Can smart specialization save Croatian regions?

Slavonia region, Croatia (Nick Savchenko, CC BY-SA)

It requires that policy makers, working in partnership with various types of actors with entrepreneurial capabilities, examine the opportunities and potentials of regional or national economy, and develop policies that are aimed at facilitating entrepreneurial activities. Thus, it needs strong institutional capacities and rather efficient inter-institutional coordination.

Croatia started to pursue this concept shortly after becoming an EU member. In March 2016 the government adopted the Smart specialization strategy of the Republic of Croatia for the period 2016-2020, along with the Action plan for implementation over the period 2016-2017. Their main goal is the transformation of Croatian economy and enhancement of its competitiveness through the use of research capacities and infrastructure in key identified priority domains: health and the quality of life; energy and sustainable environment; traffic and mobility; security and bio-technology. As one of the components the commercialization of innovation and promotion of cooperation between the private and public sector are mentioned. The emphasis is given on how R&D and innovation contribute to economic growth; mostly it is evidenced by the number and outputs of the high-technology companies.

When these ideas are applied in first two years of the project in the Croatian regions, a huge dichotomy is seen between over-developed and under-developed regions. Highly internationalized regions with higher density of high-technology firms already produce relatively more innovation output per capita. With already favorable conditions in place, these progressive regions are most likely to reinforce their competitive advantages through the transformation of their economic structures in accordance with the plan. It is especially important in cases of a small economy like Croatia.

Evidently, a technologically advanced regional economic structure and internationalized economies are success factors for the smart specialization funds. Croatia is territorially divided in 21 counties, but the key positions of the smart specialization goes to the City of Zagreb and skilled coastal counties of Primorje-Gorski kotar and Istria. Naturally, the regions with the strong urban centers are more likely to benefit from the smart specialization implementation partly due to their well-developed technological and scientific structure and institutions that are expected to deliver work of scientific excellence and to collaborate with the industry on research, development and innovation.

Number of patents per 100,000 people in Zagreb in 2012 was 274, while in coastal regions it was 110 and only 61 in other 17 counties. Part of the problem is EU financing the R&Ds on the NUTS2 levels, where the concept of specialization is lost. NUTS2 recognizes Continental Croatia, which encompasses highly developed, services-oriented City of Zagreb, but also the region of Slavonia, distinctive for its agricultural and food production specialization and currently one of the most underdeveloped regions in Croatia. Specifics of these regions are lost to statistical averaging and due to economic weight of more developed parts, true development stands of sub-regions is masked. The concept of multiple regional centers and related economic space that differs in sectoral specialization is far better choice of approach.

Given the advantages of the technological structure of economic activities in two leading regions, Zagreb and the coast, they are most likely to reap the benefits of smart specialization and provide an additional push for own regional competitiveness. The Croatian government and regional development agencies might broadly define the priority areas and include a variety of local and regional industries elsewhere, but they are still less likely to compensate for advantages of the start position across more advanced regions.

The strategy received very little public attention. There are three fundamental goals to be pursued in a further regional policy, namely to increase the quality of life by promoting sustainable territorial development, increasing regional development competitiveness and improving regional development management. In the various measures to achieve these goals until 2020, the Action Plan foresees to invest HRK32,3bn (EUR4,33bn), partly from budgetary funds, as well as relying on the EU funds. Measures, depending on a particular objective, envisage encouraging migration of the population to areas with a shortage of labor, territorial branding of some less developed areas, in order to make them the areas of tourism development and accompanying activities.

Importance is also given to the companies’ networking at regional and local levels, as well as support for mergers and cooperatives. The revival of less developed regions would also contribute to clearer criteria for financing entrepreneurial zones, and in mountainous areas where the state ensures better access to services and infrastructure. Naturally, it is also important to support the development of the islands, the preservation of the environment, the establishment of a complete waste management system, etc. The regional development in Croatia is still dealt with without coordination with other policies. For example, if one wishes to equalize urbanization and relocation in several big cities, the housing policy would be less focused on large subsidized housing facilities, while on the other hand it does not consider setting and building residential units in less populated areas and in areas with a natural potential for development and quality of life.

An important test for conducting the regional development policy is the allocation of agricultural land, whose liberalization is slow, and which is the main issue for the municipalities. Determining the property tax policy is also important, considering that the areas in which real estate have a higher value are similar both in the coastal area and in Zagreb, but not in other parts of Croatia. The high-tech development is thus possible to tackle in the less populated areas, where strategies of transferring budget funds, income tax, child allowance and incentives to invest should be tailored and implemented.

However, exactly due to the high-tech development, migration and tax policy strategies could be evaded. Few countries in the SEE region prepares laws for easier working conditions for the foreigners, but there is also a big robotization trend. The number of robotized jobs in SEE has risen three times over the last year, but the production automatization is seen as the best way to solve the problem of less workers and less people. According to the UN forecasts, Hungary, Poland, Czech Republic and Slovakia will have eight million people less in 2050, due to demographic trends. Croatia, however, is in even worse situation because of the large emigration trends and aging society. In this regard, the investments in the Croatian regions seems endangered in mid-future.

Vedran Obućina is an analyst and a journalist specializing in the Croatian and Middle East domestic and foreign affairs. He is the Secretary of the Society for Mediterranean Studies at the University of Rijeka and a Foreign Affairs Analyst at The Atlantic Post.

Slavonia region, Croatia (Nick Savchenko, CC BY-SA)

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