MFA: Strategic opportunities for foreign exporters
After a sharp decline in economic growth in 2020, reaching -7.2%, real GDP is expected to increase by 4% in 2021 and grow by an average of 2.8% per year over the next three years. If this happens, real GDP will return to the pre-pandemic level as early as 2023. In 2020, the current account of the balance of payments went into deficit for the first time in many years, mainly as a result of a smaller surplus in services (primarily tourism). Government debt rose to 89% of GDP at the end of 2020, up from 72.7% of GDP before the pandemic in January 2020.
Pandemic unemployment rose from 8.3% in February 2020 to 9.8% in January 2021. Inflation has been stable between 0.2% and 1.5% over the past five years. Similarly, the exchange rate of the Croatian kuna to the euro fluctuated only slightly around the long-term average rate of 7.5 HRK per 1 euro. Thanks to the pandemic, Croatia recorded the best value in history of covering imports by exports, which reached the level of 65%. In 2020, exports fell by 0.8% and imports by 7.3%.
Croatia joined the ERM 2 exchange rate mechanism in July 2020 with a view to joining the Eurozone no earlier than 2023. The central parity of the Croatian kuna was set at 1 euro = 7.53450 HRK. Croatia continued to improve its business environment in 2020, ranking 51st (out of 190 countries) in the World Bank’s “Doing Business 2020” ranking. It thus moved up seven places compared to the previous year. It was ranked best in the cross-border exchange of goods category and worst in issuing building permits.
In response to the covid-19 pandemic, the Croatian government introduced a number of fiscal measures to support the affected areas of the economy. Although the measures led to a significant budget deficit of -8% in 2020, they kept unemployment under control and helped a large part of companies to survive. The government will continue to provide pandemic compensation to affected sectors and at the same time finance the reconstruction of areas affected by two strong earthquakes in March and December 2020.
Post-COVID-19 opportunities
Energy industry
According to allcountrylist, the new National Energy Strategy of Croatia until 2030 with a view to 2050 envisages a very ambitious development plan for the construction of renewable energy sources and a gradual transition to a green circular economy. By 2050, the share of total electricity production should reach over 82%. The strategy outlines the conditions and rules for investors. A large investment boom is expected, especially in wind and solar power plants, construction of “green” infrastructure (smart cities), renovation of buildings and increasing energy efficiency. For the needs of the “green transformation”, the Croatian government has EUR 9.15 billion secured in the multi-annual financial framework of the European Union.
In the initial phase by 2030, Croatia plans to invest up to EUR 10 billion, which will ensure the production of 36.4% of electricity from renewable sources. The Croatian Association for Renewable Energy Sources (OIEH) considers wind and solar energy the key to solving Croatia’s growing energy needs. According to her, Croatia has the potential of approximately 8,000 to 9,000 MW of wind energy, 8,000 MW of solar energy and 20,000 MW of other renewable energy sources.
However, current data also show that Croatia currently uses only 2% of this potential (700 MW). This untapped potential is a great opportunity for domestic and foreign investors to get involved in the construction of new solar and wind power plants. According to the OIEH, Croatia has no alternative to electricity production from other than renewable energy sources (solar, wind, geothermal, biomass).
The state energy company HEP (Hrvatska elektroprivreda) has already drawn up plans for the construction of six solar power plants (Mariči, Kaštelir, Cres, Obrovac, Stankovci and Vrlika Jug) with a total capacity of 25 MW and a value of EUR 20 million. These are the first projects of a large solar investment cycle, during which HEP wants to invest up to EUR 100 million by 2023. It currently gets approximately 29% of its energy from renewable energy sources. To develop this segment, it can use part of the more than EUR 4 billion available from the European Regional Development Fund.
Due to insufficient domestic investment and construction capacities, Croatia is largely dependent on the participation of foreign, including Czech investors and suppliers. This represents an opportunity for Czech suppliers and investors from the energy sector to apply.
Water management and waste industry
Croatia has great ambitions in the area of development of the water management and waste sector. It is based on the long-term underfunding and neglect of this important area. Only less than half of the country’s population is connected to sewerage, and drinking water losses in water mains reach an average of 50%, in some areas up to 80%.
In the past, Croatia faced major problems in approving EU-funded projects in the water sector and in their subsequent implementation. Within the current EU financial period (2014–2020), Croatia has a total of CZK 26 billion available for the modernization of its water management infrastructure. However, the use of financial resources from the EU’s structural and cohesion funds has been at a very low level for many years.
According to current information from the Croatian Water Agency (Hrvatske vode), 35 projects are currently being prepared, which should be implemented by the end of 2023, for more than CZK 10 billion. At the same time, the state administration is well aware that the “window of opportunity” is rapidly closing and there is not much time left to exhaust the allocated budget.
Among the largest tenders being prepared are: construction of a central wastewater treatment plant for the Split–Solin area for CZK billion, construction of a water supply and sewerage network in the Kaštela–Trogir area for CZK billion, modernization of the water supply and sewerage system in the Split– Solin for 850 million CZK. construction of a new wastewater treatment plant in Dubrovnik for 773 million CZK, construction of a drainage system in Ivanić Grad for 682 million CZK and others. All tenders issued are published on the official public procurement portal called Narodne novine (https://eojn.nn.hr/oglasnik).
Given the limited capital, technical and human resources, we expect that a large part of these projects will be implemented by foreign companies. There is therefore an extraordinary opportunity for the involvement of Czech companies in water management tenders. Czech companies can be involved in a wide range of projects, from the design and implementation of the construction of wastewater treatment plants and treatment plants, sewers, water lines, pumping stations to coastal protection projects and ecological projects, especially in tourist attractive locations.
Healthcare and pharmaceutical industry
The coronavirus pandemic has shown that most Croatian healthcare facilities are not sufficiently prepared for a similar crisis event and highlighted the need for major investments in medical personnel, hospitals and their equipment. Hospital equipment lacks protective clothing, transport and isolation means (bioboxes, biobags), decontamination systems (showers, tents), etc. Most hospitals are not equipped with a comprehensive biological protection system, including emergency medicine.
Most Croatian healthcare facilities require modernization. Currently, the construction of two completely new hospitals in the cities of Rijeka and Bjelovar is underway, and in 2021 and 2022, in parallel with the completion of construction work, they will start issuing tenders for equipping individual specialized departments of hospitals with medical devices and equipment. These two hospitals currently represent the two largest investments in the healthcare sector in Croatia (almost CZK 2 billion in total). A plan for the construction of a new hospital in Osijek should also be ready by the end of 2021, while work is underway to modernize and expand existing hospitals in Zagreb, Split and several other cities.
Export potential is also brought by the possibility of supplying devices and equipment for specialized workplaces, such as eye clinics, gynecology-obstetrics, dental, cosmetic and surgical laboratories. Many projects are supported by co-financing from the cohesion and competitiveness funds of the EU.
For several years, Croatia has been trying to profile itself as a country with developed health and wellness tourism. In the National Development Strategy approved by the Croatian Parliament in February 2021, the development of medical tourism and its connection with “green” cities and the development of the “silver economy” (i.e. the provision of health services for the elderly) are mentioned among the priorities.
Croatia is promoting the establishment of new health and recreation centers and rehabilitation workplaces directly in hotels. It is related to the government’s efforts to extend the tourist season from a few summer months to the whole year and also to respond to the demand for these services from senior citizens.
Medicines have long been one of the most important Czech export commodities. As the population ages, we expect the demand for medicines to increase. In addition to the export of classic and special medicines, cooperation on the development and testing of medicines is promising. The pharmaceutical industry is in the growth phase of the investment cycle, which is why we can expect increased production in the future as well as demand for semi-finished products or commodities needed for the production of medicines. We also note significant interest in the development of balneological facilities and interest in cooperation in the field of spas in general.
Rail and rail transport
In the National Development Strategy of Croatia until 2030, which was approved in February 2021, the railway and its rapid development play a very important role. The Croatian government expects to invest up to CZK 115 billion in the modernization of especially pan-European corridors in the next 10 years. It promises economic recovery, increased employment and competitiveness, as well as faster and safer travel and transportation of goods by rail. The greater part of the costs should be covered by means from EU funds.
According to HŽI (similar to the Czech Railway Administration), the goal is to revitalize the entire Croatian railway network in accordance with European standards, i.e. increasing railway capacity, transport speed and safety level. From 2020 to 2030, up to 750 kilometers of railways will be modernized and renovated. The estimated speed of passenger trains on these lines will be 160 km/h, while freight trains will be able to travel at speeds of up to 120 km/h.
HŽI currently has nine key investment projects in preparation and implementation. The investment plan for the period 2020-2024 represents CZK 45 billion, of which almost 80% goes to projects co-financed from the European Structural and Investment Funds (ESI) and the Connecting Europe Facility (CEF).
Investments are focused on the reconstruction and modernization of railways and railway sections, the construction of new railways and tracks, the reconstruction of stations, the safety of railway crossings and electrification. In addition, other investments are necessary to increase the safety of railway traffic, such as the repair of notches, the replacement and reconstruction of bridges, the reconstruction of tunnels, the construction of culverts, the replacement of switches and security and telecommunication equipment. From 2025 to 2030, HŽI plans to invest more than CZK 70 billion in new projects.
The most important projects are the pan-European corridor X from the border with Slovenia to the border with Serbia and the corridor Vb from the border with Hungary to the sea port of Rijeka and the corridor Vc from the border with Hungary to Bosnia and Herzegovina and further to the Croatian sea port of Ploče. As part of Corridor X, the length of the double-track lines in the Dugo Selo – Novska section will increase by 82 kilometers, so that the entire length of the line from the border with Slovenia to the border with Serbia will be double-track. On the Vb corridor, the length of the double-track lines will increase by at least 190 kilometers, which includes the sections Križevci – Koprivnica – state border, Dugo Selo – Križevci, Hrvatski Leskovac – Karlovac, Karlovac – Oštarije and Škrljevo – Rijeka – Jurdani.
In the section from Zagreb to the border with Hungary, work continues on the complete reconstruction of the existing line and the construction of a second railway line. In connection with the modernization of the railway from Zagreb to Rijeka, funds have already been approved for works on the reconstruction of the existing line and the construction of the second line in the Hrvatski Leskovac – Karlovac section, for which the tendering process is underway. Preparation of project documentation for the section from Karlovac to Oštarije is also underway. Total investments in this part of the Mediterranean corridor are estimated at up to CZK 80 billion.
In addition to European funds, Croatia also finances projects with loans from the World Bank, the European Bank for Reconstruction and Development (EBRD) and commercial loans. The Croatian railway network currently has 2,617 kilometers of railways, of which only 274 kilometers are double-track and 980 are electrified. On the website of the HŽI (https://www.hzinfra.hr/naslovna/ordrzavanje-i-modernizacija/eu-projekti/) it is possible to get acquainted with all currently ongoing constructions and planned projects in one place.
