Basic a semi-presidential, which changed in 2000
Basic facts about Croatia
The Republic of Croatia is a former Yugoslavian country located in South-Eastern Europe. It covers the area around 57 thousand square kilometres with a population around 4,28 million with religion mostly Roman Catholicism. Neighbouring countries with Croatia are on the North Hungary, on the South Bosnia and Herzegovina, on the West Slovenia and on the East Serbia. The capital city of Croatia is Zagreb, which is located in northern part of the country. To Croatia belong almost 1 200 islands in the Adriatic Sea, however, only 66 of them are inhabited.
The abbreviation of Croatia is HR, which comes from Republika Hrvatska. Croatian currency is Kuna.
Croatia is a republic with a president as its leader, who is directly elected. Last elections were in 2015, which won Kolinda Grabarová Kitarovi?ová with the percentage of 50,74% against Ivo Josipovi?. The political system used to be a semi-presidential, which changed in 2000 to a parliamentary system with a prime minister Andrej Plenkovi? with four deputy prime ministers and 16 ministers of particular sectors. Sabor (the Parliament) is an unicameral legislative body. Second Chamber, which was cancelled in 2001, was called the House of Counties. Members of Sabor serve four-year terms and their number varies from 100 to 160. Two main parties in Croatia are the Croatian Democratic Union and the Social Democratic Party of Croatia, which were the leading parties during the elections in 2016.
Economy and GDP
The growth of Croatian economy in 2016 was between 2,1 to 2,7%, it grew up to 2,9% in the beginning of the year 2017, which was caused by increased export, domestic and industrial demand, low prices of commodity and very prosperous season of tourism. However, with the indebtedness of Croatia, it would need the growth of GDP to be at least 3,5%.
Unemployment rate significantly decreased to 12% from averaged, which was almost 18% from 1996 to 2017. The deficit of Croatia’s budget decreased to 0,8% in the first period of 2017 from previous year’s 3,4%. The public debt is around 84%.
Picture 1 Historical Growth of GDP – Croatia
,,The Gross Domestic Product (GDP) in Croatia was worth 50.43 billion US dollars in 2016. The GDP value of Croatia represents 0.08 percent of the world economy. GDP in Croatia averaged 38.04 USD Billion from 1990 until 2016, reaching an all time high of 70.48 USD Billion in 2008 and a record low of 10.28 USD Billion in 1992.” 1
Picture 2 Croatia Unemployment Rate
,,Unemployment Rate in Croatia increased to 12.10 percent in November from 11.60 percent in October of 2017. Unemployment Rate in Croatia averaged 17.79 percent from 1996 until 2017, reaching an all time high of 23.60 percent in January of 2002 and a record low of 10.80 percent in June of 2017.” 2
Composition of GDP Breakdown
Unfortunately, the GDP breakdown in the picture below is from the year 2014. But if we compare it with the year 2016 – the GDP decreased to 50, 43 billion US dollars, but the composition breakdown of GDP remained almost unchanged. It consists of 4,2% of agriculture – farming, production of food. Industry belongs around 26,6% – producing goods. Services cover 69,2% of GDP, which is a non-material type of goods. Definition of service says that it is an economic activity, which does not result in ownership. In comparison with other world countries in 2015 GDP breakdown, France is number one as services cover almost 80% of GDP. The United States are on the second place with very close difference only 0,01%. Next 7 places are filled by European countries in order – Greece, United Kingdom, Belgium, Denmark, Italy, Netherlands, and Spain, all of which still have above 70% of GDP covered by services. (5)
Picture 3 Croatia: GDP Composition Breakdown
Contribution of Tourism to GDP
Tourism is important to many countries all over the world. According to Travel & Tourism Competitiveness Index 2017, Croatia ranks on the 32nd place with the score of 4,42 from previous year 2015 from the place of 33.
The total contribution of Tourism to GDP includes direct contribution and other wider aspects indirect and induced.
Picture 4 Contribution of Tourism to GDP
Internal spending by citizens and non-citizens accounts to direct contribution to GDP by tourism. It may not only be within the country either for business or leisure objectives but also expenditures of the government on services of tourism, such as national parks, exhibitions, museums, etc. Computing of direct contribution has to be done as it is stated in National Accounting and must be identical with all sectors of tourism and their output. (hotels, travel agents, airports, etc.)
,‚The direct contribution of Travel & Tourism to GDP is calculated from total internal spending by ‘netting out’ the purchases made by the different tourism sectors.” 5
Indirect impact and induced impact
To indirect impacts are counted investment spending of tourism, not only current but future as well. For example: building a new hotel, buying a new aircraft, etc. Another indirect contribution is government spending such as promotion and marketing, security and sanitation services in the resorts’ areas. These may not seem like such a big effect, but it is making a significant contribution to increase of tourism to the community as a whole. Domestic purchases of goods and services by the areas that work with tourists, such as purchases of catering by airlines, purchases of goods and services by hotels, IT services for travel agents, etc.
Computing of induced contribution is supported by GDP and jobs, which are supported by expenditures of people who are directly or indirectly working for the industry.
Picture 5 Overall Contribution of Tourism to GDP
Changes throughout the time
According to the upper picture, we can see that the contribution of tourism to GDP was slightly decreasing to the year 2012 and after that each year it increased. According to World Data Atlas, in the year 2016 the contribution of tourism to GDP was 24,7%. In the graph picture number 6, we can see that in the year 2000 the contribution dropped below 15%, after that it experienced rapid growth and since then it maintained its numbers above 20%.
Picture 6 Contribution of Tourism to GDP
Comparison with European countries (own opinion)
In the ranking of the contribution of travel and tourism to GDP, the first place are the Maldives with 79,4% and the countries in the first ten places mostly consist of tropical islands and countries. Croatia is ranked as 21st with the contribution of 24,7% behind Malta, which has 26,7%. Other European countries such as Greece with 18,6%, Portugal with 16,6%, Spain 14,2%, Bulgaria’s contribution is 12,8% and Italy on 64th place as their contribution is 11,1%.
However, if we take Travel and Tourism in billions of US dollars, the ranking is different, which might seem confusing, but after computing out of GDP of the year we get the same result. According to World Travel and Tourism Council, Croatia is ranked 57th with 12,5 billion as the total contribution of travel and tourism to GDP. In comparison with Italy, which is on 8th place with 207,6 billion, which may be the result of having not only summer seasons in the south but as well winter seasons in the north, which is possibly the main reason why Italy is on this high position. Greece is placed on 29th with 36,6 billion, the reason behind this is in the area difference as Greece is two times bigger than Croatia and it has more islands with more coasts and seaside, which attracts significantly more tourists than Croatia. According to The Statistic Portal the number of arrivals in Greece in tourist accommodation was around 23,7 million in the year 2016, whereas in Croatia it was lower around 15,4 million.
The Czech Republic with 15,0 billion is placed on 54th with part of tourism in GDP is around 7,8%. In the contribution in billions, Czech Republic has slightly more than Croatia – around 18,4 million, which can be caused by the number of historical sights in Czech Republic and dependence on seasonality when visiting Croatia.
Impacts of tourism
First and foremost, it comes with a huge impact on employment. If we consider all types of the contribution of travel and tourism (T&T) to GDP, during the year 2016 – 321 500 jobs, which is covers 23,4% of total employment of Croatia and it means every fourth job is related with tourism. Forecast for the future is to rise to 371 000 jobs, which would be around 27% of total employment by the year 2027. This all comes with the growth of service sector, which can be beneficial for Croatia.
Another impact is on the increase of Foreign Direct Investment (FDI). Business travels come with technology, capital, skills, know-how and all of this results from FDI and it helps the economy grow, it comes with new opportunities for local businesses, new product creation and so on.
Considerable is improvement of infrastructure and services, because it encourages investment, as the government attempts to increase the marketing and promotion with the development of bars, restaurants, transportation (such as airports, harbours, etc.) improvement of public areas, ensuring the flow of goods. It benefits not only local people’s well-being but visitors and the economy as well.
These benefits are very important to the economy of Croatia; however, tourism has disadvantages and negative impacts as well. As the it increases the need for infrastructure and services, it is usually paid by the government, which is paid from tax revenues. Another negative contribution is employment, it increases, but most often the jobs are seasonal and not well paid.
It can significantly increase the prices of services, goods and property in the area, local people do not benefit from those. It is common that the money earned from tourism does not improve the well-being of local people or community because it goes to international companies as hotel or restaurant chains. Last but not least, destinations are reliant on events in the area, which influences the number of visitors, such as terrorist attacks or natural disasters.
Economy branches – beneficial and attractive for investment
Agriculture in Croatia is well known for its fishery of blue water fish (tuna, mackerel, anchovies, etc.) which do not live in the Adriatic Sea but cross it from the Mediterranean Sea. To another famous branch belong wine yards, olive-tree, fig trees, citrus trees and so on. Croatia is known for the production of olive oil, which goes up to more than 50,000 hectolitres every year.
Textile and clothing industry is worth mentioning, even though there are many challenges in this market, it still employs a considerable part of the population (around 20 thousand). Calzedonia or Benetton, these international brands are using Croatian’s market potential.
Pharmaceutical industry with its tradition employs almost 5,000 people and is significantly growing. Croatia belongs to one of 10 countries, which developed a new drug – innovative antibiotic azithromycin. To important companies in this country belong GlaxoSmithKline, Hospira or Galapagos Research Center.
Other industries worth mentioning are machinery, food industry, automotive, ICT, etc.
Conclusion – own opinion
Countries, which are reliant on tourism are considered as poor and having a small economy. That is why Croatia is not on the list with countries, which have this industry as the largest.
Tourism is for Croatia very important as it is the main driver of its economy and even though it is affected by many conditions around us that people cannot influence. Weather, the increase or decrease in incomes, prices all of this and many others have the impact on, where people would go on holiday to.
I personally, chose this topic, because of my passion for travelling and curiosity about the impact of tourism on the GDP.
As I live in Prague, I see how much the tourism changes the parts of the city. I noticed huge differences in prices e.g. Coca Cola costs three times its normal price in certain areas. Not only prices of food and beverages raised, there has been an enormous increase in prices of property, as people buy flats to rent them on Airbnb for high prices, which are not affordable for locals. That is why the Old Town in Prague has fewer citizens and more places for renting. Overall prices in Old Town are significantly higher than in other parts of the city, which affected local people as their expenditures rapidly increased. As another huge problem is considered the night peace, which is disturbed daily by many tourists. These issues are not considered as benefits for local people. For comparison, I wanted to find out how different it is in coastal countries. Before my further readings for this essay, I had little idea about how big impact does tourism have for these nations.
From my point of view, I think that southern countries with their temperament, approach and attitude are different from Central Europe. As to their culture belongs sitting for a long time at Cafés, which does not necessarily improve or help their economy. I personally think that Croatia should diversify their market, attempt not to be as dependent on tourism as it is now. Focusing on agriculture, grow more fruits. What is getting a lot of attention these days are different types of cosmetics, starting a production of cosmetics with olive oil or citrus fruits, which are considered around women as natural and very healthy and is well-known, might help lowering the reliance tourism. Another suggestion would be to strengthen their extraction of natural resources as this country has hydrocarbon reserves, which are significant. New areas of this promising extractions are Pannonian Basin, Dinarides, central and southern Adriatic. Croatia has twelve windmills as the source of wind energy, which are worth around 315 million Euros. Thanks to its location it would benefit from not only wind energy, but solar energy as well, which would offer around 30,000 new jobs and decrease the unemployment rate.
Croatia could try to attract investments of capital, not only in tourism such as hotels and restaurants but in other promising branches as well, e.g. to build a warehouse in this country. In last few years Amazon was getting a lot of attention, there could be a possibility to build a central warehouse in Croatia which comes with a very promising location in Balkan.
This nation has been very popular among Czech tourists and almost every Czech family has been to Croatia for holidays. I hope that it will still remain in the top visited countries and that their government will try to diversify their market and attempt to improve the well-being of local people.
1 Trading Economics Croatia GDP online. 2017 cit. 2017-12-28. Available from: https://tradingeconomics.com/croatia/gdp
2 Trading Economics Croatia Unemployment rate online. cit. 2018-01-03. Available from: https://tradingeconomics.com/croatia/unemployment-rate
3 Macro Economy Meter Croatia: GDP Composition Breakdown online. cit. 2018-01-03. Available from: http://mecometer.com/infographic/croatia/gdp-composition-breakdown/
4 Travel and Tourism Economic Impact 2017 Croatia online. cit. 2018-01-03. Available from: https://www.wttc.org/-/media/files/reports/economic-impact-research/countries-2017/croatia2017.pdf
5 Travel and Tourism Economic Impact 2017 Croatia online. cit. 2018-01-03. Available from: https://www.wttc.org/-/media/files/reports/economic-impact-research/countries-2017/croatia2017.pdf
6 6 Travel and Tourism Economic Impact 2017 Croatia online. cit. 2018-01-03. Available from: https://www.wttc.org/-/media/files/reports/economic-impact-research/countries-2017/croatia2017.pdf
7 Travel and Tourism Economic Impact 2017 Croatia online. cit. 2018-01-03. Available from: https://www.wttc.org/-/media/files/reports/economic-impact-research/countries-2017/croatia2017.pdf