Right now, working in Croatia can be an interesting experience for foreign assignees and expatriates on intra-company transfers. However, it’s probably not a good time for self-made expats who are primarily interested in working in Croatia to fund their new life abroad.
On the one hand, Croatia is a well-developed market economy with a stable currency (the Croatian kuna) and a huge service sector. On the other hand, the prospects of working in Croatia are limited by the economic difficulties the country is struggling with. These difficulties include an ongoing recession, which has led to high unemployment figures and uneven regional development.
Below, we outline some possible causes for this crisis, as well as future opportunities for the people working in Croatia. But first, let’s have a look at Croatia’s national economy in general.
As indicated above, Croatia is in many ways a service economy. Agriculture and other activities in the primary sector, like wine production, fishing, timber, and mining contribute to only 4.3% of the annual gross domestic product. They employ an equally low percentage of all people working in Croatia (about 2%).
The secondary sector is still of considerably more importance, although its significance has declined since the days of a unified Yugoslav state post-World War Two. Manufacturing creates just over a quarter of the total GDP and provides jobs for approximately 30% of the labor force working in Croatia. Key industries include the chemical and pharmaceutical sectors, iron, steel, fabricated metal, shipbuilding, and food processing.
The highest number of employment opportunities in Croatia and the biggest chunk of the GDP come from the tertiary sector. Together, all service industries account for almost 70% of the national GDP. Just over 70% of people working in Croatia rely on service-related jobs to make a living.
Due to Croatia’s strategic location and its scenic beauty, trade and tourism are the predominant sources of income within the service sector. Not only is Croatia a popular travel destination, it also typically has economic ties to import/export businesses in Austria, Bosnia and Herzegovina, Germany, Italy, and Slovenia. Moreover, plenty of import goods come from these countries, as well as Hungary and Russia. The countries that injected the most foreign direct investment into Croatia between 1993 and 2008 were Austria, Hungary, Germany, the Netherlands, and France.
In some regards, people living and working in Croatia are still well off, relatively speaking. Croatia was one of the wealthiest regions in Yugoslavia and this is noticeable today. For instance, the average income is higher here than in plenty of other recent EU member states in Eastern Europe and along the Baltic Sea. But other statistics look worrying.
In January 2016, Croatia had an unemployment rate of 16.4%, compared with an EU average of 8.9%. But when deciding where to work in Croatia, you should remember that unemployment rates vary greatly between Croatia’s 21 counties. People who work in Croatia’s northern parts or coastal areas have better chances of being gainfully employed than those in the south and east.
Around 10% of the active population are defined as long-term unemployed and have thus been hit particularly hard. Moreover, it seems to be especially difficult for the young to break into the job market and even start working in Croatia: youth unemployment was 44.1% at the end of 2015. Under the circumstances, it is no wonder that over 20% of the Croatian population lives under the threat of poverty and that domestic consumption is shrinking.
The roots for the present predicament can partly be traced back to the events of the last two decades. The Croatian War of Independence caused a lot of damage: both of the material and financial kind, as well as physical and psychological harm to soldiers and civilians. The first post-war years were then adversely affected by the rapid change from a socialist state to a capitalist market economy and the accompanying restructuring.
Political issues from this era — the late 1990s — are known as the “Croatian privatization controversy”, where leading politicians were accused of nepotism, favoritism, and corruption. This has unfortunately left a negative legacy. Working in Croatia, or doing business there, is often considered inefficient and it does not place very competitively in international rankings. The main problems cited in “ease of doing business” comparisons are a lack of transparency and an administrative and judicial backlog.
However, with GDP growth of 4-6% per year for several years, the Croatian economy had begun to recover and tackle some of these problems when the worldwide financial crisis struck in 2008/2009. Compared to the GDP shrinking by 6.9% in 2009, the slight growth of 0.8% in 2015 shows a great improvement in the economy.
Not everything is all doom and gloom for those working in Croatia. Once the economy picks up again, exports may increase and Croatia could attract more foreign investment. There are many administrative and economic reforms ahead, though the high public debt continues to be a problem. Nonetheless, the country does have its fair share of strengths and opportunities, for example, a well-qualified labor force. Lots of people working in Croatia are not only highly skilled, but also multilingual. This, in turn, will benefit international tourism and foreign trade.
However, while the opening of borders after Croatia’s accession to the EU has benefited many businesses and tourism is going from strength to strength, the economy is still struggling. Although it has begun to grow again, the Croatian economy has been predicted by Bloomberg to be in the top ten worst performing economies of 2016. In 2015, the government was finally able to bring the deficit under the 3% threshold set by the EU excessive deficit procedure, but there is a long way to go before the economy will be fully recovered.
Expats with experience who want to work in Croatia should keep up with the country’s progression over the next few years. Once business picks up, one international company will follow the other into the Croatian market, hopefully creating new jobs for both locals and foreign nationals alike. Increased employment, beginning in Zagreb and other cities, should drive the economic recovery and, thereby, peak foreign interest in Croatian business.
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