Croatian competitiveness: between Armenia and Albania

Croatian competitiveness

Zagreb, 27 September 2017 – The National Competitiveness Council, as a partner of the World Economic Forum in the Global Competitiveness Program, has published the results of “The Global Competitiveness Report 2017-2018“. In this year’s report, Croatia ranks 74th among 134 global economies.

With this ranking, which is the same as last year, and with a score 4.19, the Croatian economy is stagnating at the global level. Furthermore, the areas in which intensive reforms are necessary are clear. They include the development of institutions, which fell by 13 places; higher education and training, which declined by 11 places; and efficiency of the labor market, which fell by 7 places.

“This latest report confirms the need to continue and accelerate key reforms that will create an environment to stimulate investment that will lead to new jobs and increase the standard of living. The consequence of the conspicuous stagnation of competitiveness and the shortage of hope for a better future is the departure of young professionals from our country. An analysis of the competitiveness report once again shows that we have to improve public policy and transform the public sector, and through consensus define a national vision and the basic affirmative values of Croatian society. It is also concerning that we are faced with a declining trend for innovativeness, which is occurring particularly in the areas of digital and smart industries. The changes that are necessary affect all segments of society, with a special emphasis on the need for reform of the public sector and encouraging entrepreneurship,” emphasized Ivica Mudrinić, President of the National Competitiveness Council. 

The slow implementation of reforms in the key areas of education, infrastructure and the financing of innovation has led to the limited growth of Croatia’s economy and the stagnation of its competitiveness at the global level.

Easing administrative burdens, strengthening the rule of law and reducing the tax contributions to the state can help to improve the business climate. Government policies must stimulate the transfer of technology and knowledge. Together with the development of the scientific and educational system, it is necessary to strengthen the technological readiness of the economy to apply new knowledge in the creation of new products and services that will, by means of deeper specialization and the growth of productivity, enable the successful entry of companies into new markets. It is also necessary to encourage export-oriented direct foreign investment to enable the production of goods of greater added value and to have a positive influence on the level of competitiveness.

To halt the declining trend in innovativeness, it is necessary to implement an innovation policy that will encourage cooperation between the business sector and the scientific research community and to increase investment in research, technological development and industrial processes with the goal of producing news goods and services.

To increase the competitiveness of the Croatian economy, it will be necessary to devise a clear, long-term strategy that will raise the existing level of knowledge in society and contribute to the creation of a dynamic economy with sustainable growth in which Croatia’s citizens want to live. To ensure that this strategy is carried out independent of possible change, it will be necessary to achieve a consensus among all shareholders in society.

The World Economic Forum defines competitiveness as a set of institutions, policies and pillars that determine the level of productivity of a country. The level of productivity determines the level of prosperity that an economy can achieve. The methodology is based on an analysis of 12 pillars of competitiveness: institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation.

Croatia’s results this year show improvement in the pillar for macroeconomic environment (60th), an improvement of 24 places; health and primary education (44th), an improvement of 22 places; technological readiness (43rd) a rise of four places, market size (77th), an improvement of one place.

Switzerland, as the top-ranked, or most competitive, country in the world, continued to lead the rankings, followed by the USE, Singapore, the Netherlands, Germany, Hong Kong, Sweden, the United Kingdom, Japan and Finland. Among comparable countries, Slovenia, Slovakia, Bulgaria, Serbia, Hungary, Montenegro and Albania improved their rankings, while Poland, Romania and Greece declined. Croatia and the Czech Republic remained in the same position.

Figure 1: Top 10 countries

Country 2017 2016
Switzerland 1 1
USA 2 3
Singapore 3 2
Netherlands 4 4
German 5 5
Hong Kong 6 9
Sweden 7 6
UK 8 7
Japan 9 8
Finland 10 10

 

Figure 2: Croatia and comparable countries

Country 2017 2016
Czech Republic 31 31
Poland 39 36
Slovenia 48 56
Bulgaria 49 50
Slovakia 59 65
Hungary 60 69
Croatia 74 74
Albania 75 80
Montenegro 77 82
Serbia 78 90
Greece 87 86

 

Figure 3: Croatia and comparable EU countries

Figure 4: Croatia and neighboring countries

Figure 5: Most problematic factors for doing business in 2017 in Croatia

Figure 6: Competitive advantages 2017 – Index

Figure 7: Competitiveness shortcomings 2017 – Index

Figure 8: Global competitiveness pillars: Rank

The report points to three main challenges. The first one is financial vulnerability that threatens competitiveness and the ability of the economy to finance innovation and new technologies. The second challenge is that emerging economies are becoming increasingly better in innovations, but they have invest more effort in innovations in order to advance more quickly and efficiently. The third challenge is the flexibility of the labor market and the protection of workers in order to increase their competitiveness on the labor market and to prepare them to participate in the fourth industrial revolution.

The results of the report are based on the polling of businesspeople in 14,000 companies around the world (84 managers were polled in Croatia in the spring of 2017), statistical data from 2016 and 2017, and data from international organizations: the World Bank, OECD, IMF, WHO, and UNESCO. The report includes 137 countries that make up 98% of global GDP. Croatia has been included in this research since 2002.