Srdj Portolan

Foreign investment into Croatia?

Croatia has recorded a mild growth of foreign investment into its tourism sector. This does not come as a surprise bearing in mind that Croatia’s tourism industry generates EUR 8 billion per season. This has attracted some of Turkish investors, notably Dogus Group to invest into marina and luxury hotel complex in Sibenik area of yet to be discovered part of the Croatian side of the Adriatic. The fact that recent Brad Pitt’s visit to Sibenik area, apparently looking to invest into a hotel complex speaks for itself. Even if it was a marketing ploy to attract other investors it was a clever one. Another Turkish -French joint venture company Global Port Holdings and Bouygues Batiment International was a serious pretender to take over the management of Dubrovnik’s Port of Gruz.

Recent changes developed on the world global geo-political scene have created the movement of capital investments. For instance, a coup attempt in Turkey has lead to the disappointing results in the buoyant Turkish tourism sector and Croatia seemed a natural choice for experienced Turkish tourism companies to move in. French company, Bouygues, which has a 20% stake in French lead consortium ZAIC is putting the final touches to the reconstruction of Zagreb International Airport, a project worth EUR 331 million.

Apart from the coastal investment a huge potential lies into the investment of rural tourist areas. The fact that these areas are lacking the infrastructure, means that the local municipalities are willing to work faster with the investors to obtain the necessary documentation and permissions and thus create new jobs for ares which record high unemployment rate. Croatian labor market is highly educated and relatively cheap in comparison to other EU states, an average of EUR 8.8 per hour.

One must not disregard the tax incentive offered to companies willing to invest into Croatia, for instance a company willing to invest less than EUR1 million, generating 3 new jobs for a minimum of 3 years gets a 10% corporate tax relief for a period of 5 years. The standard corporate tax rate is 20% in Croatia.

The tourism and real estate go hand in hand and after an initial sky rocket demand for second residential homes on behalf of EU citizens at the beginning of 2000’s and subsequent stagnation from 2009 up to now, the future of Croatian real estate market lies with the decision of Croatian read European banks to grant mortgage financing for Croatian non-tax residents.

One has to conclude this article on cautious note of rather mild investment growth. Whoever wins the Croatian elections, taking place today must stop the exodus of highly educated and skilled labor in Croatia and divert them into the direction of entrepreneurship so that domestic newly created business climate will subsequently attract foreign private investors.

Author: Srdj Portolan DLT and SPES Real estate executive director.


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