Identifier
Created
Classification
Origin
06ZAGREB533
2006-04-27 06:55:00
UNCLASSIFIED
Embassy Zagreb
Cable title:  

SLOW ECONOMIC DEVELOPMENT IN EASTERN

Tags:  ECON EINV HR PRIVATIZATION 
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VZCZCXRO6180
RR RUEHAG RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN RUEHLZ
RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHVB #0533/01 1170655
ZNR UUUUU ZZH
R 270655Z APR 06
FM AMEMBASSY ZAGREB
TO RUEHC/SECSTATE WASHDC 6069
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
UNCLAS SECTION 01 OF 02 ZAGREB 000533 

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV HR ECON PRIVATIZATION
SUBJECT: SLOW ECONOMIC DEVELOPMENT IN EASTERN
CROATIA

UNCLAS SECTION 01 OF 02 ZAGREB 000533

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV HR ECON PRIVATIZATION
SUBJECT: SLOW ECONOMIC DEVELOPMENT IN EASTERN
CROATIA


1. SUMMARY: Ten years after the war ended in
Croatia, officials and business people are
attempting to revive the economy in the eastern
region of Slavonia, one of the areas most affected
by the conflict. Supplementing national efforts to
encourage economic development in the region, some
local governments are taking matters into their own
hands, setting up industrial zones and business
incubators. However, many obstacles to economic
development remain and it is uncertain if the
businesses and jobs will come. END SUMMARY

-------------- -
Attracting New Business, Battling Unemployment
-------------- -

2. In April 2006, Econoffs traveled to the eastern
towns of Donji Miholjac, Otok and Bjelovar for a
first-hand look at local economic development
initiatives. All three towns were affected by the
war and high unemployment rates are a chronic
problem. While the national unemployment rate in
Croatia is about 14%, unemployment rates in some
parts of Slavonia are as high as 80%. In Donji
Miholjac and Otok, the unemployment rate is between
25-35% and in Bjelovar it is 15%. According to
officials in Otok, the unemployment rate is five
times higher now than before the war. Before the
war, Slavonia was home to many large factories that
have since closed or downsized. The OSCE
representatives in Vukovar cited the example of a
shoe, rubber and plastics factory, which employed
22,500 before the war and now only employs 1000.


3. In order to attract more jobs to Slavonia and
take advantage of resources such as forests and
agricultural land, these local governments are
investing in the infrastructure for economic zones
and offering incentives to lure mostly manufacturing
businesses including wood, metal and food processing
industries. Bjelovar has focused on a successful
business incubator that offers office space and
support at below market costs for start-up companies
in the services sector.


4. These local governments are also partnering with
new investors to walk them through the process of
acquiring all permits, often an obstacle for
investors. Although most of these initiatives
started at the local level, officials said they

appreciated the financing and technical assistance
provided by the national government and thanked the
U.S. government for assistance provided by USAID
programs.

--------------
If you build it, will they come?
--------------

5. Local officials believe the Slavonian region has
comparative advantages in geographic location,
natural resources, labor supply, and infrastructure
(especially with the planned construction of new
highways in the region and the refurbishment of the
Danube port of Vukovar) and are hopeful that new
investment will come. In the last nine months,
contracts have been signed with eleven new investors
in Donji Miholjac. These new investments are
expected to create three hundred jobs and generate
an additional six to nine hundred jobs in indirect
employment.


6. In addition to manufacturing operations,
investors and officials are also interested in
building cold storage facilities that would help
facilitate the transport of produce from local farms
to markets and food processors. According to
Kesenija Boros, head of the Veterinary Department
and Sector for Harmonization of Regulations, the
Ministry of Agriculture also has funds earmarked for
the construction of cold storage and other
infrastructure. Officials are encouraging farmers in
the region to convert production from grains to more
profitable fruits and vegetables and to increase the
amount of hectares used for orchards in the run-up
to EU accession, at which time Croatia's
agricultural quotas will be set. Officials are also
setting up offices to help farmers take advantage of
the European Union Special Accession Program for
Agriculture and Rural Development (SAPARD).

--------------
Education and Training
--------------

ZAGREB 00000533 002 OF 002



7. In addition to providing incentives to new
investors, local governments have been surveying
their populations to make sure that potential
employers have access to an appropriately educated
work force. Officials commented that the education
system is not preparing students for the current
economy. Most high school students and their
parents are opting for courses of study such as
hairstyling and shop keeping rather than industrial
or technical programs. However, since government
wage regulations require that a student trained as a
shopkeeper must get paid more than an untrained
student, most shops end up employing untrained
workers and the trained shopkeepers find jobs in
factories.

--------------
Future Development Uncertain
--------------

8. While the groundwork for economic revitalization
is being laid in Slavonia, it remains to be seen if
industry will make a reappearance in Slavonia and if
the labor market will develop accordingly.
FRANK