Croatia: Entrepreneurs propose targeted actions to boost private sector’s recovery

Croatia: Entrepreneurs propose targeted actions to boost private sector’s recovery

The Glas Poduzetnika Association (UGP), also known as Croatia’s Economic Council, announced the examination of the current National Recovery and Resilience Plan in a press conference aimed at bringing government attention to the pressing situation in Croatia that could significantly influence the country’s economy and society as a whole.

“We wanted to propose specific measures and aid the Croatian government in speeding up the economic recovery, in order to avoid the 2009 crisis scenario that took Croatia six long years to recover from. Unfortunately, the Croatian government does not want to include social partners in negotiations and is ignoring the actual state of the economy,” says the press release.

Experts from the Economic Council of Glas Poduzetnika have expressed their concerns over the recovery of the Croatian economy from the impact of the COVID-19 pandemic. As already pointed out on multiple occasions, the National Recovery and Resilience Plan will not allocate enough funds to small and medium-sized enterprises which, in turn, will reflect negatively on Croatia’s economy. The Economic Council has therefore analysed the results of both domestic and foreign scientific research papers on the effectiveness of state support provided to businesses for development and recovery in the aftermath of crises.

“The analysis of recovery measures taken by other world economies shows that the majority of countries have directed more substantial shares of their support packages to those businesses (sectors) and citizens who have been hit the hardest. It would be advisable for Croatia to use its EU funds in a similar manner, since this is the way towards accelerating economic recovery. However, the Croatian government has opted for a copy/paste approach of recycling projects from the 2020-2024 Government Programme and the 2030 National Development Strategy, projects that would have been funded regardless of the pandemic. The current National Recovery and Resilience Plan focuses mostly on projects carried out by state and local authorities; projects with low and long-term return on investments (or even a negative one), something that contradicts the general objective of a quick recovery. research has shown that these types of investment deliver a negative return on investment,” says the UGP.

Moreover, they said, it should be pointed out that the National Recovery and The Resilience Plan proposes the allocation of 54% of funds for the economy and 46% for public sector “reforms”. However, the 54% of funds allocated to the economy include funds for wastewater treatment projects, waste management projects, as well as road construction and transport infrastructure projects, which again implies investment into public companies that have so far proven their low efficiency (companies such as Hrvatske vode, Hrvatske ceste, Hrvatska elektroprivreda, Hrvatske željeznice, and local utilities companies). It can therefore safely be argued that the National Recovery and Resilience Plan is not focused on supporting the private sector or improving the competitiveness of the Croatian economy. Not a single aspect of the current Plan is oriented towards the quick recovery of domestic demand, investment into high return projects or technological innovations.

Prioritizing investments into the private sector, focusing on high return projects and monitoring returns on investments and fiscal impacts is crucial for the National Recovery and Resilience Plan to generate a greater impact. What is more, it is necessary to disable corruption channels and preferential, politically influenced allocations in the process of distribution of funds.

The Economic Council proposes the following steps in order to successfully ignite an economic recovery:

Substantial amendments to the National Recovery and Resilience Plan – a more significant relative share of funds should be directed towards the private sector and citizens for the recovery of aggregate demand, in accordance with recovery plans of other comparable EU Member States.

–          Design aid models for citizens who were rendered unemployed due to the pandemic

–          Support for private companies should be implemented

–          Tax reliefs for hardest-hit sectors

–          Renewable energy investments

–          Complete transparency of the funding allocation process

We are entitled to know which criteria and models are being used to determine which sectors and projects receive funding. Without the specified criteria, there are greater risks of an arbitrary, chaotic and politically motivated allocation procedure, which would reduce impacts on economic recovery.

If the Government of the Republic of Croatia continues to insist on the current National Recovery and Resilience Plan, while retaining the existing political and economic limitations, it is realistic to expect a non-effective allocation of the EU funding. This would result in low return on investments and ultimately a subpar recovery. Consequently, lower growth rates and a relative falling behind of Croatia compared to other EU member states can be expected. The National Recovery and Resilience Plan represents an opportunity for reforms in Croatia, for the strengthening of the rule of law, reduction of corruption, strengthening of market institutions and market freedoms, thus creating conditions for EU funds to be used effectively for enabling fast-paced economic growth. The abovementioned can only be accomplished through private sector investments, innovations, and investments in new technologies, which would ultimately help create a sustainable and competitive economic structure in Croatia. /ibna