The economy in Croatia after dividing from Yugoslavia
Croatia was among the most developed Central European transition countries in 1990 alongside countries like Slovenia and Czech Republic. However, the country suffered significant damage in its economic development due to the high cost of war, estimated at $37.1 billion. This burden caused by the war made it difficult for Croatia to make a transition into a market economy. The GDP of Croatia before the war in 1990 was recovered in 2004. The GDP per capita of Croatia accounted for 61% of the EU average in 2012. It is imperative to note that in 1994, kuna, was introduced as the Croatian national currency (Miošić-Lisjak 103).
The economy of Croatia is one of the Southern Europe’s strongest economies. Its GDP surpasses the GDP of some of the countries that belong to the European Union. Croatia underwent transition into an open market economy after the collapse of the socialist system. The open market system was related to the industrial production (Tipuri, Hruka, and Krito 61).
The economy of Croatia during the Austro-Hungarian Empire depended heavily on Agriculture despite that period marking the beginning of industrial age. The economy of the Austrian and Hungarian capital dominated the period that was characterized by production by using agricultural products and natural resources like forests. The development of significant industrial centers like Zagreb, Rijeka, Sisak, Karlovac and Osijek was accelerated by the simultaneous transport development especially railway transport (Griffith, Kiessling, and Dabic 163). With Croatia, the most developed region, becoming part of Yugoslavia, alongside Slovenia, favorable conditions existed in the region necessary for the industrial development. This was due to the creation of a large market protected by custom duties.
Upon the end of the Second World War, rapid industrialization, and upgrading of economically backward countries (agricultural economies) in the region ensued under the socialist economy. It is imperative to note that the self-management socialist system of Yugoslavia was different, more dynamic and specific than the economies of the other Eastern European states that were centralized and planned. The Yugoslavian self-management socialist system changed the ownership of property from state-owned nationalism style to social ownership of property (Tipuri, Hruka, and Krito 61).
The worker’s council became significant in the management of enterprises. The workers made significant decisions through the worker’s council on distribution and production. It is important to point out that from 1953 to 1963, Yugoslav and Croatia experienced the highest growth in their economy (Griffith, Kiessling, and Dabic 164).
The economy of Croatia was one of the vibrant and dynamic economies in Europe. The economy however, started to dwindle in the 1970s, and began showing signs of crisis in the 1980s courtesy of high inflation. Despite the dwindling economy in the republic of Yugoslavia, Croatia and Slovenia remained economically strong in areas of industrial production, tourism, the oil industry, shipbuilding, agriculture and construction.
Croatia, after breaking from Yugoslavian socialist and semi-market economy, changed into an open market economy and a system based on private ownership. It is however, imperative to note that aggressive war that was leveled against Croatia hindered the smooth transition process (Tipuri, Hruka, and Krito 61). This situation resulted into Croatia spending many of its resources and adjusting its economic policies in order to defend its territory.
The high amount of war damage burdened the economic development of Croatia. The war damage estimated to $37.1 billion in 1999. This situation made it difficult for privatization and transformation process. The earlier transformation arrangement in Croatia that involved the property that was socially owned or publicly owned was transformed into state ownership, then further transformed into private ownership, through an agreement between the business elite and political elite (Magaš and Žanić 167).
This was carried out frequently without enhancing investment into the property, or lacking the actual enterprise purchase. This disruption in the transition process was therefore, characterized by many negative economic and social effects on the economy of Croatia. This was due to the rise in vices like increased economic crimes and corruption, the impoverishment of the population, as well as a devastated industry (Tipuri, Hruka, and Krito 61).
GDP trends since the introduction of the Croatian kuna
Croatian GDP per capita and other EU countries in 2011
GDP per capita in the SE Europe 2011
Towards the end of December 1991, Croatia introduced a temporary currency known as the Croatian dinar, however, in 1994; Croatia launched a new national currency known as Croatian kuna. Stand-by agreements were carried by Croatia from October 1993 with the IMF (International Monetary Fund). The Croatian national debt grew from 1994 when the country received reconstruction and development loan from the World Bank, however, it is significant to note that this loan helped in easing the economic situation of Croatia.
Croatia seeked to increase its Gross Domestic Product (GDP) after it was drastically affected by the war. The reconstruction and development initiatives resulted into 5.2% economic growth rate in 2002. The Croatian GDP attained its earlier level of $24.8 billion, that is, before the war in 1990 (Guinnessy 19). The GDP of Croatia continued to rise until it dropped in 2008 when the world experienced economic recession.
One of the most conspicuous features is the fact that, just like the financial predicaments of the 20th century, the (2008-2009) global recession was heralded by issues such as loopholes in the real estate industry, a plummeting of premium risks, increased increment in the occurrence and frequency of loaning activities, highly accessible liquidity as well as strong and strained leveraging (Tanner 86).
In its initial stages the recession was depicted by a deficiency of monetary resources by the world’s top ranking monetary institutions which eroded their solvency leading to bankruptcy and default by some and government bail outs by others. In addition to this, the processing of passing on the financial predicament to the actual economy happened in unprecedented speed making it very intricate to manage (Griffith, Kiessling, and Dabic 164). Nevertheless, unlike other recessions of the past that have shown a propensity to affect particular countries or continents, the (2008-2009) recession was in a league of its own due to its global nature.
It is imperative to point out that the 2009 global economic depression impacted heavily on Croatia in terms of employment. There has been a steady increase in the rate of unemployment in Croatia (Richardson 54). The economic crisis resulted into more than 100,000 jobs being lost. The unemployment in Croatia have shot up to 22.4% as at January 2014 from 9.6% towards the end of 2007 (Ashbrook 540).
It is imperative to point out that at the end of the 1990s, the Croatian service sector accounted for the largest proportion of the GDP with 59%. The industrial sector accounted for 32% of the GDP, while agricultural sector accounted for 9% of the Croatian GDP resembling the GDP of a number of developed countries. The tertiary sector in Croatia accounts for the 60% of GDP (Wak-Woya 88).
In terms of employment, in 2011, privately owned enterprises in Croatia accounted for 55.6% of the total number of people employed. The state owned companies accounted for 37.1% of the total number of people employed (Guinnessy 19). The mixed companies accounted for 7% of the total number of people employed while cooperatives accounted for the 0.3% of the total number of people employed (Richardson 27).
Agricultural sector, manufacturing industry, fishing, trade, tourism, healthcare, and forestry accounts for the highest number of workers employed in Croatia. Tourism remains the largest contributor to the Croatian economy especially during summer when the country receives the highest number of tourists (Tipuri, Hruka, and Krito 61). As of 2010, Croatia recorded a total 11 million tourists from foreign countries in a year. The country ranks the number 18 among world’s tourist destinations (Letcher 65).
It is important to note that Croatia joined the European Union on 1 July 2013 after a long period of application process as the 28th member state. The Croatian economy relies heavily in the Europe’s principle economies, such that any instability in any of the Europe’s principal economies translates into a negative effect on Croatia’s economy (Fowkes 204). Economic problems still be-devil the Croatian economy, especially the slow progress of economic reforms in Croatia. High level of public sector corruption, inefficiency in the public administration, as well as a judiciary system that is heavily backlogged (Barbieri 103).
The Croatian government continues to strive compete favorably in the EU’s large market, and explore the membership opportunities at its disposal as a member of the EU (Horton 2140). The country also seeks to utilize the EU structural funds to develop its transport network, owing to its geopolitical advantage along pan-European transport corridors, linking South East Europe, the EU (Miošić-Lisjak 103). The modernization of Croatia’s railway sector will present it with various opportunities like efficiency, enhanced investment and market competitiveness.
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