Something that every business in the US takes for granted - having P.O. Box as a business address - is unknown of in Croatia. That of course is an obstacle to smaller businesses that cannot pay for a physical office address in the sellers market of the Croatia’s office real estate short on space.

Postal service does not rent P.O. Boxes. They simply did not realize the potential of revenue there. They will, though, offer to larger businesses that receive over 30 pieces of mail daily a service to keep that mail for them in a sort of a box. They are making a small savings on not having to deliver that mail. Unbelievable, but nice, they offer this service free of charge.

Croatia is ripe for private mail-boxes service, that would offer mail forwarding and similar advanced stuff.

-/-

Croatia’s Defeating Demographics: 1.3 million people in Croatia works (~30%), 10% of population is with war-related disabilities, >14% is unemployed (now they started counting all part-timers as ‘employed’, like the U.S. does, to bring the ugly statistics down), and there are 600 thousands kids in school (~15%) = there is not enough people working to feed all the people not working.

Current Bleak Solutions: 1) Exorbitant sales tax (PDV) of 22% (New York city has 8.25% for comparison) - more than 1/5 of the price of ANYTHING that you buy in Croatia goes to the state. This feeds the elderly, pays for the schools, provides for the disabled veterans, but this also kills the economy. 2) Consumer debt: Croatia is full of new banks holding nice Croatian names like Erste, Hypo, Vereinte, etc. Their foreign owners stoked them with capital realizing the potential of Croatia’e emerging market. They extended that capital to consumers, via credit cards and loans. Banks, of course, hope to make a killing with high interest rates. So far, however, they just created enormous consumer debt (which amounts to about the half of the country’s $20B debt, which is already larger than former Yugoslavia’s was before the war). And some people already balked under the burden of monthly payments, so just recently Croatia established the debtors registry. Eventually, if Croatian economy does not pick up (salaries are 3 times smaller than in EU, while the prices are at the same level, and everybody wants to have everything) to match the spending habits, a massive wave of individual bankruptcies may occur, defaulting some of the banks, and forcing the devaluation of the currency, and other maladies, perhaps even EU, IMF and other sanctions.

-/-

Croatian War on Drugs:

Croatia became a land of non-governmental not-for-profit organizations. This makes it a politically vibrant society. This is also a very neat way to avoid paying 22% sales tax on a laptop. Even better, some NGO-s are recognized as being of public importance, hence they are funded by a special governmental fund for non-governmental organizations (i.e. from the 22% others pay), an oxymoron Made in Croatia.

Perfect example for that is the drug rehab Commune lead by Sister Bernardica, an ex-nun who cashed on parental fears and political connections. She established a well managed total abstinence (with work and prayer) long term program that works fine for about 60 people annually. She gets nearly 400,000 Euros for that a year. Her converts and her are the most vocal proponents of the zero-drug-tolerance, mandatory workplace and school students drug testing, and no alternative therapy to the ‘oro et laboro’ approach she started.

Despite the disgust among urban intelligentsia, and some sarcasm in the law enforcement community, her program enjoys multi-partisan support from left to right of the political spectrum (there is a total of 84 political parties in Croatia; 7 of them have seats in Sabor [parliament]). The same as in the U.S., conservative Parents Anti-Drug lobbies are very strong, and politicians are terrified to appear soft on drugs. So the Drug Tzsar, Sakoman, a psychiatrist that specializes in addiction, who managed/manages 1600 addicts a year on 30,000 Euros, fell out of favor, advocating methadone therapy.

There is a danger of awarding to one program such an un-proportionate amount of money, particularly if there really is political agenda behind the program. Why waste so much tax-payers money on a don-quixotic crusade?

-/-

But, with all its obvious shortcomings, Croatia is becoming a favorite destination to relocate for surprisingly many people.

I have a friend who came back to live in Croatia with an American wife. Another came back with a Japanese wife. In Zadar I met a married couple, he a Croatian, she an American citizen. Instead of him getting his American citizenship through her, she is getting her Croatian through him. What an upside-down place the world have become.

A Norwegian guy, conscientious objector, came to Croatia, after refusing to serve even in civil service in Norway. They told him that he may get arrested if he comes back. He returned his Norwegian passport to the consulate in Zagreb. Eventually, he got a German passport through his father. The interesting, anecdotal, detail is that the German passport lists his address in Zagreb.

Cynics may say that it is not surprising that Germans consider Zagreb as a German province. After all, 95% of Croatian financial institutions are owned by foreign banks, most of them Austrian, which in turn are owned mostly by German, Bavarian banks.

Further disincentives to development of Croatian economy: On top of previously mentioned sky-high sales tax, and large consumer debt - are high rents, and the decision of Croatia’s National Bank not to approve loans for venture capital and business investment.

Real and artificial shortage of rental space is endemic to post-communist societies. This drives rents high. Or the rent is set high an the space is kept empty until somebody is willing to pay. Particularly hurt are seasonal businesses that are forced to sign year-long leases, while actually profiting from the space rental only for a couple of months. Not yet fully explored alternative is moving the business on-line as a mail-order business.

Maybe, because, the UPS and Fedex, moved to Croatian market, charge criminally high rates. International rates are even worse rip-off. To send 5 kg of books to the US from Zagreb, Fedex would charge me $140. UPS would do it for $220. Per kg of weight this is more expensive than passenger air-fare: I am 70 kg, plus 40 kg luggage, and I paid about $700 for Zagreb-New York: if I am a Fedex package I would cost $3080, and as a UPS package I would cost $4840. That would make sense only if I am sending opium.

The decision of banks not to give loans to small businesses, while giving loans for consumer spending, does not compute. Croatian importers are damned to extinction by no credit, high rents, high shipping costs, and high taxes environment. Ultimately, foreigners only lend spending money to Croats to buy foreign goods, at foreign prices, imported and shipped by foreigners. God forbid they make something of their own. And the only entity that makes profit of that in Croatia is the government, through the 22% sales tax, which is then spent to keep social peace.

This makes perfect sense - for foreigners - because money comes back into their hands, yet Croats still owe them that same money. But Croats are not developing their own economy. They are buying at European prices, with 3 times lower wages, and the gap is covered by the consumer debt financed by the foreign banks. Eventually, they won’t be able to pay the debt, and banks will do what?!

All possible scenarios lead to social unrest in a couple of years: devaluation of currency, making people work for even less real money; foreign banks acquiring more premium real-estate when people and businesses default on their debts; foreign banks picking up their toys and leaving Croatian financial system with no liquidity (95% of Croatian financial system is owned by foreign banks at the moment)...

Ivo ps - Institute Francais in the center of Zagreb displays a large picture of Mostar’s Old Bridge.

This pages are under constructions, pictures from the trip will be added soon