Improving the Investment Climate in Croatia • Evening for Safe Steps ...

News&ViewsIn 2009 Croatia witnessed the worst of First phase of RealEstate development in New Economy while 2010 proves to be anotheryear of major setback. Investment activity in 2008 had playedimportant role in economy growth, investments in 2009 and 2010have recorded considerable decrease and overall level of investmentshad put strong pressure on the decrease of the GDP. Consumerpessimism about the future economic situation rose togetherwith unfavorable trends on the employment market. Considerableestate segment, alongside with immense amount of administrativered tape, very slow and unreliable zoning and permitting proceduresand lack of clarity and inconsistencies in application of tax laws forinternational money flows. On the latter, Mr. Kristijan Gelo, ManagingPartner of Tulipan Group says “Implementation of the Tax Laws andregulations by Croatian Tax Office officials is very often on a case tocase basis which leads to the fact that companies are uncertain ofthe outcome Tax Office decisions.”reportDo foreign real estate investorsslowdown of the investment and construction sector activity wascaused by credit tightening. Knowing all this, or better to say – livingthat reality, more than few foreign investors and developers not onlyentered Croatian market within these few bad years but choose tofight all the obstacles and invest in real estate projects in Croatia.In the light of the EU accession, liberalization of the tradeand competitiveness of Croatian economy, on major obstacles forinvesting in Croatia, but also on the topic of positive reasons to investin our market, I spoke to three currently active investors anddevelopers in Croatia who have spent not only few years here butare locals representing international investment funds and developmentcompanies.Croatia stands for unorganized andsmall investment marketThere is no mystery that every foreign investor in Croatia, especiallyin real estate development will put emphasis primary on lack of anysubstantial government activities in promoting, facilitating and focusingFDI what actually leaves investors on their own to identify andcreate investment opportunities, as well as to resolve administrative,legal and tax barriers to doing business in Croatia.Mr. Igor Hržić, Managing director of Bluehouse investmentfund in Croatia says: “Slow, inefficient and unreliable judiciary systemdramatically increases execution risk of any investments. Assuch, it makes legal system useless for timely resolution of businessissues and forces institutional investors into unwanted compromisesthat further increase investment costs and reduces attractivenessof the market.”In addition to that, what decreases further the attractivenessof the market is the fact that Croatia is a country of only 4,5 million inhabitantsand relatively small investment absorption capacity in realLegal issues“Many foreign investors in Croatia lost not only time and money butpatience and good will to struggle local obstacles. In addition tothat, an overall picture of Croatia as an investor-friendly environmentis questioned when we hear and read about long lasting court trials.Investors usually seek fast track procedures and professionalcompetencies without which it is not possible to improve the proceduresaccording to which courts work and better align the incentivesof all interested parties for faster disposition of cases. At thesame time, further efforts are needed to establish specialized /realestate, hi-tech, intellectual property, small claims/ courts as well asout-of-court mechanisms, which could help alleviate the burden ofthe judiciary and provide simpler and cheaper options for disputeresolution.” – said Mr. Erik Mohorović, Managing director, on behalfof Verdispar International in Croatia.Therefore, the reduction and elimination of administrativeobstacles to investments into Croatia along with faster proceduresof commercial disputes are not only a must, but primary prerequisiteof re-positioning Croatia on investment map of the Europe.Based on five year long experience of Tulipan Group inCroatia, Gelo puts main emphasis on lack of coordination amonginstitutions and bodies on the local and central level. „State institutionsand their bodies are very often not coordinated with local level,that is they do not have the same working dynamic which is confusingfactor for investors. In order to bring decisions they very oftenneed to identify their common interests.“ On the slow and inefficientdecision making processes, Mohorović advises „Clearly definedstrategy and its implementation dynamics on all levels of decisionmaking process in the public administration would enable investorsto have their own goals and expectations along with risk exposureadjusted accordingly”.20 ISSUE 4/2010