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News 05 Aug 11

Foreign Direct Investment In Croatia Nosedives

Foreign direct investment in Croatia plummeted during 2010, new figures from the United Nations Conference on Trade and Development, UNCTAD, reveal.

Maryrose Fison

Croatia fell behind both Albania and Montenegro in the levels of foreign direct investment it received, marking a departure from its position as one of the most popular recipients of foreign funding in previous years.

It received only $583 million (€412 million) of FDI in 2010, compared to $2.9 billion (€2.0 billion) in 2009. In contrast, nearby Albania received $1.1 billion (€776 million)- more than twice the $979 million (€693 million) it received in 2009- and Montenegro received $760 million (€538 million).

The only countries in south-east Europe which received less FDI than Croatia were  Macedonia and Bosnia and Herzegovina, with $293 million (€207 million) and $63 million (€45 million) respectively.

Hafiz Mirza, chief of staff for investment trends at UNCTAD, told Balkan Insight there were a number of reasons why FDI had fallen so sharply in Croatia. He said Austria and the Netherlands had historically been the two largest investors for Croatia, and both had divested in 2010, recording negative inflows of -€102 million and -€316 million.

He added that reductions in investment from EU countries had also played a role as these countries had traditionally been the dominant source of FDI in the Croatia.

“TNCs [Transnational corporations] that have invested in Croatia, reacted to disappointing economic news and turmoil in sovereign debt markets and moved resources out of Croatia," he said. "This was clearly reflected in a marked decline in intra-company loans, one of the three components of FDI flows, as parent firms withdrew or were paid back loans from their affiliates in order to strengthen their balance sheets at home or elsewhere.”

He said intracompany loans in Croatia had fallen from €1.1 billion in 2009 to €633 million in 2010.

In contrast to other countries in the region, Albania has weathered the past few years better than others. Mirza said it was the only country in the region which had posted positive growth during the global financial crisis.

“[Albania has seen an] improvement in its business climate and macroeconomic stability following advantageous fiscal policies, some privatization within the strategic sectors and opportunities in the energy, finance and telecommunications industries where investments have risen,” he said.

Greece’s financial woes had also had a knock-on effect in the region, Mirza explained, saying it had previously been a conduit for foreign investors going into south-east Europe but had ceased being an entry point as its domestic crisis worsened.

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