Croatia’s EU Entry May Have Fuelled Tourist Boom, But Can it Save the Economy?

By Emma Naylor

Figures released last week have brought good news for Croatia’s tourism sector. Tourist numbers have risen year on year to see more than a million holidaymakers currently soaking up the sun. One reason for the increase in visitors is Croatia’s entry into the European Union last year, but joining the EU hasn’t had the same effect on the country’s economy as a whole…

Croatia’s shrinking economy is one of the weakest in the EU, with employment still falling and a 13 per cent drop in gross domestic product (GDP) in just five years. The situation is a world away from the positivity and hope with which Croatia became the 28th member of the EU on July 1st, 2013. Yet even as the fireworks were still exploding, while President Ivo Josipovic said the move was historic and 66 per cent of voters said yes to the EU in a referendum in 2012, some Croatians were concerned that the country’s key problems of high unemployment and massive national debt wouldn’t be solved by joining the EU. With this in mind, can tourism and the EU save Croatia’s economic situation?

Visitor numbers up

While Croatia has been a popular holiday destination for those in the know for some decades, with its warm weather and beautiful beaches, the past few years have seen it catapulted into the spotlight. Joining the EU in July 2013 has also had a positive impact on tourism. It is now easier than ever for visitors from fellow EU countries to travel to Croatia, as they are no longer subject to customs controls and can freely move between EU states. In addition, holidaymakers are now covered by a reciprocal European health care arrangement, in which all EU citizens with a European Health Insurance Card (EHIC) can receive healthcare free of charge. While some tourists might have expected Croatia to follow Spain, France and Italy’s lead by taking on the Euro as part of the EU, Croatia’s choice to keep its domestic currency of the kuna has kept prices relatively low for holiday-makers coming from outside the Euro-zone, such as the UK, while exchange rates for the Euro have risen. With these factors taken into account, it’s no surprise that Croatia’s tourism is booming. Tourism Minister Darko Lorencin said last week that cumulative figures for January to July show a rise of 3.5 per cent in arrivals to 6.94 million, with a 1 per cent increase in overnight stays to 37 million nights, compared to the same period last year.

The boom began back before Croatia joined the EU, with one UK holiday website reporting a 15 per cent increase in people looking for flights to Croatia in the first six months of 2013. While these were mainly looking at Dubrovnik, there was also a 30 per cent increase in searches for flights to Split. This trend seems to have continued with visitors from the EU up dramatically in the last year. Mr Lorencin reported that the rates of tourists from the UK was up 9 per cent, along with Hungary up 13 per cent, Finland up 7 per cent, Austria up 6 per cent, Sweden up 5.5 per cent, Italy up 5 per cent and visitors from France up 3 per cent. Worldwide visitors also increased with a massive 248 per cent rise in the number of tourists from Korea, a 39 per cent rise from China, 16 per cent rise from the USA, and 14 per cent increase from Canada. He added: “Most visitors in July were guests from Slovenia, and we are extremely pleased with the growth of tourists from Italy. On the other hand, due to a shift holidays there was less German and Dutch tourists, which will compensate for arrivals in August.”

Hvar, a popular destination for tourists

Boom not affecting other sectors

While tourism is one of Croatia’s main industries, the boom it is experiencing as a result of EU membership is not filtering into the larger economy. Agriculture remains a key industry in the country, but construction and manufacturing have failed to recover since the recession. Recent reports suggest that Croatia’s economy is still shrinking, with Reuters reporting that there is little sign of growth from domestic or foreign investors beyond tourism. With a drop in GDP of almost 13 per cent over five years, and unemployment still rife, Croatia’s wider economy is a cause for concern. One financial expert has predicted that the public debt will grow without structural reforms and growth in the economy, despite the actions of the World Bank which stepped in with a 150 million euro loan to Croatia in April. The loan aimed to focus on fiscal consolidation efforts through reforms in public administration, health, pensions, and social welfare. By helping to improve public spending by encouraging banks and lenders to provide credit and lending services to the public, the hope is that the bail-out will boost the economy back to recovery and stability. The World Bank cash is also intended to help the corporate sector by reducing regulatory barriers and stimulating job creation. However, with tourism doing so much to help out Croatia’s recovery, it could still be a matter of years before the benefits of EU membership filter down into other areas of the economy.