IT SEEMS that Croatia will develop much slower than most other transition countries in the upcoming period.

Forecast from Harvard: The average annual growth will be a miserable 2.16 percent by 2028 

That’s the conclusion that arises from the projections of the economic growth, published by experts from the prestigious American Harvard University, according to which Croatia can expect an average annual growth rate of only 2.16 percent by 2028.

According to these forecasts, the expected average annual growth rate of GDP will be among the lowest in the EU in the case of Croatia.

Among the transition countries, even Bosnia and Herzegovina will achieve a higher economic growth rate in the next decade, averaging 4.07 percent per year (almost twice as much as Croatia), and Albania, 3.38 percent. While in the case of Bosnia and Herzegovina and Albania, the expected faster dynamics of economic growth could be primarily attributed to their underdevelopment, and thus to the lower baseline from which they start and in which each growth of economic activity is reflected more and better in the overall data, in other countries that will develop faster than Croatia, this is generally not the case.

Both Serbia and Slovenia will develop faster than us

And there is no shortage of them in the transition club either. For example, Harvard experts expect that the average annual GDP growth rate of Slovakia by 2028 will be 3.28 percent, Poland 3.19 percent, Romania 3.03 percent, and Serbia 2.9 percent. Slovenia will have a faster dynamic of development than us in the next decade, on average 2.35 percent per year, as well as Northern Macedonia, 2.26 percent, and the Czech Republic, 2.19 percent.

The Baltic countries – Lithuania, Latvia, and Estonia – will continue to develop much faster than Croatia, all of which should achieve average GDP growth rates of between three and four percent per year. This means that according to the dynamic of development in the upcoming period among the European countries in transition, only Hungary and Bulgaria should be behind us, but only slightly, with an average annual growth rate of 2.06 percent, according to forecasts from Harvard experts.

“Countries that have diversified production into more complex sectors, such as Vietnam and China, will be the fastest in development in the upcoming decade,” the prestigious American university stated.

The solution is the diversification of production and products with higher added value

In addition to Vietnam and China, Harvard experts included East African countries – Uganda, Tanzania and Kenya and Ethiopia, as well as Egypt, Myanmar (formerly Burma), Cambodia, Thailand, Malaysia, and Indonesia among the fastest-growing countries in the upcoming period. Most of them will achieve GDP growth rates of at least six percent per year, which will allow them to become, and some already are dynamic emerging markets. Of course, the credit for such rapid development also partially lies in the underdevelopment of these countries. However, still, not everything can be attributed only to the effect of a low baseline. A good part of the credit, experts from Harvard, pointed out, goes to the diversification of economic activity and the development of products that are based on new technologies and have a higher share of added value.

For now, Croatia can hardly compete here. According to Zeljko Lovrincevic from the Zagreb Institute of Economics, we have already put all our eggs into one basket, i.e., the development of tourism and other, now somewhat outdated first-generation services, such as trade and transport, while the new-generation services, which contain a large share of added value, such as consulting or analytics, we are yet to discover. Besides that, the Croatian problem is also low productivity.

“Everything Croatia does is actually unproductive”

“Croatia has low productivity. It could be said that everything Croatia does is actually unproductive when compared to other countries. Low productivity is a reflection of all problems in Croatian society and economy – from non-implementation of reforms to the widespread corruption,” Lovrincevic warned for Index.

Vedrana Pribicević from the Zagreb School of Economics and Management also warns that Croatia must diversify its economy. Instead, Croatia specialized, mainly in services, and became a tourist Eldorado. Very complex economies, said our interlocutor, which produce everything from food to space shuttles, are developing faster and better than those based on the production of several products or low-value services.

“Many countries produce apples because they are easy to produce, but very few countries produce tools for blood analysis because it implies knowledge and technology. By developing the complexity of the Croatian economy, GDP growth would also accelerate, and we actually need to invest little for the production of many products,” Pribicevic stated for Index. She provided an example of the possibility of producing more complex ships and magnetic resonance imaging.

Brussels is also giving us weak growth prospects

By the way, according to the methodology of the European Commission, which takes three main factors into account when making forecasts of long-term economic growth – labor, capital, and productivity, Croatia, Lovrincevic reminds, is in a bad position. According to these forecasts, the Croatian economy should grow by an average of only 1.4 percent per year in the next 30 years, i.e., until 2050. If that period is shortened to 10 years, then the average GDP growth rate should be slightly higher and hover around two percent, which is close to Harvard projections. Lovrincevic points out that the availability of capital in Croatia is not a problem; work is the problem due to mass emigration and the aging population, as well as productivity, which is among the weakest in the EU.

In this entire story, one should bear in mind that growth projections, both from Harvard and Brussels, were made before the coronavirus pandemic that brought the world economy, including the Croatian, to its knees. In other words, this year’s fall of the Croatian economy into a deep abyss will probably mean even lower average economic growth rates over ten years. This could only be solved by accelerating economic growth in the upcoming years, but something like that isn’t likely to happen without adapting structural reforms and without diversification of production.

We are stuck in a dead-end of transition; it will take at least two mandates to get out

“We detected our crucial problems 20 years ago, but little has been done so far in solving the problems,” Lovrincevic stated, pointing to the situation in the justice system and public administration, and then to non-implementation of privatization, inflexible labor market, inefficient state aid, interest groups in society and widespread corruption.

“It takes at least two or three mandates to change such a situation. All these problems have become modus operandi in Croatian society, which, for example, today perceives corruption as normal,” concluded Lovrincevic.

On the other hand, Pribicevic pointed out that our future lies in higher added value products that would be a combination of technology and knowledge.