Country Overview: Croatia Economy

Before the global financial crisis of 2008-09, the Croatian economy grew at a healthy 4-5% annually, incomes doubled, and economic and social opportunities dramatically improved. The prolonged crisis has put this progress and Croatia’s aspirations to the test and the country has now been in recession for four years, losing almost 11% of its output.

The outlook for growth in 2013 remains weak given Croatia’s dependence on economic cycles of the European Union and deteriorating conditions at home. About half of Croatia’s trade is with the Euro area, primarily with Germany and Italy, and the Euro area is the source of about three-fourths of foreign-direct investment (FDI) flows into the country. Croatia also has a high concentration of banks whose ownership indirectly exposes them to the Euro-area crisis.

Unemployment rose to over 14% at the end of 2012 and youth unemployment in the country remains one of the highest in Europe. The private sector has been bearing the brunt of the crisis with around 115,000 jobs lost mostly in manufacturing, construction and trade. The demand for Croatian goods and tourism services are uncertain coupled with limited prospects for inflow of foreign capital.

The crisis has increased poverty from 10% to 14% and the profile of the poor has changed, with the educated and younger living in richer urban areas now more affected.

Croatia spends 7.8% of GDP on health, among the highest for new EU members. Like most other European countries, Croatia is expecting profound changes in its population structure over the next 50 years as the elderly population grows and the need for health services and long-term care services will rise. A challenge is to provide better health services and improve efficiency while reducing public spending on health.

Substantial reforms and improvements have been made in the Croatian education sector, but advances have been slow in improving the efficiency and the quality of higher education to better respond to the needs of the labor market. While more children and youth are enrolling in school programs (60% at the pre-school level, near universal enrollment at the primary level, and 88% at the secondary level), Croatia’s enrollment levels remain below OECD and EU levels.

The agriculture sector accounts for just 4% of GDP but employs 14% of the labor force. With 42% of the country’s population living in rural areas, agriculture is an important source of livelihood and protection of the rural environment is central to the EU Common Agricultural Policy. The Ministry of Agriculture has been working intensively on the harmonization and adoption of a number of regulations in the area of agriculture, food safety, veterinary and phytosanitary policies, and fisheries.

Croatia lies along three Pan-European transport corridors between the European Union and Southeastern Europe and the Croatian authorities have invested heavily in developing their pan-European transport network primarily through public funding, focusing mainly on roads, motorways and ports. Croatia’s railway sector faces major challenges, and will require investments if it is to be integrated with the EU network.

Croatia’s territory is ecologically among the best preserved in Europe, with 47% of its land and 39% of its sea designated as specially protected areas and areas of conservation. Croatia boasts 19 National and Nature Parks, with some of them, such as the Plitvice Lakes National Park, designated as UNESCO World Heritage sites. Croatia’s natural beauty draws in millions of tourists each year, with tourism revenues representing around 15% of the country’s GDP. Preservation of the environment is high on the development agenda and a requirement for European Union membership.

Croatia became Party to the Kyoto Protocol in 2007, and in the 2009 energy strategy committing to its general objectives. The strategy sets clear goals regarding renewable energy and energy efficiency. The climate and renewable energy policy is designed to reduce carbon dioxide emissions by 20%, increase the renewable energy share of the energy mix to 20%, and improve energy efficiency by 20%, all by 2020.

source: world bank

Chinese Investment in U.S. Doubles to $14 Billion in 2013

“Chinese investment in the United States doubled in 2013, driven by large-scale acquisitions in food, energy and real estate,” write analysts Thilo Hanemann and Cassie Gao in “Chinese FDI in the U.S.: 2013 Recap and 2014 Outlook,” released on Jan. 7.

“We expect Chinese interest in U.S. assets to remain strong in 2014 because of aggressive economic reforms in China, a more liberal policy environment for Chinese outbound investors, and a positive outlook for the U.S. economy.”

Whereas state-owned companies have dominated in total deal value in the past, that is no longer true. In 2013, more than 70 percent of investment came from private enterprises, responsible for more than 80 percent of a total of 87 deals (of which 44 were acquisitions and another 38 were greenfield projects).

Where is the money going? Unconventional oil and gas was a top draw, with $3.2 billion invested in deals that include CNOOC’s (CEO) purchase of Calgary, Alberta-based Nexen Energy’s U.S. operations, Sinopec’s (SHI) joint venture withChesapeake Energy (CHK) of Oklahoma City, and a Sinochem International(600500:CH) stake in West Texas’s Wolfcamp Shale. Commercial real estate was also a big draw, with 18 investments in San Francisco, Los Angeles, New York, and Detroit totaling $1.8 billion. And the single biggest deal: Shuanghui’s (000895:CH)$7.1 billion takeover of pork processor Smithfield.

Chinese companies are also becoming big employers of Americans, says Rhodium, providing more than 70,000 full-time jobs as of the end of last year. That’s an eightfold increase since 2007. Huawei Technologies (002502:CH) and Lenovo(992:HK) are big employers, but just one company—Smithfield—accounted for 37,000 of the total workers at Chinese companies.

A separate report released in early December by private equity fund A Capital found that Chinese investors put $24.7 billion into mergers and acquisitions in all of North America in the just first three-quarters of last year.

Dexter_roberts
Roberts is Bloomberg Businessweek‘s Asia News Editor and China bureau chief.