Reimbursable Advisory Services on Growth and Jobs in Pannonian Croatia
FACT SHEET
1. What is the assignment that the Bank received?
In 2017, the Government of Croatia launched Project Slavonija, Baranja & Srijem, aimed at helping this region increase the efficiency and effectiveness of EU funding. The region includes the five counties of Osijek-Baranja, Vukovar-Srijem, Brod-Posavina, Pozega-Slavonia, and Virovitica-Podravina. Initiatives in the project help to catalyze new private sector investments, increase employment, and improve living conditions.
The World Bank was requested to support the government, and the Ministry of Regional Development and EU Funds (MRDEUF) in particular, through a technical assistance (TA), the Growth and Jobs in Eastern Croatia. The activities under the TA focus on: improving the quality of the Project Slavonija, Baranja & Srijem pipeline of initiatives; providing diagnostic work on opportunities for foreign direct investments, exports and jobs; and supporting the Government to develop a strategy for the sustainable and equitable growth of the region for the forthcoming 2021-2027 period of EU funds. The Bank’s support began in July 2018 and is planned to last until July 2022. In June 2020, three additional counties, Bjelovar-Bilogora, Sisak-Moslavina and Karlovac have been added to the assignment to reflect the new NUTS-2 territorial classification, and now cover Croatia’s Pannonia region.
2. What is the role of the WB in the Project Slavonija, Baranja and Srijem?
The role of the World Bank's technical assistance is to increase the capacity of the Croatian Government to deploy European Structural and Investment Funds (ESIF) with the ultimate goals of increased investment, productivity, and jobs in Eastern Croatia.
The program activities include:
- A diagnosis of the current situation and the identification of opportunities for new investment, exports and new employment with a particular focus on five sectors: the agriculture/food industry, information and communication technologies (ICT), the wood processing industry, tourism, and the metal processing industry;
- A framework for identifying strategic projects for priority financing through EU funds;
- The identification of 5 pilot projects, and 8 strategic projects for the region. Five pilot projects include:
Foreign Direct Investment (FDI) promotion, to leverage foreign investment as a driver of economic growth in Slavonia,
Regional innovation and research investment, to address the lack of participation by Small and medium enterprises (SMEs) and larger companies in national R&D financing initiatives,
Management skills improvement for SMEs, to address managerial underperformance and low productivity in Slavonia,
Regional scholarships and career development to address mismatches in the labor market between unemployed workers and job vacancies,
Empowering women in rural Slavonia through inclusive entrepreneurship, to address the high rates of inactivity amongst women in rural areas.
- Assessment of Operational Programmes’ (OPs) implementation and impact during the current EU 2014-2020 programming period; and
- Developing a Plan for Industrial Transition of Pannonian Croatia for the upcoming financial period and options for an institutional and programming framework for using ESIF in the forthcoming EU 2021-2027 programming period.
In addition, the RAS team has convened expertise from several external organizations. For example, the Bank signed a Memorandum of Understanding with the Italian Region of Emilia-Romagna, setting up a unique knowledge sharing collaboration. Under the cooperation framework, the Region’s experts shared with the Croatian partners their long-term experience in how a region can be successful in designing and implementing EU funded projects. In addition, the Regional Minister for European Affairs, Research, Education and Labor form Emilia-Romagna region travelled to Croatia to meet with the Minister for Regional Development and EU Funds gave a high-profile presentation and led the discussion about regional development. Additional external expertise includes collaboration with technical specialists from the Basque country who will support the preparation of a Plan for Industrial Transition for Pannonia, and an advisory panel of technical specialists on EU Funds from Poland to maximize the relevance of knowledge that is used and shared during the implementation of the RAS.
The Bank’s approach includes drawing from its pool of experienced international staff and coupling this expertise with country-specific knowledge provided by local consultants. In its work, the World Bank pays particular attention to a quality control process to deliver its technical assistance. More than 100 World Bank staff and consultants (international and local) have contributed to the activities and recommendations of the technical assistance. RAS team members have met with approximately 160 companies, 28 civil society organizations; many municipal and county administrations and agencies, and education and innovation bodies.
The Croatian Government and the Ministry of Regional Development and EU Funds are responsible for the implementation of the recommendations, such as strategic projects, which were delivered to the MRDEUF by the World Bank team in November 2019. The role of the Bank has been to provide analytical and advisory support. The Bank does not write the Plan for Industrial Transition of Pannonian Croatia or any other documents that are part of the Government’s Project Slavonija, Baranja and Srijem.
3. Why will the Plan for Industrial Transition of Pannonian Croatia be prepared, instead of territorial development strategy for Eastern Croatia, as originally planned?
Initially the territorial development strategy was intended to cover 5 counties in Slavonija, Baranja and Srijem, but in June 2020, MRDEUF and the Bank agreed to expand the geographic scope of the technical assistance to cover three additional counties that will be included in Croatia’s new NUTS-2 region of ‘Pannonian Croatia’: Bjelovar-Bilogora, Sisak-Moslavina and Karlovac. In December 2020, the Ministry decided to opt for a narrowed scope for the strategy, to focus on industrial transition for the region by developing a Plan.
The Plan for Industrial Transition is intended to provide a basis for the development of the Pannonian Croatia region in 2021-2027 and the use of national and international resources to this end. The Plan is an important contribution to increasing the effectiveness of regional development initiatives, since it brings a comprehensive and evidence-based process using a participatory and bottom-up approach. The Plan will aim to address specific subnational needs that are different in Pannonian Croatia compared with the rest of the country, while addressing also the fragmentation of initiatives at the county and municipal levels. It will also increase the competitiveness of the five key industries in the region: (1) agri-food, (2) wood processing, (3) information and communications technology, (4) tourism, and (5) metal processing and mechanical engineering. The process of the Plan’s preparation should itself contribute to:
- Enhancing cooperation mechanisms between local and regional self-government units operating within the region adopting the Plan;
- Enhancing expertise of self-government representatives with regards to strategic planning for the EU’s 2021-2027 programming period;
- Building a regional consensus in support of the final Industrial Transition Plan resulting in its adoption.
4. What have been some of the main findings of the RAS?
There are several key findings of the RAS, which is still ongoing:
- Despite the increased focus of the authorities on Slavonia, Baranja and Srijem, the region continues to be underrepresented in Cohesion Policy Funds. For example, although Slavonia, Baranja and Srijem represents 18% of Croatia’s population, it accounts for only around 14% of Operational Programme Competitiveness and Cohesion (OPCC) funds and 11% of Operational Programme Efficient Human Resources (OPEHR) funds contracted in the current financial perspective 2014-2020.
- Spending for regional development is fragmented within the region. For example: European funds have supported 18 business incubators and 8 innovation centers, which seems to be an excessive number of entities relative to the small size of the region. There are 26 tourism boards, which is also an excessive number given the size of the region and the sector itself.
- There are opportunities to streamline the pipeline of regional development projects as well as improve the quality. Similar projects could be connected together, and project proposals would benefit from defining more precisely their objectives and include a pre-assessment of costs and benefits.
- Several good opportunities for sustainable economic growth of the region exist in industries such as agri-food, ICT, and machinery. Foreign investment in Slavonia can revitalize growth of Slavonia’s economy, create new jobs, and connect Slavonia with new ideas, technologies and know-how. The wood industry offers potential opportunities, but for these opportunities to materialize Croatia would need to reform its quota system for roundwood sales. To raise the quantity and quality of investment, Slavonia would need to improve the investment climate and business environment and assume a proactive approach to FDI in targeted sectors and niches.
- National reforms can further help encourage growth and development in Slavonia. For example: Croatia’s business enabling environment, such as its business inspections regime and its para-fiscal charges, put unnecessary pressure on businesses and can be improved by transforming the inspections regime towards compliance rather than punishment, implementing harmonized tools and information across the inspectorate, and reforming the system of parafiscal charges to increase transparency and predictability, reviewing parafiscal charges and phasing some out, and introducing the option of a single annual payment that can be made online. Another example is a reform of the wood quota system, whose current existing administrative pricing and quota system would benefit from being replaced with market-based pricing in order to incentivize Croatian companies to move to higher value products and encourage new investors.
- Finally, there is scope for improvement through the alignment of national Ministries around shared objectives for the Pannonian region. The alignment would ensure that development interventions in Croatia’s Pannonian region are consistent and comprehensive. The forthcoming Plan for Industrial Transition of Pannonian Croatia should help considerably in achieving this objective.
Resources
- Growth and Jobs in Slavonia, Baranja and Srijem - Rapid Diagnostics (1.1) (Jan. 2019 / revised April 2019) | HR
- Growth and Jobs in SBS - Diagnostics Summary / Excerpts (1.1) (April 2019) | HR
- Growth and Jobs in SBS – Financial Instruments and Business Support: Enabling Fit-for-Purpose Funding Opportunities in Croatia (1.2.b) (December 2019) | HR
- Growth and Jobs in SBS – Summary of reports (1.2) (December 2019) - Prioritization Framework for Strategic Projects - Financial Instruments and Business Support | HR
- Growth and Jobs in SBS - Summary of reports (1.3) (December 2019) - Review of the deployment of ESIF Operational Programs 2014-2020 in Slavonia, Baranja and Srijem - Technical notes for 5 strategic projectsInputs into Operational Program (OP) revisions | HR