Croatia may need to import workers to support economic growth and tackle problems that are putting off investors, such as a weak regulatory framework and slow legal processes, the head of national employers' association HUP said on Tuesday. Davor Majetic told Reuters that economic reforms had stalled since corporate and income tax cuts were made early last year. They helped support growth of around 3 percent in 2017 but economists say the newest European Union member will struggle to grow by more than 2 percent a year in the longer-term unless it boosts investment.
"The level of business optimism has declined from late 2016," Majetic said in an interview. "After tax reform, which we welcomed, nothing major has taken place in terms of the key economic reforms. The state sector still dominates the economy in Croatia, and analysts and investors have for years said the country has been too slow to implement changes conducive for investment. Its economic growth levels lag behind other EU members in central and southeastern Europe.
"Croatia's growth could maybe even double from the current level but for that the investment climate must tangibly improve by simultaneous reforms in several areas, not just by making one step at a time," Majetic added.
Central bank governor Boris Vujcic made a similar call last month.
Majetic said Croatia might need to attract immigrant workers to compensate for skills shortages in sectors such as tourism, construction and information technology, and the departure of many of its own citizens for jobs in other EU countries.
"As a short-term measure Croatia needs to import workforce, but it should also consider further ways to ease taxation pressure on labour and businesses. In the longer term the education system requires a major reshuffle," he said. Majetic said there had been many cases of investors coming to Croatia to explore opportunities but leaving disappointed.
"An investor hardly gets a clear picture of how much time and what licences and procedures would eventually be needed for an investment. Public administration often does not offer an adequate service and the judicial process is quite slow, while the regulatory framework undergoes frequent changes." He said unregulated land registries in many parts of the country were one factor deterring investors.
HUB supports the government's aim of joining the euro zone within a decade. "The euro adoption should be a motivation for resolving all those structural problems as the euro would remove currency conversion costs and positively influence interest rate levels," Majetic said. Igor Zgrabljic of the FIC association of foreign investors also said the government had yet to prove it is determined to change the economy. A FIC report in November said legal uncertainty due to frequent changes of the regulatory framework was deterring foreign firms from pouring in money.
Croatia, which joined the EU in 2013, has had one of the lowest level of greenfield investments among the new member states in central and eastern Europe. "The real commitment to attracting investors has not been present so far but in words. One or two bigger success stories, particularly with greenfield investments, would mean the things are changing," Zgrabljic told Reuters.
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