Croatia’s tourism industry is already becoming a vital part of the country’s economic revival. The 2006 summer season brought in €3.6bn. Increasing budget air connections have made it easier for the estimated 10 million tourists to fly in, and cruise ships are arriving at Croatia’s Adriatic ports in such numbers that Dubrovnik’s infrastructure is being overloaded. Croatia’s success story is unfolding amid thoughts of how to promote and manage further growth. Foreign investment and know-how are seen as crucial elements in creating and upgrading tourism-related infrastructure.

“Croatia has been fostering its tradition of tourism for more than a century,” explains Irena Nezic, head of the public relations department at the Croatian Trade and Investment Promotion Agency. “And in the past couple of years the interest in FDI for tourism in Croatia has been growing.

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“Most of the investors already present come from other European countries, as well as the US. While their interests vary, they’re mainly directed towards high-quality, five-star hotels, golf courses, nautical tourism and marina construction. We’re striving to attract investors who possess the experience, knowledge and tradition needed in these sectors, and who will consequently attract the appropriate customers.”

Urgent input

Increased investment, and especially know-how, must come quickly if tourism is to continue to thrive. When releasing the 2006 summer season figures, Niko Bulic, director of the Croatia National Tourist Board, pointed out that growth in 2007 was expected to be a mere 2.3%, and specifically mentioned the lack of hotels as a particular sticking point.

Fostering growth will entail more than attracting deep-pocketed investors, however. Protecting the natural environment as well as the historic sites that are the main draw for Europe’s tourists is an ever-present topic. “Recent laws have come into force that set guidelines for building near the shore, both in distance from the water and the height above sea level. Foreign and domestic investors are still learning about it.”

Ms Nezic notes that managing investor expectations is an important part of the process, especially when it comes to building sites. “A maximum of 30% of a site can be built on.” Laws such as this come from looking at what has happened to destinations where large-scale tourism development has already occurred. “We paid attention to the Spanish example,” she says.

Although overdevelopment is a problem that developers along the Adriatic coast are being urged strongly to avoid, investors into most of inland Croatia will not need to worry about it in the near future.

“Investment into the hotel and tourism industry is developing in northern Croatia,” observes Nino Prstec, head of the FDI Department of Development Agency North (DAN), a regional investment and development organisation. “But there is some activity. There is an up-and-coming project in our Vavarzyn area, where German and Czech investors are discussing a hotel, aquapark and even a golf course.”

The Czech involvement is unusual, Mr Prstec notes, because the Czech Republic is noted in central Europe as a successful FDI recipient, not as a source country. Like Croatia in general, Austria, Germany and the US are the most common origins of FDI inflows to northern Croatia.

He says: “Our location along the border of the EU made central European FDI inflows a natural occurrence. We haven’t seen any French representation, though, and a UK project is only now starting.”

Eyes on the north

Zagreb, as the capital, attracts its fair share of attention and, with the added tourist cache of its well-preserved old city of Gorni Grad, is a natural area of interest for developers. But northern Croatia has its own charms. “Continental tourism has a place here. For instance, we have a long tradition of health spas and thermal baths. The Romans built the first baths at Toplice, and the remains of the baths are still visible,” says Mr Prstec.

“There was an investor looking to purchase a hospital and turn it into a private health clinic to develop the medical tourism trade in the area. Because Croatia’s hospitals are largely state-run enterprises providing services to everyone, it wasn’t possible, but the idea is sound,” he says.

Although competition is low in parts of Croatia, the much higher volume of development along the Adriatic coast is unsurprising. “Return on investment is greater there, and thus the interest, too,” says Mr Prstec.

Limited space is a factor controlling development along the coast, but it is also forcing property developers and municipalities alike to push for creative solutions. The mayor of Dubrovnik, Dubravka Suica, notes that 21st-century tourism was not in the minds of the original planners.

“Today, the infrastructure of a city that was designed for 45,000 residents supports an additional 25,000 visitors per day at the peak of the tourist season. That makes it very hard to balance the requests of the modern tourism industry with the needs of historical buildings and natural resources protection on one side, and the requirements of the residents on the other,” says Mr Suica.

One option being pursued in several areas, including on the cliffs overlooking Dubrovnik, is the creation of golf courses by foreign investors. Last June, international golfer Jack Nicklaus inked a contract to develop an 18-hole course with a luxury hotel and 350-berth marina on the Istrian peninsula in the north-west of the country. In the same month, Dubrovnik officials made a visit to Monterey, California, which included talks with officials from the Hyatt hotel chain and Blackstone Group. The talks centred on developing a golf course and resort on the heights above Dubrovnik.

Both courses are part of trends that will intensify as the Adriatic coast becomes even more popular. Moving upscale and spreading out the tourist season beyond the summer months are seen as ways of maximising the use of the limited resources available. “Since [Dubrovnik] is situated in a narrow spot between the mountains and the sea, the possibilities for expansion are limited,” says Mr Suica. “Development of a tourist offer that attracts visitors to Dubrovnik year round is essential for sustainable management and preservation of our resources.”

Mr Prstec says that hotel development will be key to the creation of a viable tourist industry, and that governments are already thinking of higher-class establishments. “We have a project where a castle was bought and is being converted into a hotel. There are a lot of castles in our part of Europe and, with our need for accommodation in the area, this is a promising starting point.”

Wealthy tourists wanting to take advantage of the hunting and health tourism possibilities inland have nowhere appropriate to stay because there are no five-star hotels in the region.

Land speculators

However, Mr Prstec also says that both municipal and national governments have had problems with land speculation, and that administrations need to balance the promise of a particular project with its viability and also the impact on the local economy.

“The national government stopped giving away land years ago. Investors still see themselves as having a good negotiating position, but we have to ask ourselves about the likelihood of any project coming to completion, and how many people in the community it will benefit, and especially the multiplier in indirect employment. However, hotel projects needing 80 hectares with vague utilisation plans are a problem.”

Instead of giving or selling the land outright, municipalities are often giving the right of construction, and leases extending up to 50 years. “This measure is preventing land speculation to a large degree,” says Mr Prstec.

Croatia is only now entering the EU, but much of its infrastructure has already been updated. Mr Prstec says this is a big advantage. “Our electricity utilities have generally been renovated or replaced. On the road, regional routes as well as major highways are in excellent condition, and this, combined with low labour costs, remains our strength.”

With new roads being built to accommodate the expected rise in tourists moving between inland Croatia and the coast, with its 1100 islands, this will be a key attraction for developers.