CROATIA'S EXPORT OFFENSIVE

UNCLAS ZAGREB 000086 SIPDIS SIPDIS E.O. 12958: N/A TAGS: ECON ETRD EINV HR SUBJECT: CROATIA'S EXPORT OFFENSIVE ¶1. Summary: Hoping to reduce its chronic trade deficits and accelerate economic growth, the Government of Croatia launched an "Export Offensive" on January 22 aimed at boosting the number of businesses involved in the export sector by 25% over the next three years. At the core of the plan is the creation of six industrial "clusters" around small boat building, textiles and clothing, information and communications technology (ICT),woodworking and furniture, aquaculture and fishing, and mineral waters. The intent is to improve coordination among these sectors, which the GOC hopes will lead to increased production and quality. The initiative seems to have received a positive, if guarded, assessment from the Croatian business community. End Summary. ¶2. The Croatian Government unveiled a new "Export Offensive" on January 22 with a goal of increasing the number of exporting firms by 25%, from the current 11,000 to 13,800, by 2010. This initiative comes as a measure to address what is a chronic weakness in Croatia's otherwise decent economic performance over the last several years, namely its $10 billion trade deficit, over 25% of GDP. In 2005, Croatia's imports totaled $18.5 billion, while exports were $8.7 billion, or 47% of imports. ¶3. To address this deficit and attempt to increase GDP growth, the GOC plans to create six "export clusters" around small boat building, textiles and clothing, information and communications technology (ICT),woodworking and furniture, aquaculture and fishing, and mineral waters. The intent is to link producers and suppliers and thereby increase the domestic content of exports, as well as their quality and competitiveness. Alongside the creation of the "clusters," the Government has promised other measures, such as the creation of a center for standards and certificates to enable businesses not familiar with export requirements to obtain the necessary certificates for export. The Government has also promised, through its "regulatory guillotine," to ease regulations that hinder exports. ¶4. Croatia's business community generally welcomed this initiative, although the measures fail to address several key problems that hurt Croatia's competitiveness. Foremost among these is the relatively strong currency, the kuna, which is held in a managed float against the euro. Although Croatia's exchange policy has enabled the country to achieve macro-economic stability, it has also kept imports cheap and hurt the competitiveness of Croatian products in other markets. Added to the exchange rate are relatively high social charges and local fees for services, which businesses say aggravate the problem. Nevertheless, any measure that reduces bureaucratic obstacles and attempts to bring government to the service of business finds a positive if, albeit, skeptical, reception among Croatia's business community. BRADTKE