Croatia’s investment climate can be “hostile” to foreign investors, U.S. Ambassador James Foley said, citing high labor costs and slow bureaucracy among the biggest obstacles to capital inflows.
Croatia ranks low in “rigidity of employment, efficiency of legal framework and wastefulness of government spending,” Foley told a panel in Zagreb today, citing data from Doing Business, a joint 2012 report on measuring business regulations by the World Bank and the International Finance Corporation.
The Adriatic Sea nation, which will probably join the European Union next year, is struggling to recover from a two-year recession. The eight-week old government, led by the Social Democrats, seeks to revive foreign investment by injecting 8 billion kuna ($703 million) from reconstruction banks and EU funds into infrastructure and energy projects.
Foreign direct investment dropped to $583 million in 2010 from $6 billion in 2008. It rose to $668 million in the first six months of 2011, according to the central bank.
“It is almost absurd that Croatia ranks so low when we measure the ease of doing business, as it ranks much higher in math and science education and research,” Foley said. “It is easy and simple to implement changes that would rapidly lead to new capital investment.”
The World Bank on Dec. 13 urged the government to relax its labor legislation and strengthen tax collection. It also recommended “consolidation” of public wages and social benefits.