Corporate governance and corporate finance

Prioritising capital market reforms will help Croatia build a more resilient and dynamic business sector


16/06/2021 - The COVID-19 crisis poses major challenges to the Croatian economy where a sustained recovery requires a more resilient and dynamic business sector. Both the recovery and convergence of income levels in Croatia towards more advanced European countries will largely depend on the extent to which long-awaited structural reforms can successfully enhance the business landscape, according to a new OECD report.

The report underlines that the Croatian corporate sector will need access to capital market financing in order to achievethese goals. Although Croatia displayed strong economic performance before the crisis, major structural weaknesses remain, including a weak capital market ecosystem, limited availability of long-term financing and poor corporate governance practices. These weaknesses restrict the corporate sector’s competitiveness and investment. Croatia also needs to diversify its business sector beyond tourism, increase the economy’s capital stock and close the gap in physical infrastructure.

Croatia entered the COVID-19 crisis with underdeveloped capital markets. Since 2010, the Croatian stock market has lost almost 150 companies while only a few new companies listed resulting in a net decline in the number of listed companies. At the end of 2020, Croatia had less than half of the number of listed companies that it had in 2009. The stock market capitalisation represents only 0.25% of total EU stock market capitalisation, less than the country’s share in EU GDP. Importantly, the stock market lacks the liquidity needed to attract more investors and issuers. In 2019, the turnover ratio of stocks on the Zagreb Stock Exchange was only 1.5%, compared with 19% for the Warsaw Stock Exchange, 9% for the Prague Stock Exchange and an average of 58% for stock exchanges in the EU. Furthermore, the use of corporate bonds in Croatia has been minimal with only a couple of large companies issuing a few bonds during the last two decades.

“The time is ripe for Croatian authorities to enact long-awaited structural reforms to improve the functioning of capital markets” said Greg Medcraft, Director of the OECD Directorate for Financial and Enterprise Affairs presenting the report with Stjepan Čuraj, State Secretary at the Croatian Ministry of Finance and Mario Nava, Director-General of the European Commission DG REFORM, “Doing so successfully will not only help Croatia in its recovery from the COVID-19 crisis and contribute to a crucial step towards greater EU integration, but also will improve the performance and resilience of the Croatian economy in the longer term.”

The report reveals that Croatia needs to fill the existing gap in terms of providing appropriate financing throughout a company’s life cycle. In this respect, domestic private capital markets remain underutilised and are dominated by a few actors. To support the development of private capital markets, coordinated efforts from the public authorities, the private sector and research institutions are needed.

The report notes that a large number of Croatian companies receive no external finance, instead relying solely on their equity buffers and retained earnings as sources of funding. This is particularly common for medium and small-sized companies. At the same time, their performance does not allow them to finance investments in human capital and physical assets that are necessary to achieve higher productivity, increased profits and expansion. This leaves many Croatian companies in a static state with equity capital provided only by the owners and their family and friends. In addition, a large number of companies have zero or negative equity.

The OECD Capital Market Review of Croatia, with main findings and recommendations, is available at

This review was funded by the European Union via the Structural Reform Support Programme and implemented by the OECD, in cooperation with the European Commission’s Directorate General for Structural Reform Support (DG REFORM).

For further information, journalists can contact Katrina Baker (

Working with over 100 countries, the OECD is a global policy forum that promotes policies to improve the economic and social well-being of people around the world.


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