The Small Business Development Program to 2004 predicts stimulated measures which will enable an increase in the number of companies and employees in small and medium sized businesses, an increase in their efficiency and competitiveness and exports which fare better on the world market.

Željko Pecek, Minister for Crafts, Small and Medium Enterprises, is not as followed in the Croatian media as other ministers, but thanks to his work, Croatia has met UN criteria and entered into the group of nations with rapid advancements in small business. Located in an unsightly complex in Zagreb’s Ksaver neighbourhood, a mini city intended for the former Communist leaders, the Ministry for Trades, Small and Medium Enterprises and its activities have, in the last two years, won over all those who care about business in Croatia. They ensured a series of affordable loans, worked to develop business centers throughout the country, to establish competition between the cities and districts for attracting potential investors. They have provided small and medium sized business with support – from advise to financial, as well as a special program for the implementation of new technology, innovations or traditional crafts. They have also created a vast database of small businesses in Croatia. All this with an exceptionally small budget, and these are only a few of the activities that this ministry has been involved in, setting an example for how a ministry should function.

Defining Goals

Minister Željko Pecek is an example of a Croatian politician who journalists do not fight over: he speaks with the help of figures which show positive trends, he thinks of new projects which will help someone. The way he brings these projects to life, he never sought for his ministry to receive a banal amount of funds, nor does he teach those he works with to rely on state funds. Thanks to the interventions of his ministry, last year, Croatia found itself on the list by the UN Economic Commission of Europe in the category of countries with a rapid growth in small businesses, which for a country with an excruciating high unemployment rate is a very significant recognition.

NACIONAL: In the Small Business Development Program, you mention a figure of 133,000 new jobs which you plan on opening by 2004. This figure really is ambitious and hard not to notice. Now at the half way mark of your mandate, do you still believe that this figure is reasonable, and what do you base your estimates on?

Many figures which we were handling at the beginning were not convincing and were received skeptically. The 133,000 new jobs in four years are not unattainable, which the figures from last year prove. Employment in the trades sector and in small business increased by 27,000 jobs. This is not only 27,000 new jobs, but this is the total increase of those employees in our jurisdiction.

Beginnings are always the most difficult. If we can hold onto the trend we are at now, we would have about the number of jobs we announced. We defined that goal, which was very noticed in the public: new jobs in Croatia’s poorest developed sector of business. We set our goals at increasing the number of private trades and craftsmen, and limited corporations, and we promised to create the necessary infrastructure and institutions which need to follow this sector of the economy. I believe that we will succeed in this goal. In comparison to other transition countries today we have the least expensive development capital, we have ensured numerous loan potentials, and we are currently developing other infrastructures. We have 68 small business zones which we launched last year, where developing businesses will find themselves. We have eight so-called incubators, where the new business owner can find their place in that zone of security, and start working with good conditions in two or three years. Particularly important, we have 32 centers for small business in all districts and towns, where the craftsman or small business owner can find all the answers to the questions about their development, be that about loans, conditions for building or how their municipal government can stimulate their growth.

Cheap Capital

NACIONAL: In some segments, you have taken on a role many have resented. Especially when it comes to ensuring affordable loans, or rather reducing interest rates which up until that point were very high. Is the intervention of the state a necessity for a transition country such as Croatia, and could this have been done differently, without your direct intervention?

I believe that our greatest success is exactly this cheap capital, or rather the amount of capital that we have secured. I realized that a ministry budget of 100 million kunas was not enough to activate all we wanted to do, so we turned to the institutions with the money, the banks. The programs that we are working on with local governments is likely the first program which is directed at the decentralization of decision making and merging funds. The money brings together the ministry, the district, cities and counties; last year the banks gave a multiplier of “times 5”, and we have succeeded in increasing that to “times 10”. The terms are more than affordable: we’ve reduced interest rates from 8 to 7.5%, with a grace period of two years and an increased maturation date from 7 to 10 years. In cooperation with local governments, we have secured 1.38 billion kunas in loans. This is a great step forward since it is clear we are behind in terms of technological development, and thus we don not need only to invest in buildings, but also in equipment and technology.

I personally do not believe in a liberal economy where the government does not need to intervene in certain sectors. It is true that our lines of credit fall within the banking sector, but the banks had interest rates 50% higher than the ones we signed. It was very difficult in the beginning, we negotiated with all the business banks, and only two or three realized that our sector was one which needs to be followed. After only one year, all of the most significant banks in the country are included in our program, and in one small town, we “pushed” three banks into competing in realizing our programs. We also want to push local governments– conditionally speaking – to compete against each other. The model is of local decision making, in the counties and cities. This approach enables such lines of credit, opening new jobs, opening business centers, opening new zones, incubators and the like. It has proven to be a good recipe, and the cities and counties are becoming more and more interested, which in the end justifies our intervention.

NACIONAL: Did the banks obstruct the program? Your intervention brought them great harm, the had to give out more loans with lower interest rates, unlike earlier, when thanks to few loans at high interest rates, those same banks came to own the country.

I wouldn’t say they obstructed our program, because every program is difficult to realize in the beginning. We brought forth our program, and our implementation measures. In the beginning, approval for the lines of credit took months, today, the small business can be approved within 15 days. We have also accommodated the Croatian Guarantee Agency (CGA) to those credit lines, some that approving a guarantee is much easier now, and we have made great advances here in the last year. The banks compete against each other, the approval process has become much better, we have the CGA which supports those lacking sufficient collateral, and the model just gets better every day.

‘Originally Croatian’

NACIONAL: How did the “bases” accept your efforts, what were the reactions from the cities, districts and counties to your proposals?

When we started working with the cities and counties, they further assisted in implementing our programs. Some counties subsidized the interest rates, or made businesses who employed a certain number of people exempt from paying local taxes for three years. In fact, one third of our partners decided to implement that suggestion. This showed to be a good way – in stopping unemployment and in developing local potential and local businesses. Further, I believe that the counties and cities best know what they can develop in their regions, and who they can trust in that development, or rather, who they can trust in trusting their capital for new jobs, starting manufacturing, to direct their goals at exports and to guarantee a return on their investments.

We want to become the small business leader in our region. It will be hard to compete against Slovenia, but we want to be a leader ahead of BiH, Montenegro and other countries in transition. For now our efforts are succeeding since at the end of last year we were declared a nation which had achieved significant growth in the small business sector, but I would love to have leaders in certain branches. For example, in the wood industry, we have the company ‘Tvin’ from Virovitica, which exports 90% of their production. That company has to build up a cluster of small companies around it, which make the elements that they need for production, and which, together with Tvin, will create a product which we can place abroad. I believe that this is the right path: cooperation, connecting, sharing experiences, in this case, the experience of Tvin, which has a strategic partner who has already won over Europe, and who has a good product, and with that product, they can place other products from the same branch, and that according to the highest European standards.

NACIONAL: What about Croatian products? The impression is that the promotions of products as “originally Croatian” have not achieved the desired results on the foreign markets.

Creation of a Croatian product is an important element. We have such products, but I don’t think that Croatia can depend only on Sumamed and Vegeta, regardless of how good they are. Thus, we have launched a program to support innovators, and in the last two years, we have support some 60 people in developing innovative products, since we would like to see those patented, and then made into a final product which can be placed on the market. We want to follow those products which could become recognizable as Croatian. Our idea is to first launch those new products in domestic stores, those which exist throughout the country, then when they are accepted and on the shelves, then it will be easier to sell them to surrounding countries. This year, we will intensively dedicate ourselves to finding and promoting domestic, Croatian products, to stimulating their development and to placing them on the market and promoting them abroad.

Croatian Schools

NACIONAL: How important is the education system in enabling experts of various profiles who can participate in creating good and recognizable, in this case, original Croatian products?

In the last while, I have often heard that we are not ready for Europe, especially in terms of small business. But the figures show us differently. To enter onto the foreign market, we need cheap capital, or rather, the possibility for the small business which signed a deal with foreign partners to be able to buy primary materials, start production and compete in terms of price and quality. Thus, we have created a line of credit which subsidized the interest rates, and that line of credit is at 6% annually. We were surprised bay the number we got. The Ministry is following small business which last year exported 202 million DEM worth of goods. When we compare that to shipbuilding, whose exports were only a little more than 700 million DEM, this 202 million by small businesses – and these are only the ones we follow with loans – is a great result. But we can still do better. By stimulating the implementation of ISO standards, which is also required for entry onto the European market, together with the Croatian Crafts Board, we are training people and giving them assistance in various forms, paying for their consulting services, and financing the licenses. The idea that “a little cannot be exported” is incorrect, as is the idea that we cannot successfully expert.

Today, our experience shows that Croatian schools and universities are good enough, and little needs to be improved. The majority of those who finish university here are well educated enough, they speak foreign languages, use computers and have knowledge they can apply. I would like to improve the small business sector, to find sectors with a deficit, to give stipends and, if needed, to open up student homes for students who are prepared to learn such trades, such as welding or masonry.

NACIONAL: How ready are small businesses to implement new technology and knowledge into the workplace? How many are using the programs offered by the ministry in developing new technologies?

We are fully aware that we are quite behind in terms of technology, and in comparison to other transition countries who upgrades their equipment and capacities a few years ago. If we are trying to create new products, then we undoubtedly need the newest technology. That refers particularly to innovative products, which I spoke earlier. In such, our goal is to launch a catalogue for potential foreign investors where we have our eye on technological potential, and currently we have over 250 projects which are competing for cooperation or foreign investment. This is something we’ve been working on intensively lately; I believe it is important for small businesses.

We have also started a business registry as a unified computer database with all the company’s information, what the development capacities are, what their goals for the future are, what equipment they have, whether they need cooperation or a strategic partner and whether they plan to export their goods. But I stress: the question of what and how to manufacture is always on the business, it is our job to support them, to secure them easy and cheap access to capital, support through ISO standards and support in innovations.

Cooperatives

NACIONAL: How was your program to stimulate cooperatives accepted, particularly since the very title has connotations of the former regime of a forced egalitarianism in the society, and not a form of cooperation to mutual benefit?

True, in our minds, cooperatives are still are mark of the past, a form where someone was forced, his land and property taken away from him, but of course, cooperatives no longer have anything to do with these policies. A cooperative is the gathering of several individuals who have the same goals, in agriculture, for example, working together to get land, procure materials, organizing manufacturing and appearing together on the market. But that means that the goals is not just to have land and a tractor, but through the cooperative to create a mini-milk farm and all that this branch of manufacturing brings with it.

There are such examples in Europe, for example, in Holland where cooperative farmers hold the entire sugar market, or in northern Italy, where tobacco growing and production are done in cooperatives. We should follow such examples. We are planning to create some form of an association in each county, since this is a simple form of doing business. A craftsman will have a hard time getting by on his own, but together they are much stronger. On the other hand, there are consumer associations, which should be talking about Croatian products and chain stores, do we have them, why don’t we, how good are foreign products, which with time will become very important if we want to live well.

Željko Pecek: Born April 25, 1945 in Pitomača

Education
Graduated from the Economic College in Varaždin

Professional and Political Experience

1977-1981 leader of the Agency for investments, Planning and Analysis at the Trade company ‘Sloga’ in Đurđevac.

1981-1994 manager of the development sector and assistant director at the company ‘Duhanprodukt’ at Pitomača

1994 Commercial director of the construction company ‘Podravina Programat’ from Đurđevac

One of the founders of the Association of Craftsmen for the Pitomača County and secretary of that association

From 1994 member of the HSS Executive Board, since 1996 member of HSS presidency

From 1996 president of the County organization of HSS

1997 Memebr of parliament in the House of Counties

1998 president of the HSS MP club in the House of Counties

Since 1998 Member of the general presidency of HSS

2000 elected as MP, but took over the ministerial functions