BUSINESS NEWS BULLETIN No 392

ZAGREB, 9. kolovoza 2004. (Hina) - BUSINESS NEWS BULLETIN No 392 August 03th- 09th 2004 CONTENTS: EXPORTS RISE BY 25 PCT, IMPORTS UP 20.1 PCT IN FIRST HALF OF 2004 NUMBER OF WORKERS IN INDUSTRY DECREASES ON ANNUAL LEVEL FINISHED GOODS INVENTORIES ON FALL IN JUNE AVERAGE CONSUMER BASKET FOR FOUR-MEMBER FAMILY IN CROATIA COSTS 720 EUROS AVERAGE NET PER HOUR SALARY IN MAY 23.70 KUNA MILD DECLINE REGISTERED IN CONSUMER CONFIDENCE INDICATOR IN CROATIA BIDS FOR CONSTRUCTION OF DUGOPOLJE-SESTANOVAC SECTION CROATIA HAS LOWEST UNEMPLOYMENT RATE OF 17.4 PERCENT SINCE 1997 GOVT. TO COMPENSATE FARMERS FOR GENETICALLY MODIFIED CORN PRIVATISATION FUND INVITES BIDS FOR "BELJE" AGRICULTURAL PLANT ADRIS GROUP'S PROFIT IN FIRST HALF OF THIS YEAR 363 MILLION KUNA PRICES OF PETROL, DIESEL FUELS TO RISE BY 1.2 % AND 2.9% AT INA PETROL STATIONS ZVIJEZDA PLANT REALISES NET PROFIT OF 69.2 MILLION KUNA BELJE GENERATES 41.47 MLN KUNA IN NET LOSSES KOKA GENERATES 15.15 MLN KUNA IN NET PROFITS IN JANUARY-JUNE 2004 BUSINESS RESULTS OF OSIJEK BREWERY BELOW EXPECTATIONS PANONIJA HAULIERS LOSES 1.46 MLN KUNA IN JANUARY-JUNE 2004 BRODOMERKUR'S PROFITS GO UP 16 PCT RIJEKA PORT'S TURNOVER GOES UP 59 PERCENT IMF APPROVES NEW STAND-BY LOAN ARRANGEMENT FOR CROATIA BECTHEL EXPRESSES REGRET OVER GOVERNMENT'S DECISION CROATIAN PM, BULGARIAN PARLIAMENT SPEAKER HOLD TALKS IN SOFIA RESTAURANT OWNERS AGAINST ALCOHOL BAN ITALIAN HOTELIERS COMPLAIN THAT CROATIA HAS 'TAKEN AWAY' TOURISTS 1. ECONOMIC INDICATORS EXPORTS RISE BY 25 PCT, IMPORTS UP 20.1 PCT IN FIRST HALF OF 2004 Croatia's exports in the first six months of 2004 totalled slightly more than 22.8 billion kuna or US3.7 billion, while imports totalled 48.7 billion kuna or 7.9 billion, the Central Statistics Bureau has reported.The export-import ratio was 46.9 percent while the foreign trade deficit totalled more than 25.8 billion kuna or 4.2 billion. Expressed in the kuna, exports in the first half of this year rose by 12 percent, while imports increased by slightly less than 7.7 percent from the same period last year. Expressed in dollars, exports went up by 25 percent and imports by 20.1 percent. This difference is the result of a 10-percent drop in the value of the US currency in relation to the kuna in this year's first half. NUMBER OF WORKERS IN INDUSTRY DECREASES ON ANNUAL LEVEL The number of workers in the sector of industry on the annual level is still decreasing, but in June it saw a mild increase. The total number of industrial workers in June was 1.7 percent lower than in the same month last year and 0.2 percent higher than in May this year, the Central Statistics Bureau has reported. Compared to the average monthly number of workers in 2003, the number of industrial workers in June dropped by 1.4 percent. At the same time, labour productivity in the period from January to June increased by 6.4 percent in relation to the same period last year. FINISHED GOODS INVENTORIES ON FALL IN JUNE Finished goods inventories fell by 2.6 percent this June in comparison to May, but increased by 5.4 percent as against June 2003, the Croatian Central Bureau of Statistics reported. AVERAGE CONSUMER BASKET FOR FOUR-MEMBER FAMILY IN CROATIA COSTS 720 EUROS The consumer basket for a four-member Croatian family cost 5,312 kuna in July which was a decrease of 5.19 percent in comparison to costs of living in June, the Independent Croatian Trade Unions Federation (NHS) reported on Wednesday. The most expensive city was the capital Zagreb in which a four-member family had to ensure 5,826 kuna to cover all necessary costs in July. The average salary earned in May was 4,169 kuna, according to figures issued by the Central Bureau of Statistics, and this amount could cover 78.5 percent of the consumer basket of a four-member family in July. (1EUR =7.37 kuna) AVERAGE NET PER HOUR SALARY IN MAY 23.70 KUNA The average net per hour salary in May this year was 23.70 kuna, which is an increase of 3.9 percent in relation to April and 5.7 percent more than in the same month last year. The highest per hour salary was reported in air transport (43.38 kuna), and the lowest (12.20 kuna) in the leather industry. MILD DECLINE REGISTERED IN CONSUMER CONFIDENCE INDICATOR IN CROATIA Croatian consumers envisage that a general economic situation in the country will deteriorate in the next year, that the financial situation of their households will also become worse and the possibilities for saving smaller. The business journal 'Privredni Vjesnik' in cooperation with the GfK agency carried out a survey covering 600 Croatian households whose members were asked about their the economic outlook and their purchasing ability. According to the results of the survey, published in the last week's issue of the journal, 31.7 percent of the households, covered by the survey conducted in the second quarter of 2004, believe that the situation would remain the same, while the results of a similar survey conducted in the first quarter of 2004 showed that 31.2 percent of households believed that the situation would not change in the next year. According to the survey from the second quarter of this year, 9.7 percent of respondents assess that the situation will be much worse as against 8.3 percent in the previous poll. Those with the answer 'I do not know' are on the rise from 22.3 percent in the first survey to 23.5 percent in the latest survey. The number of the respondents who believe that the general economic situation will improve fall from 15.2 percent to 13.8 percent. Almost a half of the households assess that their own financial situation can remain the same in the next year. On the other hand, 17.2 percent (as against 16.8 percent in the previous poll) expect slight deterioration in the household budget, while 8.7 percent (as against 6.8 percent in the previous poll) fear that their financial situation will considerably worsen. The consumers also assess that unemployment rate will remain the same. As regards possibilities for saving money, most respondents do not believe that they will be able to save in the next year, and 34.3 percent of the households regard it as rather unlikely, and 45.5 percent as very unlikely. Studying the results of the surveys, carried out in accordance with the European Union methodology, analysts conclude that a combination indicator -- Consumer Confidence Indicator -- was mildly on the decline from minus 22.5 percent in the first quarter of 2004 to minus 23.3 percent in the second quarter. 2. ACTIVITIES OF GOVERNMENT, MINISTRIES AND STATE INSTITUTIONS BIDS FOR CONSTRUCTION OF DUGOPOLJE-SESTANOVAC SECTION The Croatian government on Wednesday decided to invite bids for the construction of the Dugopolje-Sestanovac highway section and thus scrapped its previous plans to award the contract to the US Bechtel company. The decision on the invitation of bids for the construction of the 37-kilometre section of the Split-Dubrovnik highway was made at the proposal of Prime Minister Ivo Sanader who explained this move by his cabinet's wish to work transparently and let the public participate in decision-making processes. There are higher interests and this refers to efforts made by the most responsible Croatian institution to do its best to defend national interests, Sanader said. He resolutely refuted all politically-motivated speculation and doubts raised about the government or any minister. In this context PM stressed that he stood behind all of his ministers and that his cabinet was working transparently and openly. The incumbent PM warned that the current as well as future governments should not allow to get themselves into a situation in which they are forced to act according to some semi-agreements and verbal deals made by their predecessors. He reiterated that his government was pushed into such situation by decisions of the previous (coalition) government which he said embarked on changing a contract (with Bechtel) after the elections. Transport Minister Bozidar Kalmeta told the government that those vociferous critics in the Bechtel case vocifereted only to distract the attention of the public from reports of the Office of State Auditors that showed what they had actually done. Minister Kalmeta said the 2003 reports of auditors revealed the fact that some jobs had been agreed without respect to the Public Procurement Law and often contrary to the opinion of the finance ministry. Foreign Minister Miomir Zuzul asserted that orchestrated attacks against the current government were levelled by some who had so far been involved in those jobs. PM Sanader and the ministers said that after the decision on inviting bids for the section construction, the highway would be constructed at a slower pace. "The pace of the construction will be different, the construction will be slower as the invitation of bids requires the provision of the comprehensive documentation," Sanader added. Zuzul went on to say that the entire job would now be also more expensive. Finance Minister Ivan Suker said that the existing law on public procurement was inadequate and that it should be changed. That's why the government set up a working group whose task would be to draw up a new public procurement act. At the start of Wednesday's session Prime Minister expressed his best wishes to all Croatian citizens on the occasion of Victory and Homeland Thanksgiving Day which is a national holiday in the country. On 5 August, Croatia marks Victory and Homeland Thanksgiving day to commemorate the liberation of Knin, the stronghold of Serb rebels since the early 1990s, by Croatian police and army forces in the 1995 operation "Storm". The liberation of Knin meant the end of a para-state called Krajina which Serb rebels declared with the help of the former Yugoslav People's Army (JNA) shortly after the first parliamentary elections in Croatia in the early 1990s, with the aim of annexing it to Serbia. Sanader, who thanked all who had taken part in the 1995 "Storm" operation, said he would attend tomorrow's ceremony in Knin and called on other government members to join him. CROATIA HAS LOWEST UNEMPLOYMENT RATE OF 17.4 PERCENT SINCE 1997 An unemployment rate in Croatia in the first six months of 2004 came to 17.4 percent, which was the lowest rate since 1997, the Gross Domestic Product rose by 3.8 and this testified to increasing economic activities, Finance Minister Ivan Suker told the Croatian government at its session on Wednesday at which the Ivo Sanader Cabinet adopted a report on the execution of the state budget in the first half of this year. In the first half of 2004, the budgetary revenue rose by 5.9 percent to 36.9 billion kuna as against the first half of 2003. The budgetary spending came to 40.9 billion kuna, rising by 9.5 percent which Suker ascribed to the payment of bills in arrears from last year. Responding to objections about recurrence of illiquidity, Finance Minister said the number of insolvent companies was cut by 1,500 from the end of 2003 until the late June 2004. Twenty one (21) state-owned companies recorded a profit of 1.47 billion kuna in 2003, which was by one fifth more than in 2002, according to figures released in a report on the business activities of said companies which the government adopted on Wednesday. The report does not include data on the profit of the Croatian Telekom which earned a profit of 1.5 billion kuna. Last year, the state-run companies carried out investments worth 12.4 billion kuna, although they planned to invest 15 billion. (1EUR =7.37 kuna) GOVT. TO COMPENSATE FARMERS FOR GENETICALLY MODIFIED CORN The Croatian government on Wednesday decided to grant farmers 12.88 million kuna as compensation for genetically modified corn which they had sown unknowingly. All of the GM corn, which had been sown on some 2,000 hectares of land, was destroyed, Agriculture Minister Petar Cobankovic said. The 12.88 million kuna will be secured by the ministry, which will claim the funds from the Pioneer Sjeme company that imported the genetically modified corn. PRIVATISATION FUND INVITES BIDS FOR "BELJE" AGRICULTURAL PLANT The Croatian Privatisation Fund on Monday invited bids for the purchase of 52.21 percent of the stock of the "Belje" agricultural plant from Darda. The shares are offered at a price of one kuna, however, the best bidder will have to invest 250 million kuna in the company in the next two years, keep all of its employees for at least one year, and submit an investment programme and a five-year business plan. The deadline for the submission of bids is 16 August. The privatisation of the company has recently become a subject of dispute, particularly after Ivica Todoric, head of the management board of the "Agrokor" company, said that the concern would most probably not bid for Belje due to opposition from the local authorities. This provoked reactions among local officials and workers' unions and resulted in the submission of resignations by Belje's management, which were withdrawn after a meeting of company officials, union leaders and representatives of the local authorities on Sunday. 3. COMPANIES ADRIS GROUP'S PROFIT IN FIRST HALF OF THIS YEAR 363 MILLION KUNA The Rovinj-based Adris Group registered the revenue of 1.15 billion kuna in the first six months of 2004, a rise of 3.8 percent in comparison to the results from the January-June period in 2003. The company made a pre-tax profit of 363 million kuna (a rise of 8.5 percent). Despite negative trends in the exchange rates, the earnings from abroad remained at the last year's level, making up to 40 percent of the overall earnings. The tobacco production unit registered 940 million kuna of earnings (a 5.8 percent rise). The company saw positive trends in exports, too. Tourist units within the group had the revenue of 177.4 million kuna, which was at the same level as in the first half of 2003. PRICES OF PETROL, DIESEL FUELS TO RISE BY 1.2 % AND 2.9% AT INA PETROL STATIONS The Croatian national oil company INA reported on Monday that retail prices of petrol would rise by 1.2 percent at average and of diesel fuels by 2.9 percent at its petrol stations as of 3 August. The price of heating oil will go up by three percent. ZVIJEZDA PLANT REALISES NET PROFIT OF 69.2 MILLION KUNA The edible oil plant 'Zvijezda', which is the part of the Agrokor Concern, registered a net profit of 69.2 million kuna in the first half of 2004. This good result was partly ascribed to consequences of the sale of the business premises in Branimirova Street in Zagreb. According to a financial report which the Varazdin Stock Exchange quoted, Zvijezda's revenues in the first six months of 2004 came to 431.4 million kuna. The gains from the sale of the business premises were 237.7 million kuna. BELJE GENERATES 41.47 MLN KUNA IN NET LOSSES The Darda-based agribusiness Belje generated 41.47 million kuna in net losses in this year's first six months, up 114.6 percent from the same time in 2003, according to a report the company submitted to the Varazdin Stock Exchange. Compared to last year's first six months, Belje significantly reduced its expenditure as well as revenue in the January-June 2004 period. Revenue in the latter amounted to 131.73 million, down 47 percent from the same time in 2003. (EUR1 = 7.4 kuna) KOKA GENERATES 15.15 MLN KUNA IN NET PROFITS IN JANUARY-JUNE 2004 The Varazdin-based poultry breeding company Koka generated 15.15 million kuna in net profits in this year's first six months, according to a report Koka submitted to the Varazdin Stock Exchange. The figure is 12.2 percent lower than the amount generated at the same time last year. Income earnings went down 1.4 percent to 484.46 million kuna. (EUR1 = 7.4 kuna) BUSINESS RESULTS OF OSIJEK BREWERY BELOW EXPECTATIONS The Osijek brewery registered a loss of 3.34 milion kuna in the first six months of 2004 as against the gains of 2.88 million kuna it made in the first half of 2003. The management reported that the business results of Osijecka Pivovara in the first six months this year were below expectations.The company's revenue fell by 14.2 percent from 57.89 million kuna in the first half of 2003 to 49.67 million in the first half of this year. PANONIJA HAULIERS LOSES 1.46 MLN KUNA IN JANUARY-JUNE 2004 The Osijek-based hauliers Panonija generated 1.46 million kuna in losses in this year's first six months, down from the 3.67 million generated in net profits at the same time last year, according to a report the company submitted to the Varazdin Stock Exchange. Revenue in the January-June 2004 period amounted to 15.46 million kuna, down 48 percent from the same time in 2003, while expenditure went down 35 percent to 16.92 million kuna. (EUR1 = 7.4 kuna) BRODOMERKUR'S PROFITS GO UP 16 PCT The Split-based company Brodomerkur generated 1.69 billion kuna in income earnings in 2003, up 25 percent from the year before, while post-tax profit amounted to 11.2 million kuna, up 16 percent from 2002. The stockholders' assembly unanimously supported management's proposal to share dividends amounting to a net 41.75 kuna per share. Forty-four percent of the profits will be distributed among owners as dividends, while the rest will be retained as reserves and undistributed profits. CEO Sando Ivanisevic said Brodomerkur's investments last year amounted to 27 million kuna, the majority of which in a new retail centre in Zagreb. (EUR1 = 7.4 kuna) RIJEKA PORT'S TURNOVER GOES UP 59 PERCENT The Rijeka Port transshipped 2.6 million tons of cargo in this year's first seven months, up 59 percent from the same time last year. The management expects that plans to transship 3.98 million tons of cargo this year will be surpassed and that the annual figure will exceed four million tons. In July alone the port transshipped 518,000 tons of cargo, the highest figure recorded since July 1993. 4. INTERNATIONAL COOPERATION IMF APPROVES NEW STAND-BY LOAN ARRANGEMENT FOR CROATIA The International Monetary Fund's (IMF) Executive Committee has approved a US141 million stand-by loan arrangement for Croatia for a 20-month period, the IMF said in a statement on Friday. The IMF Executive Committee has concluded Article IV of consultations with Croatia and granted the Croatian government's request for a new arrangement, the statement said, adding that Croatia intended to treat the new deal as a precaution and did not plan to withdraw the approved funds. Croatia has been recording a fast growth and low inflation rate since the mid-1990s which, however, has resulted in a higher external imbalance, notably in the last several years, said the statement. The public and private external debt now exceeds 75 percent of GDP, which is much higher than the average in other countries of Central and East Europe and in all other developing markets, the statement said. It added the chronically poor control over public companies and agencies, together with the growth of last year's pre-election spending, which overstepped the previous stand-by arrangement, were the main causes of the external imbalance. Recognising the risk magnitude, the new government and the central bank have designed a programme for 2004-05 aimed at halting the growth of Croatia's external debt. The programme focuses on the renewal of fiscal adjustment efforts which were discontinued last year, and includes government financing on the domestic market and an appropriately stricter monetary policy. The IMF Executive Committee applauds the programme, notably its accent on transparency in the fiscal policy, the elimination of extrabudgetary activities, and the improvement of control over public spending and public debt management. According to the statement, reducing external vulnerability, securing fiscal sustainability and preparing for a successful and swift admission to the EU will require great efforts also beyond the period covered by the new stand-by arrangement. Also according to the statement, critical points in the coming years will be the continuation of fiscal adjustment so as to reduce the budgetary deficit to below three percent of GDP, as defined by the Maastricht accord, the rationalisation of public spending through the reduction of subsidies and state support to a level that is appropriate for a modern market economy and is compatible with EU membership, and structural reforms aimed at reducing the state's role in the economy. Constant caution will be called for in the financial sector with a view to making sure that the rapid loan growth of recent years does not undermine the quality of the balance of banks' assets, the statement said, adding that the IMF would continue to support Croatia's efforts in this field. BECTHEL EXPRESSES REGRET OVER GOVERNMENT'S DECISION The U.S. construction company Bechtel has expressed regret over the Croatian government's decision to invite bids for the construction of a section of the Split-Dubrovnik highway instead of giving the job to Bechtel as previously announced. Bechtel's Croatian branch said in a statement on Friday Bechtel was in the position to start construction on the Dugopolje-Sestanovac section immediately, without the delay that a bid invitation requires. According to the statement, data indicate that Bechtel's price is the best and that the company's quality and safety-at-work conditions are unsurpassable. The statement goes on to say that Bechtel is particularly disappointed because of 2,200 Croatian workers the company has been employing since 2000. Spokesman Damir Vucic said contracts would be terminated with most Croatian workers very soon due to the fact that works the company was doing in Croatia were nearing completion. He added only a small number would remain employed over the next 18 months for possible work on sections Bechtel had already finished. The government decided at a session on Wednesday that the contractor for the Dugopolje-Sestanovac section of the Split-Dubrovnik highway would be chosen in an invitation for bids, thus scrapping its previous plan to award the contract to Bechtel. The decision to invite bids for the 37 km section was proposed by Prime Minister Ivo Sanader, who explained it with the government's wish to work transparently and to have the public participate in decision-making. CROATIAN PM, BULGARIAN PARLIAMENT SPEAKER HOLD TALKS IN SOFIA Croatia will have Bulgaria's full support on its road to NATO and European Union membership, Bulgarian Parliament Speaker Ognyan Gerdzhikov said during talks with Croatian Prime Minister Ivo Sanader in Sofia on Friday, the Croatian government's public relations office said in a statement. Sanader thanked Gerdzhikov for the support, saying the experience of Bulgaria, which has just completed negotiations with the European Commission, would be very important for Croatia, which begins EU entry negotiations early next year. The two officials also discussed the strengthening of economic cooperation and better connections between the two countries. Croatian-Bulgarian trade is constantly growing, exceeding EUR70 million last year. The two countries see the possibility of further increasing trade in transport, goods and services, tourism, railway equipment and the construction of new power plants. 5. ASSOCIATIONS RESTAURANT OWNERS AGAINST ALCOHOL BAN The national association of restaurant owners has voiced dissatisfaction with the latest legal regulation prohibiting the smallest amount of alcohol in a driver's blood, and urged its amending. The regulation completely prohibits the consumption of alcohol for participants in traffic, said the association's president, Sinisa Krizanec. Krizanec said that 3,600 restaurants in the country, with around 400,000 guests per day, made around eight million kuna from selling wine. He added that the income of restaurant owners had dropped by as much as 40 percent during this tourist season. The association's appeal was supported by wine producers. 6. SUNDRIES ITALIAN HOTELIERS COMPLAIN THAT CROATIA HAS 'TAKEN AWAY' TOURISTS The federation of Italian hoteliers ' Federalberghi' complained on Sunday that Croatia 'had taken away' Austrian and German tourists from Italy. 'Long Back-Ups Only Towards Croatia' is the headline of a two-page article which the Corriere della Sera daily reports in Sunday's issue commenting on the ongoing tourist season. In Italy there is currently a drop of 15 percent in the number of holiday-makers in comparison to figures from last summer's season. The daily ascribed poor results in the tourist turnover to high prices. Everything has become more expensive, including fuel which has gone up by 10.7 percent, air traffic (14.2 percent), travel arrangements (nine percent), restaurants and pizzerias (4.3 percent) to hotels (1.6) percent. In addition, many tourists do not stay on long holidays as it has been the case earlier. Italian hotel owners say that the country is losing traditional clients -- German and Austrian tourists -- who opt for Croatia, which they say is cheaper, as the destination for their summer holidays. Copyright © Hina Marulićev trg 16, Zagreb Phone: 01/4808-686 Telefax: 01/4808-821 Editor: Slavica Cvitanić