Croatia is going through the motions to become the 28th member of the European Union. Many see this as a step in the right direction for Croatia’s political and economic future. However, with the euro zone crisis looming, it might be some time before the nation sees a payoff. The EU cannot solve a country’s problems. Just the process of applying for EU membership has brought about important changes for Croatia, but there is more work to be done. EU membership would not only provide economic benefits, but also stability for Croatia. Croatia will officially join the European Union in July 2013. EU membership could equal greater foreign investment and export growth. That might not be soon enough. The Balkan state was hit hard by the global financial crisis and analysts expect it to slip back into recession in 2012. Croatia’s unemployment rate is currently one of the highest in Europe at around 17.4%.
The accession treaty was signed amid fears of an EU break-up. There were also solemn remembrances of Eastern Europe’s wars, namely Croatia’s struggle for independence from Serbia. The war that coined the phrase "ethnic cleansing." Croatia sees the accession as investing part of their hard-won sovereignty, believing that the answer lies in tying their country to Europe. The reputation of the EU has recently been faced with threats to downgrade its AAA economies. Still, to many countries such as Croatia, the European Union has a deep meaning. Croatia refuses to let the global financial crisis downplay the significance of this event. Croatia still must pass a European Commission test on fighting corruption before officially joining the union in July 2013.
Currently, there are no ETFs available that offer direct exposure to Croatia. However, in December, iShares Funds filed paperwork with the SEC for an “iShares MSCI Frontier Emerging Markets Select Index Fund.” The fund will provide exposure to 26 emerging and frontier markets, including Croatia. The fund will seek results that generally correspond to price and yield performance of the MSCI Frontier Emerging Markets Select Index. The fund will not try to beat the index or seek temporary defensive positions. This passive approach reduces the risks of active management while achieving lower costs and better after-tax performance.
The new fund will also provide exposure to Croatia’s one-time enemy, Serbia. U.S. companies are showing interest in investing in Serbia and boosting trade between the two countries, which currently stands at $320 million. Cooper Tire recently signed a contract to invest over EUR 50 million and hire 700 people in the first phase of their investment. The U.S. tire maker bought a factory in Krusevac for EUR 13 million. The Serbian government will have a 25% share. Serbia has great potential, yet finds it difficult to attract foreign investors. Still, last year Serbia had an investment level higher than Hungary, Bosnia-Herzegovina, Croatia and Slovenia combined. Investments are at a 100% increase from the first three quarters of 2010. Cooper Tire will bring jobs and tax revenue to Serbia.
Serbia is investing in itself as well. The European Bank for Reconstruction and Development recently approved a 45 million-euro loan to Serbia’s state-owned utility for renovating and building small hydropower plants. The loan will allow Elektroprivreda Srbije to refurbish 15 small hydroelectric facilities and build seven new ones at existing dams. Expanding the production of renewable energy is one of Serbia’s key priorities.
About the author:
Mary PoseyI am an avid fan of financials and investing. I regularly contribute to Seeking Alpha as well.