Foreign Direct Investment
Benefits of FDI
The benefits of foreign direct investment (FDI) for a country include:
- increased employment (particularly in Greenfield projects);
- protection of jobs in joint-ventures with domestic companies. This process of course can lead to initial job losses, as the process of improving productivity and technology can lead to staff reductions. However, this is usually of benefit to the long-term survival of the domestic partner company;
- modernisation of manufacturing equipment and transfer of new technologies and know-how;
- increased exports, as most foreign investors will be interested in a wider market than that of the home market alone;
- positive contribution to GDP and to balance of trade;
- increased expenditure in the local economy. Linkages between local suppliers and foreign companies can represent a substantial and quality market for the local economy;
- contribution to regional restructuring can be a very positive feature of FDI, if such investors can be convinced to set up enterprises in the regions;
- tax contribution. This can be both in the form of Corporate Tax and in the income tax and social contributions of the work force;
- Improvement of corporate culture. The introduction of the corporate culture of countries with high labour productivity helps to eliminate the gaps in productivity between them and low labour productivity economies;
- FDI can also aid the more effective integration of the host country into the international economy and, critically into the EU economy.
The Importance of FDI to Croatia
Foreign direct investment is of fundamental importance to the development of the Croatian economy. The potential impact of FDI on the economic landscape is widespread in terms of regional development, employment creation, technology transfer and domestic investment.
FDI will help to increase productive capacity in Croatia and improve the skills, technology and salary of the local workforce. In most cases, foreign multinationals tend to encourage and implement better work practices.
The knock-on benefits of foreign investment to the economy as a whole are widespread. For example, the trade and export potential for domestic products and services increases when a country becomes well known as a desirable location for FDI, thereby benefitting the small and medium sized companies in a country. Another appealing aspect of FDI for Croatia is the regional spread of investment.
By embracing the ICPR process, each of the 20 counties will be able to optimise their potential for attracting investment
Overall the competitiveness of a country like Croatia is dramatically improved by the attraction of foreign direct investment.
During the 1990’s countries targeting inward investment from abroad focused primarily on manufacturing companies. More recently internationally traded services, such as software development, increasingly have been targeted.
In today’s global economy the countries that have been successful in attracting FDI are seeing future benefits from investment in highly innovative research activities and in the newer areas such as Clean Technology.
Croatia is not a low cost economy. Wage rates are higher than its neighbours to the South, and also higher in some cases than Hungary and Slovenia. This implies that Croatia needs to attract investment from higher added value sectors, where wage costs are less important than academic and vocational skills.
Croatia needs a proactive policy towards FDI in order to compete with the rest of Europe and the world for this type of quality investment. This will require international standards of infrastructure, an attractive corporate tax rate, a positive Governmental policy towards investment, industry focused academic institutions and an awareness and willingness to embrace new technological developments and meet the innovative requirements of international corporations.