exports – main generator Multi-year expenditure in the public sector above achieved income under conditions of decreasing GDP, resulted in a 5%, unsustainable, state deficit and accumulated public debt which now exceeds 60% of GDP. Therefore, this year the state enters the excessive budget procedure in which the European Commission will set 2016 as the year Croatia will have to exit the EBD procedure. Considering the exhausted growth potential of the income side of the budget, analysts anticipate adjustment mainly on the expenditure side, with the inevitable contribution of state spending to any GDP growth. Investment into long-term assets depends on the business climate and fiscal load. Under conditions of fiscal consolidation, we cannot expect measures for assisting entrepreneurs or significant progress in investment activity, which means the main generator of growth has to be exports, RBA analysts highlight. (V.A.)
www.privredni.hr Business & Finance Weekly
13
CROATIAN NATIONAL BANK
::: news
Loans in November were €37.9 billion
Investment in platinum and natural gas Local investors at the Zagreb Stock Exchange have since recently been provided the opportunity to invest in structured securities collateralised in platinum and natural gas, which is an innovation on the Croatian capital market. A total of 16 new collateralised structured securities are available, in addition to those collateralised in platinum and natural gas, in four different underlying instruments: Dax, S&P, oil, silver and gold. The issuer is Erste Group Bank AG headquartered in Vienna. Erste Bank has a role of the representative of the issuer and the preserver of liquidity for collateralised structured products.
Lending to the public, which makes up the majority share of lending (over 44%), totalled 0.1% more at the end of November compared with October, but registered a 2% fall year-on-year ccording to the latest data provided by the Croatian National Bank, total bank lending stood at €37.9 billion at the end of November 2013, an increase at a monthly level but a slight fall year-on-year. Monthly growth totalled 0.2% or €58.5 million, and an annual fall of 0.1% or €35.5 million.
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Loan growth to the state stood at 18.5% year-onyear
was a further reason. On the other hand, loans to the state are growing; during the first 11 months of 2013, annual growth of state loans continued, standing at €5.1 billion (+18.5%) at the end of November. Public loans, which account for the majority of lending (over 44%), totalled €16.8 billion at the end of November, which is 0.1% compared with
October, but also showed a 2% fall on an annual level. The fall was contributed to by a further decrease in housing loans, which totalled €0.2 billion or 2.6%. Total loans to non-financial companies were €14.5 million at the end of November, a 0.5% monthly increase. The negative trend continued on an annual level. Thus loans to non-financial companies in November 2013, showed a 3.1% fall on the year, a €0.5 billion decrease. The growth of lending to the state (18.5% at an annual level) contributed to the growth of this lending in overall bank lending. Therefore, in November 2012, loans to the state accounted for 11.3% of total loans; however, their share had increased to 13.4% by November 2013. (V.A.)
Lending to the public, which makes up the majority share of lending (over 44%), totalled 0.1% more at the end of November compared with October, but registered a 2% fall year-on-year
Genera Group revenue rises The total consolidated revenue of Genera Group in 2013 saw an increase of 8.4% and stood at HRK199 million, whilst in 2012 it stood at HRK183.6 million. The consolidated gross profit in 2013 rose by 10.8% in relation to 2012 and stood at HRK74.6 million. Operating profit stood at HRK6.7 million, soaring from HRK114,000 during the same period in 2012, according to the financial report for the fourth quarter of 2013 released by the Zagreb Stock Exchange. Moreover, Genera Group saw a substantial increase in sales both on local and global markets in 2013.
According to the latest data provided by the State Bureau for Statistics, the total number of employed persons stood at 1,334,452, 1.4% fewer compared with November of 2012. The number of persons employed in companies totalled 1,115.185, down 0.5% on a yearly level. The number of employees working in companies increased during the months before the peak of the season (March-July). However, this number started to reduce in August due to the usual seasonal activities, and an indicator of the present state of the economy. The number of employees working in companies decreased by 27,081 or 2.4% in relation to August. Concerning the movement in the cumulative number of employed between January and November 2013, a slight growth of em-
Zagreb salaries The average Zagreb nett salary in November of 2013 stood at HRK6,694, HRK337 up compared with October. On the other hand, in November of 2012, it was HRK5 down, according to the data provided by the Department of Statistics at the City Office for Strategic Planning and Development of the City. According to business activity, the highest salary of HRK11,870 was recorded in management consulting activities. During the same month the lowest average salary – slightly under HRK3,000 – was recorded amongst those employed in security and investigative activities.
Bank loan activity continued to slow on a yearly level mainly due to a decrease in loans to non-financial companies, which account for 38.3% of total lending. A decrease in public lending
STATE BUREAU FOR STATISTICS
1,334,452 employed in November 2013
ployees working in companies was shown only by the activities concerning accommodation, hospitality, real estate and education, compared with the same period of 2012. On the other hand, all other activities, whether private or public, registered decreases in the same period. The number of employed in the construction sector plummeted. In September, the number
of employed stood at 71,823. However, in November 2013, this figure fell by 7.7%. Furthermore, employment in this sector decreased by 30,000 (29.4%) in relation to November 2008. The processing industry, which as an individual sector had the highest employment rate with 197,899 employees in November, down 2.4% compared with November 2012. (V.A.)
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Privredni vjesnik Year VII No 233
( over 180 professionals employed by PharmaS
PharmaS
OTC products trending Several years ago, companies used to separate OTC products from their activity and focus on generic medicine business. Meanwhile, the profitability of generic medicine business declined significantly Boris Odorčić n addition to its generic medical products, PharmaS, a regional pharmaceutical company for the production and sale of medicines, has recently decided to launch Consumer Healthcare (CHC), a new division of OTC medicines. Its product range comprises OTC medicines, food supplements and medical products. OTC products are currently trending in pharmaceutics once again. Several years ago, companies used to separate OTC products from their activity
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PharmaS operates in Croatia, Serbia, Bosnia and Herzegovina, Macedonia, Kosovo and Albania and focus on generic medicine business. Meanwhile, the profitability of the generic medicine business declined significantly due to strong efforts by the state to substantially reduce prices of medicines and implementing an increasing number of restrictions, whilst the state resources, as principal consumer, have been decreasing significantly. New products Jerko Jakšić, Board President in PharmaS, highlighted that PROBalans, a food supplement and the company’s first product produced by its new OTC division, has recently been launched on the market. “The product is the result of our expert work. In addition to active natural substances such as peppermint extract, it also contains vitamin B6 that is fundamental for metabolic processes and the absorption
of nutritive substances, zinc - a mineral providing assistance in a large number of metabolic processes and significantly contributes to maintenance of the acid-alkaline balance in the body, as well as beneficial lactic acid bacteria. The development of similar products implies creating Croatian brands and the growth of production. We are planning to penetrate the regional markets and other larger markets thereafter”, pointed out Jakšić. The Croatian market follows other global pharmaceutical trends and sells top quality drugs. “Regulators are highly professional and the situation concerning the updating of drug lists improved substantially in 2013. It is currently sent out quarterly which is of vital importance to all market participants. It implies penetration of competitors on the market that results in savings in the health sector budget. However, there is still the issue of payment for drugs. Last year we attempted to shorten the payment deadlines to 180 days, yet it would only have short-term effects and hence payment due date is currently 250 days. Hence, we lag behind other countries in the region where
payment deadlines are normally 90 days”, he explained. Recipe for sustainability In addition, the market has seen a continuous drop in prescription drug prices on the Croatian Institute of Health Insurance drug lists. “It is currently a global trend and one of the reasons why many pharmaceutical companies have been vigorously focusing on OTC products. Moreover, an increasing number of users are opting for self-healing, seeking for advice on a vast range of products at chemists, at their own initiative”, emphasises Jakšić. According to him, one possible solution for the sustainability of
the entire system is the inclusion of a larger number of prescription drugs on the “B” list by Croatian Health Insurance Fund where state participation is lower. “Still, the state may make a move which will be beneficial for all participants and that is to reduce the VAT rate on OTC medicines”, he stated, adding that the pharmaceutical industry in Croatia needs to be considered to be of strategic importance. “The pharmaceutical industry is the leading industry in terms of the number of its employees, its production quantity and exports, and significantly contributes to the economy creating added value annually, as well as investment opportunities”.
Two factories in two years PharmaS was founded in 2009 and employs over 180 experts. By the end of 2013, it invested €52.6 million in its business activities. Investment was focused on infrastructure construction in the region in order to complete the pharmaceutical cycle – from regulatory processes, including medicines on the health institute drug lists, production and quality control and finally sales. “During the last two and a half years we have constructed two factories – in Popovača and in Zrenjanin in Serbia. Immediately prior to two pharmaceutical companies in Serbia – IN Med and IN Medic started operating and merged into PharmaS Serbia. Hence, we currently operate in Croatia, Serbia, Bosnia and Herzegovina, Macedonia, Kosovo and Albania”, stressed Jerko Jakšić, PharmaS Board President.
www.privredni.hr Business & Finance Weekly
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( 100% growth
achieved last year in equipping tourism facilities
( 3,000 tonnes
of textile waste to be recycled in 2014
ANĐELKO ŠVALJEK, MANAGING DIRECTOR, REGENERACIJA ZABOK
Design leading to Europewide success The company has positioned itself as a producer of production material for various industries and has recently been focusing on designer rugs. Through the project entitled Self-portraits it is planning to provide personalised rugs, shaped to accord with specific spatial features cycle 7,000 tonnes annually. Successful co-operation with designers and architects, as well as the takeover of the company and of the CD Designers brand through which we sell our rugs in the EU will greatly contribute to our business growth and activities in 2014. We are striving to boost rug sales and substantially increase the share of this business division in the total company revenue.
Sanja Plješa egeneracija Zabok is a well-known company in Croatia and is becoming increasingly well-known in Europe due to its long-term experience in textile recycling. In 2013, the company revitalised the process of the collection of textile waste and invested in new facilities for textile recycling, thus completing the production cycle. The company also has a fabric dyeing facility, which is rare in this field of activity. In addition to ecology, co-operation with designers, artists and architects is becoming increasingly important in the operation of the company. Through the project entitled Self-portraits the company plans to provide personalised rugs, shaped to accord with specific spatial features. Privredni vjesnik talked with Anđelko Švaljek, Managing Director of Regeneracija Zabok.
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Regeneracija Zabok is marking its 60th anniversary this year. During the past several years, the company has faced turbulent times. What has changed thus far? The company was founded in 1954 as a classification facility for textile waste produced by the neighbouring textile factory ZIVT. It has been involved in non-woven textile production since 1964 and in rug production since 1970. Throughout the years, the company positioned itself primarily as a producer of production material for various industries, such as the clothing, footwear and furniture industries
primarily in ex-Yugoslavia. The drop in demand for our products due to the war, market disintegration and serious deindustrialisation, as well as overly slow restructuring and a delayed privatisation brought the company to the verge of bankruptcy. How did you succeed in reaching your current position? Restructuring, business process re-engineering and market repositioning during the past years resulted in our becoming a market leader in the EU in protective felt for the construction industry with a market share of 30%. Moreover, the company, as a producer of top quality designer rugs, has been present for years in equipping tourism facilities. Last year we achieved almost 100% growth in that field of activity and I believe it will account for a substantial segment of our business activity in the near future.
What products do you export and where are your export markets? Exports account for around 80% of our revenue. We export all our products – protective felts for the construction industry, insulation materials and rugs to Germany, Italy, Austria, France, Spain, Denmark, Sweden, Russia and the US. What are your future plans? Our specific objectives over the next three years include a 50% boost to non-woven textile production through the expansion of our production capacities, the organising of textile waste collection in Croatia, Slovenia, southern Austria and Hungary, its recycling and incorporation into our products. In 2012 we recycled 800 tonnes of such materials, in 2013 1,600 tonnes and in 2014 we are planning to recycle 3,000 tonnes, and the ultimate objective is to re-
How has Croatian EU accession affected the company? As most of our business activities are performed in the EU market and due to the fact that we operate through two companies – Regeneracija Zabok and Regeneracija GmbH Weiblingen in Germany, our business operations have been substantially eased and significantly more flexible since 1st July 2013. The principal advantage consisted of the removal of customs and administrative hurdles (EUR-1) concerning independent production of raw materials – regenerated textile fibres, which enabled the replacement of the vital import component with locally produced raw material. Are you satisfied with the previous fiscal year and what are your expectations in 2014? WE can express our utmost satisfaction with the fact that in 2013 we managed to generate equal revenue as in 2012, achieved slight growth in exports and around 30% higher profit compared with 2012, against a backdrop of the current business circumstances in Croatia and weaker demand in the Italian market due to recession.
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Privredni vjesnik Year VII No 233
( €2.6 million
amount ship owners save according to the Ministry of Maritime Affairs
NEW REGULATIONS FOR SHIP OWNERS SAILING THE CROATIAN ADRIATIC
If you don’t pay one way, you’ll pay in another Rather than concessionary approvals, the proposal of the Maritime Good and Sea Ports Act introduces licences issued on the basis of public tenders. A regulation was also adopted, according to which a ship has to pay an annual compensation based on the registration in the register file – each and every year erty when registering in the land register. “Consider what it would be like if the Finance Minister comes up with an idea to introduce a unique annual fee on each property of a private individual”, Ilijanić explains.
Drago Živković he new year has brought new regulations for local and foreign ship owners sailing in the Croatian Adriatic. According to the Ministry of Maritime Affairs, Transport and Infrastructure the regulations will simplify financial activities and decrease the level of parafiscal levies. A completely new system of calculation and compensation was introduced, certain compensations abolished, compensation for yachts and boats of the same technical characteristics are now regarded equal, regardless of their purpose and nationality. Finally, the payment system should be simpler and more efficient. According to the Ministry, after the implementation of these measures, ship owners will save
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The annual compensation is merely a new, camouflaged levy, the ship owners say over €2.6 million they were previously obliged to pay to the state. The registration of marine facilities is shorter and simpler, and ship owners will additionally save, since July 2013 when they were given the opportunity to use duty free fuel. The Ministry also expects positive effects due to reduced costs and better payment control, since the owner of a marine facility will in the future receive only one invoice per year. The drafting of the proposal to
the amendments of the Administration Taxes Act is in progress, and it will abolish all special administration taxes concerning the registration in registers and inquest registers of port captaincies. The final goal is to improve competitiveness of the Croatian trade fleet and attract new ships and ship owners under the Croatian flag. License rather than approval From the point of view of smallship owners, things are not optimistic. Furthermore, President of the North Adriatic Small Ship Owners Association, Zoran Ilijanić, claims that the levies and contributions are in fact increased, not reduced. Although he supports abolishing conces-
sionary payments in the city of the port captaincy in which the ship is registered, Ilijanić warns that the proposal of the Maritime Goods and Sea Ports Act – currently in the phase of public consultation – instead of concessionary approval, introduced licenses which will be issued on the basis of public tenders. According to Ilijanić, the expenditure will be higher than before. He also highlighted that the responsible ministry at the same time introduced the Regulation on the Compensation Fee paid by owners of marine facilities, in which it is stated that the vessel pays a unique annual fee when registering. The same thing would be if you paid a unique annual compensation for your prop-
No protection He adds that the responsible ministry camouflaged the new parafiscal levy in the form of a unique annual compensation paid every year, but it is not clear why. This compensation obviously does not include safe sailing and protection against pollution paid by the owners of foreign yachts and boats, and does not include the compensation paid by local ship owners for the use of the maritime good. Passenger ships also pay compensation for using the facilities of safe sailing directly to the state company Plovput, another reason that does not justify the introduction of a unique annual compensation, according to Ilijanić. “Periodical passenger transport does envisage any kind of protection or control mechanism for our ships, and we are left at the mercy of port captaincies. Since not a single port captaincy sets the tariff below the maximum prescribed by the Ministry Regulation, it clearly shows how the tariffs are defined”, Ilijanić says. If the proposed method for defining tariffs for port captaincies is adopted by the new Act, Ilijanić is convinced some port captaincies will charge local ships ten times higher fees for berths, demurrage and compensation for loading and unloading.