The EU-imposed sanctions on Russia have generated significant movements throughout Europe, and Croatia has felt the ramifications as well – leading to a lot of work and some economic uncertainty, according to Ostermann & Partners Partner Vjekoslav Ivancic.
“The unavoidable topic these days are the EU-Russia sanctions and the consequent blowback on almost all sectors of the economy in Croatia,” Ivancic begins. “This has spurred M&A transactions on, with a lot of Russian nationals looking to divest their assets in Croatia.” Ivancic points to the example of the recent sale of Sberbank to the Croatian HPB bank. “This transaction took place immediately following the latest round of sanctions and was very, very quick,” he reports.
Furthermore, the sanctions have impacted the financial sector as well. “The banks are more cautious, which resulted in a number of financings slowing down due to constant check-ups and verifications – is everything in order from a sanctions perspective? – the rules not always being perfectly clear.” Ivancic also explains that the sanctions led to a number of “grey areas, especially with companies owned by Russian entities, when such companies do business exclusively in Croatia and the EU and with no additional Russian elements. We’ve had an example of such a company in Croatia – which has a superb operation in Croatia and the entire EU – and closing it would have had great ramifications on the people working there,” he reports.
“There is also a marked increase of gas prices,” Ivancic continues. “There was a major problem with a Zagreb-based gas supplier that was impacted by the price hike while having to honor its commitments to corporate clients that had pre-arranged for a fixed gas price.” He explains that, while the company had to sell the gas to its clients at the pre-crisis price, it ended up being quite exposed for the price difference. “This, in turn, led to some spin-off dispute resolution work for the legal market,” he reports.
Additionally, Ivancic reports of major movements for Croatia on the foreign politics front. “There is a lot of talk about Croatia finally joining the OECD. Coupled with us joining the Eurozone and, hopefully, the Schengen area soon, this is a major move forward for the country,” he says. “Our politicians stress that these three key advances would also improve the investment climate, as well as aid with battling corruption and improving the corporate governance of state-owned companies,” he adds.
“In terms of legislative updates,” according to Ivancic, “there have been recent amendments to the Bankruptcy Act, implementing the EU’s Restructuring and Insolvency Directive 2019/1023 of June 20, 2019, as well as changes to the Companies Act, aimed at the further modernization of Croatian company law.”
Also, Ivancic reports that the country is exiting the COVID-19-related economic regime. “The end of COVID-19 schemes will likely lead to economic instability, after their being in place for two years. This, together with the war in Ukraine, makes it difficult to predict in which direction the economy will go,” he explains.
Finally, speaking of the key drivers of the economy, Ivancic points to construction and IT. “On the one hand, the IT sector has been very, very active in the past few months, riding the wave of a most successful 2021,” he reports. “On the other hand, the construction sector has also been doing great. There are talks about finally engaging in the reconstruction of earthquake-hit areas in Zagreb, following the 2020 quake, which would make it even more active,” Ivancic concludes.
