Croatia Country Brief
Introduction
The Republic of Croatia, or Republika Hrvatska, extends in a crescent from the plains of the Danube, Drava and Sava Rivers in the east to the Gulf of Venice in the west and then southward along the Adriatic Sea to the border of Montenegro. Croatia is bordered by Slovenia, Hungary, Serbia, Montenegro and Bosnia and Herzegovina (BiH). Its extensive Adriatic coastline on the south-west includes nearly 1,200 islands and islets.
Croatia's population in 2006 was 4.4 million. Almost 90 per cent are ethnic Croats. Serbs, the largest minority group, comprise 4.5 per cent of the population but this figure is widely thought to understate the real number, the likely explanation being that many Serbs chose not to declare their ethnicity.
Political Overview
System of government
The Republic of Croatia is a parliamentary democracy. The President of the Republic is the Head of State, directly elected for a five year term. The President is also Commander in Chief of the Armed Forces and participates in foreign and national security policy decision-making and in the appointment of the heads of the intelligence services. The current President, Mr Stipe Mesic, was re-elected on 16 January 2005 for another five year term.
The legislative branch of government is a unicameral assembly (the Hrvatski Sabor). The current parliament has 153 seats with 140 deputies elected from the political party’s lists in ten constituencies, five deputies elected by districts for Croatian citizens living abroad and eight deputies elected as representatives of national minorities. Members are directly elected by popular vote and serve four year terms.
Political developments
Parliamentary elections were held on 25 November 2007. After a tight race between the two main opponents HDZ (Croatian Democratic Union) and SDP (Social Democratic Party), the centre-right HDZ won the largest number of seats and its leader, Dr Ivo Sanader, who has been Prime Minister since 2003, was given a new mandate by the President of Croatia to form a government.
In the elections HDZ won 66 seats in parliament, SDP won 56 seats, the Croatian Peasants Party – Croatian Social Liberal Party coalition (HSS-HSLS) won 8 seats, the People’s Party (HNS) won 7 seats and representatives of national minorities won 8 seats. The Istrian Democratic Party (IDS) and the regional HDSSB won 3 seats each, while Croatian Party of Rights (HSP) and Croatian Pensioners’ Party (HSU) won 1 seat each.
The new Croatian government, headed by Prime Minister Sanader in his second consecutive term in office, was sworn in on 12 January 2008. The coalition government, comprising the HDZ, HSS, HSLS and the Independent Democratic Serb Party (SDSS), was supported in a parliamentary vote by the 82 deputies of the coalition, while 62 opposition deputies withheld their support.
European Union (EU) accession and North Atlantic Treaty Organisation (NATO) membership remain the top priorities of the Croatian government.EUaccession talks officially began on 3 October 2005 after the International Criminal Tribunal for the Former Yugoslavia (ICTY) Chief Prosecutor was satisfied with Croatia’s full cooperation. In 2005 the EU had postponed the commencement of accession talks due to Croatia’s failure to deliver ICTY-indicted General Ante Gotovina to the Hague Tribunal for prosecution. On 7 December 2005 Spanish police arrested Ante Gotovina in the Canary Islands and he is now in The Hague awaiting trial.
EU accession negotiations have been proceeding steadily and membership is forecast for 2010. In March 2008, President of the European Commission Jose Barroso announced that it was possible for Croatia to conclude the technical elements of its EU accession negotiations by the end of October 2009, provided a number of legal and financial conditions are met. A further condition, which had been met at the time of President Barroso’s statement, was that Croatia suspend the application of the Fishing and Environmental Zone in the Adriatic Sea (known by its Croatian language acronym, ZERP), which had been strongly opposed by Slovenia and Italy, in relation to EU member-states.
Challenges ahead for Croatia lie in fulfilling the political preconditions for entry including reform of the judiciary, public administration and health system as well as issues of privatisation, tackling corruption and environmental reform. Other issues that Croatia will need to address include agriculture, reforming the public procurement system, competition and state aid, and the restructuring of the ship-building sector and other industries. Unresolved issues relating to the return of ethnic Serbs who fled Croatia during the conflict remain another challenge.
Croatia received an invitation to join NATO at its Summit in Bucharest in April 2008. Croatia currently has five personnel deployed in a NATO Provincial Reconstruction Team in Afghanistan (led by Hungary) and two police in the UN police (UNPOL) in East Timor. Croatia is a member of the International Whaling Commission where it supports a pro-conservation position.
In October 2007 Croatia was elected as a non-permanent member of the UN Security Council for the 2008-09 term.
Former conflict in Croatia
Formerly a republic of the Socialist Federal Republic of Yugoslavia (SFRY), Croatia declared independence from SFRY on 25 June 1991. Fighting soon broke out in the east of the country as Croatian Serbs, with the help of the Yugoslav National Army, expelled Croats from the area. By the end of 1991 the Serbs controlled nearly one-third of Croatian territory. Despite deployment of a UN peace-keeping force in 1992, fighting continued until the end of 1995, when Croatia agreed to the peaceful reintegration of Croatian provinces that remained in dispute. On 15 December 2002, UN peacekeepers withdrew from the Prevlaka Peninsula giving control of all sovereign Croatian territory to the Croatian authorities for the first time since independence.
During 1992-1995, Croatia became involved in the war in Bosnia-Herzegovina (BiH). Then President Tudjman was one of the signatories of the Dayton peace accords in 1996, which ended the war in BiH.
Economic Overview
Analysis on the economy, economic performance and outlook
The then governing SDP Coalition introduced reforms in 2000 to rebuild the economy after the conflict. These reforms continued under the HDZ led government and accelerated following commencement of EU accession negotiations. Nearly two-thirds of the economy has been privatised and the small and medium-sized enterprise (SME) sector has significantly expanded. Of the forty three banks in Croatia, the share of foreign ownership is greater than 90 per cent and includes two-thirds of banking assets. Military expenditure has been significantly reduced in line with commitments made to cut the levels of military personnel.
According to the European Commission’s 2007 annual report on the accession negotiations, good progress was made in terms of the political and economic criteria for accession, but the pace of reform by Croatia needed to accelerate. The report identified specific areas for further work – particularly reform of the judiciary, reform of public administration and anti-corruption policies and measures.
Croatia's largest trading partners are EU members, particularly Italy and Germany. Foreign Direct Investment (FDI) in Croatia has been low compared to other countries in the region. According to government figures, in 2006 FDI stock was estimated at US$3.56 billion, considerably higher than US$1.79 billion in 2005. The majority of FDI has taken the form of investments in privatisations with more than half of investments between 1993 and 2004 concentrating on supermarket construction and the banking and insurance sectors.
Croatia is also investing in its national infrastructure in order to make the country a key transit and economic hub for the region - a network of first-class highways is nearing completion and will link ports to markets in Croatia and elsewhere in Europe. Barriers to investment, particularly 'greenfield investment', remain, including slow implementation of land administration reforms and ongoing problems relating to corruption. However, in 2008-2010 the government aims to focus on judicial reform to speed up contract enforcement procedures. Administrative and judiciary reforms have been identified as key areas to be addressed in EU accession negotiations.
Although it has a smaller population than a number of its neighbours, Croatia is geographically central to importing markets (such as Germany and Italy) through its borders with Slovenia, Serbia, Montenegro and Bosnia and Herzegovina (BiH). Trade relations with these neighbours have been improved by the expansion of the Central European Free Trade Agreement (CEFTA), which regulates trade relations among countries of South East Europe. CEFTA entered into force for Croatia on 22 August 2007. The gradual normalisation of relations between these former Yugoslav republics has also encouraged the re-emergence of former Yugoslav brands and familiar labels, arts, music and culture to boost and stabilise the economy. Together the populations of Serbia, Montenegro, Croatia and Bosnia and Herzegovina make up a market of 16 million people.
Key Economic Indicators
In 2006, real GDP growth reached 4.8 per cent, Croatia’s average growth rate since 2002. Preliminary figures released by the Croatian State Bureau of Statistics indicated that GDP growth in 2007 was 5.6 per cent.
The average consumer price inflation was 3.2 per cent in 2006, a 0.5 per cent increase in the average since 2002, partly due to the impact of rising global oil prices. 2007 saw further increases in inflationary pressures, with the year end inflation rate reaching 5.8 per cent.
Unemployment remains high at 14.7 per cent for 2007 but is reducing over time (having come down from 17 per cent for 2006). Significant social inequality remains in Croatia, with GDP per head in Zagreb – the richest region – being much higher than regional, particularly war-affected, areas.
Since 2002, external debt has been rising, increasing from 67.8 per cent of GDP in 2002 to about 87% of GDP in 2007. Croatia experienced a current account deficit of 7.8 per cent of GDP in 2006, which was estimated to increase to 8.4 per cent in 2007.
Australia’s relationship with Croatia
Short history of the relationship
Australia recognised Croatia on 16 January 1992, following its declaration of independence on 25 June 1991. Diplomatic relations were established on 13 February 1992 and the first Australian Ambassador to Croatia (resident in Vienna) presented credentials the following month. On 21 September 1992, an Australian Consulate was opened in Zagreb. Australia opened an Embassy in Zagreb in October 1999.
Community presence in Australia
At the heart of the bilateral relationship are the personal links built by the large Croatian community in Australia, the largest national group from the former Socialist Federal Republic of Yugoslavia (SFRY). This helps generate a significant two-way flow of visitors. The 2006 census recorded 50,990 Croatia-born persons in Australia, and 118,051 persons claiming Croatian ancestry.
The Croatian Diaspora is eligible to vote in Croatian presidential and parliamentary elections.
Bilateral agreements
On 13 May 2003, the Australian and Croatian Governments signed a bilateral social security agreement to give improved social security protection to people who have lived and/or worked in both Australia and Croatia. The Agreement came into effect on 1 July 2004.
Among other things, the Agreement provides that Australian employers do not have a double liability for certain social security payments for Australian employees in Croatia. Specifically, Australian employers will be exempted from the need to make superannuation (or equivalent) contributions under Croatian law where an employee has been temporarily seconded to Croatia, provided the employee remains covered in Australia by compulsory superannuation arrangements. Further information, including on how to obtain a Certificate of coverage is available from the Australian Taxation Office website.
On 8 December 2004, the Australian Government amended Australia's extradition legislation in relation to Croatia. The Extradition (Croatia) Regulations 2004 simplify the requirements for Croatia when making an extradition request to Australia.
In February 2007, Australia and Croatia finalised air services arrangements, including a Memorandum of Understanding (MOU) and text of an Air Services Agreement to be recommended to respective governments. The arrangement will enable airlines of both sides to operate daily services between Australia and Croatia and help to expand tourism and commercial links.
High Level Visits
Significant visits to Australia from Croatia include then Minister for Foreign Affairs and European Integration, Ms Kolinda Grabar-Kitarovic in October-November 2005; Ms Vesna Pusic, then Deputy Speaker of the Croatian Parliament in June 2004; a Parliamentary delegation led by then Speaker of the Croatian Parliament, Mr Zlatko Tomcic, in June 2003; Mr Antun Vujic, then Minister of Culture in March 2003; Mr Bozidar Pankretic, then Minister of Agriculture and Forestry in May 2002; and Mr Tonino Picula, then Foreign Minister in August 2001.
Significant visits to Croatia from Australia include the Governor of New South Wales, HE Marie Beshir (August/September 2007), at the invitation of Croatian President Mesic; members of the Trade Sub-committee of the Joint Standing Committee on Foreign Affairs Defence and Trade who visited Croatia in April 2003 as part of the inquiry into expanding Australia's trade and investment relations with Central Europe. An Australian Parliamentary delegation led by then Speaker of the House of Representatives, the Hon Neil Andrew, visited Croatia in April 2001. The Western Australian Minister for Education and Training, the Hon Mark McGowan MLA, visited Zagreb in April 2007.
Bilateral economic and trade relationship
Bilateral trade is modest. In 2006-07, two-way merchandise trade with Croatia was A$40 million. Australian exports to Croatia grew substantially in 2006-07 to A$21 million, due to increased sales in coal and leather. Imports from Croatia also rose in 2006-07, though not as markedly, to A$19 million. Principal imports from Croatia include food products and electric power machinery. Opportunities for Australian exporters include the shipping sector, infrastructure, agribusiness, innovative technologies, water management and sectors relating to tourism.
Trade successes
The largest Australian investment in Croatia is co-ownership of the five-star Le Meridien Hotel Lav in Split which was opened by the Croatian Prime Minister in December 2006. Cochlear, the maker of bionic hearing devices, has established itself as a major player in ear implants market in Croatia.
Last updated: 17/04/2008