Croatia looks to put past behind it with EU accession

EU membership will help Croatia deal with its troubled past, President Michael D Higgins predicted during a visit there last week. However, it's likely that its citizens are far more interested in what joining means for its immediate future.

Croatia formally signs up as the EU's latest member on July 1st, ending an accession process that has taken more than a decade to complete. It at one stage looked to have been stalled indefinitely by a row over borders with its neighbour Slovenia.

Trade between Croatia and the Republic is worth around €50 million a year, much of it involving sun-starved Irish people heading for Croatia's Adriatic coast. The two nations have a certain amount in common: they are small with populations of around 4.5 million, sit at the edge of the union and have troubled pasts – the Balkan republic is one of seven states to have emerged from the break-up of the former Yugoslavia.

Inward investment
More importantly, both have an appetite for inward investment. EU ambassador Paul Vandoren says that, in Croatia's case, much of this came from existing member states, led by Austria (before the first World War Croatia was part of the Austro-Hungarian Empire) and including the likes of Germany and the Netherlands.

The EU’s figures confirm this – between 1993 and late 2011 Austria accounted for €6.5 billion of a €25.6 billion total, followed by the Netherlands with €3.8 billion and Germany third with €3 billion. The top three accounted for over half of all foreign direct investment into Croatia in that period.

However, Vandoren points out that from 2009 it fell dramatically, abruptly ending a period during which it had accelerated markedly.

There are signs of a revival more recently, but the recession has hit Croatia hard. Unemployment is close to 18 per cent, according to the latest figures. Around one in every two of those aged 25 and under are out of a job.

Still, the ambassador says, a number of barriers pose problems for anyone looking to come and spend money. A critical one appears to be red tape. As well as its national administration in the capital Zagreb, Croatia has regional and local authorities, which leads to multiple planning, licensing and permitting requirements.

The country's economy minister, Ivan Vrdoljak, decided to tackle this with legislation to streamline planning for strategic projects – something very like a version of the Republic's critical infrastructure regime. Vrdoljak, who is relatively new to politics, was inspired by his experience of red tape when running his own business, ATO Inženjering.

He says he originally intended it to cover state-backed infrastructure projects but, following suggestions from colleagues, he expanded the draft bill to include strategically important private sector investments.

Vrdoljak then found himself under fire on a number of fronts. Environmentalists feared its impact in that sphere – around one third of Croatia is part of Natura 2000, the EU’s network of protection areas designed to protect the continent’s biodiversity.

The EU itself raised concerns that, by favouring individual sectors or possibly organisations, the legislation could run afoul of competition and state-aid rules. The response was to draft the law to give it broad application across all sectors of the economy. Either way, the minister pledges that the “strategic investment law will be in parliament before summer”.

The complex regional and local government systems seem to have given rise to fears that corruption is a constant part of Croatia's business landscape. Vandoren cites it as one of the key barriers to inward investment. Ernst & Young's most recent survey found that 90 per cent of the country's executives think bribery and graft happen widely there, while 40 per cent of them believe such approaches are necessary to win contracts.

Politicians
The views of its politicians seem to conflict. Vrdoljak says it was a problem in the past, but has been dealt with, while Branko Grcic, the regional development minister, concedes it continues to be an issue but is being dealt with.

At least one of Brussels’s concerns in this area must be the fact that Croatia is in line to receive up to €8 billion in structural funds between now and 2020, a sum that is bound to concentrate a lot of minds.