BUSINESS NEWS BULLETIN NO 254

BUSINESS NEWS BULLETIN No 254 10th - 16 thDecember 2001 CONTENTS: ? RETAIL TRADE IN CROATIA INCREASES 2 ? RETAIL PRICES IN NOVEMBER DROP BY 0.2 PERCENT 2 ? AVERAGE NET WAGE NET WAGE IN SEPTEMBER DROPS BY 136 KUNA 2 ? EMPLOYMENT RATE IN OCTOBER DROPS 2 ? 385,300 UNEMPLOYED PERSONS IN CROATIA IN NOVEMBER 2 ? OUT OF TOTAL, ONLY 70 PERCENT ARE TRULY UNEMPLOYED 2 ? TOURIST SPENDING IN CROATIA AMOUNTS TO USD3.75 BILLION 2 ? FINANCIAL MARKETS 3 ? CROATIA ISSUES EUR 200 MILLION IN GOVERNMENT BONDS 3 ? CROATIAN AND MACEDONIAN BANK FOR DEVELOPMENT SIGN AGREEMENT 3 ? FIN. MIN. SAYS BUDGET'S CHIEF PARAMETRES REMAIN UNCHANGED 4 ? PRIME MINISTER ON BUDGET, DEPUTY PM ON HUMAN RIGHTS 4 ? ALL PRODUCTS CONTAINING GMO SHOULD BE MARKED 4 ? GOVT RECOGNISES MPS SUGGESTIONS ON PAYMENT TRANSACTIONS 4 ? PM RACAN OPENS NEW PLANT AT DRUGS COMPANY PLIVA 5 ? CROATIAN RAILWAYS TO INVEST USD268 MILLION IN ITS MODERNISATION 5 ? PRICES OF ELECTRICITY MIGHT INCREASE 5 ? CROATIAN COMPANY TO MODERNISE PRISTINA AIRPORT 5 ? 189 CROATIAN TRAVEL AGENCIES' OFFER AVAILABLE ON JOINT INTERNET SITE 5 ? HEP, INA DO NOT EXPECT DIFFICULTIES IN POWER, GAS SUPPLY 5 ? CROATIAN INFORMATION TECHNOLOGY MARKET THIS YEAR WORTH USD 380 MIL 6 ? BOSNIAN COMPANY BUYS CROATIAN CONFECTIONERY INDUSTRY 6 ? 13,700 NEW WORKERS EMPLOYED IN CRAFTS THIS YEAR 6 ? AQUACULTURE DEVELOPMENT STUDY FOR NERETVA RIVER VALLEY 6 ? EUROPEAN PARLIAMENT RATIFIES TWO AGREEMENTS WITH CROATIA 6 ? COLLECTIVE AGREEMENTS FOR PUBLIC AND STATE SERVICES SIGNED 6 ? CROATIAN EMPLOYERS' ASSOCIATION ON BUDGET FOR 2002 7 1. ECONOMIC INDICATORS RETAIL TRADE IN CROATIA INCREASES Retail trade in Croatia in October increased in nominal value by 3.4 and in real value by 3.5 percent in relation to September, the State Bureau of Statistic said in a statement. In relation to October 2000, retail trade nominally increased by 6.9 and really by 5.3 percent. RETAIL PRICES IN NOVEMBER DROP BY 0.2 PERCENT Retail prices in Croatia in November dropped by 0.2 percent as against September, while living costs increased by 0.1 percent, the State Bureau of Statistics reported. Retail prices in November increased by 2.8 percent as against the same months the year before. In the first eleven months of 2001 retail prices increased by 5.1 percent in relation to the same period the year before. AVERAGE NET WAGE NET WAGE IN SEPTEMBER DROPS BY 136 KUNA The average net wage in Croatia in September amounted to 3,431 kuna, which is in nominal value 3.8 percent (136 kuna) and in real value 4.1 percent less than in August, read data of the Croatian Bureau of Statistics. In relation to the same month the year before, the average net wage in September in nominal value increased by 3.9 and in real value by 0.3 percent. EMPLOYMENT RATE IN OCTOBER DROPS According to the State Bureau of Statistics, the number of employed persons in Croatia in October dropped in relation to the month before. The number of employed persons in Croatia in October amounted to 1,333,346, which is 0.3 percent (or 4,324 persons) less than in September. 385,300 UNEMPLOYED PERSONS IN CROATIA IN NOVEMBER Around 385,300 unemployed persons were registered in the Croatian Employment Bureau in late November 2001. According to the State Employment Bureau, there were 0.5 percent more unemployed persons in November as against the month before. In relation to November 2000, the number of unemployed persons increased by 2.3 percent. OUT OF TOTAL, ONLY 70 PERCENT ARE TRULY UNEMPLOYED Of the total 285,254 registered unemployed persons, only 70 percent can be considered truly unemployed according to international standards, director of the Croatian Employment Bureau, Sanja Crnkovic Pozaic, said on Monday. International criteria state that an unemployed person is a person who is eligible for work and is actively looking for a job. The results of a recent labour force survey indicate that of the 30 remaining percent, 12.7% are not prepared to accept an offered job, while 13.2% want to work, but are not active in looking, Pozaic told a news conference. She added that 7.9% of registered unemployed are moonlighting, and 5.4% said they do not want to work since they are receiving permanent social welfare. "The goal of amendments to the Employment Law and the new rule book on active job searching is for only truly unemployed people to be registered, so that the measures of active employment policy could be limited only to those who are unemployed and wish to work," Pozaic stressed. She explained that with such a "tidying up" of the registry of unemployed, unemployment could in the next two years drop by 30 percent. The trend of slowing down of the registered unemployment rate continues, so the annual growth rate in November was 2.3%, while last year it was 12.9 percent. A total of 25,554 new people registered with the Employment Bureau, while 12,547 found jobs in November, mostly in state administration and public companies. "This means that the state is still the chief generator of jobs in Croatia," Pozaic said. Last month employers registered 15,429 new jobs, 4,000 more than last year, but 5,000 less than in October. By qualifications, most unemployed under 45 years of age are among those qualified and highly qualified. Concerning is the number of 4.1% young unemployed people with university degrees, which is higher than the international average of three percent, she said. Pozaic stressed that it was encouraging that unemployment was decreasing among the youngest categories of the population from 15 to 34 years of age. TOURIST SPENDING IN CROATIA AMOUNTS TO USD3.75 BILLION The total tourist spending in Croatia in the first nine months of 2001 amounted to US$3.75 billion which is 14 percent more than in the same period the year before. Of this amount, foreign tourists spent over US$3 billion (21 percent more) and domestic tourists spent US$732 million or 7.4 percent less than the year before. At working table called "Croatia's Tourism in 2001 and 2001", director of the Tourism Institute, Ante Radnic said Croatia can expect an increase in the number of overnight stays in 2002 by about 11 million. Tourism Minister Pave Zupan Ruskovic and director of the Croatian Tourism Association Niko Bulic addressed the present. 2. FINANCIAL MARKETS MOST TRADED STOCKS AT THE ZAGREB STOCK EXCHANGE, Dec 10-14., 2001. No Stock Final price (HRK) % change Turnover (HRK) 1. RHMF 100,35* - 29.708.053 2. DAB-O-05C 106,00* - 9.654.587 3. DAB-O-03C 101,96* - 9.227.450 4. Pliva 420,00 1,94 4.070.806 5. Podravka 157,00 -1,89 3.597.487 6. Zagrebačka banka 0 1.720,00 -2,82 2.968.909 7. Sunčani Hvar 47,51 -4,02 1.022.150 8. Riviera 135,00 -4,93 995.417 9. Riječka banka 200,00 -7,83 936.881 10. Karlovačka pivovara 475,00 -1,04 761.469 TURNOVER 66.945.458 CROBEX -1,48 1.025,40 * per cent of face value MOST TRADED STOCKS AT THE VARAŽDIN OTC MARKET, Dec 10-14., 2001. No Stock Final price (HRK) % change Turnover (HRK) 1. Kepol 107,00 7,00 13.060.527 2. DRC Puntižela 400,00 - 11.583.600 3. Koestlin 80,00 - 7.474.720 4. PIF Dom 74,01 13,86 6.803.571 5. PIF Expandia 57,00 7,63 6.738.631 6. PIF Središnji nacionalni 75,00 4,17 5.111.465 7. PIF Sunce 38,00 15,15 4.800.601 8. PIF Slavonski 42,11 9,32 4.634.419 9. RHMF 40,10* - 2.560.019 10. PIF Pleter 50,00 11,11 2.523.512 TURNOVER 70.911.481 VIN 4,84 816,30 * per cent of face value 3. BANKING AND FINANCE CROATIA ISSUES EUR 200 MILLION IN GOVERNMENT BONDS Seven Croatian banks will issue EUR200 million in new government bonds on Dec. 14. A contract to that effect was signed on Wednesday. The contract was signed by Finance Minister Mato Crkvenac and representatives of Privredna Banka Zagreb and Zagrebacka Banka, which are the agents and leading arrangers in the issuing. Rijecka Banka and Raiffeisenbank Austria are participating as fellow leading arrangers, Splitska Banka as arranger, and Erste & Steirmarkische Bank and Hypo Alpe-Adria-Bank as co-arrangers. The bonds will be issued for a seven-year period, with a 6.875 percent yield, denomination in the euro and the settlement of interest and capital in the domestic currency, according to the Croatian National Bank's central rate. The bonds will be listed on the Zagreb Stock Exchange and the Central Deposit Agency. Trading on a secondary market is expected immediately after the issuing. The latest bonds will settle all issues in connection with budgetary revenue for this year as the revenue from privatisation has not been in line with expectations, said Minister Crkvenac. He added the budgetary year was nearing completion with the orderly execution of commitments. The government is working towards keeping as many transactions as possible on the domestic financial market. Activities to that end will be intensified in 2002. Two financial operations on the international market are planned for next year, said the minister. January or February will see the issuing of bonds worth probably EUR500 million, and another issuance six months later, with an eye on the Japanese market. CROATIAN AND MACEDONIAN BANK FOR DEVELOPMENT SIGN AGREEMENT The Croatian Bank for Reconstruction and Development (HBOR) and the Macedonian Bank for Development (MBPR) signed a cooperation agreement in Skopje on Tuesday. The agreement, signed by HBOR Management Board president Anton Kovacevic and MBPR director Vladimir Naumovski, is based on the strengthening of business relations of the two institutions. The agreement aims at encouraging economic cooperation between the two countries within the competence of the countries signatories to the agreement.The cooperation includes the exchange of information regarding businesses of mutual interest, particularly in the field of financing, export insurance and investment insurance, participating in joint projects in third countries, the exchange of experience the and organisation of seminars and the education of personnel. 4. ACTIVITIES OF GOVERNMENT, MINISTRIES AND STATE INSTITUTIONS FIN. MIN. SAYS BUDGET'S CHIEF PARAMETRES REMAIN UNCHANGED The government's new version of the draft state budget for 2002 brings the same financial policy and chief parameters as the original one, with all the changes referring to reallocations, the finance minister told parliament on Tuesday, defending the final budget draft and the government's amendments. The six amendments moved by the government took parliamentary debates as the starting point, said Minister Mato Crkvenac. The amendments reduce customs revenue by 50 million kuna, propose ensuring another 100 million for the Regional Development Fund, and earmarking additional funds for culture, science, and the judiciary. The amendments also propose ensuring for national minorities the funds they had in this year's revised budget, namely 19 million kuna, and earmarking 20 million for damages to the Esuli. The government seeks saving on official trips, representation, and office costs, and has found room in a series of items to save another 140 million kuna. One of the amendments refers to the salaries of budgetary beneficiaries. The total amount for the salaries, 14.1 billion, would not be changed but certain reallocations could be made in the course of the year. Crkvenac said the government would continue implementing resolute rationalisation measures in the administration, employment, even in items pertaining to salaries. The government seeks parliament's approval to carry out internal reallocations of up to one percent of budgetary expenditure, around 760 million kuna, to provide room to support reforms. Minister Crkvenac dismissed claims from the opposition's Croatian Democratic Union that such an authority would give the government the chance to manage budgetary funds without parliament's influence and that it had no footing in legislation. If the need for such a reallocation occurred during the year, the government would notify the parliament, said Crkvenac. The latest budget draft reduces the budgetary deficit from this year's 5.3 to 4.25 percent of Gross Domestic Product, as well as the current deficit and indebtedness, and increases saving. The finance minister reiterated the draft was socially just and development-oriented. The government insists the 76.887 billion kuna (approx. US$ 9.3 billion) amount for next year's budget must not be changed, and that certain needs should be met through reallocations. (US$1 = 8.27 kuna) PRIME MINISTER ON BUDGET, DEPUTY PM ON HUMAN RIGHTS Croatian Prime Minister Ivica Racan on Thursday expressed satisfaction with the fact that the parliament adopted the state budget for next year several days before the deadline. The budget adopted by the parliament was necessary. On the one hand it will facilitate making as many restrictions as possible, and on the other secure development, Racan said at a regular government session. He thanked all ministries which helped draft the budget as well as parliamentary deputies. The state budget for 2002 was adopted in the early hours of Wednesday after almost 15 hours of voting on some 400 amendments. The 2002 budget amounts to around 77 billion kuna. ALL PRODUCTS CONTAINING GMO SHOULD BE MARKED Environmental Protection and Zoning Minister Bozo Kovacevic said at a round table on genetically modified organisms (GMO) Monday that all products containing GMO should be appropriately marked so that a consumer has an option to chose between products. The ministry organised a round table on a protocol on biological safety in order to re-examine the public's opinion about GMO before the ratification of the Kartagena Protocol. The fact that the GMO food is not being produced in Croatia and that initiatives for the stimulation of ecological agriculture were getting stronger, opens a unique possibility for Croatia to be recognised as a country of preserved nature and healthy food, Kovacevic said. Representatives of various ministries and non-governmental ecology organisations supported the Environmental Ministry's standpoint regarding GMO. GOVT RECOGNISES MPS SUGGESTIONS ON PAYMENT TRANSACTIONS The Croatian parliament's Committee for Finances and Government Budget on Thursday adopted the government's amendments to the final bill on payment transactions, according to which the Croatian Posts (HP) may make payment transactions, pursuant to an agreement with the Postal Bank. The amendments were suggested by the government after Wednesday's discussion in which parliamentary party benches demanded that the Croatian Posts should be enabled to many the transactions. According to the amendments, the Postal Bank is obliged to sign a contract with the HP, by which the HP would take care of transactions of citizens towards legal entities, so citizens could still pay their bills in post offices. The Committee committed the government to, until the new law comes into effect on April 1, harmonise the law with the Law on Savings and Loan Co- operatives. The Co-operatives would thus be enabled to still take care of payment transactions for their members. 5. COMPANIES PM RACAN OPENS NEW PLANT AT DRUGS COMPANY PLIVA Prime Minister Ivica Racan on Wednesday inaugurated a new plant of the pharmaceutical company Pliva, for the manufacturing of non- liquid oral drugs, in which around 640 million kuna (approx. US$77.2 million) were invested. Over the past three-four years, Pliva's investments reached some 2.5 billion kuna (approx. US$303 million), making it one of the biggest domestic investors. Although foreign institutions own 75 percent of the company, 70 percent of the entire profit is invested in development. CROATIAN RAILWAYS TO INVEST USD268 MILLION IN ITS MODERNISATION Croatian Railways (HZ) plan to invest 2.2 billion kuna in the modernisation and renovation of the main roads' infrastructure, and new transport capacities in 2002, the HZ management president, Marijan Drempetic, told journalists Thursday. Plans for the future include connecting Zagreb and Split by 2004 with passenger trains in less than five hours. This requires a complete adjustment of infrastructure on roads through the Lika region. The project will be completed by 2003, followed by the introduction of much faster tilting trains. Related to this is a project of electrification of the entire passenger route which would connect central Croatia with its south and all other cities in Europe, Drempetic said. He added that in the first nine months of 2001, 27 million passengers have travelled with HZ, which is an increase of 7.3 percent in relation to the same period last year. A total of 8.5 million tonnes of cargo were transported by freight trains, or 5.7 percent more than in 2000. Revenues from both transport of passengers and the cargo in the first nine months of this year amounted to 527.8 million kuna, which is a 6.3 percent increase. At the same time, revenues from the state budget have been decreased by 26.4 percent, to 786.1 million kuna. A share from the state budget in the overall HZ revenue has dropped from 58.1 percent to 45.1 percent. Planned investments for 2001 in the amount of 750 million kuna will be realised with 510 million kuna. The reason for the incomplete realisation of the plan is insufficient technical documentation and incomplete preparations, which are the consequence of a lack of investment funds in earlier years. PRICES OF ELECTRICITY MIGHT INCREASE The price of electricity in Croatia might increase in case of a long-standing market instability, the chairman of the board of the Croatian power supply company HEP, Ivo Covic, said on Tuesday. Several recent developments, including the Enron bankruptcy case, several major power station failures, and the increased winter- time consumption, have increased the price of electricity on the world market by more than 50 percent. Analysts estimate this is a passing disturbance, but if it extends to a longer period of time, HEP's prices will have to rise too, said Covic. The current daily consumption of electricity in Croatia exceeds 50 million kWh, 20-30 percent of which has to be imported. There is nothing new in connection with HEP's relations with Enron, the United States company which filed for bankruptcy earlier this month. The fate of the agreement between the two firms will be known following the legal proceedings underway, said Covic. HEP will wrap up the year 2001, after last year's 700 million kuna (approx. US$84.6 million) loss, with positive financial results. The company's investments this year amounted to 1.6 billion kuna (approx. US$193.5 million). Covic announced an ambitious investment programme for 2002 as well. CROATIAN COMPANY TO MODERNISE PRISTINA AIRPORT Representatives of the Croatian company INGRA signed a contract on the expansion and modernisation of the Pristina airport with the United Nations Civil Mission to Kosovo in Pristina on Thursday. The DM10 million contract covers the expansion of the airport building by 2,000 square metres and the modernisation of existing equipment. Works are expected to take six months. This is the biggest Croatian Chamber of Commerce venture in Kosovo. 189 CROATIAN TRAVEL AGENCIES' OFFER AVAILABLE ON JOINT INTERNET SITE As of Thursday, the offer of all 189 members of the Croatian Travel Agencies Association (UHPA) and the offer of 28 of its associates - the national air carrier Croatia Airlines, the shipping company Jadrolinija, 15 of the biggest hotel chains, and several rent-a-car agencies - is available in one place, on a special Internet site - www.putovanja.hr. The web-site currently includes more than 4,000 various data related to travel agency business and the organisation of holidays, said UHPA director Maja Stanic, who authored the data base. The UHPA members account for around 90 percent of organised tourist business in Croatia. The web-site breaks down the offer by content, destinations, departure dates, and offers advice as to how to travel more safely and more comfortably. HEP, INA DO NOT EXPECT DIFFICULTIES IN POWER, GAS SUPPLY Representatives of the Croatian Power Supply (HEP) company and the INA oil company said on Sunday they did not expect any difficulties in supplying consumers with power and gas. There are problems, but HEP will do everything to ensure the necessary amount of electricity for its consumers, HEP official Mato Pazic said. INA official Darko Karacic said the crisis was over and there would be no reduction in gas supply. CROATIAN INFORMATION TECHNOLOGY MARKET THIS YEAR WORTH USD 380 MIL The Croatian information technology market will be worth US$380 million this year, with an annual growth rate of 11.2 percent in the years ahead, the director of the IDC Croatia company, Boris Zitnik, said on Tuesday. The recently established enterprise is a branch of the International Data Corporation (IDC), one of the largest world companies researching and analysing the information and telecommunications market. IDC Croatia is expected to cover research in the Slovene, Bosnian, and Yugoslav markets as well. The Croatian information technology market is expected to reach US$450 million in 2003 and US$536 million in 2005. This year the global information technology market is expected to reach US$1.101 billion. BOSNIAN COMPANY BUYS CROATIAN CONFECTIONERY INDUSTRY The new majority owner of the Croatian confectionery industry Koestlin from Bjelovar is the company Mepas from Siroki Brijeg, Bosnia which acquired a 72 percent interest. Small shareholders will be given the possibility to buy said shares. Koestlin will remain based in Bjelovar. The new owner's strategic plans include further development and increasing and modernising production. Koestlin will wrap this year with a loss, a 20-percent decline in production, and a reduction in the number of employees from 425 to 350. The company started applying the ISO 9001 quality system a year ago, a project financed by the European Bank for Reconstruction and Development. Mepas is one of the strongest companies in Bosnia, which contracted the distribution of Koestlin products in Bosnia last July. 13,700 NEW WORKERS EMPLOYED IN CRAFTS THIS YEAR Judged by results and activities, this year is one of the most successful for the Croatian Chamber of Crafts, especially in light of the participation of craftsmen in the drawing up of amendments to crafts legislation and the employment of 13,700 new workers. In 2002, the Chamber will dedicate more attention to its organisation. AQUACULTURE DEVELOPMENT STUDY FOR NERETVA RIVER VALLEY The prospects the southern Croatian town of Ploce and the Neretva river valley have for breeding both sea and freshwater fish have led the Split Oceanography and Fishing Trade Institute to draw up an aquaculture development study for the Neretva valley, at the request of Dubrovnik-Neretva County. The study says the valley offers particularly favourable conditions for the breeding of the eel, grey mullet, plaice, carp, and the edible frog, with the possibility of breeding more than 1,500 tonnes of fish annually. Funds for the aquaculture project, worth 41 million kuna, would be secured by Agriculture and Forestry Ministry loans. 6. INTERNATIONAL COOPERATION EUROPEAN PARLIAMENT RATIFIES TWO AGREEMENTS WITH CROATIA The European Parliament approved a Stabilisation and Association Agreement (SAA) and an Interim Agreement with Croatia, which were signed in late October, at a plenary session in Strasbourg on Wednesday. Both documents were okayed by a majority vote and without a debate. The Interim Agreement, which covers trade issues contained in the SAA, has yet to be ratified by the European Union Council of Ministers at its first next session in January. The Agreement is expected to formally go into force on March 1 but will start being implemented as early as Jan. 1. The SAA, which the Croatian parliament ratified last week, now has to be approved by the parliaments of the 15 EU members, which may take two years, or one in the best of cases. "We are very satisfied with how rapidly the European Parliament approved the SAA and the Interim Agreement, as well as with the large support of the representatives," Vladimir Drobnjak, the head of the Croatian delegation to the EU, told Hina. The Croatia-EU SAA is the first to be ratified in the European Parliament. The SAA with Macedonia, signed before the one with Croatia, has not been ratified yet owing to the political crisis and instability in the southern Balkan state. 7. UNIONS COLLECTIVE AGREEMENTS FOR PUBLIC AND STATE SERVICES SIGNED The government and unions of public and civil services on Thursday signed basic collective agreements for public and civil services. Deputy Prime Minister Goran Granic also signed with the union representatives amendments to the provision on salary coefficients, and an agreement on the basis for jubilee awards, the amount of money for gifts for children and Christmas bonuses. The government at first suggested that the Christmas bonus and children's gift should amount to 250, which the unions refused. In the end, an agreement was reached whereas children's gifts would be 400 kuna, and that instead of the Christmas bonus, the amount be paid only to those employees whose salaries dropped by 100 or more kuna in June. School unions signed with the government a special agreement on Christmas bonus and children's' gift of 250 kuna each. Representatives of the government and unions expressed satisfaction with the signing of the agreements after two months of negotiations. The basic gross salary for next year will remain at the same level, 4,232.43 kuna. Talks with unions lasted for several months and ended last week. The talks were held on a partnership basis, the unions showed readiness to assume responsibility not only for changes, but also for the future of Croatia, Granic said. He assessed that there were great chances for the signing of an agreement for the development of a social pact for the future of Croatia between the government, unions and employers. 8. SUNDRIES CROATIAN EMPLOYERS' ASSOCIATION ON BUDGET FOR 2002 The Croatian Employers' Association (HUP) believes the government has shown a positive attitude towards social partners in drawing up the state budget for 2002. Based on comparisons with the 2001 state budget, one can conclude that the government intends to keep the orientation of a further decrease of the current production which is in accordance with HUP's standpoints and expectations, HUP said in a statement published on its web sites, commenting on the draft state budget for 2002. The HUP also warned that the establishment of new funds could make room for corruption and added that the public control of their business activities had not been envisaged. The HUP expects the government to, along with a discussion on the state budget and priorities of economic development, intensify cooperation with business partners and other social and interest groups in order to reach a broad consensus on the most important economic and social issues.