BUSINESS NEWS BULLETIN NO 356

BUSINESS NEWS BULLETIN No 356 November 24 th - December 1st 2003 CONTENTS: ELECTION RESULTS HAVE NO EFFECT ON CROATIA'S CREDIT RATING INDUSTRIAL OUTPUT GROWTH MILDLY SLOWING DOWN MAGAZINE: ZABA AND PBZ LEADING CROATIAN BANKS ESB PRESENTS FIRST CHIP BANK CARD IN CROATIA VIKTOR LENAC SHIPYARD TO FILE FOR BANKRUPTCY - ECONOMY MINISTER STATEMENT FROM CLOSED-DOOR GOVERNMENT SESSION MINISTRY GRANTS INCENTIVES TO FIRST TEN BUSINESS CLUSTERS KATAVIC: CROATIA DECLARED FISHING ZONE AT THE RIGHT MOMENT COCA COLA PRESENTS FIRST SOCIAL REPORT FOR CROATIA PLINACRO GRANTED ISO 9001:2000 QUALITY CERTIFICATE KUTJEVO COMPANY MADE A LOSS IN FIRST NINE MONTHS THIS YEAR IPK KANDIT RECORDED A PROFIT OF 3.8 MILLION KUNA PLIVA HOLDS RESEARCH AND DEVELOPMENT DAY IN LONDON MOBILKOM AUSTRIA GROUP OPERATES SUCCESSFULLY "COMPUTER ASSOCIATES" TO OPEN OFFICE IN CROATIA CROATIAN MINI-BREWERY DELIVERED TO SERBIA EU TO ENCOURAGE EU HOPEFULS INCLUDING CROATIA TRADE UNION PRESENTS ITS EXPECTATIONS OF NEW PREMIER UNIONS ASK NEW GOVT TO START SOLVING PROBLEMS IN CROATIAN TELECOM UNION ASSOCIATION OPPOSES ARRIVAL OF FOREIGN WORKERS CROATIAN EMPLOYERS' ASSOCIATION HAS NEW DIRECTOR-GENERAL MANAGER OF THE YEAR AWARDS PRESENTED ASSOCIATION: QUALITY, PRICES OF HOTEL SERVICES BALANCED CROATIAN FISHERMEN CONDEMN BEHAVIOUR OF ITALIAN, E.U. POLITICIANS VENICE CONFERENCE ON FISHERIES ENDS SMALL ECONOMY ACCOUNTS FOR 55 PCT OF GDP INTERNATIONAL AUTUMN FAIR OPENS IN SPLIT 1. ECONOMIC INDICATORS ELECTION RESULTS HAVE NO EFFECT ON CROATIA'S CREDIT RATING The electoral victory of the Croatian Democratic Union (HDZ) in itself has no effect on Croatia's credit rating, which remains at BBB-, for the debt expressed in foreign currencies, and BBB+ for the debt expressed in the national currency, one of the leading international credit rating agencies, Standard & Poor's, said in a report released on its web site on Tuesday. Croatia's credit rating is still determined by the reduction of the fiscal deficit and privatisation, which are necessary to stop the growth of the currently moderate public debt, as well as to improve the country's chances of joining the EU, said analyst Kristel Richards. As in the case of any other country, the agency will analyse whether the economic and fiscal strategies of the new government are sound and whether they are based on the successful fiscal consolidation inherited from the previous government. A less favourable credit rating may be caused by significant deterioration of the country's fiscal position. The improvement of the rating is currently not possible due to a deteriorated situation with the foreign debt and the need to modernise the legal and judicial system - two reasons the new government will have to work on, Richards said. Standard & Poor's does not expect the HDZ's return to power to be a return into international isolation, since in the past four years significant changes have been made, resulting in significant democratisation of the country. The agency also notes that the HDZ itself had gone through important reforms since 2000 and that its leader Ivo Sanader had already said that his party would meet all the conditions for EU membership. INDUSTRIAL OUTPUT GROWTH MILDLY SLOWING DOWN The growth of Croatia's industrial output is mildly slowing down. Industrial production in this year's August-November period was three percent higher than at the same time in 2002. However, compared to this year's May-July period, it went up by a mild 0.7 percent, the Central Bureau of Statistics said. 2. BANKING AND FINANCE MAGAZINE: ZABA AND PBZ LEADING CROATIAN BANKS The Zagrebacka Banka (ZABA) and the Privredna Banka Zagreb (PBZ), are leading Croatian banks, according to relevant indicators of bank activities in Croatia in the first half of 2003. According to the financial journal 'Privredni Vjesnik', ZABA and the PBZ account for over 44 percent of all bank assets in the country. They granted over 40 percent of all loans in the first half of this year, and 47 percent of all savings were deposited in these two banks. ESB PRESENTS FIRST CHIP BANK CARD IN CROATIA Erste & Steiermaerkische Bank (ESB) on Wednesday presented the first Maestro Cirrus bank card in Croatia using chip technology which the bank's clients will be able to use as of early next year. ESB has invested about five million kuna to replace the current magnetic cards with chip cards, which have been designed by the Austria Card company, said Goran Djoreski, head of the ESB department for credit card transactions. The Maestro Cirrus chip card will be connected to the current account in ESB. The bank plans on introducing chip technology for all existent cards by mid-2005. 3. ACTIVITIES OF GOVERNMENT, MINISTRIES AND STATE INSTITUTIONS VIKTOR LENAC SHIPYARD TO FILE FOR BANKRUPTCY - ECONOMY MINISTER The Croatian government is not willing to participate in the further financing of the Viktor Lenac shipyard and its CEO Ognjen Antunac will have to initiate bankruptcy proceedings, Economy Minister Ljubo Jurcic said on Thursday. The government has also decided to direct US$1.8 million from an investment loan into the Workers' Claims Fund, he said after a closed government session. Jurcic hoped the decision would satisfy both workers and trade unions, that production would continue, and that the establishment of the Viktor Lenac Undergoing Bankruptcy company would help fulfil all the contracts for which the Rijeka-based shipyard had been given funds and government collateral. If creditors agree, the bankrupt company will continue operating and their claims will be settled in the bankruptcy proceedings, said the minister. Jurcic added that Croatian suppliers would have trouble collecting their claims from the shipyard in the bankruptcy proceedings, but that they could transform their claims into part-ownership in the new company if they arranged so with the government. The shipyard can generate between US$60 and 70 million annually, employing 600-800 workers, he said, adding that the government believed production had to continue and jobs be kept. Jurcic recalled the government was the shipyard's biggest creditor with more than EUR70 million, and that during bankruptcy proceedings the government was in a much better negotiating position than until now. STATEMENT FROM CLOSED-DOOR GOVERNMENT SESSION The Croatian government on Thursday held its first session after last weekend's parliamentary election. Outgoing Prime Minister Ivica Racan had said previously the current government would carry out only techniical tasks before the new one was formed. A statement from Thursday's closed session says that the government was briefed about the implementation of commitments from the Stabilisation and Association Agreement between Croatia and European Communities and their members. The government adopted several decisions, including on the write-off of parts of government claims and the setting of salaries of officials and people employed with legal persons established by the state. The Racan cabinet also passed several decrees and decisions on appointments and dismissals. The government extended a decree on the salaries of teachers in primary and secondary schools, whereby next year's salaries remain the same as this year, i.e. do not lag behind those in the economy. MINISTRY GRANTS INCENTIVES TO FIRST TEN BUSINESS CLUSTERS The Ministry of Trades, Small and Medium-Sized Enterprises has granted incentives in the amount of 614,000 kuna to the first ten business clusters, the ministry said in a statement on Friday. The programme of incentives is designed for business associations, members of clusters, and other institutions that will prepare feasibility studies and projects for the development of clusters. The first initiatives are intended for the establishment of clusters in the wood-processing, metal-processing, automobile and shipbuilding industries. Under the programme, a non-repayable incentive may range between 3,000 and 100,000 kuna for business owners, 20,000-70,000 kuna for institutions, and 30,000-100,000 kuna for cluster leaders, the statement said. KATAVIC: CROATIA DECLARED FISHING ZONE AT THE RIGHT MOMENT The Croatian assistant minister for fisheries, Ivan Katavic, said on Friday that Croatia had declared a fishing and ecological zone in the Adriatic at the right moment as declaring such a zone after the Venice conference would have been "out of place". Katavic was speaking at a press conference in Zagreb, presenting the declaration on sustainable fisheries in the Mediterranean that had been adopted at the ministerial conference in Venice earlier this week. "The message of the declaration is 'stop precedents', but article 10 clearly says that the existing precedents should be taken into account," Katavic said. He took questions from the press as to whether Croatia would have been able to declare a protected fishing zone after the Venice conference at which 36 interested countries had agreed on common mechanisms to revive and protect fisheries in the Mediterranean. "It would be out of place to reach out for a mechanism of this kind, because (the declaration) instructs for such decisions to be coordinated and based on dialogue," Katavic said. "I think the decision was made at the right time. Perhaps it would have been better if it had been made even earlier, but it was made at the last moment," he added. Katavic said that by adopting the declaration the Mediterranean nations had shown the political will to gradually apply measures for the recovery and establishment of sustainable fisheries. "In order to achieve this, it is necessary to expand national jurisdictions to establish protected fishing zones," he said. "Otherwise the fishing industry will collapse and that will result in a social crisis in coastal areas and a serious threat to the Mediterranean way of life." Katavic said that it was particularly important that the declaration set time limits for the implementation of given measures. By October next year, the General Fisheries Commission for the Mediterranean should put together scientific assessments, propose ways of monitoring biological stocks in the Mediterranean, and draft a programme for the regulation of fishing, with an emphasis on protected areas, he said. A system of control of the sea and ports using state-of-the-art technology and effective measures for the punishment of illegal fishing should also be in place by that time, Katavic said. 4. COMPANIES COCA COLA PRESENTS FIRST SOCIAL REPORT FOR CROATIA Coca Cola Beverages Croatia has drawn up its first social report for Croatia, with information on the company's market position, work environment, and the effects of the company's business on the environment and community it operates in. Ahead of the presentation of the report, the first of its kind not only in Croatia, but also in Coca Cola's international corporate system, company officials last week held a discussion on the social responsibility of the economy. Speaking about the reasons for drawing up the report and organising the discussion, Coca Cola Beverages Croatia CEO Bruno Filipi said that social responsibility, together with environmental and economic responsibility, was the basis of sustainable business and development. Filipi also said that the company had already issued an ecological report last year. PLINACRO GRANTED ISO 9001:2000 QUALITY CERTIFICATE Plinacro d.o.o., a Croatian gas supply company, has been granted the quality management system certificate ISO 9001:2000, company officials said in a statement last week. Plinacro is owned by the state and was established in 2001 as part of the INA Group. In March 2002, it left the group to become an entirely state-owned company. The ISO 9001:2000 certificate was granted by the Bureau Veritas Quality International agency. KUTJEVO COMPANY MADE A LOSS IN FIRST NINE MONTHS THIS YEAR The company for production and transport of agricultural produce, called Kutjevo, recorded a loss of 11.5 million kuna in the first nine monthsof this year, while it realised a prfit of 802,000 kuna in the January-September period in 2002. According to a financial report the company forwarded to the Varazdin Stock Exchange, the entire earnings fell by one percent to 232.5 million kuna in the first nine months of 2003 as against the same period last year. The expanses rose by 4.5 percent to over 244 million kuna. The company's leadership ascribed poorer business results to this summer's drought. IPK KANDIT RECORDED A PROFIT OF 3.8 MILLION KUNA The sweets producer in the eastern Croatian city of Osijek, 'IPK Kandit', realised a net profit of 3.8 million kuna in the first nine months 2003, according to a financial report the company forwarded to the Varazdin Stock Exchange. The entire earnings came to 95.5 million kuna, while the expenses totalled 91.6 million kuna. The profit from the sale in Croatia was 57.9 million, and the rest was from the sales abroad. PLIVA HOLDS RESEARCH AND DEVELOPMENT DAY IN LONDON Croatia's leading pharmaceutical company Pliva last week held its fourth Research and Development Day in London, the purpose of which was to acquaint investors and analysts with the latest developments in the company's product line in the segment of research and development, company officials have said. The company is currently developing more than 60 generic molecules for EU and USA markets, and this year alone it submitted 590 applications for new generics, consisting of 30 molecules or 105 products. Since the beginning of this year, Pliva has been granted market approval for seven molecules in Central and East Europe, for 18 molecules in Western Europe, and for two molecules in the USA. More than 600 generics are undergoing registration procedure, including 518 in Central and Eastern Europe, 120 in Western Europe, and nine in the USA. Zelimir Vuksic, a member of Pliva's management board and President of Pharmaceuticals, said the results for the third quarter showed that Pliva had begun the organic growth investors had expected of it. "With over 700 applications pending market approval and more than 60 molecules continuously in development, we believe that we will only continue to prove our strategy a success in the future," Vuksic said. MOBILKOM AUSTRIA GROUP OPERATES SUCCESSFULLY All four telecommunications companies which are part of the mobilkom austria group, including Croatia's VIPnet, operated successfully in this year's third trimester. The group generated EUR537.1 million in revenue, an increase of 5.4 percent. Also in this year's third quarter, the group recorded an 8.6 percent increase in the number of users, which now exceed 4.6 million. With 1.18 million users by this year's third trimester, Croatia's VIPnet recorded a 15.8 percent increase as against the same time last year. The company has thus raised its share on the Croatian market by three percent to a total of 50.1 percent, VIPnet said. The company's revenue has gone up 11 percent, to EUR110.5 million, while pre-tax revenue went down 4.8 percent to EUR34.1 million which, according to VIPnet, is due to additional investments into the advancement of the network's quality. Mobilkom austria group also includes Austria's mobilkom austria, Slovenia's Si.mobil, and Liechtenstein's mobilkom. "COMPUTER ASSOCIATES" TO OPEN OFFICE IN CROATIA The "Computer Associates" company (CA) will open its office in Croatia this week. CA officials presented the company's business activities and security management program solutions "eTrust Security" at a news conference in Zagreb last week. CA has been present on the Croatian market since 1983. The company's clients in Croatia include the INA oil company, the FINA payment system service, Privredna Banka Zagreb, Zagrebacka Banka, Croatian Railways, the Zagreb city government, the Lura food company, and Croatian Radio and Television. CROATIAN MINI-BREWERY DELIVERED TO SERBIA The Zagreeb-based manufacturer of mini reweries, IPIM b, has delivered the first mini-brewery to Belgrade's Zelturist company which will open its mini-brewery on Friday, November 28, IPIM said in a statement. The is the first delivery of a mini-brewarey to Serbia and Montenegro. The job is worth more than EUR530,000. 5. INTERNATIONAL COOPERATION EU TO ENCOURAGE EU HOPEFULS INCLUDING CROATIA Leaders of the European Union, who will convene in Brussels on 12 and 13 December, will forward a message of encouragement to countries which may enter the Union in the future. According to a draft agenda of the meeting, the Italian Presidency over the EU has emphasised aspirations of Bulgaria, Romania, Turkey and Croatia for joining the EU. As regards Croatia, the document reads that Zagreb's membership application will be considered in the first half of 2004 and that the EU will fully and effectively support Croatia's European prospects. The Brussels meeting is to revolve around economic growth, freedoms, security and safety, foreign affairs and the EU's expansion. 6. UNIONS TRADE UNION PRESENTS ITS EXPECTATIONS OF NEW PREMIER The president of the Association of Trade Unions of Croatia (URSH), Boris Kunst, voiced hope on Thursday that the new premier would not repeat the mistakes of his predecessor, "who met with the social partners only six months after the elections". "The new government should hold talks with its social partners at the very beginning of its mandate," Kunst said at a news conference. "The HDZ has been given a big new chance to make good for conducting an immoral privatisation process until 2000 and not to repeat the same mistake of letting tycoons plunder citizens," Kunst said. Along with the announced reduction of the VAT rate to 20 percent, the URSH also seeks the introduction of a five-percent VAT rate for basic food products, children's footwear and clothing, and an increase in unemployment allowances, as well as an urgent reform of the judiciary. The union also advocates the reduction of the number of ministries, but it also warns that job safety has to be taken into account in doing so. UNIONS ASK NEW GOVT TO START SOLVING PROBLEMS IN CROATIAN TELECOM The Croatian Telecom (HT) Workers Union warned on Friday about the situation in the company and urged the new government to immediately start solving it, otherwise the union would organise mass-scale protests. The Croatian Telecommunications Trade Union and the National Union of Postal and Telecommunication Workers urges the new government to reveal the content of an agreement on the sale of 16 percent of HT shares to Deutsche Telekom and explain what it intends to do with the remaining 49 percent of shares. Union leaders said they had information that 2,000 HT workers could be left without their jobs next year. They claim that Deutsche Telekom, the HHT's majority owner, dictatesthe pace of dismissals and that the new government should urgently react to preserve the existing jobs. UNION ASSOCIATION OPPOSES ARRIVAL OF FOREIGN WORKERS The Croatian Association of Trade Unions (HUS) is oppose the government's decision to approve the arrival of 700 workers from abroad, to work mostly in shipyards, HUS officials said in Split on Thursday. According to the HUS, a total of 1,100 unemployed shipyard workers are currently registered at the Croatian Employment Bureau. 7.ASSOCIATIONS CROATIAN EMPLOYERS' ASSOCIATION HAS NEW DIRECTOR-GENERAL The board of Croatian Employers' Association (HUP) members on Monday relieved Zeljko Ivancevic of duty as HUP director-general, and appointed Bernard Jakelic to this post. Jakelic was until now the head of the HUP office in Osijek, the HUP reported on Tuesday. Ivancevic told reporters Monday that his replacement was the consequence of a conflict between two concepts of the association's future development. He said that he had been preparing the HUP's reform for three years, trying to grant more powers to the board of members and make it possible for all members, whether they were small or big companies, to have balanced influence. On the other hand, there are some who would like the HUP's executive committee to remain the centre for decision-making and enhance its powers, Ivancevic added. MANAGER OF THE YEAR AWARDS PRESENTED The Croatian Association of Managers and Entrepreneurs on Tuesday awarded managers whose companies generated a combined 1.5 billion kuna in revenue this year. Association president Ivan Sovicek told reporters the awarded managers' companies exported about 60 percent of their output, and had themselves opened 350 jobs and between 1,500 and 2000 more through their partners in 2003. He recalled the Association's priority was a manager training programme through the Association's Managers Academy. Sixty nominees ran in the Manager of the Year category. Marijan Ritosa, CEO of the Istradrvo company, was voted Entrepreneur of the Year, while the Manager of the Year award for major companies went to Ljerka Cerc, CEO of Inker, and Vladimir Ferdelji, CEO of Elektro- kontakt. The Manager of the Year award for medium-sized companies was presented to Metis CEO Dusan Dragicevic, while the same award for small companies went to Ivan Sencar, CEO of EURO-UNIT. The Lifetime Achievement award went to Ante Gavranovic, publisher of the Privredni vjesnik economic bulletin and economic journalist. ASSOCIATION: QUALITY, PRICES OF HOTEL SERVICES BALANCED The current quality and prices of hotel services in Croatia are balanced and satisfactory, and any increase in prices of more than 2-3 percent, if not accompanied by investments into the quality of services, would decrease the competitiveness of the Croatian hotel industry and tourism on the international market. This was stated by the newly-elected president of the Croatian Association and Hotel and Restaurant Managers (HUH), Franco Palma, at the HUH's 7th congress, which opened at Zagreb's Sheraton Hotel on Thursday. The main topic of the congress, which is attended by some 200 hotel managers, is the quality and price of hotel services. Palma said that the relationship between the quality and prices of hotel services in Croatia was satisfactory in comparison to other Mediterranean countries. New increases in prices will require additional investments in the reconstruction and equipment of tourist facilities, staff and new products, he said. Palma believes these changes may take five to ten years to implement. He added that better competitiveness required a reduction in the VAT rate and other state incentives, as well as better co-ordination of agriculture and other production branches. This year's HUH congress is held under the auspices of President Stjepan Mesic and the Tourism Ministry. CROATIAN FISHERMEN CONDEMN BEHAVIOUR OF ITALIAN, E.U. POLITICIANS The Croatian Fishermen's Union on Friday condemned Italian and European Union politicians for "exerting pressure on the Croatian delegation at the Venice conference on sustainable fisheries in the Mediterranean, who were to defend the decision by the Croatian parliament to declare a protected ecological and fishing zone in the Adriatic." With the parliament's decision to proclaim a protected ecological and fishing zone, the Croatian fishermen have won "the first half of the game", but the real duel with "arrogant politicians from the EU" is yet to come, union leader Petar Baranovic told a press conference in Split. "The decision by the Sabor, which we fully support, is legitimate and justified, and is based on the provisions of the International Convention on the Law of the Sea. But it is obvious, as was indicated by the political atmosphere at the conference in Venice, that the Italian and Slovene representatives insist that the Croatian part of the Adriatic should remain as a supermarket without a checkout," Baranovic said. The union leader accused Italy of leading "perfidious" politics towards Croatia, and called on the Croatian government not to submit to the political pressure but rather protect the basic economic interests of Croatian fishermen. The Fishermen's Union supports the introduction of protective measures to preserve fish stocks and insists that Croatia should not accept any commitments regarding the division of the catch and resources in the Adriatic. "Only after models of exploitation of the ecological and fishing zone are defined can we discuss the division of the fish stock," Baranovic said. 8. FAIRS, CONFERENCES, FORUMS VENICE CONFERENCE ON FISHERIES ENDS A conference on sustainable development of fisheries in the Mediterranean, which pooled representatives from 36 countries, ended in Venice on Wednesday with the signing of a ministerial declaration on a wide consensus on the need for promoting the management of fisheries in the Mediterranean. The conference was organised by the European Commission and the Italian EU Presidency, and the declaration was signed by all 36 European and Mediterranean countries, as well as Russia and Japan, which have fishing fleets on the open seas of the Mediterranean. The ministers who attended the conference agreed in the declaration that the General Fisheries Commission for the Mediterranean (GFCM) should grow into a regional organisation for fisheries. It was decided that the GFCM's scientific committee should draw up concrete proposals and estimates about endangered stocks by October 2004. It is noted in the document that the proclamation of protected fishing zones will facilitate the protection and control of fishing thus contributing to a better management of resources and the fight against illegal fishing. The document recommends a careful analysis of ways to declare such zones which would take into account precedents and the need to apply a harmonised regional approach adapted to fishing requirements and based on dialogue and co-ordination. In an area like the Mediterranean, with shared resources and strong historical ties among neighbouring countries, problems cannot be solved with unilateral action, said the EU's agriculture and fisheries commissioner, Franz Fischler, alluding to Croatia's decision to expand jurisdiction in the Adriatic and possible similar moves by other countries. Croatia, which was indirectly criticised at the conference for its "unilateral" decision to declare a protected ecological and fishing zone, was also directly named at the closing news conference. The Italian under-secretary for fisheries, Paolo Scarpa Bonnano, said he believed that there was a problem and that the Croatian government would have to accept a multilateral approach to solving it. "I believe that the Croatian government, with whose representatives we have talked in Venice, has to accept that the approach to solving the problem must be multilateral. Unilateral action, if taken, will lead to significant disturbing developments," Scarpa said. Croatia has postponed the implementation of its decision until 3 October 2004. Croatian Deputy Foreign Minister Ivan Simonovic said the Croatian delegation had reason to be satisfied with the outcome of the conference. "Although allusions were made to the effect that more attention should be paid to co-ordination, Croatia was not directly criticised at the conference. I think that the conference appreciated the fact that, although it has expanded jurisdiction, Croatia has postponed implementing the decision for one year in order to carry out some proposals, including a subregional meeting in Zagreb," he said. Under-secretary Scarpa said that it still had not been decided where the proposed Adriatic conference would be held - in Rome, Zagreb or Slovenia. The Croatian delegation attending the Venice conference agreed to continue bilateral talks with Italy and Slovenia and invited all Adriatic countries to the subregional meeting in Zagreb. It was also decided that the Croatian-Italian commission for fisheries should resume meetings. SMALL ECONOMY ACCOUNTS FOR 55 PCT OF GDP Investing in the education and training of entrepreneurs, development of infrastructure supporting entrepreneurship and government incentives to said branch are the main guidelines for the strengthening and development of small and medium-sized enterprise, participants in the Small Economy Forum concluded on Thursday. The annual growth rate of small economy in Croatia in the 1996-2002 period was 1.5 percent, the branch accounts for 55 percent of Croatia's GDP and last year employed 636,000 people. The Forum was organised by the Croatian Chamber of Economy and the Croatian Association of Employers. INTERNATIONAL AUTUMN FAIR OPENS IN SPLIT The international autumn fair "Inter Split 2003" was opened in the southern Adriatic city of Split on Thursday. Some 100 companies from Croatia, Italy, Slovenia and Bosnia-Herzegovina will exhibit their products at the fair on equipment for interiors and tourist facilities.