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Croatia: Market Profile

Picture: Croatia factsheet
Picture: Croatia factsheet

1. Overview

After a protracted six-year recession, Croatia returned to growth in 2015 and is now entering its fifth year of recovery. Private consumption was the main driver of growth in Croatia in 2017 and this trend will continue in 2018 and 2019, thus supporting demand for imports and ensuring they remain ahead of exports in annual growth terms over the coming years. Access to the European Union (EU) internal market helped connect the economy to global value chains, and tourism is experiencing historic highs. Nevertheless, these factors are not enough to deliver pre-crisis growth rates. GDP is currently hovering roughly 1% lower than in the pre-crisis period, and youth unemployment remains high. The accelerated outmigration of labour and slow pace of structural reforms, risk undermining Croatia's growth opportunities.

Sources: World Bank, Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

July 2013
Croatia joined the EU as its 28th member.

January 2015
Kolinda Grabar-Kiratovic was elected Croatia's first female president.

November 2015
The general election failed to produce an outright winner. Following protracted talks, Tihomir Oreskovic became Prime Minister in January 2016.

July 2016
Parliament was dissolved and fresh elections were called for in September.

September 2016
Elections were held and the Croatian Democratic Union (HDZ) party won the largest number of seats.

October 2016
A coalition government headed by HDZ leader Andrej Plenkovic, took office.

Sources: BBC Country Profile – Timeline, Fitch Solutions

3. Major Economic Indicators

Graph: Croatia real GDP and inflation
Graph: Croatia real GDP and inflation
Graph: Croatia GDP by sector (2017)
Graph: Croatia GDP by sector (2017)
Graph: Croatia unemployment rate
Graph: Croatia unemployment rate
Graph: Croatia current account balance
Graph: Croatia current account balance

e = estimate, f = forecast
Sources: IMF, World Bank
Date last reviewed: November 12, 2018

4. External Trade

4.1 Merchandise Trade

Graph: Croatia merchandise trade
Graph: Croatia merchandise trade

Source: WTO
Date last reviewed: November 12, 2018

Graph: Croatia major export commodities (2017)
Graph: Croatia major export commodities (2017)
Graph: Croatia major export markets (2017)
Graph: Croatia major export markets (2017)
Graph: Croatia major import commodities (2017)
Graph: Croatia major import commodities (2017)
Graph: Croatia major import markets (2017)
Graph: Croatia major import markets (2017)

Sources: Trade Map, Fitch Solutions
Date last reviewed: November 12, 2018

4.2 Trade in Services

Graph: Croatia trade in services
Graph: Croatia trade in services

e = estimate
Source: WTO
Date last reviewed: November 12, 2018

5. Trade Policies

  • Croatia has been a member of the WTO since November 30, 2000. As of July 1, 2013, Croatia became a member state of the EU.

  • The EU is party to some 50 free trade agreements (FTAs) and, consequently, access to other markets of the countries concerned is currently mediated through those agreements. The EU’s scheme on generalised system of preferences (GSP) entered into effect on January 1, 2014. Under the scheme, tariff preferences have been removed for imports into the EU from countries where per-capita income has exceeded USD4,000 for four years in a row. Regarding Hong Kong, the territory has been fully excluded from the EU’s GSP scheme since May 1, 1998.

  • Prior to Croatia's accession to the EU, the country had signed over 40 international trade or economic cooperation treaties, with further agreements in place regarding investment promotion and protection. As part of EU membership negotiations, these agreements were adjusted to ensure their validity continued once Croatia joined the EU, or voided as the EU agreement took precedence. Once goods are cleared by customs authorities upon entry into any EU member state, these imported goods can move freely among EU member states without any additional customs procedures.

  • Import tariffs: Croatia applies the EU's Common External Tariff (CET), which means goods manufactured and imported from within the EU are not subject to customs charges. The average tariff rate for Croatia is just 1.3%, which is among the lowest globally, although goods imported from outside the EU will incur duties of between 0-48.5%.

  • Customs and non-tariff barriers: Trade bureaucracy and customs delays are a significant hindrance to foreign investors, particularly those outside of the EU. Though there are increasing efforts to reduce trade bureaucracy, paper-based procedures remain cumbersome and costs and connectivity issues add to market barriers.

  • Anti-dumping and countervailing duties: The EU has imposed various anti-dumping measures on a wide range of products - predominantly in the areas of textiles, parts, steel, iron and machinery on goods coming from China and a few other Asian nations to protect domestic industries. On November 13, 2016, the European Commission (EC) imposed a provisional antidumping duty on imports of some primary and semi-processed metals from China. The rate of duty is between 43.5%-81.1% of the net free-at-Union-frontier price before duty, depending on the company. In the same vein, the rate of duty for similar goods from Belarus is 12.5% of the net free-at-Union-frontier price before duty. In March 2016, the EC imposed a definitive countervailing duty (8.7% or 9%) on imports consisting largely of textiles products originating in India.

  • Trade defence measures: In 2016, the EC introduced an import licensing regime for steel products exceeding 2.5 tonnes. The regulation will be active until May 15, 2020.

  • Agriculture: In Q215, the EC issued regulations on trade restrictions with Turkey, regarding cattle, beef, watermelons and prepared tomatoes. This will help to protect domestic agriculture and regional farming businesses.

  • State aid and protected sectors: In March 2016, the EC announced a new support package for European farmers, which involves mobilising an estimated EUR500 million within the next two years. The intervention ceilings for dairy and other farm products have been nearly doubled. This will limit the ability of foreign businesses to export products, such as milk, fruits and vegetables to Croatia.

  • Nine types of goods imported into the EU are subject to licensing. These goods are (broadly): textiles; various agricultural products; iron and steel products; ozone- depleting substances; rough diamonds; waste shipment; harvested timber; endangered species; and drug precursors. No quotas are imposed on textiles and clothing exports, as well as non-textile products exports from Hong Kong and the mainland China at present.

  • The Croatian economy is dominated by the services industry (which accounts for almost 70% of GDP), of which tourism is an important element. Tourism accounted for 71.0% of services exports in 2016. Croatia's most valuable traded products are machines, technical equipment, medicine, and crude and refined petroleum. The country is a major manufacturer of passenger and cargo ships, and is developing its automobile manufacturing capacity, as well as being a textile manufacturing hub. Croatian product exports stood at USD11.6 billion in 2016, up from USD11.1 billion in 2012. Much of the import sector is dedicated towards Croatia's manufacturing sector (for export products), with machinery, chemical products and base metals making up three of the top five imported products.

Sources: WTO - Trade Policy Review, Fitch Solutions

6. Trade Agreement

6.1 Trade Updates

On September 21, 2017, the Canada Comprehensive Economic and Trade Agreement (CETA) agreement between the EU and Canada provisionally entered into force. It will enter into force fully and definitively when all EU member states parliaments have ratified the Agreement.

6.2 Multinational Trade Agreements


  1. EU: Croatia is a member of the EU that comprises 28 member states, and it follows EU's common external trade policy and measures. All EU member states adopt common external trade policy and measures and most of the country’s trade is with other members.

  2. European Economic Area (EEA)-European Free Trade Association (EFTA) (Iceland, Liechtenstein, Norway and Switzerland): The EEA unites the EU member states and the three EFTA states (Iceland, Liechtenstein, and Norway) into an Internal Market governed by the same basic rules. These rules aim to enable goods, services, capital, and persons to move freely about the EEA in an open and competitive environment, a concept referred to as the four freedoms. While this agreement enhances trade flows between these countries, only Switzerland is a major trading partner to the EU.

  3. EU-Turkey Customs Union: the EU and Turkey are linked by a customs union agreement, which came into force on December 31, 1995. Turkey has been a candidate country to join the EU since 1999, and is a member of the Euro-Mediterranean partnership. The customs union with the EU provides tariff-free access to the European market for Turkey, benefitting both exporters and importers. Turkey is the EU's fourth largest export market and fifth largest provider of imports. The EU is Turkey's largest import and export partner. Turkey's exports to the EU are mostly machinery and transport equipment, followed by manufactured goods. At present, the customs union agreement covers all industrial goods, but does not address agriculture (except processed agricultural products), services or public procurement. Bilateral trade concessions apply to agricultural, as well as coal and steel products. In December 2016, the EC proposed the modernisation of the customs union and to further extend the bilateral trade relations to areas such as services, public procurement and sustainable development.

  4. EU-CETA: CETA is expected to strengthen trade ties between the two regions. Some 98% of trade between Canada and the EU is duty-free under CETA. The agreement is expected to boost trade between partners by more than 20%. CETA also opens up government procurement. Canadian companies will be able to bid on opportunities at all levels of the EU government procurement market and vice-versa. CETA means that Canadian provinces, territories and municipalities are opening their procurement to foreign entities for the first time, albeit with some limitations regarding energy utilities and public transport.

  5. EU-Japan Trade Agreement: In July 2018, the EU and Japan signed a trade deal that promises to eliminate 99% of tariffs that cost businesses in the EU and Japan nearly EUR1.0 billion annually. According to the EC, the EU-Japan Economic Partnership Agreement (EPA) will create a trade zone covering 600 million people and nearly a third of global GDP. The result of four years of negotiation, the EPA was finalised in late 2017 and is expected to come into force in February 2019 after the EU Parliament ratified the agreement in December 2018. The total trade volume of goods and services between the EU and Japan is an estimated EUR86 billion. The key parts of the agreement will cut duties on a wide range of agricultural products and it seeks to open up services markets, in particular financial services, e-commerce, telecommunications and transport. Japan is the EU's second biggest trading partner in Asia after China. EU exports to Japan are dominated by motor vehicles, machinery, pharmaceuticals, optical and medical instruments, and electrical machinery.

Ratification Pending

  1. EU-SADC Economic Partnership Agreement (Botswana, Lesotho, Mozambique, Namibia, South Africa, Swaziland, Angola, Comoros, Democratic Republic of the Congo, Madagascar, Malawi, Mauritius, Seychelles, Tanzania, Zambia and Zimbabwe): An agreement between EU and SADC delegations was reached in 2016 and is awaiting ratification, with 13 of the 35 needed states having ratified the agreement as of November 2018.

  2. EU-Central America Association Agreement (Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, Belize, and Dominican Republic): An agreement between the parties was reached in 2012 and is awaiting ratification (29 of the 34 parties have ratified the agreement as of November 2018). Croatia is not among the states required to ratify the agreement.

Under Negotiation

  1. EU-Australia: The EU, Australia's second largest trade partner, has launched negotiations for a comprehensive trade agreement with Australia. Bilateral trade in goods between the two partners has risen steadily in recent years, reaching almost EUR48 billion in 2017, while bilateral trade in services added an additional EUR27 billion. The negotiations aim at removing trade barriers, streamlining standards and putting European companies exporting to or doing business in Australia on an equal footing with those from countries that have signed up to the Trans-Pacific Partnership or other trade agreements with Australia. The Council of the EU authorised opening negotiations for a trade agreement between the EU and Australia on May 22, 2018.

  2. EU-United States (Trans-Atlantic Trade and Investment Partnership): This agreement was expected to increase trade and services, but it is unlikely to pass under a Trump administration in the United States.

Sources: WTO Regional Trade Agreements database, Fitch Solutions

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Croatia FDI stock
Graph: Croatia FDI stock
Graph: Croatia FDI flow
Graph: Croatia FDI flow

Source: UNCTAD
Date last reviewed: November 12, 2018

7.2 Foreign Direct Investment Policy

  1. The government is supportive of foreign investment and, as well as undertaking regulatory reform, it has established the Investment Promotion and Competition Directorate, based in the Ministry of Economy, which is tasked with providing advice and strategies for investment promotion and the removal of investment barriers. There are no performance requirements for foreign companies, and there are also very few restrictions on foreign exchange.

  2. Investment opportunities in Croatia were the focus of the United Nations Industrial Development Organization and International Solar Energy Center for Technology Promotion and Transfer (UNIDO-ISEC) which took place on November 3, 2018 in Beijing. During the event, UNIDO-ISEC leaders pledged USD1.2 billion towards the reconstruction of war-torn areas.

  3. Substantial tax incentives are provided, including up to 100% reduction in corporate profit tax for foreign investors, with the government also having introduced real estate incentives to encourage investment in more rural areas of the country.

  4. Foreign property ownership is restricted. Although EU member states can purchase property on the same basis as Croatian citizens, for those outside of the EU, property rights are based on reciprocity (dependent upon whether Croatian citizens can purchase property in the corresponding country). These restrictions do not apply for foreign investors incorporated as a Croatian legal entity.

  5. The Ministry of Economy, Entrepreneurship and Crafts has presented a programme of regional support for capital investments aimed at maintaining or increasing employment figures, valued at HRK90 million. He also pointed to a further HRK250 million which has been earmarked for projects designed to increase value and export shares.

  6. Croatia is keen to establish itself as a centre for automotive manufacturing and, as such, has been developing the Croatian Automotive Cluster since 2007. This cluster has 50 members and is active in research and development, as well as automotive parts production and assembly. Another four clusters have been established in shipbuilding, textile manufacturing, agricultural equipment and interiors, with around 140 member companies in total.

  7. The Croatian Bank for Reconstruction and Development (HBOR), as of 2015, supports local manufacturers in the construction of ferries and tankers for the Turkmenistan and Norwegian governments. In 2014, the bank also signed a credit agreement worth USD84 million with Russian developers for the construction of a holiday resort in Russia on the condition that construction materials and services are sourced from Croatia, which would benefit more than 50 Croatian companies. This demonstrates that local manufacturers will receive funding priority, which may make it more challenging for foreign companies to receive financial support in certain heavy manufacturing industries.

  8. There are currently 831 companies in full state ownership, and legislation provides that private entities can compete with state-owned enterprises (SOEs) under the same conditions with regard to access to markets, credit and other business operations. In practice, though, there have been instances where political influence in the SOEs had a negative effect on competition, as the supervisory boards of SOEs include political figures that report directly to the government.

Sources: WTO – Trade Policy Review, ITA, US Department of Commerce, Fitch Solutions, Dubrovnik Times

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
13 free trade zones (FTZs) are located at the sea ports of Pula, Rijeka, Split and Ploče, and other strategically located zones in Krapina-Zagorje, Kukuljanovo, Osijek, Ribnik, Slavonski Brod, Split-Dalmacija, Varaždin, Vukovar and Zagreb.
- Exemption from custom duties and VAT

- Expedited customs procedures

- Local logistics hubs

- For investment in development and innovation activities, a non-refundable grant shall be approved for the purchase of plant/machinery amounting to 20% of the actual eligible costs for purchasing plant/machinery, in the maximum amount of EUR500,000, provided that the purchased plant/machinery represents high technology equipment.

- An incentive can be granted for the investment project if the minimum investment in fixed assets is EUR5 million and 50 new jobs are created within a three-year period from the start of the project. The percentage of non-refundable subsidies depend on the unemployment rate of the county where investment is located. Those projects can benefit from additional non-refundable subsidies between 10% and 20% of the eligible costs of investments for:

  • Construction of a new factory, production facility, or tourist facility
  • Buying of new machines (i.e., production equipment)

- The non-refundable subsidies could be up to EUR1 million, depending on the applied percentage of the eligible costs, with the condition that the part of investment in the machines/equipment equals at least 40% of the investment and that at least 50% of those machines/equipment are of high technology.

- Labour intensive investment projects in fixed assets are those with at least 100 new jobs created within a three-year period from the start of the project. Initial employment incentives can be increased by an additional 25% for up to 300 new jobs, 50% for a minimum of 300 new jobs, and up to 100% for minimum 500 new jobs.

Sources: US Department of Commerce, Fitch Solutions

8. Taxation – 2018


9. Foreign Worker Requirements

The Ministry of Labour announced in June 2018 that the country required 35,500 foreign workers up from the 31,000 it had initially anticipated requiring. The workers are necessary to support Croatia's booming tourism industry.

9.1 Localisation Requirements

Due to the high emigration levels of highly qualified individuals from Croatia, the country is flexible when it comes to importing labour to meet its market needs. Although the country is a part of the EU and is open to international migrants, the majority of migrants are unskilled workers from neighbouring countries. This is a cause of domestic tension, considering Croatia's already very high unemployment rates.

9.2 Foreign Worker Permits

In recent years, due to EU membership, the Croatian government has been under pressure to increase annual work permit quotas by 40% for foreign workers. As an EU member, Croatia can easily recruit for its skills shortages from within the Union, as citizens have freedom of mobility. Work permits for non-EU nationals are issued for a period of up to two years (EU Blue Card) and require the applicant to go through a higher number of bureaucratic procedures than citizens of the EU.

9.3 Visa/Travel Restrictions

African and some Asian, Middle Eastern and Latin American countries require a visa. As a member of the EU, Croatia does not impose any travel restrictions upon any other European state. Countries such as the United States, Canada, Australia, Japan and South Korea, along with a number of Latin American states, likewise, do not face any travel restrictions. However, African citizens, along with most Asian and Middle Eastern citizens, may not travel to Croatia without obtaining a visa in advance.

Sources: Government websites, Fitch Solutions, Total Croatia News

10. Risks

10.1 Sovereign Credit Ratings

Rating (Outlook)Rating Date
Ba2 (Stable)10/03/2017
Standard & Poor'sBB+ (Positive)21/09/2018
Fitch Ratings
BB+ (Positive)

Sources: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators

World Ranking
Ease of Doing Business Index
Ease of Paying Taxes Index
Logistics Performance Index
Corruption Perception Index
IMD World Competitiveness58/61

Sources: World Bank, IMD, Transparency International

10.3 Fitch Solutions Risk Indices

World Ranking
Economic Risk Index Rank65/202
Short-Term Economic Risk Score61.5
Long-Term Economic Risk Score58.9
Political Risk Index Rank60/202
Short-Term Political Risk Score60.4
Long-Term Political Risk Score70.5
Operational Risk Index Rank43/201
Operational Risk Score62

Source: Fitch Solutions
Date last reviewed: November 12, 2018

10.4 Fitch Solutions Risk Summary

Croatia's short-term economic outlook has improved as domestic demand recovers and record tourism continues to drive solid export growth. Most significantly, a reduced budget deficit will ease the immediate risks to stability and set public debt on a downward trajectory.

Croatia offers a relatively safe operating environment and is one of the most appealing destinations for investment in the South East Europe region. Foreign and local businesses, alike, face limited crime and security risks, and the country benefits from having a strong police force and membership of various regional security initiatives.

Source: Fitch Solutions
Date last reviewed: November 13, 2018

10.5 Fitch Solutions Political and Economic Risk Indices

Graph: Croatia short term political risk index
Graph: Croatia short term political risk index
Graph: Croatia long term political risk index
Graph: Croatia long term political risk index
Graph: Croatia short term economic risk index
Graph: Croatia short term economic risk index
Graph: Croatia long term economic risk index
Graph: Croatia long term economic risk index

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Economic and Political Risk Indices
Date last reviewed: November 12, 2018

10.5 Fitch Solutions Operational Risk Index

Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Croatia Score63.851.9
Southeast Europe Average57.4
Southeast Europe Position (out of 12)2
Emerging Europe Average56.954.158.458.556.8
Emerging Europe Position (out of 31)8
Global Average49.6
Global Position (out of 201)43

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index

Graph: Croatia vs global and regional averages
Graph: Croatia vs global and regional averages
Operational Risk Index
Labour Market Risk Index
Trade and Investment Risk IndexLogistics Risk IndexCrime and Security Risk Index
Bosnia and Herzegovina46.045.544.348.445.9
Regional Averages57.452.857.959.459.4
Emerging Markets Averages46.848.047.545.746.0
Global Markets Averages49.649.749.949.149.8

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: November 12, 2018

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Croatia

Graph: Major export commodities to Croatia (2017)
Graph: Major export commodities to Croatia (2017)
Graph: Major import commodities from Croatia (2017)
Graph: Major import commodities from Croatia (2017)

Note: Graph shows the main Hong Kong exports to/import from Croatia (by consignment)
Date last reviewed: November 12, 2018

Graph: Merchandise exports to Croatia
Graph: Merchandise exports to Croatia
Graph: Merchandise imports from Croatia
Graph: Merchandise imports from Croatia

Note: Graph shows Hong Kong exports to/import from Croatia (by consignment)
Exchange Rate HK$/US$, average
7.76 (2013)
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
Source: Hong Kong Census and Statistics Department
Date last reviewed: November 12, 2018

Growth rate (%)
Number of Croatian residents visiting Hong Kong4,169

Sources: Hong Kong Tourism Board, Fitch Solutions

Growth rate (%)
Number of European residents visiting Hong Kong1,929,824

Sources: Hong Kong Tourism Board, Fitch Solutions
Date last reviewed: November 12, 2018

11.2 Commercial Presence in Hong Kong

Growth rate (%)
Number of Croatian companies in Hong Kong N/A
- Regional headquarters
- Regional offices
- Local offices

11.3 Treaties and Agreements between Hong Kong and Croatia

  • China-Croatia Bilateral Investment Treaty (BIT); effective from July 1, 1994
  • China-EC Trade and Cooperation Agreement
  • China-Croatia Taxation Treaty, signed on September 1, 1995, effective from January 1, 2002

Sources: UNCTAD, ChinaTax.gov

11.4 Chamber of Commerce (or Related Organisations) in Hong Kong

Croatian Consulate in Hong kong
Address: 64/F, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong
Email: croatia@hhlmail.com
Tel: (852) 2528 4975

Source: Protocol Division Government Secretariat

11.5 Visa Requirements for Hong Kong Residents

A Schengen Visa is needed for travel to Croatia (as well as the other EU states) and is valid for up to 90 days. Application must be completed prior to travel.

  • Hong Kong residents are entitled to a visa-free entry to Schengen countries lasting no more than 90 days in any six-month period from the date of first entry in the territory of the member states.

  • The Hong Kong Document of Identity is recognised by all Schengen countries. The holders of such documents, however, need to apply for a Schengen visa.

  • The Consulate General of Croatia accepts visa applications only if Croatia is the country of your main destination (if you are going for tourism, the main country of your destination is the one where you spend the longest time, not necessarily the country of your first entry).

Source: Hong Kong Immigration Department
Date last reviewed: November 12, 2018

Content provided by Picture: Fitch Solutions – BMI Research
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