Interview→Zdravko Marić, Croatian Finance Minister: Out of alternatives for increasing tax PAGES 6-7
SUPPORTED BY THE CROATIAN CHAMBER OF ECONOMY
www.privredni.hr
Shares on sale→ These companies are removed from the list of “strategically important” PAGES 8-9
Croatian mini-submarines→ Judging by Maldivian customers, we are expecting more orders, says Peharda PAGES 20-21
PVinternational C R O A T I A N
B U S I N E S S
&
F I N A N C E
M O N T H L Y
June 2016, Year IX, No 259
POSITIVE CROATIAN ECONOMIC NEWS
GDP GROWTH RISES THROUGH EXPORTS Export growth of 9.4% was the largest contribution to an increase in GDP over the first quarter of this year. Contribution from demand resulted in a 2.8% increase by Ilijana Grgić grgic@privredni.hr
G
DP during the first quarter of this year was 2.7% higher in real terms compared with the same period of the last year. Seasonally adjusted GDP compared with the last quarter of 2015 recorded an upswing of 0.6%. In relation to the first quarter of last year It was 2.3% higher according to data published last week by the Croatian Bureau of Statistics (DZS). This means that GDP has been growing for the sixth consecutive quarter. Export growth of 9.4% was the largest contributor to the increase in GDP during the first quarter of 2016; demand contributed a rise of 2.8%. In terms of local demand, the strongest positive influence was through household spending (3.1%). Gross investment in fixed capital grew 4.3%. On the other hand, foreign demand was negative at -0.1%.
CROATIAN GROWTH EXCEEDS EU AVERAGE Gross value added (GVA), defined as market value of all produced goods and services, was 2.7% higher in the first quarter of 2016 compared with the same period of 2015. The largest contribution to the quarterly GVA growth during the first June 2016 | No 259 | PVinternational | 1
CURRENT POSITIVE CROATIAN ECONOMIC NEWS
2,77% GDP growth in the first quarter of 2016
3,1% growth in household spending
4,3% growth in gross investment in fixed capital
quarter of 2016 was by the processing industry (8.9% growth). Trade, exports and storage as well as accommodation, food preparation and catering increased 4.8%. For the first time since 2008, the construction sector recorded a positive rate with a growth of 3.1%. The largest contribution to the decreased in volume was by the supply of electricity, gas, steam and air conditioning. The main difference between the growth registered during the first quarter of this year and that during the pre-crisis times is that growth from 2008 was primarily based on personal spending. Therefore, record growth rates in retail were seen, which is also growing slowly today. Recovery is now based on industrial production, highlighted the Director of the Croatian Bureau of Statistics Marko Krištof. Compared with the 28 EU countries, Croatia has seen positive results. On an annual level, in relation to the first quarter of 2015, Croatia grew by 2.3% according to seasonally adjusted data compared with the EU average of 1.7%. In the EU, the fastest growing countries were Romania (4.25%), Slovakia (3.6%) and Spain (3.4%). The only EU country with a negative GDP growth rate compared with the same quarter last year was Greece (-1.3%). On 7th June, DZS will publish additional data on GDP for the first quarter, and data for the second quarter will be available on the last working day of August.
ANALYSTS ARE CAREFUL In their GDP growth analysis RBA analysts highlight the encouraging growth of gross investment in fixed capital for the fourth consecutive quarter. “Although our anticipations for this year are not optimistic in terms of any sig-
nificant positive progress, we predict the negative trends in construction will stop, that is, we anticipate their stabilisation at extremely low levels considering the last indicators, which point to the conclusion that construction has finally reached bottomed out.” RBA analysts also point out that for the whole of 2016 estimated real growth would be 1.5% with stress on short-term positive risk that growth will reach a level of 2%, especially in the case of another excellent tourist season, an improved investment climate and stronger utilisation of funds from the EU. The negative risks result partly from external factors given that any eventual slow-
FOR THE FIRST TIME SINCE 2008 CONSTRUCTION SHOWED A POSITIVE RATE WITH GROWTH OF 3.1% ing of growth in the EU, that is, our main trade partners, would have a negative effect on exports. Furthermore, the strong dependence on tourism is worrying. Its share in the economy reached 19% of GDP, RBA analysts warn. They also highlight that under conditions of increased and high negative geopolitical factors, any excessive reliance on tourism could have an extremely negative effect. Furthermore, they conclude that in addition
CCE COMMENT
Weak construction growth Even though the available data on industrial production, retail, construction and exports indicates a relatively high growth rate in the first quarter, analysts were careful about their estimates. The CCE prognosis of 2.8% was the most realistic, and it exceeded the initial estimate of DZS. Based on this estimate, during the first quarter GDP increased by 2.7at an annualised level, mainly due to the influence of the continuing growth in the value of exports of goods and a recovery in personal spending. Data on construction activities are encouraging for the first quarter of the year considering the first significant inter-year growth since the last quarter of 2008. However, this growth is still weak, especially since the growth of construction activities does not keep up with the ac-
2 | PVinternational | June 2016 | No 259
tivities on other constructions. The growth of total construction activities (3.2% on an annualised level in March) is still mainly determined by an increased volume of work on newly constructed buildings as opposed to other infrastructural facilities which are showing a fall. But the trend in this sector is unstable. Even though construction activities were around 3.5% higher during the first three months in relation to the past quarter and the first quarter of 2015, we do not anticipate a stable recovery in construction without larger infrastructural activities, said the Director of the sector for Financial Institutions, business information and economic analyses with the CCE, Zvonimir Savić.
to the risk, growing instabilities on the local political scene, (the postponing of the consolidation of public finances and retention of an unfavourable business environment) would certainly have a negative effect on the country credit rating and investment, and indirectly on the cost of debt.
anticipates slightly slower GDP growth rate during the rest of the year. The slower growth rate during the remainder of the year is anticipated due to the slightly larger level of last year’s comparable base. We also notice certain difficulties concerning political stability, and if they continue they could have a negative influence on economic activ-
SLOWER GROWTH DURING THE REMAINDER OF THE YEAR GDP growth is slightly stronger than expected, where the main generators of growth are the export of goods plus household spending, which increased by more than 3%. Easter holidays, the fact there was an extra working day in the first quarter and that this is a leap year, all had a strong influence on the growth of economic activity at the beginning of the year, says chief economist at Société Genéralé - Splitska banka, Zdeslav Šantić, who
THE RECOVERY IS NOW BASED ON INDUSTRIAL PRODUCTION, DIRECTOR OF DZS MARKO KRIŠTOF HIGHLIGHTED ity. However, I still believe GDP will grow 1.5% throughout 2016, Šantić says. June 2016 | No 259 | PVinternational | 3
CROATIAN GOVERNMENT
OREŠKOVIĆ: THE EUROPEAN COMMISSION HAS RECOGNISED OUR WORK QUALITY This reform programme intended to thoroughly change Croatia, is the result of the committed work of the government over the last two months. Nevertheless, more time is needed since planning accounts for only 20% of the work whilst implementation accounts for the remaining 80%, pointed out the Prime Minister, adding that the government is primarily focused on providing a better quality life for all by Ilijana Grgić grgic@privredni.hr
T 1,6% GDP growth in 2015
he Orešković cabinet can express its utmost satisfaction with the results achieved to date. The European Commission has delivered its opinion on the 2016 National reform programme submitted to it at the beginning of May, evaluating it as ambitious and stating that, providing Croatia manages to permanently reduce the excessive deficit this year, it could be moved from the corrective to the preventive arm of the Excessive Deficit Procedure as soon as next year. “The quality of our work has been confirmed. The reforms that we presented to the Croatian public and the European Commission will be implemented and we have already started. We are satisfied with our progress,
irrespective of the sceptics”, emphasised the Prime Minister Tihomir Orešković, adding that the national reform programme has also been favourably assessed by the IMF. Moreover, the Prime Minister highlighted that the European Commission decided not to impose the corrective measures on Croatia due to several factors such as GDP growth, deficit reduction, addressing the issue of public debt, the announced public administration reform, parafiscal tax reduction, judicial and pension system reform, as well as the introduction of a property tax. “This reform programme intended to totally change Croatia, is the result of the commitrk of the government over the last tw ted work two s. Nevertheless, we need more tim months. time,
THE EUROPEAN COMMISSION
Five recommendations for Croatia Irrespective of the fact that the European Commission has expressed a positive opinion of the National reform programme provided by the Croatian government, assessing it as ambitious, it has announced five economic recommendations. The first concerns the excessive deficit and invites Croatia to ensure an effective and durable correction of excessive deficit. Moreover, the second recommendation calls for measures to discourage early retirement to be adopted by the end of this year and for the acceleration of the transition to a longer
4 | PVinternational | June 2016 | No 259
working life by raising the retirement age, as well as to adopt measures for the retraining the working-age population, aiming to provide more employment opportunities for the long-term unemployed and those with poor qualifications. The European Commission expects Croatia to unify salary scales in the public sector and public services in co-operation with the social partners and improve the process of evaluation of effectiveness of public companies and the responsibilities of their Management Boards. Moreover, the Commission recommended parafis-
call taxes need to be greatly reduced and strictions that hinder access and pracrestrictions tice of regulated professions need to be removed, as well as to reduce the administrative burden on business. Lastly, the fifth recommendation concerns the quality and effectiveness of the judicial system in both commercial and administrative courts and the issue of bad loans, primarily through the improvement of tax treatment. Croatia still remains amongst six countries under the excessive deficit procedure, along with France, Greece, Portugal, Spain and the United Kingdom.
deficit reached €1.43 billion or 3.2%, with public debt amounting to 86.7% of GDP.
since planning is only 20% of the work but implementation accounts for the remaining 80%”, pointed out the Prime Minister, adding that the government is primarily focused on providing a higher quality life for all
“Concerning the production segment that impacts on GDP, positive developments have been recorded in industrial production, retail and primarily in tourism, as well as trade in goods, whilst the construction sector recorded a further decline. Hence, total government budget revenue stood at €14.64 billion, slightly above plan, as well as expenditure which also exceeded plan at €15.81 billion”, noted the Minister of Finance Zdravko Marić, stressing that compliance with fiscal rules for 2015 showed that government budget expenditure for 2015 decreased 3.6% year-on-year, whilst achieving 1.8% nominal GDP growth. Fiscal rules are legal provisions prescribing fiscal parameters and show considerable variations amongst countries. According to the preliminary fiscal rule for Croatia, the inter-annual growth rate of general government spending
€1.43 3 billion or 3.2% of GDP – the deficit recorded last year
86,77% of GDP - public debt recorded last year
COMPLIANCE WITH FISCAL RULES During a recently held session, the Croatian government also accepted the annual state budget implementation report for 2015. According to major macroeconomic indicators, 2015 showed GDP growth of1.6%, primarily as a result of the positive impact of domestic demand. The deficit stood at €1.19 billion or 2.6% of GDP. Furthermore, considering extrabudgetary users and surprisingly satisfactory results achieved by local government in accordance with the ESA methodology, the total
CROATIA COULD BE MOVED FROM THE CORRECTIVE TO THE PREVENTIVE ARM OF THE EXCESSIVE DEFICIT PROCEDURE AS SOON AS NEXT YEAR. need not exceed the inter-annual growth rate of estimated GDP.
CROATIAN CHAMBER OF ECONOMY COMMENTED ON THE OPINION DELIVERED BY THE EUROPEAN COMMISSION CONCERNING THE REFORMS IMPLEMENTED BY THE GOVERNMENT
Encouragement for structural reform acceleration The stance expressed on Croatia was anticipated primarily concerning two issues. Firstly, irrespective of the data provided for 2015 and the projections for this year, Croatia has succeeded in fiscal adjustment to meet the requirements of the European Commission, as it has managed to reduce the budget deficit below 3% of GDP and implement the required fiscal effort. Secondly, Croatia is lagging concerning the issue of the expected volume and dynamics of implementation of measures in accordance with the previously made recom-
mendations. The assessment never reads “comprehensive implementation”, which would imply that the country has passed and implemented the measures intended to adequately address the issues covered by the recommendations. The new recommendations focus on areas and issues that we have been aware of for years, as well as the requirement to address them, and concerning which a large number of analyses have been conducted and action plans made, yet progress achieved has thus far been insufficient and overly slow.
Those are the areas concerning which the Croatian Chamber of Economy has expressed its concern several times to date, proposing solutions whilst seeking a more advantageous business environment, a more effective and cost-effective public administration and a carefully designed strategic approach to the development of the country. Consequently, the recommendations provided by the European Commission need to be considered as an additional caveat and encouragement intended to accelerate structural reforms.
June 2016 | No 259 | PVinternational | 5
INTERVIEW ZDRAVKO MARIĆ, FINANCE MINISTER OF THE REPUBLIC OF CR
ZDRAVKO MARIĆ: OUT O ALTERNATIVES FOR INC Our credit rating is now two notches below investment rating and with a negative outlook for some time now. I do not wish to predict anything, but our goal for this year is to try and stabilise our prospects. Fiscal consolidation, a lower deficit and the activation of state assets and the privatisation of some companies, will be the main contribution that will manage to stabilise the level of public debt to GDP this year by Ilijana Grgić grgic@privredni.hr
C
ertain countries similar to Croatia in size and population have managed to transform themselves from third world countries to the richer countries globally in one generation –Singapore is an example. Is size an important precondition for succeeding in global economy? This was the theme of the second New Europe Business Forum, which was attended by the Croatian Finance Minister, Zdravko Marić. In addition to foreign experience which might serve Croatia and its recovering economy, we talked with the Minister about his present activities, the new legislative changes in the tax system and talks with the credit agencies which will not be easy.
6 | PVinternational | June 2016 | No 259
What does Singapore have that we lack in Croatia? We could talk for days about this matter. I think the entire society, and not only the political framework, is structured in an appropriate way. They faced many challenges, but obviously agreed on some things and did what they did. I had a chance to visit the country, and based on what I saw, it is not questionable why they are one of the top countries globally in terms of competitiveness, not only based on income per capita, but in general. The experience of Singapore is very valuable to us, especially for the young. Our obligation is to do everything we can to keep educated people in the country. I do not claim we can turn into
ROATIA
OF REASING TAX Singapore overnight, but it is equally important at least to go in this direction.
You are working on the reform of the tax system and should have the results in a month and a half. Will this package help simplify investment in Croatia and bring us closer to countries like Singapore? Tax reform is required since the tax system is in a complicated situation. It is not practicable and fails to deliver what it should. Therefore, we want to simplify it and make it more efficient. In the end, it all depends on what the budget allows. I think that after six years of recession and after a considerable decrease in the tax base, we are out of alternatives for increasing tax. On the contrary, we should think about how we can expand the tax base, create the conditions for decreasing the tax load and how we can stimulate the business sector and private individuals. At the moment we are having many ideas, we are analysing the entire system, not only taxes which receive the biggest media attention, and we are analysing the profit tax, VAT and the duty system. You will start with the changes in the tax system next year? That’s right. This scenario, together with the proposals for solutions, will include the development of primary and subordinate regulations which should start in the autumn. I have to say something which is very clear: we must leave entrepreneurs and all other private individuals enough room to adapt. This is why we plan to have a public discussion and introduce the complete system to the tax changes simultaneously with legal and parliamentary procedures. It is best to start with these tax changes, especially those relating to VAT and other similar taxes, at the beginning of the year. Our plan is to start on 1st January 2017, that is, certain changes should be implemented during the development of the budget for 2017 Does this mean that the VAT decrease for some consumer items is also under consideration? In a way everything is considered. We are working on many scenarios and many anal-
yses. I would not like to go into detail at the moment. We will have to wait a little longer. since I still do not have the final solution.
You will soon talk with the rating agencies. What will you say to them? According to some, promises will not do anymore. The National Reform Programme and the Convergence Programme we adapted received a positive rating from the European Commission and the IMF. We should not be too ecstatic about this, but we should be honest and say the rating is positive. I am sure the rating agencies will focus a lot on the implementation of the reform plans. We were serious in presenting these programmes and plans, but we need to be even more serious in their application. I hope we will be able to implement the majority of these reforms by the end of this year. This means you are convinced you will be able to defend the present rating? Our credit rating is now two notches below investment rating and with a negative outlook for some time now. I do not want to predict anything, but our goal for this year is to try to stabilise our prospects. We cannot expect more this year. We will say to the rating agencies that we will do what we said we would despite recent events, for example, postponed voting, and we will say this did not jeopardise a single element of our reform package. Therefore, everything should be in place. The reforms also include the rapid privatisation of state shares in some large companies. Are you completely sure that resistance will disappear quickly, and that you will be able to sell these shares without political disruption? Resistance to one reform or another will always exist, whether it is political or public. However, we are very clear on this. We want to send a clear message: fiscal consolidation, a lower deficit and the activation of state assets with the privatisation of certain companies will be the main contribution which will stabilise public debt as a share of GDP as early as this year. I think this is something the rating agencies and investors will consider positive.
THE TAX SYSTEM IS NOT PRACTICABLE, AND FAILS TO DELIVER WHAT IT SHOULD
June 2016 | No 259 | PVinternational | 7
COMPANIES REMOVED FROM THE LIST OF “STRATEGICALLY IMPORTANT”
FIRST COMPANY SALES AND ACQUISITIONS POSSIBLE THIS MONTH The government expects to generate income of €46 million from the sale of Končar shares, €30 million from Eutelsat, as well as around €17 million from Sunčani Hvar, in addition to the previously announced sale of stateowned shares in hotels Maestral, Imperial and HTP Korčula by Ilijana Grgić
KONČAR Končar, marked its 95th anniversary this year. It includes 17 subsidiaries and 1 affiliated company. The number of employees ranges around 3,700, and its annual sales stand at around €320 million, with over half of its revenue being generated by exports. Končar is the leader in the production of equipment and production facilities, transmission and distribution of electricity, as well as of equipment used in transportation and industry. SHAREHOLDER
% SHAREHOLDING
Hrvatska poštanska banka (HPB Croatian Postal Bank), HPB Capital Fund
28.17%
Croatian Pension Insurance Institute (HZMO)
14.95%
PBZ CO mandatory pension funds
9.95%
Erste Plavi
7.86%
AZ
7.34%
Restructuring and Sale Centre (CERP)
5.53%
the State Administrative Office for State Property Management (DUUDI)
4.59%
Kristijan Floričić
1.97%
Valamar Riviera
1.55%
PBZ
1.21%
“20.4% of shares will be sold through the Stock Exchange, as this is the quantity that Croatia has at her disposal and there is another tranche of shares in the state portfolio used as collateral for a loan and it is therefore not available”, noted Tomislav Boban, Head of the State Administrative Office for State Property Management (DUUDI). The Restructuring and Sale Centre (CERP) currently has the task of ensuring the sale of the stake as soon as possible. Pension Funds have shown considerable interest in increasing their stake and 8 | PVinternational | June 2016 | No 259
have indicated they are prepared to purchase Končar shares.
SUNČANI HVAR The state plans to sell its 29% stake, and the Restructuring and Sale Centre (CERP) Administrative Council has already defined the minimum price per share of €3.70. SHAREHOLDER
% SHAREHOLDING
Prime Tourist Resorts
46.18%
Restructuring and Sale Centre (CERP)
22.04%
Orco Property Group The State Agency for Deposit Insurance and Bank Resolution Restructuring and Sale Centre (CERP)
15.77% 5.19% 5.13%
Jozo Knežević
0.68%
Erste banka
0.40%
PBZ
0.15%
Marin Kovačić
0.15%
Ante Tvrdeić
0.04%
EUTELSAT During the first wave of privatisation, the state will sell its 0.45% stake. It is a satellite operator headquartered in Paris, and Croatia acquired these shares through succession from the former Yugoslavia. Eutelsat was founded in 1977 as an interstate agency for satellite telecommunications services in Europe and with its 274 million users it is considered the largest satellite services operator in Europe. According to its current ownership structure, 48.1% of its shares are owned by the Fund Industry, with the remainder held by diverse institutions.
PODRAVKA
Croatian Pension Insurance Institute (HZMO)
As in the case of Končar, Podravka has attracted the attention of pension funds which have shown great interest in increasing their holdings.
Željko Lužaić
0.27%
Zagrebačka bank
0.25%
Hypo Alpe-Adria-Bank
0.18%
SHAREHOLDER
% SHAREHOLDING
AZ Mandatory Pension Fund
12.68%
PBZ CO Mandatory Pension Fund
10.87%
Croatian Pension Insurance Institute (HZMO)
10.22%
State Administrative Office for State Property Management (DUUDI) 9.47% Erste Plavi Mandatory Pension Fund
9.34%
Zagrebačka bank
7.64%
HPB Capital Fund
5.71%
Raiffeisen Pension
5.27%
Podravka
2.61%
AZ Profit Voluntary Pension Fund
1.57%
Adris Group is frequently considered as a buyer interested in the purchase of the remainder of the state-owned stake in Croatia Insurance (31.2%) as it is already a majority shareholder. SHAREHOLDER
62.31%
State Administrative Office for State Property Management (DUUDI)
28.61%
Raiffeisen bank
4.40%
The State Agency for Deposit Insurance and Bank Resolution 2.65% Kraš
0.33%
Interkapital Securities
0.31%
Ack-V (under bankruptcy)
0.12%
University Clinic for Infectious Diseases Fran Mihaljević
0.05%
ACI An alteration in the ownership structure has been long-awaited by shareholders in ACI, whose marinas have been strategically positioned from the North(Umag) to Dubrovnik in the South. The Turkish Dogus Group, with over 10% of shares and Adris Group, are also prepared to enter this largest marina system in the Adriatic, are frequently mentioned as buyers interested in purchasing the state-owned shares. % STAKEHOLDING
State Agency for Deposit Insurance and Bank Resolution Dogus Croatia
The privatisation of the national carrier has been a burning issue for a very long time. The saga of privatisation or recapitalisation of Croatia Airlines started during the former government mandate, and Lufthansa and Turkish Airlines were mentioned as potential strategic partners. The decisions that the Cabinet of Tihomir Orešković will make concerning the national airline are currently unknown, yet what is definitely certain is that its privatisation will be greatly helped by its removal from the list of strategically important companies. % STAKEHOLDING
State Administrative Office for State Property Management (DUUDI)
97%
Zagreb Airport
1.7%
Janaf, Croatia Lloyd, Hrvatska lutrija, Astra International, HP, Turisthotel, Tankerkomerc- minority shareholders with almost insignificant percentages
% STAKEHOLDING
Adris Group
SHAREHOLDER
CROATIA AIRLINES
SHAREHOLDER
CROATIA OSIGURANJE
0.33%
4.47% 10.87%
PETROKEMIJA SHAREHOLDER
% STAKEHOLDING
State-owned holding
79.85%
AZ Mandatory Pension Fund
3.11%
PBZ CO Mandatory Pension Fund
2.8%
Erste Plavi Mandatory Pension Fund
2.59%
PORT OF RIJEKA A recapitalisation occurred in July 2015 when the Polish company OT Logistics entered the ownership structure. OT Logistics is a company employing around 2,000 staff, with subsidiaries in Poland, Germany, Austria, Czech Republic, Slovakia, Holland, Hungary, the United Kingdom and the US. Port of Rijeka shares are of considerable interest not only to potential foreign investors, but also pension funds. SHAREHOLDER
% STAKEHOLDING
State Administrative Office for State Property Management (DUUDI) 31.58% OT Logistics Spolka Akcyjna
20.81%
AZ Pension Fund
14.24%
PBZ CO Pension Fund
7.60%
Erste Plavi Pension Fund
7.55%
State Administrative Office for State Property Management (DUUDI) 4.12%
The Croatian Institute for Health Insurance (HZZO) 3.60%
Raiffeisen bank Austria
1.14%
Croatian Pension Insurance Institute (HZMO)
1.59%
Bahovec
0.61%
Zagrebačka banka
1.03%
Interkapital Securities
0.39%
Erste Plavi Expert, a voluntary pension fund
1.01%
June 2016 | No 259 | PVinternational | 9
11TH CROATIAN EXPORTERS CONVENTION
BEST EXPORTERS ACCLAIMED AS PLIVA, INDUSTRIUS AND NANOBIT Primarily, we import complex products that are 50% more expensive compared with those we export, pointed out Darinko Bago, President of the Croatian Exporters Association, emphasising the fact that according to analyses, Croatian companies have technically more sophisticated equipment compared with the European Union average, yet remain uncompetitive by Ilijana Grgić grgic@privredni.hr
Z , billion imports last year
€11,6 6 billion orts last year
only
15%
of the Croatian companies are exporters
latni ključ (Golden Key) awards were presented for the ninth consecutive time during the 11th Croatian Exporters Convention, to companies that have achieved the best exports results. Pliva Hrvatska was declared the best exporter in 2015, and Industrius won the award for the best medium-sized exporter, whilst the Zagreb-based company Nanobit was the overall best small exporter in 2015. The most innovative exporter in 2015 was AD Plastik which also won the award as the best exporter to the French market. According to data provided by the Croatian Exporters Association for 2015, only 15% of Croatian companies are exporters. These employ 52% of all those employed, generate around 66% of total sales revenue and invest 79% of their resources. On behalf of all award recipients, Mihael Furjan, President of the Management Board of Pliva, stressed that Croatia is currently faced with favourable export trends. “Lower taxation would be desirable. I also believe that an improvement in the economic framework by the state would be excellent. Concerning Pliva, we
are planning further growth and are also aiming to increase exports. We are primarily focused on the European Union market, as well as those of Russia and US, and we have started exporting also to countries such as Canada and Australia. In fact, Pliva products are sold across developed markets”, noted Furjan, adding that the value of investment in research and development implemented by his company last year exceeded €93 million or 17% of total revenue.
THE IMPORTANCE OF DIGITAL ECONOMY “The export/import ratio for Croatia in 2015 was underwhelming since the value of Croatian imports exceeded €18.7 billion, whilst the value of exports only slightly exceeded €11.6 billion. We import complex products that are 50% more expensive compared with those we export”, pointed out Darinko Bago, President of the Croatian Exporters Association, emphasising the fact that, according to analyses, Croatian companies have technically more sophisticated equipment compared with the European Union average, although the Croatian economy is uncompetitive. Since the key theme of this year’s conven-
CROATIAN TRADE IN GOODS
Export/import ratio in 2015 standing at 62.4% During the period January to December 2015, the Croatian export of goods increased by 11% compared with the same period last year, with imports 7.7% up, according to data released by the Croatian Bureau of Statistics.
10 | PVinternational | June 2016 | No 259
Over the same period the value of exports of goods stood at €11.7 billion, and imports €18.8 billion. The foreign trade deficit stood at €7.05 billion. The export/import ratio in 2015 was 62.4%, up 1.9% over 2014.
Zlatni ključ (Golden Key) Award Winners Best Exporters in 2015
Best Large Exporter: r: Pliva Hrvatska Best Medium-Sized Exporter: Industrius Best Small Exporter: Nanobit Most Innovative Exporter: AD Plastik Best Exporter to Italy: Rockwool Adriatic Best Exporter to Slovenia: LTH Metalni Lijev – Aluminium Articles Best Exporter to Germany: Vivera
tion was the digital economy, the President of the Croatian Exporters Association expressed his concern that digital economy has currently not been sufficiently recognised in Croatia to date, irrespective of its being a fast-growing sector and the largest growth generator.
I BELIEVE THAT AN IMPROVEMENT IN THE ECONOMIC FRAMEWORK THROUGH THE STATE WOULD BE EXCELLENT, POINTED OUT MIHAEL FURJAN “We have witnessed the incredible impact of the digital economy both on the economy and across society. It has been estimated that it will generate over $100 billion by 2050. The exploitation of such immense potential is imperative”, stated Bago, highlighting the importance of including IT education both for children and adults in the curriculum, as well as
training in entrepreneurship, in addition to the promotion and creation of identity.
EXPORTS ANTICIPATED TO SOAR BY 30% “Export are considered a stability factor and it greatly improves the financial position of a country. It enhances competitiveness, as well as encouraging innovation and the introduction of new technologies, whilst countries with a more significant share of exports in GDP are more resilient to external shocks”, pointed out the Prime Minister, Tihomir Orešković. He believes entrepreneurs have a fundamental role in export growth, as they have positioned themselves on the global market primarily due to their knowledge and the effort invested, having shown that they are on a par with the best. “Croatia is entering a phase of a more rapid growth. All the indicators for the first quarter of 2016 are positive; industrial production is growing, as well as investment and employment. I believe this trend will continue throughout the year and may even accelerate. It is this government’s mission to accelerate economic growth, exceeding 2.5% or reaching 3% and even exceeding that, and to make such growth sustainable. The role of exporters’ is crucial”, emphasised Orešković, highlighting the importance of exports which are considered as one of five important economic objectives for the government, and stressing that exports are anticipated to rise by 30%.
Best Exporter to Bosnia and Herzegovina: Podravka Best Exporter to Austria: Ivančica Best Exporter to Serbia: Saponia Best Exporter to Hungary: Feroimpex Automobilska Tehnika Best Exporter to France: AD Plastik Best Exporter to the US: HS produkt Best Exporter to Holland: ACG Lukaps Best Exporter to Turkey: Same Deutz-Fahr Žetelice (Same Deutz-Fahr Agricultural Machinery)
Best Exporter to Egypt: Metalska industrija Varaždin (Metal Industry of Varaždin)
Best Exporter to Canada: OMCO Croatia Best Exporter to the Russian Federation: Adria Winch
June 2016 | No 259 | PVinternational | 11
AWARDS FINANCIAL AGENCY PRESENT THE GOLDEN BALANCE SHEET AWA
HS PRODUKT - THE MOST SUCCESSFUL ENTREPRENEUR This year’s participants covered the 106,569 entrepreneurs subject to income tax, (with the exception of banks and insurance companies), of which 3,326 complied with all the selection criteria, with 1,122 companies from the processing sector by Ilijana Grgić grgic@privredni.hr
B
ased on the financial ratings of 2015, the most successful entrepreneur and Golden Balance Sheet Award winner for overall results achieved last year, was the Karlovac-based HS Produkt. The Golden Balance Sheet Award is presented by the Financial Agency (Fina) to the most successful entrepreneurs in 11 fields of activity, according to the rankings obtained based on financial indicators in five categories - profitability, liquidity, debt, activity and cost-efficiency. This year’s participants covered the 106,569 entrepreneurs subject to income tax, (with the exception of banks and insurance companies), of which 3,326 complied with all selection criteria, with1,122 companies from the processing sector.
AWARDS FOR THE MOST SUCCESSFUL ENTREPRENEURS HS Produkt was presented the Golden Balance Sheet Award as the most successful company in the processing sector. The company exports 95% of its output to the US market. Moreover, its Karlovac-based factory ranks amongst the largest firearms producers globally. “The success of HS Produkt is based on the development of its own products for the global market. I would be able to express my utmost satisfaction if our example were used to inspire young engineers and entrepreneurs, encouraging them to dare to pursue their dreams through global competitiveness”, noted Željko Pavlin, Director of HS Produkt. The Golden Balance Award Winner for the most successful company in12 | PVinternational | June 2016 | No 259
Marijana Ivanov, a professor at the Zagreb-based Faculty of Economics
volved in agriculture, forestry and fishing, was the Slavonski Brod-based company Vindon, which is an integral part of the Vindija organisation. The company is involved in the production of fresh and frozen turkey meat and turkey meat products. Solana Pag was the award winner in mining and extraction, the largest Croatian salt producer, currently exporting just 20% of its products. The Varaždin-based Termoplin was a Golden Balance Sheet Award winner for the fifth consecutive time, in the area of electricity, gas, steam and air-conditioning supply. It is a company whose annual natural gas distribution stands at 100cm3 million. The Zagreb-based company Unija Nova was the award winner in the category of water supply, waste water disposal, waste management and environmental remediation. It is involved in the storage of all types of non-hazardous waste. The company Jura-Mont from Zlatar was the most successful company involved in construction. The company
specialises in weak and strong current electrical fittings, heating, water supply and drainage. Bauhaus Zagreb is the winner of the Golden Balance Sheet Award for wholesale and retail, and the Velika Goricabased company Trade Air won in the category of transportation and storage. The company is involved in diverse jobs in civil aviation. The Dubrovnik-based Newrest has been awarded for the fourth consecutive time in the category of preparation and serving of meals and accom-
INA, KONZUM AND HEP RANKED AS THE TOP THREE ON THE LIST OF 1,000 LARGEST CROATIAN COMPANIES BY REVENUE IN 2015 modation services. It is a large catering company operating in hospitality and the related industries, including civil aviation, passenger vessels and railways. Nanobit from Zagreb was the award winner in the category of information and communications systems. It is a company with over 25 products and almost 7 million monthly active users globally. Nanobit exports 100% of its products. TMF Croatia won the Golden Balance Sheet Award
ARD Golden balance Sheet Award winners for 2015: 1. VINDON the most successful entrepreneur in 2015 in Agriculture, Forestry and Fisheries
2. SOLANA PAG for the most successful entrepreneur in 2015 in Mining and Quarrying
3. HS PRODUKT for the most successful entrepreneur in 2015 in Processing Industry
4. TERMOPLIN for the most successful entrepreneur in 2015 in Electricity, Gas, Steam and AirConditioning Supply
5. UNIJA NOVA for the most successful entrepreneur in 2015 in Water Supply, Waste Water Disposal, Waste Management and Environmental Remediation.
6. JURA – MONT for the most successful entrepreneur in Construction
7. BAUHAUS-ZAGREB in the category of professional, scientific and technical activities. It operates within the TMF Group which provides specialised services to its clients.
THE 1,000 LARGEST COMPANIES AND THEIR REVENUES In an exacting analysis of the operations of the 1,000 largest Croatian companies ranked by revenue in 2015, which was also conducted by the Financial Agency (Fina), Marijana Ivanov, a professor at the Zagreb-based Faculty of Economics, pointed out the fact that last year these companies recorded revenue growth of 3.9%, exports up 9.9%, although employment saw only a slight increase of 0.7%. “2015 was a year of recovery from recession and a return to optimism for Croatia. It saw 1.6% economic growth which was only partially a result of economic policy implementation, since it was primarily due to favourable circumstances such as export growth and a successful tourism season, a boost in private sector investment, in addition to a drop prices,
primarily concerning oil on the global market, as well as deflationary movements which have encouraged personal consumption”, was her macroeconomic assessment, who also highlighted the fact that the long-term growth potential for Croatia is rather weak. The list of the 1,000 largest Croatian companies ranked by the revenue in 2015 included Ina, ranking first, followed by Konzum, whilst Hrvatska elektroprivreda. Of the 1,000 largest Croatian companies, are nett exporters and they jointly generated a total revenue of €18.5 billion, accounting for around 35% of total revenue generated by the largest 1,000 companies. This year, the traditional Fina Forum was entitled True Value of Data and it primarily addressed the issue of opportunities of smart data application or Smart Data within business processes, as well as an analysis and interpretation of a large data quantity that is collected daily, and ways in which collected data could help in quality decision-making, aiming to create new value in companies.
for the most successful entrepreneur in 2015 in Wholesale and Retail Trade; Motor Vehicle and Bicycle Repair Services
8. TRADE AIR for the most successful entrepreneur in Transportation and Storage
9. NEWREST DUBROVNIK for the most successful entrepreneur in 2015 in Preparation and Serving of Meals and Accommodation Services
10. NANOBIT for the most successful entrepreneur in Information and Telecommunications Systems
11. TMF CROATIA for the most successful entrepreneur in 2015 in Professional, Scientific and Technical Activities
12. HS PRODUKT overall winner, and most successful entrepreneur based on financial rating in 2015
June 2016 | No 259 | PVinternational | 13
PV ANALYSIS LEATHER MANUFACTURING AND PROCESSING INDUSTRY
“A PROBLEMATIC INDUSTRY” FEARING LABOUR LOSSES Irrespective of a large number of problems, the leather and leather products industry has recorded continuous growth and positive trends across many operating areas during the last several years. Total revenue in 2013 was €0.4 billion, but in 2014 it reached almost €0.5 billion, growth of 22.8% by Boris Odorčić odorcic@privredni.hr
T LEATHER INDUSTRY
132 companies active in leather manufacturing and processing industry of which 126 small businesses 4 medium-sized companies 2 large companies €0.4 billion total revenue in the sector in 2013. almost €0.5 billion in 2014 (up by 22.8%)
he leather manufacturing and processing industry has been defined as “problematic” in the Industrial Strategy of Croatia, which is intended to promote the business environment primarily in those areas, sectors or technologies which are expected to exert a considerable impact on economic growth and social welfare. During the 3rd International Leather and Leather Product Manufacturers Convention entitled Creativity, Innovation and New Technologies in Leather Manufacturing and Processing Industry held at the Croatian Chamber of Economy, Nada Zver, Director of Ivančica, pointed out the shortcomings of the approach currently adopted. “Businesses in this sector need to be approached and considered individually, rather than merely as segments within an industry”, she emphasised, explaining that due to this aspect stated in the Strategy, companies operating successfully in this sector could be regarded as problematic also in the global market race. Moreover, another burning issue in this industry is waste management. According to Nada Zver, the industry is not resilient enough to use this waste to provide raw materials that would be useful in further production. “In addition, our sector is outdated and we may soon face labour losses”, she stressed. The daily output of her company is around 5,000 pairs of shoes. Nevertheless, over the past several years, the leather and leather products industry has recorded continuous growth and positive trends across most operating segments. Total revenue in 2013 was €0.4 billion, but by 2014 it was almost €0.5 billion, growth of 22.8%. The
14 | PVinternational | June 2016 | No 259
Croatian leather manufacturing and processing industry consists of 132 active companies, of which there are 126 small, 4 medium-sized and 2 large companies.
132 COMPANIES CURRENTLY ACTIVE IN THE CROATIAN LEATHER MANUFACTURING AND PROCESSING INDUSTRY In 2014, the number employed in this industry exceeded 10,500, a rise of some 38% since 2009.
RAW MATERIAL IMPORTS Tajana Kesić Šapić, Director of the Sector for Industry and IT at the Croatian Chamber of Economy, pointed out that total revenue in 2014 jumped by almost 73% compared with 2009. “Revenue from manufacturing the sewing of car seats accounts for around 76%, and footwear production for 24%. Moreover, export growth of almost 30% was recorded in 2015 compared with 2014, as well as imports, since primary raw materials for leather manufacturing are imported. I am convinced these positive growth trends will continue throughout this year”, she noted.
June 2016 | No 259 | PVinternational | 15
PV ANALYSIS
INVESTMENT AND EMPLOYMENT
Greenfield investment increasingly important Employment opportunities in this sector are substantial due to all the significant greenfield investment implemented during the last several years, as pointed out at the convention by Tajana Kesić Šapić, Director of the Sector for Industry and IT at the Croatian Chamber of Economy. “The Austrian company Wollsdorf Leder last year invested in the Jalžabet Business Zone, creating 250 new jobs. The German company HAIX invested in the upgrading and expansion of its facility. Two new facilities have recently been opened and, through production capacity expansion and purchase of new machinery, the daily output has increased from 6,000 pairs of shoes to 10,000 pairs. New investment fostered employment so now the company currently employs 730 staff. Boxmark Leather employs around 3,800 staff. Last year it opted to expand and consequently created 200 new jobs in Slavonski
over
10.500 employed in 2014 (38% increase over 2009)
73% increase in total revenue in 2014 over 2009
Brod. Moreover, the company is planning to create an additional 300 new jobs”, she emphasised. Around mid-2013, the Austrian company Paul Green, one of the largest European producers of women’s fashion footwear, opened a modern facility covering an area of 6,800 m2 in Prelog In addition to foreign investment, well-known Croatian companies Ivančica and Borovo have also seen positive developments. “Due to on-going investment in facilities, professional development of staff, marketing activities and appearances at international fairs these companies attract customers both local and international”, noted Tajana Kesić Šapić.
Regrettably, salaries in this sector do not keep abreast of other positive indicators, ranking amongst the lowest in Croatia at around €400 per month; however, this figure is 1.5% up compared with the previous year. Mario Lešina, Director of IDAL and President of Leather Processing Industry Association at the Croatian Chamber of Economy pointed out that higher salaries are currently not an option due to the labour structure. Irrespective of their ranking amongst the lowest in Croatia, Croatian salaries still exceed the corresponding salaries in Hungary, Slovakia, Bulgaria or Romania. “Salaries can be increased through a higher level of performance, innovation and creativity. Unfortunately, we have not been provided significant support by scientific institutions thus far. We faced a 15-year period during which we were not provided with educated staff and this currently accounts for some serious problems. A breakthrough towards innovative and creative products is imperative in our industry, yet in order to be able to implement our ideas we require highly skilled and expert staff, which we currently lack”, he noted.
BOTH EXPORTS AND IMPORTS IN LEATHER INDUSTRY SOARED BY 30% DURING THE LAST FIVE YEARS, AS PRIMARILY IMPORTED RAW MATERIALS ARE USED 16 | PVinternational | June 2016 | No 259
STRATEGIC PROGRAMMES The introduction of a dual education system, implying working whilst studying, is considered as one of the solutions to this problem. It is important to enhance learning intensity at higher education institutions and the curriculum needs to be far more closely linked with industrial requirements. “Some initiatives follow this path, primarily those from the Croatian Chamber of Economy which has developed a comprehensive dual education programme. We have established close co-operation with the Faculty of Textile Technology where small developments have already occurred Nevertheless, these are strategic programmes whose results will become obvious only in three, four or five years if everything happens according to plans, which we sincerely hope for”, he stated, adding that new, innovative products with higher added-value are imperative for the future of the industry. “However, a niche needs to be found. It appears that the Croatian leather industry has found one and it needs to be retained. Our products are high quality, irrespective of whether we are talking about leather accessories, car or aircraft seat covers or footwear”, he stressed. The international convention included two panel discussions addressing innovation and creativity in leather manufacturing and processing industry. During the first panel discussion, Goran Čubrić from the Zagreb-based Faculty of Textile Technology highlighted that automation can be both significant and large-scale. “Leather is rigid and air-impermeable, as opposed
Trade in goods 2014/2015 in thousands of Euro ACTIVITY
export
TOTAL PROCESSING INDUSTRY
import
01. - 12.2014.
01. - 12.2015.
INDEX
01. - 12.2014.
01. - 12.2015.
INDEX
10.368.782
11.530.651
111,2
17.129.405
18.481.973
107,9
9.061.043
10.134.471
121,5
14.520.573
15.905.776
109,5
TEXTILE PRODUCTION
126.475
141.756
112,1
385.009
389.576
1 01,2
CLOTHING PRODUCTION
588.873
626.325
106.4
497.825
839.124
108,5
PRODUCTION OF LEATHER AND RELATED PRODUCTS
305.753
388.986
127,2
497.825
642.560
129,1
Source: CBS
Analysis: CCE
to textiles which change shape and can hence be easily transferred by robots and placed under machinery using vacuum grippers. Robots are normally used in the footwear industry and two years is the usual length of time necessary to see a return on investment, and henceforward profit is achieved”, he explained, adding that there are also computer programmed CNC machines intended for making moulds. One also needs to become acquainted with other industries and hence adapt their machinery to this industry.
INDUSTRY AND SCIENCE Mislav Ante Omazić from the Faculty of Economics in Zagreb highlighted the fact that the overall education system in Croatia is knowledge-based, yet it needs to be more vigorously focused on experience. “Students are frequently
SALARIES IN THIS SECTOR STAND AT ONLY €400 PER MONTH unable to apply their knowledge due to a lack of experience. In addition, education systems need to foster creativity”, he noted, adding that scientific institutions need to support the economy and hence co-operation between industry and science needs to be both improved and promoted. This co-operation can also be promoted through tenders intended for project financing in the area of research and development. Tomislav Zoretić, Head of Department for Communication and Programme
C15 - total revenues (2008 – 2014) - 000 kn 4.000.000.000 3.500.000.000 3.000.000.000 2.500.000.000 2.000.000.000 1.500.000.000 1.000.000.000 500.000.000 0
2008.
2009.
2010.
2011.
2012.
2013.
2014.
Source: CBS
Monitoring at the Ministry of Economy, pointed out the importance of the Strategy for Smart Specialisation. “One of its focus-points is encouraging co-operation between industry and science in priority areas where projects will be financed. Businesses involved in the leather industry can keep abreast of this”, he stated. The key topic of the other panel discussion was creativity, Suzana Kutnjak Mravlinčić from Faculty of Textile Technology stressed that students at the external professional study of Design in Varaždin have a 30-day extracurricular practice. “This is insufficient both for students and for the economy”, she pointed out. Hana Ciliga, a Designer from Borovo, highlighted the fact that creative process actually shows many similarities throughout diverse industries. “Borovo made the decision to start co-operating with local fashion designers, tour-
ist boards and festivals. They normally show considerable interest in our Startas collection which has the purest design, suitable for a large number of promotions”, she emphasised. Ariana Pomper from Ivančica stated that her company adapts its projects to a target market and it is primarily export-oriented. “We are far more focused on the EU, due to its greater purchasing power”, she stated, adding that the company has been operating in 23 markets and that she believes the German market is the most important. “Products for this market have pure and simple lines”, she noted. It is important to highlight that the possibility of co-operation and joint market appearances of producers from Croatia, Bosnia and Herzegovina and Serbia to the large Russian footwear market was mentioned during the Conference. June 2016 | No 259 | PVinternational | 17
PAG CHEESE FACTORY CELEBRATES 70TH ANNIVERSARY
ANNIVERSARY MARKE
We will invest in the production line, pastures and the better monitoring of our s Damir Pernar, Manager of Paška sirana, cheese factory which placed a new produ by Jozo Vrdoljak
T
his year, Paška sirana is celebrating its 70th anniversary. For this occasion, they produced a special Pagus Trappist cheese which had been maturing for eight months. The factory has recently won the Cropak Award for packaging this cheese. The factory produces cheese made from cow and sheep milk and also produces sheep milk and meat. It owns a herd of 2,500 Pag sheep. The factory is the oldest on the Island of Pag and it was the first to venture into commercial production of Pag cheese – the most well-known and most awarded Croatian cheese. It has been active since 1946 when it was part of the Zagreb dairy factory. It has had its ups and downs, but remained known for the quality of its main product – Pag cheese. During the 70’s the factory separated itself from the Zagreb dairy factories and started to work under the name Paška sirana together with other subcontractors on the island. In addition to being the first to sell Pag cheese on the market, they were first to brand it and enter 18 | PVinternational | June 2016 | No 259
competitions which brought them many awards. After the factory’s privatisation in 1992, the turning point was 2008, when they built a new milk processing facility,
conditions. We have other plans we want to realise, and we are preparing new investment projects. We will invest in the factory, pastures and the better monitoring of
PERNARA SAYS THAT THE NUMBER OF YOUNG PEOPLE VENTURING INTO SHEEP FARMING IS INCREASING SINCE THIS IS A PROFITABLE BUSINESS FOR A FAMILY and produced milk products, partly financed by pre-accession EU funds and the SAPARD Agency. In 2008 we invested €4 million in the construction of a new facility for processing milk and producing dairy products. Just over €1.3 million was procured from the SAPARD programme. We equipped the facility with state-of-the-art technology and now work under excellent
our sheep, as well as a tasting facility for tourists. We are counting on the money from the EU funds, says Damir Pernar, Manager of Paška sirana.
WORKER OWNERSHIP The factory’s owners are current and former workers with three families holding a higher percentage of the shares. The factory
ED BY INVESTMENT
sheep as well as a tasting facility for tourists. We are counting on EU funds, says uct on the market (Pagus trappist) on the occasion of its 70th anniversary
PROTECTION OF GEOGRAPHICAL ORIGIN
Simpler procedure brings optimism The manager of Paška sirana Damir Pernar is satisfied with the dynamics of protecting Pag cheese, since the Ministry of Agriculture has recently simplified the protection process. This is a huge change compared with our previous meeting when they returned our protection back to the start. A few months ago we wanted to work on the protection of geographical origin and we thought the process would last two years. We are now very optimistic and expect we will soon protect the originality of Pag cheese, Pernar says.
currently employs 85 people and last year income was around €7.3 million with profits of €0.2 million. We are also working on exporting, and if need be, we will increase capacity to 800 tonnes. We export around 15% of our production to the USA, Sweden, France, Austria, Slovenia, Great Britain, Germany and we are also preparing for Ireland. Our five-year plan is for exports to reach 30% of income. We sell Pag cheese in the USA, the market which we entered with our Dalmatinac cheese which is now as equally strongly exported as Pag cheese. Our business on the Swedish market is equally good, Damir Pernar reveals. The factory produces around 600 tonnes of cheese every year and sells around ten types of cheese on the market. Pag cheese is the most valued Croatian cheese, and it is produced from the milk of Pag sheep. We produce over 100 tonnes of this best known cheese. This is a considerable share of production considering the limited lactation from mid-January until the beginning of
June. We are anticipating an excellent year for Pag cheese since the climate has been extremely favourable, guaranteeing larger quantities of extremely good sheep milk, says the Manager of Paška sirana. Other cheeses are produced from sheep and cows milk or mixed milk. Pramenko is hard sheep cheese made according to the same recipe as Pag cheese, but from the milk of Slavonian sheep. Dalmatinac is a hard cheese made of cows and sheep milk. Primorac is cow cheese. Trappist is semi-hard cow milk cheese. Mediterano is enriched with sage, and even though it is relatively new, it has had great success and won the prestigious World Cheese Award in Birmingham. Paprenjak is a semi-hard cheese made from cow milk with an addition of red paprika. Parenjak is young cow milk which also won the World Cheese Award in 2012. Paška skuta is made from the whey after the production of Pag cheese and its shelf-life is ten days. We also produce Pag grated cheese, characterised by its intensive flavour and scent. We will soon start with the production of Dalmatinac Premium. We also
produce Pag cheese with truffles, olives, paprika and sage, Davor Pernar explains.
PAG SHEEP Paška sirana has 150 subcontractors on the island and a herd of 2,500 of its own sheep of which 1,800 are milked. The pastures have recently started to become smaller, due to an increased number of construction zones. However, the greatest enemy is a very aggressive plant which can be most efficiently removed through controlled firing. Pernara is happy with the fact that the number of young people venturing into sheep farming is increasing. I can say this is a profitable business for a family. The problem is of course the spreading of construction zones since the sheep are a minimum of 300 metres from construction and tourist zones. As far as sheep are concerned, I can say that Pag has become slightly overcrowded since there were around 20,000 sheep in 1991 and today there are 40,000. The lamb which is protected is sold on the market without any problems, says Pernar. June 2016 | No 259 | PVinternational | 19
CROATIAN MINI-SUBMARINES
DALMATIA IN THE MALD VES Judging by the reactions of the Maldivian customers, we are expecting more orders, highlights Mladen Peharda, who visited the Maldives with his staff where they spent three days assembling the delivered minisubmarine at the local shipyard and training the crew who will operate it by Miro Soldić soldic@privredni.hr
I
f you are fortunate enough to be able to afford a holiday in the Maldives, you will able to take a ride in this tropical paradise inside a Croatian mini-submarine produced by the company Agena Marin. It does not fully submerge, but the glass cabin, with space for 12 people, is 1.5 meters under the surface, offering a unique experience of the underwater world. Judging by the reactions of the Maldivian customers, we are expecting more orders, highlights Mladen Peharda, who visited the
WE ARE CURRENTLY AMONGST THE WORLD LEADERS WITH OUR VESSELS, PEHARDA HIGHLIGHTS Maldives with his staff where they spent three days assembling the delivered mini-submarine in the local shipyard and training the crew who will operate it. They established contact with the Maldivian customers back in January 2015 at one of the trade shows they often visit. A few months later the interested buyers tested the vessel at sea and inspected the production facility in k. Thereafter, they arranged delivery of the mini-submarine to the Maldives. One of the project tasks from 2010 was for the mini-submarine to fit inside a standard container with the removed control bridge and fence. Furthermore, its maximum width for road transport must be less than 2.5 metres. Therefore, cheaper conditions for transporting it to the Maldives existed, Peharda explains. He started his unusual business story in 2003 and the first prototype was in the water two years later. 20 | PV 20 P PVinternational Vinternati i t ati a at t tiiona al | June Ju Jun J un u ne 2016 2016 | No No 2 259 25 9
UNSINKABLE BEAUTY The vessel is designed that invokes the appearance of a real submarine, and it is unsinkable since it has specially designed air chambers. From the start the project it was envisaged as a product for both local and foreign markets. In fact, the main goal was a franchise. They worked continuously on improvements between 2005 and 2010. They tested new hull design concepts and began funding to establish a shipbuilding company. Agena Marin was founded in October 2010 with the aim of producing exclusively working ships oriented towards the tourist sector. Everything started when the potential of these vessels was realised. The majority of the working boats intended for tourism are products with a design adapted from the pleasure/ personal use area, and as such have many compromises. Naturally, the development of a specific vessel for one purpose is highly time consuming and costly. On the other hand, it guarantees a market niche. This is why we are currently amongst the leaders as far as these vessels are concerned, Peharda explains. He worked as a captain before establishing the company. He started with two staff and subcontractors who produced moulds. Today, the company employs 15 workers, but this number rises to 25 during the season. Long term investment in moulds, project elaboration and equipping of the facility helped them reach the capacity of building two smaller mini-submarines each month. The finished unit costs between €110,000 and €120,000 depending on the level of equipment.
ONE CUSTOMER PER DESTINATION One aspect of the company’s business policy is to sell one vessels to just one customer at one
predetermined destination, so they will have no competition. They have already sold 30 minisubmarines in Croatia. Our business decision was to start exporting when we had sold 25 to 30 units in Croatia. Considering the (fulfilled) plan of sales of the 12 passenger model in the Adriatic and the increasing interest of buyers in a larger and more comfortable size, we started to produce 55-person mini-submarines in 2014. Our first buyers are now ‘old customers’ and owners of two 12 passenger models. The first 55 passenger mini-submarine was completed in 2015. We are currently working on the final equipment and registration of the vessel for transporting passengers, Peharda said proudly. The new and larger model is special for its extremely large curved glass wall which allows passengers to enjoy beautiful views of the seabed. Unlike the smaller model, the 55 passenger model as the name suggests, accepts 55 passengers in its 1-metre-long hull. I am pleased with our business situation, but I must point out that skilled workers are always in demand, since shipbuilding is known for its fluctuation in people. Considering the fact that we make vessels for specific purposes and tourism is doing well in Croatia, I cannot say we felt the crisis, Peharda highlights. Since we were the first to venture into the development of such vessels and since our experience and investment projects between 2005 and 2010 brought us an extremely high quality product, two or three companies established during the past few years have still not caught up with us. Fortunately, the relationship between the quality of the final processing and reliability of product is still to our benefit, he says.
GREAT INTEREST FROM BUYERS There is a high level of interest from buyers, especially after a few successful export deals. The result of this is that our everyday business communication with countries around the world from which customers are sending questions and negotiating business contracts. Some of the more active countries are Australia, Spain, the Caribbean Islands and America. The present sales activities and the delivery of the vessel to the Maldives contribute to a positive reaction by the market, says Peharda. He also added that customers need have a lot of trust in the company from a relatively unknown and small country like Croatia, since the vessel is paid for in advance. I must admit that a lot has changed during the past ten years. On the other hand, with a decade of experience it is easier to withstand every day challenges. Therefore, I look forward to the future, Peharda concludes with optimism.
The new and larger model is special for its extremely wide curved glass wall which allows passengers to enjoy beautiful views of the seabed
Ju Jun June un ne 2016 20 01116 016 6 | No No 259 9 | PVinternational PVinternatiio PV on ona na n al | 21 21
BELLABEAT FROM START-UP TO A GLOBAL COMPANY
I
n the world of Croatian IT start-ups which receive media attention but soon fall into oblivion, one sticks out and justifies the hype which surrounds. Bellabeat is a company whose smart products help women monitor their life quality and health in different phases. Leaf is their best-known product. It is a device linked to an application on a smart phone and used for tracking activities, sleep or menstrual cycle. The individual can also do breathing and relaxation exercises, crucial for reducing stress. Of course, men can also do all of the mentioned, apart for the menstrual cycle. However, Leaf is intended primarily for women which is obvious by its design; attractive enough that some call it smart jewellery. Last year, when Leaf was announced, they received over 3 million orders. However, it did not stop with these orders. Since the start of official sales in May 2015 to date, over 250,000 items have been sold. In the meantime,
LEAF IS THEIR BEST-KNOWN PRODUCT, A DEVICE LINKED TO AN APPLICATION ON A SMART PHONE Bellabeat turned from a start-up company to a worldwide company employing over 100 people in their four central offices: Zagreb, San Francisco, London and Shenzen. They also work with six companies in Asia with whom they have signed production contracts. Originally, they wanted to produce in Croatia, but they soon realised they could not achieve locally the desired level of mass production due to limited possibilities and knowledge as well as high prices. They solved the issues of distribution through a sister company in the USA which distributes most of the products in the USA, Canada as well as Europe, Australia, Asia and Latin America.
WEB-SHOP At its start, wearable technology was designed for men and for exercising and fitness. However, our goal was to shift the focus to women and their health and this is the base of all our products, Dea Vladilo from Bellabeat explained. She also added that the products top selling channel is the company’s website. The 22 | PVinternational | June 2016 | No 259
WEARABLE TECHNOLOGY FOR WOMEN AND SOON FOR BABIES Today Bellabeat employs over 100 people in their four central offices in Zagreb, San Francisco, London and Shenzen. Six Asian companies work for them by Miro Soldić
product can be ordered in silver or rose gold and can be worn discretely under clothing, although its design is attractive and thus responsible for a share of its success. Dea Vladilo says the company is satisfied with their sales results and adds that their web-shop is becoming a faster and more accessible platform and in most countries as opposed to actual shops. Their web-shop accounts for 65% of total sales, with the remainder being sold through other channels. Notwithstanding, the Leaf market success has not make them sit back. They are working on developing two new products intended to achieve even greater success. The products are cold Shell and Slice and Dea Vladilo explained what is behind these names. Bellabeat Shell is an application with an extension for a mobile phone which helps pregnant women track the heartbeat of their unborn child. Shell has been under development for a year and it should be on the market this summer. To start with it will only be compatible with iOS smartphones. They are currently looking for 50 pregnant women on which to test their products; the testing will be done over two months and the individual testing time lasts 20 minutes. Those joining the test have to be in their 25th week at least. Since we are in the final phase of developing this new product, we need the opinion of pregnant women so we can learn how to make our product even better and more suitable for future mothers, Dea Vladilo highlighted. Her description of their new product, Slice was not as forthcoming. What we want to achie-
ve with each product is to inspire people to work on themselves more and to feel better. The next phase in this programme of making people more aware of their body and taking responsibility for their health will be dedicated to energy. Slice is focused on immunity, vitality and beauty. Leaf helped us build a solid base for gathering data on our body – now it’s time to give it exactly what it needs, Vladila announces.
COMPLICATIONS WITH THE NAME The founder of Bellabeat Sandro Mur, recently criticised the Croatian business climate and complex red-tape system, the result of which Bellabeat is registered in Croatia as Bellasoft. The institution claimed that the name Bellabeat has nothing to do with IT. Dea Vladilo also thinks that many things should improve to make an entrepreneurs’ already difficult life as easy as possible. The inspections in Croatia actually limit the companies’ development. Our fiscal policy is not adapted and small entrepreneurs are struggling. The story is completely different in the USA, which works on the principle that you earn as much as you work. The procedures are quicker, the resources are more available as well as the freedom, she points out. Despite all this, they have important plans for the future – double the number of employees, work on new projects and perfect existing ones. Health is the most important thing for Bellabeat. We will always be focused on this and on developing new products, Dea Vladilo concludes.
over
250,000 Leaf items sold in one year
65% sales via web-shop
June 2016 | No 259 | PVinternational | 23
COULD IT BE WORSE?
ABOVE THE LINE JEAN PIERRE MARIČIĆ Manager, Poduzetnički inkubator Bios, (Business Incubator) Osijek
Over €0.13 billion of EU funds which are currently frozen will not be available to end users until Croatia solves the problem of connected companies. Furthermore, it is also questionable how much will be available thereafter
T
hey say it could always be better. It seems this is appropriate considering the implementation of EU projects in Croatia. We waited for a long time to become a member of the European Union so that we could, amongst other things, use significantly larger sums from EU funds than we used to prior to accession. Three years have passed since this historical accession to wealthy European countries, but in terms of these non-repayable funds for economy, culture, tourism or environment, still nothing. Maybe not completely nothing, but if we know that the structural funds should be ten times larger than the pre-accession ones – then they are unnoticeable. Why is this? The answer you receive depends on who you ask. If you ask those responsible for preparing and implementing tenders, they will probable blame the procedures, unprepared applicants or EU administration. If you ask those who implement the projects, they will tell you there are no tenders and therefore there are no projects to submit. It is difficult to find the right answer in the mechanism that Croatia prepared for implementing EU projects. Furthermore, this mechanism is so complex that even those who set it up find it difficult to understand. Those who blame European procedures or regulations can save their stories for someone else. Actually, if you have already had experience with programmes implemented directly from Brussels, then you will know these procedures and mechanisms can (and must) be simplified and more transparent. One of the areas eagerly awaiting EU funds which could boost some level of production or activity, is agriculture. I do not mean the big systems finishing the year with vast profits, but the small and medium-sized enterprises, family owned farms – those whose numbers
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so called financial corrections (procurement was not successfully implemented – 10% financial correction; you did not build according to the project – 15% financial correction). Croatia will pay for this mishap. However, those for whom these funds were intended will pay in the end. The amount in question totals over €0.13 billion from EU funds, currently frozen, which will not be available to end users until Croatia solves the problem of connected companies. Furthermore, it is also questionable how much will be available thereafter, that is, how much will the EU implement the financial correction on this programme. An additional possible setback is the payment of nonrepayable funds arranged through this programme from the state budget. An extremely significant difference between the amount arranged and the amount which is not acceptable for financing according to EU rules, could be financed by our abundant state budget – at whose expense – remains to be seen. As you can see, the game is not fair regardless of who makes a mistake (the
THE GAME IS NOT FAIR REGARDLESS OF WHO MAKES A MISTAKE (THE END USER OR THE IMPLEMENTING BODY), THE END-USER WILL ALWAYS SUFFER THE CONSEQUENCES are shrinking daily and which will disappear if we continue at this pace. Tenders offering substantial sums have been invited for them, but somehow those previously mentioned applied first. It certainly helped that someone forgot to mention the connected companies during the procedure of publishing the tender. Their every mistake is paid with the
end user or the implementing body); the end-user will always suffer the consequences. Sometimes this will mean he will lose a proportion of the funds for financing the project, and sometimes it will be too late for some entrepreneurs when the tender is invited. Also, as far as the question mentioned in the title – you can answer it yourself.