S U P P O R T E D B Y T H E C R O A T I A N C H A M B E R O F E C O N O M Y

pvpvinternationalinternationalCroatian Business & Finance WeeklyEstablished in 1953Monday / 9th January / 2012Year V / No 0181www.privredni.hr

The economy will be faced with an almost unprec-edented level of uncer-

tainty regarding both local issues and external decisions in 2012. Croatia will witness uncertainty regarding the situation through-out the world, Europe and the Eurozone and feel the impact of recession on its economy. The current situation in European banking, primarily regarding the announcements of recapitalisa-tion of Austrian and Italian banks

and set against a back-drop of indications that the European economy is preparing for a more aggressive policy regarding Eurozone exports as well as to-wards Croatia and other parts of Europe outside the EU, together with the Eurozone issues, are ob-vious warnings and indicate the immediate need for decisions at a local level. Nevertheless, current circumstances and economic en-vironment do not leave us much room for manoeuvre and inactiv-ity has been adversely affecting the economy.

We are deeply aware of the need for difficult and painful deci-sions. In addition, the issue of the settlement of liabilities, cur-rently standing at over €5.4 bil-lion, may well seriously jeopard-ise economic functioning, with over 33,000 companies having blocked accounts, an increas-ing number of companies fac-ing pre-filing for bankruptcy or bankruptcy issues, the awareness that some fields of work will wit-ness stagnation, which in turn will lead to decreasing revenue and increasing lay-offs. We need to be aware that current circum-stances are a permanent feature to which we need to amend our hab-its, business activity and behav-iour. We alone can make the right decisions within such an adverse economic environment. Entre-preneurs, parliament and govern-ment should all pose questions such as: Where are we currently? Where are we heading? We will certainly face an uncertain year. Croatia is going into 2012 with a new parliament, a new gov-ernment, which implies new ex-pectations but with long-existing problems. Consequently, the new government needs to address the critical issues instantly. Busi-nessmen are expecting substan-

tial, fast, focused and effective movements. The macroeconomic environment is of paramount importance for entrepreneurs. Businessmen have succeeded in showing their ability to maintain equilibrium, having made deci-sions on what is unprofitable in their businesses and having con-centrated on adding value. Entre-preneurs have done virtually all they were able to in their search for solutions and new approaches to addressing problems on their own and are currently in need of assistance. According to them, entrepreneurs are left to their own innovativeness and abili-ties to penetrate foreign markets and this has exhausted them en-tirely. Nevertheless, businessmen

have clearly ranked the priorities needed to exit from the crisis. They have been stating them for a long time, yet the authorities do not appear to have been listening. The question on decisions (ac-cording to priorities) to be made in 2012 in order to exit from the crisis was answered by most companies unanimously, stating that a package of measures needs to be implemented. Nevertheless, reduced taxation and workforce contributions appeared to be the crucial priority, followed by an improvement in illiquidity, the attraction of foreign investment and the encouragement of invest-ment, a significant reduction in state administration, a decision on determining the duration of legal proceedings in bankruptcy and cheaper lending to entrepre-neurs. If the rest of the world suc-ceeds in exiting the crisis, it does not imply Croatia will also suc-ceed. Croatia needs to enter the EU, yet we are fully responsible for what we make of EU mem-bership. Croatia needs to rely on its own potential. In addition, economic policy needs to face reality and finally become aware of the fact that merely taking is not sustainable; a sustainable economy is imperative.

FOREWARD FROM THE EDITOR-IN-CHIEF

Where are we? Where are we heading? Instant decisions imperativeAccording to the survey conducted by Privredni vjesnik, businessmen expect fast, focused effective movement

Inactivity seriously harming the economy

SURVEY OF CROATIAN BUSINESSEXPECTATIONS 2012

VIEWS AND COMMENTARY FROM LEADING EXECUTIVES

2008 20092010 2011

2

This has been was a very com-plex business year in Croatia. The economy has operated under difficult conditions; investment has come to a halt, generating unemployment, decreasing pub-lic spending and living standards. Such a situation has led state and non-profit institutions into an un-favourable position, decreasing their income and infrastructural investment, which could enable the economy to make an overall profit and contribute to the state budget.

In terms of business, we proceed-ed very rationally; controlling non-productive expenditure and improving business transparency. We did not employ new workers unless required and in accord-ance with government decisions. I think that social and economic circumstances will be even more complex in 2012. We must face reality – not spending more than we have. We should invest in real projects according to EU rules, rationalise systems, regionalise water supply systems, complete projects for reducing losses in compliance with EU standards, complete the construction of anti-flood systems and conse-quently help agriculture to avoid suffering damage, which means we must link projects that offer multiple benefits and generate employment. These goals cannot be met in one year. I believe 2012

IMPRESSUM:

Privredni vjesnikKačićeva 910000 Zagreb+385 1 5600020uprava@privredni.hr

www.privredni-vjesnik.hr/subscription

FOR PUBLISHERNikola Baučić+385 1 4846661uprava@privredni.hr

EDITOR IN CHIEFDarko Buković+385 1 5600003bukovic@privredni.hr

EXECUTIVE EDITORSAndrea Marićmaric@privredni.hrVesna Antonićantonic@privredni.hr

IMC MANAGERDea Olup +385 1 5600028olup@privredni.hr

TRANSLATIONLučana Baneklucanab@gmail.comMirjana Cibulkamirjana.cibulka@gmail.com

INTERNATIONAL OPERATIONS Ray Fletcherfletcher@privredni.hr

Privredni vjesnikYear V No 0181

2011 was extremely arduous since the global economy has been undergoing the crisis and Croatia was not left out. The current finan-cial circumstances of attorneys are directly correlated with the cur-rent economic situation. Attorneys and many companies have seen a plethora of unsettled receivables. Different crisis amplitudes have been adversely affecting a consid-erable proportion of attorneys and law companies.

Next year may prove to be even more arduous. It is difficult to speculate on the ways attorneys will tackle the crisis. I do not believe we will witness a higher proportion of groupings of indi-vidual attorneys and law com-panies, as grouping implies an increase in expenditure, which is undesirable under current cir-cumstances. The Croatian Bar Association has faced unofficial announcements of the closure of several law companies. In addi-tion, law companies will cer-tainly reduce employee numbers. Businessmen, the general public and public administration will share the same fate. The current situation will compel the selec-tion of those most resilient and able to survive in the market.We believe we are the most sat-isfactorily prepared segment of the judiciary. The Croatian Bar Association became a member of the International Bar Association five days prior to international recognition of the Republic of Croatia. As a result, we do not expect significant changes fol-

lowing EU accession. There is a possibility that some foreign companies or banks in Croatia will engage attorneys with whom they co-operate in their own countries. Nevertheless, Croatia will traditionally remain a coun-try of individual attorney offices and law offices dealing with is-sues of little interest for attorneys within large European multina-tional law companies. The pur-chasing power of the general public will highly impact on the sustainability of this traditional profession.Currently, there are 4,200 attor-neys and they will face a difficult situation in the market. We be-lieve more jobs need to be cre-ated in the public administration, since there are many important issues to be addressed, requir-ing professional know-how. Such jobs have been neglected, they lack attractiveness and are under-paid. The state needs to intervene and assist in the employment of professional assets. Subsequent-ly, it will accelerate legal proce-dures, such as, for example, the issuing of construction permits, which would be highly appreci-ated by investors. The primary Croatian problem is public ad-ministration and the issue would be addressed in the most appro-priate way by adapting regula-tions and employment of profes-sionals, thus accelerating proce-dures of mutual interest.

LEO ANDREIS, PRESIDENT, CROATIAN BAR ASSOCIATION

Enhance the legal capacity of public administration

Businessmen, general public and attorneys will

share the same fate

2011 was an extremely suc-cessful year for Agrokor, irre-spective of a plethora of chal-lenges in the economic environ-ment in Croatia and throughout the region. For 2012 Agrokor consolidated sales revenue will see a growth rate around 10% over the previous year, which is a highly successful result consider-ing the current conditions of deep recession and a rather meagre growth of GDP in regional mar-kets, primarily as it implies ex-clusively organic growth and has not been a result of acquisitions, following three years of relative stagnation.More importantly, nearly all Agrokor companies (irrespective of their field of activity) have shown satisfactory resilience in providing market solutions dur-ing the crisis, whilst simultane-ously maintaining or even in-creasing internal effectiveness, achieving growth and profitabil-ity.All Agrokor portfolio activities, irrespective of minor differ-ences, have witnessed growth, indicating that, in addition to

being a result of investment during the previous period, it is primarily a result of deep insight into the market and use of our deep experience and pro-fessional know-how in all sec-tors of Agrokor activity, as well as the appropriate choices and successful strategic adaptation to market changes, particularly regarding consumer behaviour changes.

Positive trends in business activ-ity through 2011 have enhanced our courage and positive ap-proach regarding 2012 in our forecasts of average moves in the global market. We believe Agrokor companies have suc-ceeded in identifying how to react to the current moves and fulfil expectations through-

LJERKA PULJIĆ, SENIOR EXECUTIVE VICE-PRESIDENT, AGROKOR

Post-election optimism – oppo

In 2012 Agrokor anticipates growth

and continuation of satisfactory trends from

2011

JADRANKO HUSARIĆ, GENERAL DIRECTOR, HRVATSKE VODE

We should first organise ourse

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will be very important in terms of selecting strategic rules in all fields – from politics and econ-omy to finance. This will mean that the implementation of those

projects that will help us recover from the negative circumstances which are not present only in Croatia.A consensus must be reached regarding projects of state in-terest, which will be prepared according to EU standards and to enable EU funding. We must first organise ourselves and har-monise production chains in all areas. If we produce something,

then we have to sell it; we must promote at least similar criteria to production and trade and en-courage entrepreneurship to grab the perspective. It is also impor-tant to rationalise state apparatus. As with all other state non-profit organisations, Hrvatske vode has its own temporary finan-cial plan for the period between January and March 2012, which totals €50.25 million. Business expenditure equals the same amount. This funding also cov-ers insurance of the institution’s so called cold-regime, such as salaries for 790 workers, loan repayments, essential operations of regular activities and projects with the World Bank, as well as drafting projects and technical documentation for EU funds in the field of water supply, drain-age and protection against haz-ardous water damage.

out regional markets, and have made important and relatively ambitious growth plans, aware of extremely complex eco-nomic relationships in the re-gion and the Eurozone, whose consequences we have not been able to perceive thus far. Post-election optimism will certainly enhance change and an improve-ment of economic circumstances in Croatia, which is our principal market and, providing that the

new government succeeds in in-stantly making use of the most propitious moment for change, we can expect faster econom-ic recovery in the long term. Agrokor, as the largest regional company, will feel the impact of movements in other regional markets with anticipated growth rates higher than Croatia.Consequently, and particularly within our current situation, we believe that in 2012 Agrokor companies will see growth and a continuation of the satisfac-tory trends originated in 2011.

Varteks made significant positive moves in its operations, primarily regarding total revenue increase and exports during the first nine months, irrespective of the on-going deep economic crisis, general illiquidity and the negative trends in both local and regional markets. An increase in sales revenue and exports, as well as more satisfactory business re-

sults indicate Varteks has succeeded in m i t i g a t i n g the negative impact of the crisis on its o p e r a t i o n s through its

o w n

activities. Nevertheless, cri-sis management in the real sec-tor has witnessed a significant slowdown and is not keeping abreast of the necessary dynam-ics of economic recovery, con-sequently slowing the planned effects of business restructuring. In addition, reduced personal ex-penditure and general illiquidity still persist, particularly evident in business operations in the lo-cal market, adversely affecting overall company results, which are currently still negative, irre-spective of positive moves.Unfortunately, the crisis has been continuing for too long and, within the general situation, its end is yet uncertain. Due to stagnating economic growth in Europe, forecasts regarding any expected economic growth in the local market are not opti-mistic. There are indications of a new crisis, certainly resulting in a slowdown in export growth, a slump in industrial production and reduced employment, which will eventually result in a low-

ering of personal consumption. The textile industry would be severely affected within such circumstances, as during any crisis consumers significantly reduce their expenditure on clothing. The persisting crisis in the Eurozone implies a fall-off in foreign direct investment, as well as a decline in exports to EU member countries. Conse-quently, export oriented compa-nies would be adversely affected to a high degree, since trade with EU member countries is a para-mount promoter of exports and total economic growth through-out the region. An increase in energy prices, which unfortu-nately is expected in the event

of a deepening of the crisis, would be an additional blow to Croatian industry.The state needs to urgently adopt clear measures in fiscal and monetary policy, consolidate public finances and consumption and resort to a more significant level of local production. In ad-dition, proactivity is impera-tive for the enhancement of lo-cal production, at least for local market needs. Production sectors also need supportive measures regarding exports and employ-ment preservation and growth. Our plans embrace the stabilisa-tion of business operations and the completion of restructuring, as well as development projects in accordance with the Integral Business and Financial Restruc-turing Plan.

www.privredni.hrBusiness & Finance Weekly

ZORAN KOŠĆEC, BOARD PRESIDENT, VARTEKS

Economic crisis a serious threat to exporters

Reduced personal spending and higher illiquidity levels still persisting

ortunities for change

elves

We must face reality – not spending more than

we have

4

Our company saw the end of 2011 as the largest PVC, ALU and HPL decorative panel pro-ducer in Eastern Europe follow-ing nearly 20 years of business activity. We employ 86 staff, mostly based in our production headquarters in Vinkovci. Irrespective of satisfactory re-sults, business activity in 2011 faced numerous challenges. Our products are inextricably linked with the construction sector and hence we witnessed the full im-pact of the crisis in the local mar-ket. Nevertheless, we have never been late in our settlement of li-abilities towards employees or the state during 20 years of operation.Consequently, we, as producers, are entitled to be provided with state assistance, primarily in the form of reduced taxes and other burdens hindering our develop-ment. We do not believe we will have to tackle new obstacles fol-lowing Croatian EU accession, since our prod-ucts have been present in

E U markets

for a long period. In ad-

dition, we import the necessary mate-

rials from the EU and export

our final p r o d -

ucts a s

shown in our

sat isfac-tory results,

as two thirds of our turnover

is from exports.

Grad-export exports its products to 16 countries in Eastern and Western Europe. Currently our largest exports market is Slovenia and, in addition, our products tran-sit through her towards Austria and Germany. The Slovakian and Czech markets are also of extreme importance for us. We have been witnessing a continuous increase in sales in foreign markets result-ing in an increase in production.

Subsequently, in 2011 we pen-etrated the Norwegian and Swed-ish markets. Nevertheless, our advancement there is slow, due to long distances. Our production capacity implies a growth poten-tial of up to 50%. We are currently planning market expansion to Russia and the Benelux countries. Our vision is to retain the posi-tion of the largest decorative panel producer with production output exceeding 50,000 panels and a sales ratio between the local and foreign markets standing at 25:75 by 2014. Our primary goal in 2012 is to penetrate the German market, since we believe in its potential being particularly favourable for our production. In 2012 we are planning additional investment in production and machinery, as

the forthcoming production pro-grammes require state-of-the-art equipment in order to meet the market needs. In addition, we are anticipating investment in research and development regarding new materials which could be a sub-stitute for aluminium in case of a sudden increase in prices in the world market. Decorative panels, as our basic product, certainly re-quire cutting edge technology.

Privredni vjesnikYear V No 0181

2011 saw the crisis mature. We are currently aware of its di-mensions and its destructive po-tential, slowly pervading all areas of economic life. Comprehensive changes in the economy, society, education and public services are imperatives. Decisive changes, meaningful politics based on in-creasing work output as well as savings, slashed spending and fewer loans, more focus on self-sacrifice and solidarity, avoiding luxury and greed; more national consensus on priorities and oppor-tunities without further loss of so-cial cohesion are all of paramount importance in tackling the conse-quences of the crisis and its de-structive potential which we will face in the forthcoming future. Eu-roherc has retained its business po-sition, according to market share, creating profit and increasing asset

value. We succeeded in implementing our busi-ness plans in 2011. Nev-ertheless, during the same period last year we were not optimistic about growth and our stance that 2011 would be a sat-isfactory year if economic results keep abreast of those from the pre-vious year was revealed as true. We were not expecting growth, yet we used all our efforts not to face a slump. We succeeded, irrespective of hardships. Our expectations are always high, yet the future is uncertain. 2012 will certainly not be easy. Never-theless, we expect positive market changes at different growth rates. I believe the race will be difficult to survive for certain market play-

ers. Consequently, co-operation between our professional asso-ciation and the Croatian Insurance Bureau is crucial, as well as the drafting and adoption of a more satisfactory legislative framework regarding the comprehensive in-surance sector in Croatia. Croatia is about to face significant chal-lenges of EU accession, which in the insurance sector implies market expansion and primarily new competitive challenges in the local market. We plan to con-tinue the preparation of insurance companies for the new European supervisory framework (Solvency II), as well as the search for more effective instruments for the pro-tection of local portfolio which in foreign-owned companies in-creasingly gravitates towards par-ent companies, due to fronting. Consequently, we are expecting regulators and legislative authori-ties to provide higher quality in-struments in that area.In 2012 we plan to use our cor-porate potential more effectively, improve the quality of services and retain business stability. We are planning to retain and strengthen market share and re-tain the local market leader po-sition of our insurance company exclu-sively with o u r

own l o c a l c a p i t a l . In addition, we are mark-ing our 20th anni-versary of success-ful business activity in Croatia in 2012 and it consequently needs to be more successful than previous years.

DAMIR ZORIĆ, BOARD PRESIDENT, EUROHERC INSURANCE

Urgent need for economic changes

We expect positive market movements with

differing growth rates

MARIO ŠIMIĆ, DIRECTOR, GRAD-EXPORT VINKOVCI

Exports as a recipe for success

State assistance for producers unavoidable

5

GDP growth in 2011 was sig-nificantly lower than planned and overall economic indicators were also inferior than expected (industrial production slump, external debt, illiquidity, declin-ing proportion of working popu-lation), also due to the missed implementation of significant economic measures. In addition, a significant increase in new in-vestment was also missing, irre-spective of expectations and an-nouncements. The value of for-eign direct investment in Croatia has been significantly decreasing since 2008, reaching a seven year low during the first half year in

2011. Halting this trend is an ab-solute imperative. The Croatian Employers’ Association has been strongly promoting the need for structural reforms and the aboli-tion of administrative and legis-lative impediments on the econ-omy and the need for significant investment. In addition, the Eco-nomic and Social Council (GSV) has been indicating the urgent need for the implementation of amendments deeply aware of the desperate need for the implemen-tation of such measures, irrespec-tive of their being difficult and unpopular.A significant boost to the com-petitiveness of the Croatian economy is of utmost impor-tance in the wake of imminent EU accession. Consequently, the implementation of measures to abolish those brakes on econom-ic development and investment in stable companies in order to promote business activity devel-opment and the creation of new

jobs are imperative. The new government needs to enhance economic recovery, the develop-ment of entrepreneurship and an inflow of investment, as well as gradually ensuring a more sig-nificant growth in gross domes-tic product, whilst simultane-

ously lowering unemployment. In addition, it needs to adopt programmes with clearly meas-urable goals and time frames for implementation, particularly re-garding the illiquidity issue and the boost of production. High technology and knowledge-

based production are fundamen-tal in creating added value and strengthening social security. Currently, Pliva is the largest pharmaceutical company in Croatia, with ambitious business plans, operating with remark-able success, investing in new production facilities, with an-nual export rate growth of 30% and continuously increasing profitability. The value of Pliva investment in Savski Marof is over $100 million and it is the largest Croatian greenfield in-vestment in production in 2011. In addition, it created new jobs. In 2012 we are expecting further significant investment in pro-duction facilities and research and development, whilst simul-taneously implementing the planned and initiated investment projects. We anticipate a signifi-cant increase in human assets of around 10%, mostly high qual-ity professionals, in accordance with our plans.

Raiffeisen Building Soci-ety has not seen the anticipated growth during the fiscal year 2011, mainly due to the ardu-ous situation in the country, which has not succeeded in exit-ing the economic crisis thus far and is currently facing stagna-tion. Nevertheless, Raiffeisen Building Society has retained its

leading position and its capital position is currently the largest in Croatia, with its capital ad-equacy standing at 19.58%. We succeeded in making a break-through in 2011 and restor-ing credit trends to the level of 2008, irrespective of the deci-

sion of the Ministry of Finance from 2010 according to which building societies are to return government support for interim financing model over the last five years. Consequently, the credit trend has been restored during the first six months of 2011 and that is the significant issue of building society sys-tem sustainability. Raiffeisen Building Society subsequently recorded a remarkable 224.09% growth regarding the number of loans compared with the same period of 2010. A similar trend persisted in the second half of the year, which is encouraging and enhancing our hopes for a more successful 2012. Aus-terity measures and economic consolidation at state level are realistic expectations for 2012. Decreased demand in EU mem-ber country markets and particu-larly budget cuts in Italy, our

most important trading partner, might adversely affect Croatian export growth in 2012. The opti-mum solution for Croatia would be the inflow of capital invest-ment triggered by optimism re-garding EU accession, as well as direct investment and financing from European funds. I believe we will not witness a signifi-cant decrease in unemployment, particularly due to the expected fiscal cuts and public sector re-structuring. A reduction of the tax burden and radical adminis-trative changes are imperative. The role of administration is essential for both local and for-eign investors, yet currently it is a controversial issue.A deeper understanding of, and identification of the concept of building societies as a separate system with specific features, which needs to be used at least as a part of a comprehensive

solution for exiting the cri-sis and to invigorate the ailing real estate market is imperative amongst both regulators and the Ministry of Finance.Government support provided for housing savings via govern-ments in Western Europe con-siderably exceeds the support provided in Croatia, which in-dicates the ignorance of author-ised individuals regarding the measures which would enhance general public consumption, subsequently benefiting society as a whole.

www.privredni.hrBusiness & Finance Weekly

HANS CHRISTIAN VALLANT, BOARD PRESIDENT, RAIFFEISEN BUILDING SOCIETY

Administration need not be a controversial issue

Austerity measures and economic consolidation at state level in 2012

MATKO BOLANČA, BOARD PRESIDENT, PLIVA

Abolishment of all impediments hindering development an imperative

High technology and knowledge-based production crucial in creating added value and strengthening social security

6 Privredni vjesnikYear V No 0181

2011 saw a significant impact of the economic crisis and reces-sion. The confectionery industry has been severely affected and that is significant as the indus-try is an active exporter, with exports considerably exceeding imports. Consequently, Croatian the industry saw a production decrease of 6.7% during the first nine months. In addition, local sales were 5.6% down, whilst ex-port quantities plummeted 14% and saw a 6% decrease in value. Simultaneously, the value of im-ports of confectionery products, already accounting for two thirds of the market, was up 7.3%. Sub-sequently, the current business results, liquidity and the stability of business operations have been seriously jeopardised. In addition, they were adversely affected by an increase in the price of the main

raw materials last year. Against such adverse circumstances, we focused Kraš business activities on maintaining production and sales continuity, particularly with respect to financial stability and current liquidity. Ample product portfolio has been particularly

realigned to market trends and consumer needs through the de-velopment of our own brands and top quality. Nevertheless, the ab-sence of real support for export-ers and a ‘negatively motivating currency policy’ has hindered ex-port growth and a more substan-tial use of local industry capacity.

Employers in this industry, who directly and indirectly employ over 10,000 staff, believe they are entitled to expect positive changes regarding export support and incentives, as well as an im-provement in economic policy in 2012 and subsequent years. Fol-lowing Croatian EU accession, the local confectionery industry will be subject to customs duties on exports to CEFTA member countries, as well as the complete abolition of tariff rates on imports

from EU countries. This will ad-ditionally increase imports and reduce the room for manoeuvring of local confectionery products. We are expecting the new gov-ernment to adopt a new economic policy with particular focus on in-creasing the export of goods and services. Nevertheless, we do not expect exceptional amendments and improvements in business conditions. We are hoping for bal-anced monetary and fiscal policy changes, with direct support for the processing industry and final exporters. In addition, tax unbur-dening of salaries and a reduction of the substantial parafiscal bur-den will boost the competitive-ness of local products which will create a real framework for faster export growth. Our main goal is exports to exceed 50% of total revenue.

DAMIR BULIĆ, BOARD PRESIDENT, KRAŠ

Exports exceeding 50% of total revenue our main goal

We are hoping for balanced monetary and

fiscal policy amendments

2011 did not see the expected economic recovery, which re-sulted in a stagnation of demand for our products. In addition, the last quarter witnessed an increase in illiquidity. One of the adverse effects on PIP was certainly bogus local honey and the inactivity of

authorised state institutions in ad-dressing this issue, consequently adversely affecting the honey market. Nevertheless, PIP man-aged to retain its market position and 2011 will see approximately similar results to 2010, with a slight increase in sales volume. The first half of 2012 will certain-ly be challenging and hence PIP will approach market conditions with increased caution. We are

hoping for a slight recovery in the second half, resulting in increased optimism. We do not expect much support from the state and con-sequently every move positively impacting on entrepreneurs will be a pleasant surprise. In case the state engaged more seriously in regulating the market for honey products regarding consumer pro-tection and apiarian raw materials market regarding the grey econ-omy, long term benefits would certainly be felt by all the par-ticipants. The issue of bogus local honey is vital for the bee product market. Addressing this issue is the primary priority that state in-stitutions could do for us during 2012. No other measure would have such a positive impact.

DOMAGOJ BRAČIĆ, DIRECTOR, PIP

Address the issue of bogus local honey

The wine sector has seen an ar-duous year and has been severely affected by the consequences of the crisis. Nevertheless, in our company we are pleased with results. I expect the government to participate in the creation of a Croatian wine production devel-opment strategy, as well as in the process of promoting Croatia as a wine country. A wine producer will always engage in wine production, irrespective of obstacles and diffi-culties and that is the crucial dif-ference between a wine maker and a trader. A trader is merely inter-ested in the margin and any other

encouragement is pointless. Wine producers’ primary objective needs to be advancement and not government support as has recent-ly been revealed. Nevertheless, the current approach of grouping wine

producers, irrespective of size, has been ineffective. Grouping is ap-propriate regarding profit and it has been successful in the case of traders and chain stores. Wine producers need to group to-gether to improve the collection of receivables, to prevent the occur-rence of situations where one wine producer stops wine delivery to a distributor or a buyer and another producer takes his place who will, in turn, be deceived by the same buyer. The state could provide assistance and protection in such situations. Currently, there is no regulation and anyone can con-tinue investing without having set-tled their liabilities.

MATO VIOLIĆ-MATUŠKO, OWNER-DIRECTOR, MATUŠKO WINES

Wine producers have been branded, now it is the turn of government

Trade lobby support is to be avoided

We do not expect much support from the state

and consequently every move positively impacting

on entrepreneurship will be a pleasant surprise

www.privredni.hrBusiness & Finance Weekly 7

We invested maximum ef-fort in sustainable operation of Croatian Railways Holding companies during 2011. We im-plemented several important projects, putting into opera-tion two new trains, purchased 100 new freight cars and mod-ernised the existing train fleet. In addition, we intensified the revitalisation of industrial rail tracks and construction of logis-tics centres in Slavonski Brod and Ploče. Many strategic agree-ments were signed, guaranteeing us long-term co-operation with key rail users and a further in-crease in the quantity of goods. Track overhauls are underway in many railway sections and also the reconstruction of the railway bridge Sava-Jakuševac has been completed, reducing freight car traffic in the centre of Zagreb. In

addition, the capital overhaul on the section Križevci-Koprivnica is ahead of the planned dead-line. Investment in 2011 stood at around €0.14 billion. We antici-pate witnessing a turning-point in economic policy, a real upswing in investment and the implemen-tation of all planned projects. In-vestment in infrastructure will be the priority for the railway sec-tor in 2012. We plan the launch of projects worth around €0.27 billion in train fleet modernisa-

tion and infrastructure during the forthcoming two years.We expect investment in rail-ways will be one of the priorities for the state. In addition, we plan to obtain considerable financial resources from EU funds for the renovation and construction of railways. We possess deep expe-rience and have engaged many professionals for quality prepara-tion of the planned projects.Implementation of many projects will enhance employment and have a positive impact on local industry. Consequently, we antic-ipate more satisfactory financial results. The state needs to give priority to investment in industry, railways, agriculture and tourism and other sectors achieving added value and promoting job creation. A liquidity increase is imperative

throughout the Croatian econo-my, as well as unburdening the economy and protecting natural resources. In 2012 we expect to implement the restructuring plan for all Croatian Railways Holding com-panies, enhancing more effective

operation and use of resources. Investment and more successful business activities are prerequi-sites for the preparation for the liberalisation of railway markets in 2013. We are planning a 4% revenue increase from passenger and freight transport as our final result in 2012.

ZLATKO ROGOŽAR, BOARD PRESIDENT, CROATIAN RAILWAYS (HŽ) HOLDING

Investment in railways as one of the priorities

Liquidity increase of vital importance for Croatian economy

The 2011 nautical charter sea-son was for the most part similar to 2010 and we have succeeded in continuing the upward trends of the past several years. We adopted a well regarded business model and succeeded in retaining our regular visitors who make up

some 75% of our visitors, whilst simultaneously attracting a pro-portion of new visitors. Never-theless, we have been burdened by intermediary (agency) com-mission. This is about 20%, often higher, whilst in other countries it stands at 10% at the most. This issue will be addressed following EU accession. The state needs to introduce licensing of charter companies in order to strengthen legislation, enabling normal com-panies to plan their business and prevent undermining from the grey economy. Licences can be is-sued in the similar way as for fish-

ing boats, taxis or as in the well-known case of scampi fishermen. Concessions need to be marked with a sufficient number of bu-oys. These are an environmentally friendly mooring method, happily accepted by visitors, as they en-able safety and privacy. These issues need to be addressed by the local community, whilst the state needs to regulate a uni-fied pricing system to the benefit of the community, state and lo-cal community, as well as serious charter companies. A monitoring system would enable satisfactory functioning.In addition, charter companies are faced with the problem of insuffi-cient marina berths and expensive daily mooring fees for vessels in transit, particularly in the islands.

ARMANO ZEKAN, DIRECTOR, BAV-ADRIA YACHTING

Licensing charter companies

2011 revealed the forecasts that local markets would become too ‘tight’ for local wine produc-ers have become reality. The lo-cal market is saturated with dif-ferent wines creating problems particularly for top quality wines, as the market share of affordable and simple wines in restaurants has soared.Nevertheless, the commitment of wine producers and the Croatian Chamber of Economy encourages optimism for foreign market pen-etration, as well as the beginning of branding of Croatia as a wine country. We are lagging behind, yet I believe there is currently still ample room for Croatia in the Far East, the former Soviet Union and Scandinavia.We expect the state to assist us in achieving our goal of branding Croatia as a wine country as has been agreed. Croatian top qual-ity wines need to pave the way for medium quality wines. There is ample potential worldwide, yet committed work is imperative in order to use it effectively. I believe we will see the crisis bottoming-

out in 2012 and that we cannot expect significant moves forward. Nevertheless, I am more opti-mistic about 2013, when I expect considerable advancement. In my company, we are planning to con-tinue with planting new vineyards for at least two more years, to in-crease the quality of our products, whilst simultaneously launching several new products.

VLADO KRAUTHAKER, OWNER, KRAUTHAKER VINEYARDS AND WINERY

Crisis to bottom-out in 2012

The commitment of wine producers and Croatian Chamber of Economy encourages optimism for foreign market penetration

Insufficient marina berths and highly expensive

daily mooring fees

8 Privredni vjesnikYear V No 0181

The recession took its toll on Borovo. 2010 was worse than the previous year. A recovery in 2011 slowed since it depended on the number of employees, the purchasing power of our con-sumers, increase in average sal-ary and other components. Since

social circumstances are aggra-vating, it is quite normal to ex-pect changes in economic policy during the forthcoming 2012. In other words, there are too many stores that do not generate value, but rather spend it. Therefore, it would be normal to expect turn-ing towards production in order to create a base for trade. In this sense, we anticipate state meas-ures that will boost and simplify investment in production. Until now, subsidies were the same for trade and production, which was not well-considered. Otherwise, we could all become traders, sell products and lead comfortable lives. Therefore, prosperity is impossible without creating, that is, without production. This does mean not any type of produc-tion, but rather a more sophis-ticated one – a computer rather than a chimney. We cannot export ‘trade’ to the EU, but we can ex-port our products. Opportunities are greater, but so is competition. When we join, we expect obsta-cles to be removed and anticipate higher foreign investment which would gradually increase employ-ment and purchasing power. Exports will intensify when new

production yields results and the EU achieves financial stability, but this will not happen soon and it will not be easy. The rich spent more than they created, and this cannot change in a short period of time. Concerning Croatia and its eventual measures, we must first clear our debts and resolve the il-liquidity problem in the economy. Spending must not exceed our means and this burden should be equally distributed between la-bour and capital, without putting off potential investors. The limit of social justice is not a moral one, but rather economic, that is, how may investors can be at-tracted and how much can be done. The neighbouring Medi-terranean countries were also hit by the crisis as they spent more than they produced. Social cir-cumstances can put off investors for a short period of time, but we lag behind in the long term. De-spite war and economic problems, today Borovo is a respectable footwear company that produces and sells leather and rubber prod-ucts as well as belts and various rubber-pressed goods. We do not plan any significant investment in production in 2012. During the past several years we had invested considerably in the production of leather footwear and v-belts. Dur-ing the forthcoming period we in-tend to invest in outlets and pos-

sibly open new ones in Croatia and Slovenia.

MIRKO ĆAVARA, CEO, BOROVO, VUKOVAR

Decrease trade – increase production

We expect state measures that will boost and simplify investment

in production

The economy faced important challenges in 2011 as a conse-quence of the global economic crisis that is threatening a new recession. In such complex con-ditions, the company Podzemno skladište plina (Underground Gas Storage) achieved excellent busi-ness results that will exceed those of 2010. In 2011, we proved that state-owned companies can oper-ate successfully, achieve profit and be liquid.

It is true that the economic recov-ery requires a series of system-atic structural changes that should simplify business in Croatia and attract additional investment. New investors will create more jobs and boost the economy. The mis-sion of the Croatian government, as well as regional and local ad-

ministrations is to adopt laws and regulations that will enable such investment to be implemented with as few administrative and bureaucratic obstacles as possible. Whether EU accession will help the Croatian economy to recover and to what extent, mainly de-pends on us as well as the stabi-lisation of economic affairs in the Union. According to our develop-ment plans, next year we will en-ter another phase of upgrading of storage facilities at Okoli, which will additional increase storage ca-pacity and safety of the gas storage system. The construction will be one of the most important projects in the field of Croatian energy.

DRAGICA KRPAN, DIRECTOR, PODZEMNO SKLADIŠTE PLINA

State companies can operate successfully

A series of thorough structural changes must

be made

This business year is no differ-ent from 2009 and 2010. There is a feeling of a slight demand for services from foreign markets, but the local market is experiencing stagnation. For now, I do not see any hints of these measures, not even in pre-election promises. I believe tax reform might increase employment and exports if invest-ment is promoted. I am convinced that 30% of graphic companies will close. In order to exit the cri-sis, the government must immedi-ately adopt measures that would enable greater investment into the

economy by excluding VAT on all investment, promote employment by relieving tax obligations on sal-aries of newly employed workers (for at least two years). Our plan for 2012 is in accord-ance with an anticipated recovery. We are planning an investment of

€1.1 million intended for mod-ernising the capacity in the press and supply of a more modern and better machine. We expect fur-ther funding from the Ministry of Economy intended for production development and foreign market processing. We will participate at foreign fairs and find new cus-tomers, as well as cut business ex-penditure.

VLADIMIR HALIĆ, BOARD PRESIDENT, ZRINSKI

Crisis or recovery - depends on the government

We will reduce business expenditure and expect the state to do similarly

www.privredni.hrBusiness & Finance Weekly 9

We achieved excellent results in 2011 despite the onerous cir-cumstances. However, one suc-cessful year will not solve the fact we are not sufficiently com-petitive and that we lack invest-ment. Regarding 2012, it will be a success if we manage to achieve the results of 2011 considering the circumstances. In relation to the same period of 2010, we did not register any increase in book-ing. All in all, we will have a clearer idea in January. However, I believe 2012 will exceed 2009 and 2010, but it will be difficult to reach the level of the tourism season this year.We have been warning for a long time that Croatian tourism is stagnating. Hotels are oper-ating under extremely difficult conditions since economic and legal frameworks are vague. We must remind everyone that the share of hotels in Croatia is only 12.5%, and warn about the disadvantages of national tour-ism and the fact there is no new investment in the tourism sector. Our tourism requires internation-alisation and foreign investment since the present entrepreneurial

capacity has mostly been spent. In the future the focus should be turned towards the development of additional rec-reational in-frastructure and servic-es of health tourism as well as attract-ing the elderly Eu-ropean population to visit Croatia. Negative con-sequences of fragmented tourism management should be removed, and the relationship between the rich Adriatic and the poorer con-tinent should be balanced with clusters and regionalisation. In addition to reducing VAT, the

strategy and implementation of measures that will arise must be the next crucial moves. Com-pared with other Mediterranean countries, Croatia has the highest VAT rate in tourism. In relation to the EU, of 28 countries, Croatia ranks 20 in terms of the accom-modation rate and 25 in terms of the hospitality rate. There is no need to mention we are followed mostly by countries that are un-derdeveloped in terms of tour-ism. Croatian EU accession will present new opportunities and challenges with which we will have to learn how to cope. Sector competitiveness is of paramount importance in this context, and VAT is the first step we should take. Mediterranean countries, particularly those whose econo-my depends on tourism (we are one of the leaders in this group) have recognised this and react-ed accordingly. We a r e left only with the hope we are mature, seri-ous and pre-

pared enough to learn from the experience of others,

especially if those lessons

are positive. Experiences and examples of decreasing VAT re-sulted in increased spending, em-ployment and investment as well as a decreased grey economy. The model is simple, and it depends on us how we will use it.

A difficult year is behind us when our sad local economic policy imploded with the global economic crisis. Luckily, we are a small-sized company with a quality computer system so were able to react rapidly to the market situation, which is considered to-day to be a measure of success.To be honest, we do not have great expectations for the forth-coming year. We need to hit rock bottom in order to resurface - this is what we are constantly repeating. However, it must be clear we need to organise the public financing system and

turn towards production if we want to stabilise the market and reduce debts. The ‘dictatorship of trade’ must be put to an end. We will see in time exactly what measures the state can apply. Tax policy should be in accordance with the standard, since what is the purpose of taxes if no one can pay them, and as a result the state is cheated whenever pos-sible. The EU is positive. How-ever, if we do not organise the state ourselves, our position will be marginalised, to say the least. Concerning the state and its deci-sions, I think everything is clear. The new government must be brave enough to rely on produc-tion, decrease public spending and make unpopular, but neces-sary decisions, independently of potential strikes and possible de-feat in future elections. To put it succinctly - the state must cease to be the biggest employer and become a good entrepreneur.

Since we are a company that is completely oriented towards exports, it is obvious that the events and turbulence on the Croatian market did not overly affect us. Moreover, the market we operate in (machines for pro-ducing car tyres) experienced a boom that we had known about since 2010 and for which we had been well prepared. This is why our company income shot up 80% this year, together with other indicators. The number of delivered products (presses for tyre vulcanisation) will be 80% higher; the number of employees will be 50% higher and work in progress will be almost 100% higher. HF Belišće is the glo-bal leader in the production of presses for the vulcanisation of car tyres. Our rapid growth dur-ing 2011 will continue in 2012. We will also continue to em-ploy more workers and our in-vestment has been at its highest

level since 1998. In 2012 it will be around €6.75 million. Natu-rally, this means exports will increase. We are more worried about the situation in the Euro-zone that might lead to another crisis. Harburg-Freudenberger Belišće is well-prepared for EU accession. Since we export most of our products to EU countries, we expect easier transport of goods between Croatia and the EU. T Moreover, we are cur-rently implementing projects for the production of other types of machines that precede presses in the production process.

IVANA VUKELIĆ, DIRECTOR, HANGAR 7

The closing of the economic Pandora’s box

ZORAN URANJEK, BOARD MEMBER, HARBURG-FREUDENBERGER

Rapid growth

KRISTIAN ŠUSTAR, PRESIDENT, ASSOCIATION OF EMPLOYERS IN CROATIAN HOSPITALITY

Reduce VAT to raise level of tourism competitiveness

Tourism requires internationalisation and foreign investment

10

The Croatian textile sector, as an extremely low-accumulative activity, has had little particu-lar success during the past 20 years. Similar can be said for 2011. For the past year or two we have been labelled as a certain kind of ‘phoenix’ of the textile industry in Osijek and Slavonia since we constantly invested in our technology. However, we needed to take a break this year. The previous business year was mostly a year of trying to sur-vive. It was a year that will be remembered for fighting to sur-vive in a market with an increas-

ing number of uncollected debts, a decrease in public spending and general investment projects.It seems that 2012 will be a year of stagnation. This will be especially felt during the first six months. At the same time we anticipate this will be a pe-riod when the problems that have been accumulating for years will finally change for the better. To be honest, I expect the weaken-ing production will halt through decreasing reduced labour costs, especially in the textile industry that cannot be taxed in the same way as IT or other activities. Fur-thermore, I expect the state to finally implement stricter meas-ures on the import of low-quality textile products that have literally flooded the Croatian market dur-ing the past several years. Lastly, I anticipate what we have been experiencing for the past couple of years – absolute transparency

in public procurement. More pre-cisely, I expect Tekstil LIO to sell its products (pillows, duvets and linen) to Croatian hospitals and nursing homes. Furthermore, I would like us to be able to par-ticipate equally, in terms of qual-ity and price, in the construction of roads, forest paths or canals with our technical textiles, such as geotextile LIO filter plastica. Moreover, with the goal of rais-ing product quality as well as total business, Tekstil LIO certi-fied its management quality sys-tem in compliance with the ISO 9001:2008 standard, and we are also the owners of the Croatian Quality label. If obstacles are to be removed and if public pro-curement becomes more trans-parent, then investment activity and employment would pick up, not only in LIO Tekstil, but in the entire Croatian economy. How-ever, we will continue with our exporting activities. At the be-ginning of 2012, we will exhibit our products at the international fair Heimtextil in Frankfurt as we have been doing every year in co-operation with the CCE. This fair as well as other interna-tional fairs will help us maintain and gradually increase the level of present exports that amounts to 35% of total production.

Privredni vjesnikYear V No 0181

This had been the fourth cri-sis year of decreasing production activity. This especially refers to the construction sector that is suffering the most severe con-sequences since the beginning of the crisis. The cement indus-try in Croatia decreased exports by almost 75% during the past several years, whereas imports almost doubled over the same period. According to data pro-vided by Croatia Cement, local consumption fell by over 40%. Unfortunately, there are still no signs of the recovery in the sec-tor. The economy can be boosted only by new investment which is why serious investors need to be retained and new ones attracted.

I do not anticipate any drastic changes during the forthcoming years since it takes time for any reform to show its first results. It is imperative to enable invest-ment in infrastructural devel-opment and construction in the energy sector since such types of projects support development in all economic sectors. Employment can increase only when economic activity inten-sifies and when the present re-sources are used; and we know there are a large number of com-panies that underuse their hu-

man resources. The state needs to create the conditions for pro-moting its industry and enable it to be competitive. This should not be done by special subsidies or market regulation, but with a quality legal framework and shortening of the procedures re-quired for industries to adjust to the market. Unfortunately, the economic outlook is increasingly negative for some of our biggest trading partners, such as Italy and Hungary as well as EU coun-tries in general and consequently for Croatia. When we study the statistics of issued construction licenses, we notice that the situ-ation in the sector is still going through a negative trend. Conse-quently, our plans for 2012 will not be ambitious, but they will be balanced with the movements of the local and global economy. Regardless of the fact there are still no signs of an end to the crisis end, we plan to invest in the facilities for alternative fuels which we believe are the key to our sustainability. Not only will the price of fuel be lower, but this will also reduce our factory emissions, raising the quality of life in the local community. The second important investment concerns connecting the present drainage systems in our facto-ries to the Eko-Kaštel Bay sys-tem. This project is worth over €0.5 million. CEMEX is a global company that is present in over 50 countries around the world and is one of the leaders in the production of construction mate-rial. In addition to investment in our product line and quality, we will continue to invest in human resources and the modernisation of production capacities in order

to increase competi-tiveness.

TRPIMIR RENIĆ, BOARD PRESIDENT, CEMEX-A CROATIA

I do not anticipate any drastic changes

Employment can rise only if economic activity

intensifies

I anticipate weakening production to halt

through reducing labour costs

ZLATKO KOZINA, DIRECTOR, TEKSTIL LIO

2012 – a year of stagnation

www.privredni.hrBusiness & Finance Weekly 11

The trends in 2011 are best described as disappointing since we all hoped for a more rapid recovery in the Eurozone. Furthermore, even though I have been in Croatia for only a few months, I have noticed the Croatian economy is recovering too slowly and insufficiently. The situation could deteriorate even further in the second half

of the year if we observe global financial markets. These distur-bances represent a huge obsta-cle for future economic recov-ery of both the Eurozone and Croatia, and another recession is a probability. Moreover, the activities of the global banking sector during 2011 suggest the start of a new and completely different period for the banking sector. Regarding Croatia, I expect the economy the face the fact ac-tivity will continue to slow in

2012. Whether GDP grows or not, depends on the outcome of the situation in the Eurozone. Financial markets and investors have lost trust in E u r o p e a n c o u n t r i e s and this will force Croatia to implement r e f o r m s and budget cuts in a short peri-od of time, otherwise the credit rating might become question-able. The new government is faced with the difficult task of securing economic stability in high-risk condi-tions. If we look at the bank-ing sector, being a banker myself, I can say we are ap-proaching a difficult period. This year’s growth of nett in-terest income and profit might be temporary. In addition to the growing expense of for-eign financing sources for

banks, the cost of local deposits will also rise and cause higher in-terest rates. Under current condi-

tions banks will not be able to shift the

burden of their ex-

pend-i t u r e

to clients, which is

why next year the focus

will turn to cut-ting expenses and

increasing efficien-cy. Considering it

is still possible to anticipate a

low demand for lending, c o m p e t i -tive pres-sure in the

C r o a t i a n

banking sector will intensify. This will bring consolidation, especially with small-sized

banks. In addition to higher busi-ness expenses, bank profitability will continue to be undermined by growing reserves due to the deteriorating quality of the credit portfolio and collateral value. The strategic goal of Societe Generale will be to achieve long-term strategic development through our universal banking model. In line with the market trends, the SG Group has al-ready implemented a series of adjustments in order to protect itself from any new disturbanc-es. Risk assets have been de-creased, capitalisation increased and the Group’s financing struc-ture improved. SG Splitska banka will follow a similar path next year.

We are satisfied with the re-sults and our position on the insurance market (third in the market of non-life insurance). Our stable business indicators confirm this, primarily through wise management and conserva-tive policy. As expected, the year has not been easy. The crisis reached its peak, and we anticipate a positive outcome within realis-tic terms during the forthcom-ing year. Illiquidity and a poor economic situation affected the market. However, if we com-pare insurance with other activi-ties, it is evident the market is in a slow decline. We expect a lot from 2012. Notwithstanding, who knows for sure what will happen? Firstly, we wish to real-

ise our business plans. There are many aspects on the market and in the entire economy that must be organised, and maybe this is the time to do it. The insurance sector is already in the process of preparing for EU accession which will certainly bring new challenges for us. This will in-clude new markets and competi-tion in Croatia. We expected the competent legal bodies to play a

more active role, and their ulti-mate goal should be to achieve market stability and set trans-parent rules. Regarding Jadransko osiguran-je, our strategy remains com-pletely clear: operating in line with the rules of the profession,

maximum orientation towards the insured, including high qual-ity level and a well dispersed of-fice network, all in the interest of the insured. The plan of Jadran-sko osiguranje for 2012 will be

set on the basis of results from 2011, considering the situa-tion, movements of the Croatian economy and insurance market. We believe the situation will take a positive turn. We will use our know-how to develop new products and keep up with the latest trends in both European and global insurance markets. We will continue to expand our quality range according to mar-ket needs. We plan to perfect our system of online insurance sales as well as new services, keeping up with the modern trends and life-style. Furthermore, we will try to be more accessible to our clients by opening new offices, and we will also be active in the community within which we op-erate.

ANDRE-MARC PRUDENT, BOARD PRESIDENT, SOCIETE GENERALE SPLITSKA BANKA

State credit rating may become questionable

I expect the government to face the fact activity will continue to slow

GORAN JURIŠIĆ, BOARD PRESIDENT, JADRANSKO OSIGURANJE

EU accession will bring new challenges

We anticipate a positive outcome within realistic terms

12

Generally speaking, the past tourism season was successful. Uniline increased its income by 25% this year. Our gross turno-ver totalled €26.8 million and we also increased the number of employees by 30% over 2010.However, all indicators are point-ing to a new European recession and this will not benefit us. Fur-thermore, the Eurozone crisis will also affect Germany. If tourism grows by 5% in 2012, this would certainly be to our advantage and

would achieve this year’s results at the least. However, it is best to wait and see how the situa-tion at the geopolitical level will develop in order to have a more concrete outlook. Regarding EU accession, it must be pointed out that we will have certain benefits. It is familiar to all that tourism is one of Croatia’s key sectors and it is vital we implement all meas-ures in order to have a successful season. I expect the new govern-ment to recognise the importance of tourism agencies’ and to level VAT with the current rate of ac-commodation services. This is a vital detail that would boost tourism since we are heading for a difficult season that should be exploited to its maximum. How-ever, this will not be possible if adequate measures are not imple-mented.

Privredni vjesnikYear V No 0181

Changes in business trends were the most important at-tributes of 2011. We experienced growth in travel and this year the number of passengers will be a record in the history of the company. During the first nine months, our financial results were 64% better over 2010, and we believe the final business re-sult will be at the level of our an-ticipations. We achieved all this in the face of significant competi-tion and a price rise of 36% for jet fuel. We drastically cut expendi-ture, increased work productivity by 17% as well as operational performance and accuracy of flying operations. Furthermore, we rationalised the management structure and restructured busi-ness functions and processes. One of our most important plans is to continue with our rehabilita-tion plan, which is a precondition for company restructuring and harmonisation with EU regula-tions in the field of civil aviation

as well as stable business. According

to the five-year de-velopment study of the

c o m -

pany, we plan to finish 2012 with a ‘positive zero’ and generate profit in 2013. For that period, we anticipate market potential to grow between 25% and 30% as a result of Croatian EU ac-cession. Despite the outlook from economic experts regarding stagnation, our business expecta-tions for 2012 comply with the estimates of international airline organisations according to which the average growth rate will range between 4.5% and 5.5%.

Concerning the value chain of civil aviation, it is more impor-tant to precisely define owners in the sense of entrepreneurs. This system, where the major players are Croatia Airlines, airports and flight control, has created con-siderable profit, contributing to the development of the Croatian economy and Croatia’s image as a desirable tourist destination. However, airline companies are losers in this system, while others generate profit even though they are monopolies. Despite the fact we have the largest share of the increased number of passengers and total income of airports as well as flight control, and in spite of internal measures of business rationalisation, our development potential is jeopardised. Forced to use monopolistic services of the same economic operators, we be-lieve it is necessary to harmonise

relationships inside this cluster and create more realistic market conditions. We will continue to

develop the model of a network transporter, in conjunction with Star Alliance, the largest global airline association. With our ex-isting fleet of 13 planes, we will continue to strengthen our po-sition as the regional leader in South-East Europe in terms of the number of transported passengers and total income.

SREĆKO ŠIMUNOVIĆ, CEO, CROATIA AIRLINES

Despite predicted stagnation we anticipate growth

Owners in the sense of entrepreneurs should be

more precisely defined

The devastation of the fruit and vegetable processing and canning sector, that has lasted for many years, peaked in 2010. In 2011, Eurovoće took over Nova Đakovčanka and Marinada in order to concentrate production modernisation, specialisation and increasing productivity and competition. This resulted in a record high level of production and an increase of total income of 80% over 2010. However, an-other consequence was liquidity issues, especially in an industry such as ours where the level of turnover is low. It is not realistic to expect the government to make big changes or solve the problems that have been piling up for more than a decade. Our sector must first in-crease the level of competitive-ness; that is, raise production lev-els in terms of quantity and qual-ity. Pre-accession funds represent the last chance to catch the train

of global competition. If govern-ment institutions do not step in, they will perish in the near future.I believe the new govern-ment will not have the required strength to make substantial cuts in budget expenditure. There-fore, we should focus on increas-ing our income. Illiquidity must be solved and investment, which requires fresh money, must be encouraged. However, each kuna must be spent carefully. Conse-quently, negative inflation would be then replaced with benefits which will attract investment in the development of GDP.

ŽELJKO JURKIN, CEO, EUROVOĆE GROUP

Each kuna must be carefully spent

BORIS ŽGOMBA, CEO, UNILINE TOURISM COMPANY

From implementing measures towards a successful season