Can Croats face up to challenge of the EU?

ZAGREB: Zenja Moskaljov runs a small but profitable metalwork business in Croatia, and has tried and failed to export to the European Union. He knows his company - Vulkan Zagreb - can hardly be competitive there.

"We are too small a player to think seriously about selling on the European market," Moskaljov said in his modest office inside a drab plant on the outskirts of Zagreb.

Croatia expects to wrap up EU entry talks next year and join in 2012, and Moskaljov realizes that Vulkan's business prospects will brighten only if he invests to modernize and boost capacity, in order to find a foreign partner.

"We are a small market and I don't think big EU firms will be coming here to compete with us. They will rather focus on acquiring good local firms. That's where I see our chance."

Unlike Vulkan, Croatia, a country of 4.4 million people, is making only half-hearted efforts to prepare its economy for the single European market, which has tougher rules, far more competition and lower government subsidies, analysts say.

"Barring a few honorable exceptions, I don't see many companies drafting adjustment programs for the EU, which will not be milk and honey for everyone," economist Zarko Primorac told a business conference.

Many small firms focused on the local market may go out of business, although the country is generally expected to benefit.

According to Roland Berger strategy consultants, which has done market research on Croatia's EU prospects, foreign markets are simply not on the radar screen of most local executives.

"Croatian firms are small, innovative approaches are not their strength and they invest little effort in exploring what they can offer to the EU market. There is still time to change, but not too much," Vladimir Preveden of Roland Berger said.

Croatia has relied mostly on tourism, state investment and household consumption in the past decade. Successful export-oriented firms and major foreign investments were rare.

Pre-1991 Yugoslav-era industry has all but collapsed, with a handful of food, drugs and metalwork firms in relatively good health, while shipbuilding and textiles are struggling.

Exports made up just 19 percent of gross domestic product in 2008, compared with 46 percent in neighboring Slovenia and 71 percent in Slovakia - two countries that joined the EU in 2004.

Experts say Croatia cannot expect any fresh investment boom on the back of its EU accession, because red tape, corruption and a generally unfavorable business climate persist, while most valuable state assets have already been sold.

"Administration and corruption rank as the biggest problems. These values have got worse and worse over the years, instead of better. Investors are not happy at all," said Roman Rauch, head of the Austrian Trade Chamber in Zagreb.

Reuters

(China Daily 12/21/2009 page11)