POOR RESULTS ON CROATIAN COMPETITIVENESS

UNCLAS ZAGREB 000561 SIPDIS SENSITIVE COMMERCE FOR INTERNATIONAL TRADE ADMINISTRATION E.O. 12958: N/A TAGS: ECON ETRD EINV EFIN HR SUBJECT: POOR RESULTS ON CROATIAN COMPETITIVENESS ¶1. (U) In the latest World Economic Forum Global Competitiveness Report, Croatia dropped 11 places to number 72 out of 133 countries ranked - the largest fall since the country was included in the research in 2002. Hungary, Romania, and Montenegro all passed Croatia in the rankings this year. According to the National Competitiveness Council, the local organization that partnered with the WEF to gather data for the study, the results are partially taken from statistical data, but mostly from surveys sent to businesses and entrepreneurs. Compared with the other countries in the study, Croatia ranked particularly poorly in the burden of government regulation, the efficiency of the legal framework in resolving disputes, and the rigidity of the labor market. Croatia ranked relatively well in questions covering infrastructure, health, and education. ¶2. (SBU) The Director of the National Competitiveness Council told us on September 9 that the results should be a wake up call to the government. She said the government had never paid much attention to the recommendations of the Council in the past, but that the release of this year's poor results had finally led to a call from a member of Parliament asking for their advice. She facetiously commented that if the government was unwilling to listen to the report's warnings, then the National Competitiveness Council might as well become an academic think tank, and cease offering advice on policy issues. ¶3. (U) The World Bank Doing Business report, also issued this week, cited a modest improvement in the ease of doing business in Croatia. Croatia moved up seven places to 103rd, still within the bottom half of the 183 countries surveyed. The Doing Business Report analyzes the effects of specific regulatory reforms on the business climate. Croatia was specifically cited for improvements to its construction permitting process. ¶4. (SBU) COMMENT: While the two reports appear contradictory in their assessments of Croatian competitiveness, the WEF Competitiveness Report offers a broader picture of the business climate, touching on areas such as corruption, red tape, infrastructure, and public health. While a drop of 11 places could arguably be insignificant across the broad scope of the subjective survey, it is a clear signal from the business community that Croatia has not made progress in tackling the problems that drag on the economy. FOLEY