Labor Market Issues and Regional Differences
According to the Ministry of Tourism and Sports, the shortage of skilled workers is becoming the most pressing problem in this sector[7]. This is primarily due to mass emigration and a low birth rate. According to the latest 2021 census, Croatia has a population of 3.9 million, which is 10% less than in 2011[8]. Demographic trends look even worse than they did during the wars of the 1990s, when 7% of the population left the country. The opportunity to work legally in countries with a higher standard of living (primarily Germany, Austria, and Ireland) is one of the main reasons for mass emigration to the EU, in addition to excessive government bureaucracy, a weak and ineffective judicial system, corruption, and the incompetence of the political elite [9].
Map 3. Changes in Croatia's Population Based on the 2011 and 2021 Censuses
Source: Croatian Bureau of Statistics, dzs.gov.hr.
Data published by the Croatian Bureau of Statistics show that the depopulation process is occurring unevenly. It has mainly affected Slavonia, the flatland region of Croatia located far from the sea (one in five of its residents has left), and to a lesser extent, the more affluent areas along the Adriatic coast and in Zagreb (see Maps 2 and 3). Even in the coastal županijas (counties), development is concentrated along the coast, while inland areas remain largely neglected; this is yet another factor encouraging emigration.
Investments: Attractiveness or Effectiveness?
The low rate of absorption of EU funds is one of Croatia’s main challenges and one of the barriers preventing it from fully reaping the benefits of EU membership. From 2013 to 2022, the country was set to receive up to 10.7 billion euros from European structural and investment funds, but failed to utilize as much as 46% of the approved funds[10]. According to a report by the European Court of Auditors, Croatia was the country with the lowest absorption rate of ESI Funds between 2014 and 2022[11]. The reasons for this financial inefficiency include ineffective public administration, insufficient cooperation between the public and private sectors, corruption, and irregularities related to public procurement. Croatia began to show somewhat better results after 2019, when Gabriela Žalac, who had been accused of involvement in corruption scandals, stepped down from her position as Minister of Regional Development and European Funds [12]. Over the past two years, the country has made significant progress in utilizing EU funds: it is now absorbing up to 72% of the allocated funds [13].
Croatia’s EU-funded investment successes include a flagship project for the region’s energy diversification and LNG infrastructure. Following Russia’s aggression against Ukraine, the floating terminal on the island of Krk emerged as one of the most important projects for securing an alternative to Russian gas supplies to the region. The plan to build the facility in Omišalj on the island of Krk was conceived long before Croatia’s accession to the EU, but pressure from Brussels and Washington was needed to bring it to fruition.
Russian influence in the country and the difficulties of implementing such a large-scale project amid an unstable economic situation were the main reasons for the delay of nearly a decade. The government was also reluctant to fund the project because it could obtain gas from an existing source (until 2021, most of the imported gas did indeed come from Russia). Construction began in 2019 and cost a total of 234 million euros, of which more than 43% came from the EU’s “Connecting Europe” program. The floating LNG terminal finally began operations in January 2021. In its current form, its regasification capacity is 2.9 billion cubic meters per year, but negotiations are underway to increase it to 6.1 billion cubic meters by 2025, which will significantly strengthen Croatia’s role as the region’s energy hub. The expansion of the terminal is important not only in the context of moving away from Russian oil—the government also wants to use this facility to advance its interests in Bosnia and Herzegovina. The Southern Gas Corridor project involves the construction of the first gas pipeline between the two countries, with a capacity of 1.5 billion cubic meters. This gives Sarajevo the opportunity to reduce its dependence on Russian gas, while Croatia gains an important tool for influencing its neighbor.
The construction of the 2.4-km-long bridge to the Pelješac Peninsula is much more controversial in terms of its economic benefits. It was co-financed by the EU and opened to traffic in July 2022 (see Map 4). It connects the enclave around Dubrovnik (separated by a strip of the Bosnian coastline) with the rest of the country. The bridge is Croatia’s largest infrastructure project supported by the EU: its total construction cost was 526 million euros, of which 357 million euros were provided by the EU. The government in Sarajevo sharply criticized the initial plans for the bridge when they were announced in 2005, arguing that it would cut off Bosnia’s only coastal city, Neum, from the open sea[14]. The bridge’s location was changed, but the project was put on hold due to the economic crisis; in 2012, the Social Democratic government of Prime Minister Zoran Milanović (the current president of Croatia) decided to abandon it altogether. It was only after Croatia joined the EU that the investment, dubbed the “project of generations,” was given new life. The bridge is an example of an extremely expensive yet symbolically important project, as it provides a direct link between two previously separated parts of the country. At the same time, it does little to address the most pressing needs of Croatia’s infrastructure network and makes a negligible contribution to the country’s economic development. Although it certainly provides faster access to Dubrovnik, this city—with a population of just over 40,000—is more of a tourist attraction than a center of industry and innovation. Thus, in practice, the project further deepens the country’s dependence on tourism. The rationale for building this connection has also been undermined by the actions of local politicians who are trying to limit the flow of tourists to the “Pearl of the Adriatic.”
Map 4. Major EU Investments: LNG Terminal and the Pelješac Bridge