A recent report by the European Commission says that Croatia has the worst index of ab-sorption of EU funds amongst all EU states. Can and will this score change?

Room for improvement

Since 1 July 2013, when Croatia joined the European Union, the country has had the op-portunity to finance certain projects through EU funds or to use EU-backed financing. Ac-cording to available data (April 2016), Croatia has so far used about 65 % of funds avail-able for 2007–2013, although this number may be slightly higher if ongoing projects are completed in 2016. According to the European Commission, this is a bad score, and needs to be improved. Certain developments, primarily in Croatia’s public sector, signal that improvement may be coming. The available EU funds (eg approx EUR 6.9bln from the EU Cohesion Fund for 2014–2020) are surely there and should be used.

Signs of improvement

The biggest current infrastructure project in Croatia – the building of the Pelješki bridge connecting southern Croatia with Dubrovnik as well as all access roads, with an estimated cost of EUR 525m – is co-financed from EU funds (approx EUR 330m).

There are also a number of ongoing road and railway infrastructure and environmental projects financed from the EU Cohesion Fund.

An investment boost was provided by the European Commission Investment Plan for Eu-rope (the Juncker Plan or the EU Infrastructure Investment Plan) from December 2014, which also had an impact on Croatia as an EU Member State. The Juncker Plan is expected to generate some EUR 20m of credit lines for Croatian entrepreneurs. In Croatia, the Juncker Plan is backed by the Croatian Bank for Reconstruction and Development (Hrvatska Banka za Obnovu i Razvoj). Priority is given to ecological projects, tourism projects, use of EU funds, innovations and new technologies, and development of infra-structure.

The European Investment Bank (“EIB”) is often referred to as the biggest financing provider in Croatia. In 2014 and 2015, EIB provided approximately EUR 1.6bln to finance projects in Croatia. The bank is currently financing almost all the big infrastructure projects in Croatia, such as the construction of the LNG terminal (a liquefied natural gas terminal with access pipelines), the expansion of Dubrovnik Airport, the new terminal at Zagreb Airport, the Svilaj Bridge, and the enlargement of the railway between Dugo Selo and Križevci.

Forecast

Croatian politicians are stressing the need for better use of EU funds. The government is saying that they are doing their best to speed up the completion of ongoing EU-backed public projects and the preparation of potential public projects to be financed from EU funds. The private sector can use the available funds and financing. All this sounds good, but in practice it is not that easy.

Big infrastructure projects such as roads and railways tend to become complicated when you start dealing with Croatia’s “usual suspects” list of problems, such as unresolved ownership issues (the remains of state-owned ownership are still present, part of the Land Register is outdated, etc) and murky zoning situations (many zoning plans have yet to be harmonised, administrative procedures for passing amendments and new plans usually take too long, etc). Thus, in order for a potentially good project not to become a bad one, ie a non-existing project, effort and coordination are required by all parties, especially at the state, regional and local levels. Since the success of these projects is in everyone’s interest, it is reasonable to expect that the necessary coordination, cooperation and support will be provided. This is required for projects in both the public and pri-vate sectors. The private sector is lagging overall, however, and needs to start recognising the benefits and learning about the opportunities and funds at its disposal. Although few in number, there have been several successful private sector projects that can show the way forward.

Analysts believe that the much desired growth of Croatia’s economy can be achieved only through combined investment in the public and private sectors. EU funds and EU-backed financing exist specifically for this purpose. Both the public and the private sector need to change their mind-sets and take advantage of the opportunities at their disposal.