Beyond Tourism: The quiet rise of Croatian industry
- by croatiaweek
- in Business
While the public debate rages in Croatia over tourist numbers and whether the season has underperformed or is set to break another record, behind the media scenes, industry is making strides forward, writes Gordana Gelenčer for Lider.hr.
The impressive results of electrical, transport and energy company Končar have certainly caught some attention, but one swallow does not make a summer.
Some economists have long argued that a country relying solely on tourism, without a strong industrial base, will never truly stand alongside Western nations.
In response, Lider.hr has attempted a brief analysis of the state of what other economists consider a problematic socialist legacy. However, Končar and others have proven that technology is driving industrial growth and competitiveness.
So, how does the industry currently stand?
In a series of recent articles on industry, economist Velimir Šonje demonstrated that, contrary to widespread belief, Croatia does indeed have an industrial sector that is fairly diversified and growing.
Like the manufacturing sectors in other countries, it faces the challenge of adapting to fundamental industrial transformations, yet the sector is keeping pace with these changes.
Šonje also notes that, according to the Economic Complexity Index (Harvard’s Atlas of Economic Complexity), countries with more developed industries are ranked higher on the global economic complexity scale.
![Koncar electric train](https://www.croatiaweek.com/wp-content/uploads/2023/07/Koncar-Electric-Vehicles-.jpg?x29230)
Končar made trains (Photo credit: Končar)
According to this index, Croatia scores 0.77, placing us 31st in the world, between Lithuania and Bosnia and Herzegovina, and ahead of a significant number of EU member states (Portugal, Spain, Latvia, Bulgaria, Cyprus, and Greece).
Croatia is not far behind the group occupying the 24th to 27th places globally, which includes some notable names (Estonia, the Netherlands, Poland, Denmark).
This, Šonje suggests, is further evidence that we would not collapse without the sun and the sea; in other words, it’s not true that we produce nothing.
Growth in Revenue, Profit, Net Margins, and Employment
Business consultant Nikola Nikšić provides figures and indicators that confirm not only that Croatia is producing but also that the industry is keeping pace with export competitiveness.
To begin with some fundamental numbers: with approximately 280,000 workers (27 per cent of all employed in companies), entrepreneurs in the manufacturing sector collectively generated €39.7 billion in 2023 (24.6 per cent of the total €161 billion in total revenue), from which they generated €2.4 billion in net profit (26.9 per cent of the total €8.8 billion).
Over five years (2019–2023), total revenue in the manufacturing sector, measured by the compound annual growth rate (CAGR), grew by an average of 7.7 per cent per year, while net profit grew by 15.3 per cent.
And this was achieved without significant changes in the number of companies and employees. Revenue increased by 3.6 per cent last year, with a net profit increase of 35.4 per cent and a rise in net margins from 4.1 per cent in 2022 to 5.4 per cent in 2023.
– This is a financially sound sector. The share of net working capital in total assets of 13.9 per cent, a current liquidity ratio of 1.45, and an accelerated liquidity ratio of 0.93 indicate more than adequate liquidity, while the ratio of equity to external financing of 46 to 54 per cent suggests an economically reasonable level of indebtedness.
Over five years, investments have been financed almost exclusively from operating cash flow, and net financial debt, which stood at €2.2 billion in 2019, was reduced to €1.77 billion by the end of 2023, just 44.5 per cent of EBITDA for 2023.
In the last three years, the financial excellence rating according to the BEX index, derived from aggregate data, has ranged from 2 to 4 (a very good rating), with return on assets and equity measured by the DuPont analysis remaining at around 10 per cent, and the financial stability rating measured by the Kraliček DF test ranging from 1.5 to 2.2 (a good rating).
It should also be noted that the manufacturing sector has consistently generated 40 per cent of its revenue from exports for many years, and that over five years, the average monthly net salary and benefits have steadily increased, from €902 in 2019 to €1,258 in 2023. Over five years, companies in the manufacturing sector have invested a total of €54.6 billion in fixed assets, averaging €10.9 billion per year – Nikšić clarifies.
According to the NKD 2007 methodology, entrepreneurs in the manufacturing sector are divided into 24 groups of activities. However, by combining values and five-year trends in the number of companies, number of workers, total revenue, net profit, and export revenue, two groups of activities stand out, he says: metal product manufacturing and the food industry.
In metal product manufacturing, the number of companies with publicly available financial statements grew by an average of 3.5 per cent over five years (from 2,500 in 2019 to 3,000 in 2023), the number of workers increased by 5 per cent (from 39,000 in 2019 to 50,000 in 2023), total revenue rose by 11.3 per cent (to €4.1 billion in 2023), and net profit increased by 19.5 per cent (to €298 million in 2023, with a net profit margin of 7.2 per cent in 2023).
This growth was achieved while maintaining the share of exports in business revenue at 47 per cent over all five years, with an average annual export growth of 7 per cent.
Nikšić states that the leading two companies in 2023, with revenues exceeding €100 million, were Omco Croatia and HS Produkt, the former under foreign ownership, the latter domestic.
In the food industry, the number of companies with publicly available financial statements grew by an average of 1.1 per cent over five years, as did the number of workers (to 50,000 in 2023), total revenue by 8 per cent (to €7 billion in 2023), and net profit by 16.7 per cent (to €331 million in 2023, with a net margin of 4.6 per cent in 2023). The share of export revenue in business revenue over the past three years has been around 21 per cent (€1.5 billion in 2023).
![PHOTOS: New Podravka mural at Koprivnica's entrance](https://www.croatiaweek.com/wp-content/uploads/2023/12/Podravka-1.jpg?x29230)
(Photo credit: Podravka)
To achieve this, companies have invested a total of €1.7 billion over five years. In 2023, 16 companies had revenues exceeding €100 million, 12 of which are entirely or mostly domestically owned (Podravka, Vindija, most members of Fortenova’s food division, MI Pivac, Mlin i pekare, Kraš, Gavrilović, Franck), and four under foreign ownership (Dukat, Ledo Plus, Empwr, and Mlinar).
Leaders in Categories
To get the full picture with specific names, Nikšić highlights that in the beverage manufacturing sector, for example, 2023 saw the largest growth in the number of workers, 8.3 per cent (6,000 in 2023), and with revenues exceeding €100 million, the leaders are Zagrebačka pivovara, Coca-Cola HBC Hrvatska, and Heineken Hrvatska under foreign ownership, and Jamnica Plus domestically owned.
In the engine, machinery, furnace, and tools manufacturing sector, the largest growth in total revenue was achieved last year, a 25 per cent increase to €1.8 billion. In this sector, the leaders with revenues over €100 million are Harburg-Freudenberger Belišće under foreign ownership and Klimaoprema under domestic ownership.
In the electrical equipment manufacturing sector, 2023 saw the largest increase in net profit margin, 65.9 per cent (to 8.7 per cent). Over five years, the net profit margin has grown by an average of 8.7 per cent annually.
This strong growth dynamic was driven by four companies with revenues over €100 million in 2023 (Končar DIST, Končar Energy Transformers, Vertiv Croatia, Elka), with the most significant contribution coming from Končar’s flagship DIST, the only one of the four ‘electro-heavyweights’ under majority domestic ownership, whose revenue in 2023 increased by €77.6 million, to a total of €328.6 million.
Nothing Without ‘Rolled-Up Sleeves’
– Considering all of this, and bearing in mind that one of the key factors in confirming the global competitiveness of certain economies, industries, and companies is export, I also highlight two sectors with an exceptionally high share of exports in business revenue: leather manufacturing, with a 2023 export share of 76 per cent.
Therefore, despite modern times, without ‘rolled-up sleeves’ (industrial activities), coupled with smart motivation and the use of the 3H (hand, heart, and head), and understanding and respecting the comparative advantages of individual communities, all packaged into feasible strategies and their implementation, there are no healthy, excellent, sustainable, stable, and secure economies.
Croatian tourism is a fantastic ‘shop window’ for the food industry and other directly related sectors (agriculture, packaging…) and supporting activities (logistics and transport, healthcare services, sport, recreation, art, and entertainment…).
In the search for greater self-sufficiency in times of uncertainty and instability, the EU presents a great opportunity for most manufacturing industry sectors.
The same applies to the green and energy transition, especially considering the availability of non-refundable funds from various EU funds and other global financing sources.
Croatia’s economy is small, and to take advantage of the previously mentioned opportunities, especially within the manufacturing industry, we must be more aggressive and competitive than the economies of the larger EU member states, particularly in terms of both export products and services.
How? By focusing on sectors where we have a realistic chance to achieve world-class competitiveness in the next five years. Among the five sectors I suggest, I see significant potential for additional investment in the electrical equipment manufacturing sector – concludes Nikola Nikšić.